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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the transition period from ___________to ____________

 

Commission File Number 001-37464

 

 

CEMTREX, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   30-0399914

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

135 Fell Ct. Hauppauge, NY   11788
(Address of principal executive offices)   (Zip Code)

 

631-756-9116

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol   Name of each exchange on which registered
Common Stock   CETX   Nasdaq Capital Market
Series 1 Preferred Stock   CETXP   Nasdaq Capital Market

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐ Accelerated filer ☐
  Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of August 8, 2023, the issuer had 998,334 shares of common stock issued and outstanding.

 

Table of Contents

 

 

 

 

 

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and September 30, 2022 3
     
  Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2023 and 2022 (Unaudited) 4
     
  Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended June 30, 2023 and 2022 (Unaudited) 5
     
  Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended June 30, 2023 (Unaudited) 6
     
  Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended June 30, 2022 (Unaudited) 7
     
  Condensed Consolidated Statements of Cash Flow for the nine months ended June 30, 2023 and 2022 (Unaudited) 8
     
  Notes to Unaudited Condensed Consolidated Financial Statements 10
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
   
Item 4. Controls and Procedures 31
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 32
   
Item 1A Risk Factors 32
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 3. Defaults Upon Senior Securities 32
     
Item 4. Mine Safety Disclosures 32
     
Item 5. Other Information 32
     
Item 6. Exhibits 33
     
SIGNATURES 34

 

2

 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   (Unaudited)     
   June 30,   September 30, 
   2023   2022 
Assets        
Current assets          
Cash and equivalents  $5,628,839   $9,895,761 
Restricted cash   805,273    1,577,915 
Short-term investments   13,663    13,721 
Trade receivables, net   7,507,755    5,399,216 
Trade receivables - related party   578,388    - 
Inventory –net of allowance for inventory obsolescence   8,719,740    8,487,817 
Prepaid expenses and other assets   3,089,416    2,421,644 
Assets of discontinued operations   -    3,971,693 
Total current assets   26,343,074    31,767,767 
           
Property and equipment, net   6,180,771    5,280,442 
Right-of-use assets   2,213,341    2,641,198 
Royalties receivable - related party   691,611    - 
Note receivable - related party   761,585    761,585 
Goodwill   3,906,891    3,906,891 
Other   1,646,403    1,399,745 
Total Assets  $41,743,676   $45,757,628 
           
Liabilities & Stockholders’ Equity          
Current liabilities          
Accounts payable  $3,725,105   $3,050,937 
Accounts payable - related party   3,372    19,133 
Short-term liabilities, net of unamortized original issue discounts   17,185,167    16,894,743 
Lease liabilities - short-term   716,896    754,495 
Deposits from customers   34,281    73,144 
Accrued expenses   3,536,097    2,271,188 
Deferred revenue   2,060,570    1,551,088 
Accrued income taxes   49,075    94,848 
Liabilities of discontinued operations   -    805,219 
Total current liabilities   27,310,563    25,514,795 
Long-term liabilities          
Loans payable to bank   54,578    110,331 
Long-term lease liabilities   1,496,445    1,822,468 
Notes payable   1,379,743    - 
Mortgage payable   2,110,020    2,160,169 
Other long-term liabilities   528,952    807,898 
Paycheck Protection Program Loans   60,695    97,120 
Deferred Revenue - long-term   623,007    607,309 
Total long-term liabilities   6,253,440    5,605,295 
Total liabilities   33,564,003    31,120,090 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity          
          
Preferred stock, $0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,293,016 shares issued and 2,228,916 shares outstanding as of June 30, 2023 and 2,079,122 shares issued and 2,015,022 shares outstanding as of September 30, 2022 (liquidation value of $10 per share)   2,293    2,079 
          
Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at June 30, 2023 and September 30, 2022   50    50 
          
Common stock, $0.001 par value, 50,000,000 shares authorized, 957,760 shares issued and outstanding at June 30, 2023 and 754,711 shares issued and outstanding at September 30, 2022   958    755 
Additional paid-in capital   68,302,617    66,641,698 
Accumulated deficit   (62,947,549)   (54,929,020)
Treasury stock, 64,100 shares of Series 1 Preferred Stock at June 30, 2023 and September 30, 2022   (148,291)   (148,291)
Accumulated other comprehensive income   2,306,346    2,377,525 
Total Cemtrex stockholders’ equity   7,516,424    13,944,796 
Non-controlling interest   663,249    692,742 
Total liabilities and shareholders’ equity  $41,743,676   $45,757,628 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

   June 30, 2023   June 30, 2022   June 30, 2023   June 30, 2022 
   For the three months ended   For the nine months ended 
   June 30, 2023   June 30, 2022   June 30, 2023   June 30, 2022 
                 
Revenues  $14,730,140   $12,108,904   $42,773,779   $33,268,316 
Cost of revenues   8,249,497    7,068,797    23,914,249    21,236,178 
Gross profit   6,480,643    5,040,107    18,859,530    12,032,138 
Operating expenses                    
General and administrative   5,376,960    5,381,529    16,456,602    16,095,373 
Research and development   1,049,909    1,189,875    3,895,717    3,660,883 
Total operating expenses   6,426,869    6,571,404    20,352,319    19,756,256 
Operating income/(loss)   53,774    (1,531,297)   (1,492,789)   (7,724,118)
Other income/(expense)                    
Other income   34,652    2,315,500    394,073    3,336,560 
Interest expense   (1,254,185)   (925,545)   (3,717,557)   (3,641,432)
Total other (expense)/income, net   (1,219,533)   1,389,955    (3,323,484)   (304,872)
Net loss before income taxes   (1,165,759)   (141,342)   (4,816,273)   (8,028,990)
Income tax benefit/(expense)   (19,641)   247,941    (19,641)   247,941 
(Loss)/income from Continuing operations   (1,185,400)   106,599    (4,835,914)   (7,781,049)
Income/(loss) from discontinued operations, net of tax   13,281    (838,301)   (3,212,108)   (2,282,399)
Net loss   (1,172,119)   (731,702)   (8,048,022)   (10,063,448)
Less loss in noncontrolling interest   (25,595)   (50,909)   (29,493)   (183,457)
Net loss attributable to Cemtrex, Inc. shareholders  $(1,146,524)  $(680,793)  $(8,018,529)  $(9,879,991)
Income (loss) per share - Basic & Diluted                    
Continuing Operations  $(1.29)  $0.21   $(5.83)  $(10.94)
Discontinued Operations  $0.01   $(1.14)  $(3.89)  $(3.29)
Weighted Average Number of Shares-Basic & Diluted   897,897    736,506    824,689    694,758 

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

   June 30, 2023   June 30, 2022   June 30, 2023   June 30, 2022 
   For the three months ended   For the nine months ended 
   June 30, 2023   June 30, 2022   June 30, 2023   June 30, 2022 
Other comprehensive loss                    
Net loss  $(1,172,119)  $(731,702)  $(8,048,022)  $(10,063,448)
Foreign currency translation gain/(loss)   22,470    (200,880)   (71,179)   (341,011)
Comprehensive loss   (1,149,649)   (932,582)   (8,119,201)   (10,404,459)
Less comprehensive income attributable to noncontrolling interest   25,595    50,909    29,493    183,457 
Comprehensive loss attributable to Cemtrex, Inc. shareholders  $(1,175,244)  $(983,491)  $(8,148,694)  $(10,587,916)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Stock   Income(loss)   Equity   interest 
   Preferred Stock Series 1   Preferred Stock Series C   Common Stock Par           Treasury Stock, 64,100             
   Par Value $0.001   Par Value $0.001   Value $0.001          shares of          
   Number of       Number of       Number of       AdditionalPaid-in   Accumulated   Series 1 Preferred   Accumulated otherComprehensive   Cemtrex Stockholders’   Non-controlling 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Stock   Income(loss)   Equity   interest 
Balance at September 30, 2022   2,079,122   $2,079    50,000   $50    754,711   $755   $66,641,698   $(54,929,020)  $(148,291)  $2,377,525   $13,944,796   $692,742 
Foreign currency translation gain/(loss)                                                223,569    223,569      
Share-based compensation                                 39,842                   39,842      
Shares issued to pay notes payable                       39,016    39    232,106                   232,145      
Dividends paid in Series 1 preferred shares   104,341    104                        (104)                  -      
Income/(loss) attributable to noncontrolling interest                                                     -    (59,163)
Net loss             -     -                    (6,277,211)   -          (6,277,211)     
Balance at December 31, 2022   2,183,463   $2,183    50,000   $50    793,727   $794   $66,913,542   $(61,206,231)  $(148,291)  $2,601,094   $8,163,141   $633,579 
Foreign currency translation gain/(loss)                                                (317,218)   (317,218)     
Share-based compensation                                 26,735                   26,735      
Additional rounding shares issued for reverse stock split                       19,314    19    (19)                  -      
Income/(loss) attributable to noncontrolling interest                                                     -    55,265 
Shares issued to pay for services                       15,529    15    102,485                   102,500      
Net loss   -     -     -     -                    (594,794)   -          (594,794)     
Balance at March 31, 2023   2,183,463   $2,183    50,000   $50    828,570   $828   $67,042,743   $(61,801,025)  $(148,291)  $2,283,876   $7,380,364   $688,844 
Foreign currency translation gain/(loss)                                                22,470    22,470      
Share-based compensation                                 26,736                   26,736      
Dividends paid in Series 1 preferred shares   109,553    110                        (110)                  -      
Shares issued to pay notes payable                       122,702    123    1,193,883                   1,194,006      
Income/(loss) attributable to noncontrolling interest                                                     -    (25,595)
Shares issued to pay for services                       6,488    7    39,365                   39,372      
Net loss             -     -     -               (1,146,524)   -     -     (1,146,524)   -  
Balance at June 30, 2023   2,293,016   $2,293    50,000   $50    957,760   $958   $68,302,617   $(62,947,549)  $(148,291)  $2,306,346   $7,516,424   $663,249 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Continued)

(Unaudited)

 

   Preferred Stock Series 1   Preferred Stock Series C   Common Stock Par           Treasury Stock,64,100              
   Par Value $0.001   Par Value $0.001   Value $0.001          shares of             
   Number of       Number of       Number of      

Additional

Paid-in

   Accumulated   Series 1 Preferred  

Accumulated

other Comprehensive

   Cemtrex   Non- controlling 
   Shares   Amount   Shares   Amount   Shares   Amount  

Capital

   Deficit   Stock   Income(loss)  

 Stockholders’Equity

  

interest

 
Balance at September 30, 2021   1,885,151   $1,885    50,000   $50    593,777   $594   $61,748,022   $(41,908,062)  $(148,291)  $2,896,452   $22,590,650   $964,026 
Foreign currency translation gain/(loss)                                                59,492    59,492      
Share-based compensation                                 45,371                   45,371      
Shares issued to pay notes payable                       82,600    83    3,287,988                   3,288,071      
Dividends paid in Series 1 preferred shares   94,602    95                        (95)                  -      
Income/(loss) attributable to noncontrolling interest                                                     -    (51,872)
Net loss             -     -                    (4,477,951)   -          (4,477,951)     
Balance at December 31, 2021   1,979,753   $1,980    50,000   $50    676,377   $677   $65,081,286   $(46,386,013)  $(148,291)  $2,955,944   $21,505,633   $912,154 
Foreign currency translation gain/(loss)                                                (199,623)   (199,623)     
Share-based compensation                                 27,046                   27,046      
Shares issued with note payable                       28,571    29    695,371                   695,400      
Income/(loss) attributable to noncontrolling interest                                                     -    (80,676)
Net loss   -     -     -     -                    (4,721,247)   -          (4,721,247)     
Balance at March 31, 2022   1,979,753   $1,980    50,000   $50    704,948   $706   $65,803,703   $(51,107,260)  $(148,291)  $2,756,321   $17,307,209   $831,478 
Foreign currency translation gain/(loss)                                                (200,880)   (200,880)     
Share-based compensation                                 38,985                   38,985      
Shares issued to pay notes payable                       45,432    45    705,008                   705,053      
Dividends paid in Series 1 preferred shares   99,369    99                        (99)                  -      
Income/(loss) attributable to noncontrolling interest                                                     -    (50,909)
Net loss             -     -                    (680,793)   -          (680,793)     
Balance at June 30, 2022   2,079,122   $2,079    50,000   $50    750,380   $751   $66,547,597   $(51,788,053)  $(148,291)  $2,555,441   $17,169,574   $780,569 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

           
   For the nine months ended 
   June 30, 
Cash Flows from Operating Activities  2023   2022 
         
Net loss  $(8,048,022)  $(10,063,448)
           
Adjustments to reconcile net loss to net cash used by operating activities          
Depreciation and amortization   698,269    1,038,138 
Loss on disposal of property  and equipment   69,611    161,814 
Noncash lease expense   614,254    524,500 
Bad debt expense (recovery)   (155)   (7,584)
Share-based compensation   93,313    111,402 
Income tax expense/ (benefit)   -    (247,941)
Interest expense paid in equity shares   276,151    1,627,046 
Accrued interest on notes payable   1,858,631    635,001 
Amortization of original issue discounts on notes payable   1,200,200    908,333 
Gain/(loss) on marketable securities   58    (2,234,478)
Discharge of Paycheck Protection Program Loans   -    (971,500)
           
Changes in operating assets and liabilities net of effects from acquisition of subsidiaries:          
Trade receivables   (2,108,384)   445,590 
Trade receivables - related party   (578,388)   14,641 
Inventory   (231,923)   (2,565,778)
Prepaid expenses and other current assets   (667,772)   125,344 
Other assets   (246,658)   (159,526)
Accounts payable   816,040    1,012,206 
Accounts payable - related party   (15,761)   - 
Operating lease liabilities   (550,019)   (456,042)
Deposits from customers   (38,863)   (374,978)
Accrued expenses   1,264,909    (444,238)
Deferred revenue   525,180    470,685 
Income taxes payable   (45,773)   (59,588)
Other liabilities   (278,946)   (159,526)
Net cash used by operating activities - continuing operations   (5,394,048)   (10,669,927)
Net cash provided by operating activities - discontinued operations   2,474,863    41,562 
Net cash used by operating activities   (2,919,185)   (10,628,365)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (761,470)   (727,955)
Proceeds from sale of property and equipment   26,205    51,262 
Investment in MasterpieceVR   -    (500,000)
Proceeds from sale of marketable securities   -    12,182,932 
Purchase of marketable securities   -    (10,214,044)
Net cash (used in)/provided by investing activities - continuing operations   (735,265)   792,195 
Net cash used by investing activities - discontinued operations   -    (39,388)
Net cash (used in)/provided by investing activities   (735,265)   752,807 
           
Cash Flows from Financing Activities          
Proceeds from notes payable   -    8,000,000 
Payments on debt   (844,370)   (1,176,763)
Payments on Paycheck Protection Program Loans   (20,154)   - 
Payments on bank loans   (416,467)   (920,939)
Net cash provided by financing activities - continuing operations   (1,280,991)   5,902,298 
Net cash used by financing activities - discontinued operations   -    - 
Net cash (used)/provided by financing activities   (1,280,991)   5,902,298 
           
Effect of currency translation   (104,123)   (397,840)
Net decrease in cash, cash equivalents, and restricted cash   (4,935,441)   (3,973,260)
Cash, cash equivalents, and restricted cash at beginning of period   11,473,676    17,186,323 
Cash, cash equivalents, and restricted cash at end of period  $6,434,112   $12,815,223 
           
Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash          
Cash and equivalents  $5,628,839   $11,442,487 
Less cash attributed to discontinued operations   -    (145,984)
Restricted cash   805,273    1,518,720 
Total cash, cash equivalents, and restricted cash  $6,434,112   $12,815,223 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

8

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

 

Supplemental Disclosure of Cash Flow Information:        
Cash paid during the period for interest  $382,575   $483,665 
           
Cash paid during the period for income taxes, net of refunds  $45,773   $306,729 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Shares issued to pay for services  $141,872   $- 
Shares issued to pay notes payable  $1,426,151   $3,993,124 
Purchase of property and equipment through vendor financing  $1,125,000   $- 
Shares issued in connection with note payable  $-   $700,400 
Investment in right of use asset  $186,397   $317,187 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

9

 

 

Cemtrex, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS

 

Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.

 

During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.

 

Security

 

Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which provides end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.

 

Industrial Services

 

Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.

 

Cemtrex Corporate

 

Cemtrex’s Corporate segment is the holding company of our other two segments.

 

Sale of former Cemtrex Brands

 

On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil.

On November 22, 2022, the Company completed the above disposition for the following consideration.

 

Cemtrex XR, Inc.

 

$895,000 comprised of:

 

$75,000 in cash payable at Closing; and
5% royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next three years; and should the total sum of royalties due be less than $820,000 at the end of the three-year period, Purchaser shall be obligated to pay the difference between $820,000 and the royalties paid.

 

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Cemtrex Advanced Technologies, Inc.

 

$10,000 in cash payable at Closing; and
5% royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next 5 years; and
$1,600,000 in SAFE (common equity) at any subsequent fundraising or exit above $5M with a $10M cap.

 

The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements.

 

Common Stock Reverse Stock Split

 

On January 25, 2023, the company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split.

 

Notice of Delisting, Extension of cure period, and Subsequent Compliance

 

Series 1 Preferred Stock

 

On July 29, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s Series 1 preferred stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).

 

On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

 

On July 25, 2023, the Company received a Notice of Staff Determination from the Listing Qualifications Department of Nasdaq notifying the Company that its Series 1 Preferred Stock had not gained compliance and would be suspended from trading at the opening of business on August 3, 2023. The Company has requested a hearing regarding the delisting that has been scheduled for September 14, 2023, which will stay the suspension and filing of Form 25-NSE with the Securities and Exchange Commission.

 

The Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and the hearing date and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.

 

Common Stock

 

On January 24, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).

 

On July 26, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC Nasdaq notifying the Company that, it had been granted an additional 180 days or until January 23, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

 

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On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has not regained compliance with Listing Rule 5550(a)(2) and accordingly would be delisted from the Capital Market. The Company then requested and had been granted a hearing to occur on March 16, 2023, appealing this determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

 

On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market.

 

Going Concern Considerations

 

The accompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the ASC 205, management must evaluate whether there are conditions or events, considered in the aggregate, which raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.

 

This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

The Company has incurred substantial losses of $13,020,958 and $7,807,995 for fiscal years 2022 and 2021, respectively, and has losses on continuing operations for the nine months ending June 30, 2023 of $4,835,914 and has debt obligations over the next year of $17,185,167 and working capital deficit of $967,489, that raise substantial doubt with respect to the Company’s ability to continue as a going concern.

 

While our working capital and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through the issuance of common stock, thus reducing our cash requirement to meet our operating needs. Additionally, the Company has sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products, and has effected a 35:1 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability to potentially raise capital through equity offerings that we may use to satisfy debt. In the event additional capital is raised through equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on our existing stockholders. While the Company believes these plans are sufficient to meet the capital demands of our current operations for at least the next twelve months, the is no guarantee that we will succeed. Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our working capital needs. The Company currently does not have adequate cash to meet our short or long-term needs. The condensed consolidated financial statements do not include any adjustments relating to this uncertainty.

 

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NOTE 2 – INTERIM STATEMENT PRESENTATION

 

Basis of Presentation and Use of Estimates

 

The accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2022, of Cemtrex, Inc.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Technologies Pvt. Ltd., Advanced Industrial Services, Inc., Advanced Industrial Leasing, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation.

 

Accounting Pronouncements

 

Significant Accounting Policies

 

Note 2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30, 2022, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Update 2016-13”). Update 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2022, including interim periods within that reporting period. The Company is currently evaluating the impact of this ASU on our financial statements.

 

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements.

 

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On June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements.

 

The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

 

NOTE 3 – DISCONTINUED OPERATIONS

 

On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil

 

Due to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated with the SmartDesk sale at $0 and considers such consideration to be a gain contingency.

 

Based on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $820,000 royalties due and has not accounted for any additional royalties at this time. In accordance with ASC 310 – Receivables, the Company has discounted the royalties due and during the nine-month ended June 30, 2023, has recognized $691,611 of royalties due and will amortize the remaining amount over the period the royalties are due.

 

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The following table summarizes the loss on the sale recorded during the three months ended December 31, 2022, included in Income/(loss) from discontinued operations, net of tax in the accompanying condensed consolidated statement of Operations:

  

     
Purchase Price  $745,621 
Less cash and cash equivalents transferred   (699,423)
Less liabilities assumed   (10,924)
Net purchase price  $35,274 
      
Assets Sold     
Accounts receivable, net  $625,638 
Inventory, net   980,730 
Prepaid expenses and other assets   502,577 
Property and equipment, net   837,808 
Goodwill   598,392 
Total Assets Sold   3,545,145 
Liabilities Transferred     
Accounts payable   370,774 
Short-term liabilities   364,775 
Long-term liabilities   318,981 
Total Liabilities Transferred   1,054,530 
Net assets sold  $2,490,615 
      
Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies  $(2,455,341)

 

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Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at June 30, 2023, and September 30, 2022, are as follows;

 

   June 30,   September 30, 
   2023   2022 
Assets          
Current assets          
Cash and equivalents  $-   $714,420 
Trade receivables, net   -    561,470 
Inventory –net of allowance for inventory obsolescence   -    1,043,865 
Prepaid expenses and other assets   -    153,461 
Total current assets   -    2,473,216 
           
Property and equipment, net   -    825,850 
Other   -    672,627 
Total Assets  $-   $3,971,693