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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 December 31, 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 (Suspended)

 

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 February 9, 2024, the issuer had 1,055,636 shares of common stock issued and outstanding.

 

 

 

 
 

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
Item 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of December 31, 2023 (Unaudited) and September 30, 2023 3
     
  Condensed Consolidated Statements of Operations for the three months ended December 31, 2023 and 2022 (Unaudited) 4
     
  Condensed Consolidated Statements of Comprehensive Loss for the three months ended December 31, 2023 and 2022 (Unaudited) 4
     
  Condensed Consolidated Statement of Stockholders’ Equity for the three months ended December 31, 2023 (Unaudited) 5
     
  Condensed Consolidated Statement of Stockholders’ Equity for the three months ended December 31, 2022 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flow for the three months ended December 31, 2023 and 2022 (Unaudited) 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 4. Controls and Procedures 28
     
PART II. OTHER INFORMATION 29
     
Item 1. Legal Proceedings 29
     
Item 1A Risk Factors 29
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
     
Item 3. Defaults Upon Senior Securities 29
     
Item 4. Mine Safety Disclosures 29
     
Item 5. Other Information 29
     
Item 6. Exhibits 30
     
SIGNATURES 31

 

2
 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   (Unaudited)     
   December 31,   September 30, 
   2023   2023 
Assets        
Current assets          
Cash and cash equivalents  $2,835,216   $5,329,910 
Restricted cash   1,181,516    1,019,652 
Short-term investments   13,307    13,663 
Trade receivables, net   9,904,555    9,209,695 
Trade receivables, net - related party   1,496,692    1,143,342 
Inventory, net   7,938,617    8,739,219 
Contract assets, net   1,694,135    1,739,201 
Prepaid expenses and other current assets   1,347,298    2,098,359 
Total current assets   26,411,336    29,293,041 
           
Property and equipment, net   9,170,376    9,218,701 
Right-of-use operating lease assets   2,094,342    2,287,623 
Royalties receivable, net- related party   488,174    674,893 
Note receivable, net - related party   761,585    761,585 
Goodwill   4,381,891    4,381,891 
Other   1,990,601    1,836,009 
Total Assets  $45,298,305   $48,453,743 
           
Liabilities & Stockholders’ Equity          
Current liabilities          
Accounts payable  $4,124,014   $6,196,406 
Accounts payable - related party   68,730    68,509 
Sales tax payable   10,713    35,829 
Revolving line of credit   3,357,324    - 
Current maturities of long-term liabilities   15,717,081    14,507,711 
Operating lease liabilities - short-term   728,875    741,487 
Deposits from customers   83,613    57,434 
Accrued expenses   1,842,692    2,784,390 
Contract liabilities   988,725    980,319 
Deferred revenue   1,562,107    1,583,406 
Accrued income taxes   212,249    388,627 
Total current liabilities   28,696,123    27,344,118 
Long-term liabilities          
Loans payable to bank   1,852,620    1,909,739 
Long-term operating lease liabilities   1,426,684    1,607,202 
Notes payable   1,600,000    4,679,743 
Mortgage payable   3,267,355    3,289,303 
Other long-term liabilities   405,624    501,354 
Paycheck Protection Program Loans   40,443    50,563 
Deferred Revenue - long-term   694,245    727,928 
Total long-term liabilities   9,286,971    12,765,832 
Total liabilities   37,983,094    40,109,950 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity          
Preferred stock , $0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,408,053 shares issued and 2,343,953 shares outstanding as of December 31, 2023 and 2,293,016 shares issued and 2,228,916 shares outstanding as of September 30, 2023 (liquidation value of $10 per share)   2,408    2,293 
Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at December 31, 2023 and September 30, 2023   50    50 
Common stock, $0.001 par value, 50,000,000 shares authorized, 1,055,636 shares issued and outstanding at December 31, 2023 and 1,045,783 shares issued and outstanding at September 30, 2023   1,056    1,046 
Additional paid-in capital   68,929,137    68,881,705 
Accumulated deficit   (65,333,389)   (64,125,895)
Treasury stock, 64,100 shares of Series 1 Preferred Stock at December 31, 2023 and September 30, 2023   (148,291)   (148,291)
Accumulated other comprehensive income   3,304,470    3,076,706 
Total Cemtrex stockholders’ equity   6,755,441    7,687,614 
Non-controlling interest   559,770    656,179 
Total liabilities and stockholders’ equity  $45,298,305   $48,453,743 

 

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)

 

   December 31, 2023   December 31, 2022 
   For the three months ended 
   December 31, 2023   December 31, 2022 
         
Revenues  $16,878,166   $11,970,242 
Cost of revenues   9,795,767    6,927,627 
Gross profit   7,082,399    5,042,615 
Operating expenses          
General and administrative   6,971,966    5,455,833 
Research and development   848,805    1,538,218 
Total operating expenses   7,820,771    6,994,051 
Operating loss   (738,372)   (1,951,436)
Other (expense)/income          
Other income/(expense), net   78,411    (17,083)
Interest expense   (583,683)   (1,128,234)
Total other (expense)/income, net   (505,272)   (1,145,317)
Net loss before income taxes   (1,243,644)   (3,096,753)
Income tax expense   (70,751)   - 
Loss from Continuing operations   (1,314,395)   (3,096,753)
Income/(loss) from discontinued operations, net of tax   10,492    (3,239,621)
Net loss   (1,303,903)   (6,336,374)
Less loss in noncontrolling interest   (96,409)   (59,163)
Net loss attributable to Cemtrex, Inc. stockholders  $(1,207,494)  $(6,277,211)
Income/(loss) per share - Basic & Diluted          
Continuing Operations  $(1.16)  $(3.99)
Discontinued Operations  $0.01   $(4.25)
Weighted Average Number of Shares-Basic & Diluted   1,047,624    761,571 

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

   December 31, 2023   December 31, 2022 
   For the three months ended 
   December 31, 2023   December 31, 2022 
Other comprehensive loss          
Net loss  $(1,303,903)  $(6,336,374)
Foreign currency translation gain   227,764    223,569 
Comprehensive loss   (1,076,139)   (6,112,805)
Less comprehensive income attributable to noncontrolling interest   (96,409)   (59,163)
Comprehensive loss attributable to Cemtrex, Inc. stockholders  $(979,730)  $(6,053,642)

 

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

 

4
 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Paid-in

Capital

  

Accumulated

Deficit

  

Preferred

Stock

  

Comprehensive

Income

  

Stockholders’

Equity

  

controlling

interest

 
  

Preferred Stock

Series 1

Par Value $0.001

  

Preferred Stock

Series C

Par Value $0.001

  

Common Stock

Par Value $0.001

   Additional      

Treasury Stock,

64,100

shares of Series 1

  

Accumulated

other

   Cemtrex   Non- 
  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Paid-in

Capital

  

Accumulated

Deficit

  

Preferred

Stock

  

Comprehensive

Income

  

Stockholders’

Equity

  

controlling

interest

 
Balance at September 30, 2023   2,293,016   $2,293       50,000   $50    1,045,783   $1,046   $68,881,705   $(64,125,895)  $(148,291)  $3,076,706   $   7,687,614   $656,179 
Foreign currency translation gain                                                227,764    227,764      
Share-based compensation                                 7,557                   7,557      
Dividends paid in Series 1 preferred shares   115,037    115                                   (115)                  -      
Income/(loss) attributable to noncontrolling interest                                                     -    (96,409)
Shares issued to pay for services                       9,853    10    39,990                   40,000      
Net loss                  -                    (1,207,494)   -          (1,207,494)     
Balance at December 31, 2023   2,408,053   $2,408    50,000   $50    1,055,636   $1,056   $68,929,137   $(65,333,389)  $(148,291)  $3,304,470   $6,755,441   $559,770 

 

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 (Continued)

(Unaudited)

 

  

Preferred Stock

Series 1

Par Value $0.001

  

Preferred Stock

Series C

Par Value $0.001

  

Common Stock

Par Value $0.001

   Additional      

Treasury Stock,

64,100

shares of Series 1

   Accumulated
other
   Cemtrex   Non- 
  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Paid-in

Capital

  

Accumulated

Deficit

  

Preferred

Stock

  

Comprehensive

Income

   Stockholders’
Equity
  

controlling

interest

 
Balance at September 30, 2022   2,079,122   $2,079       50,000   $    50     754,711   $755   $66,641,696   $(54,929,020)  $(148,291)  $2,377,525   $ 13,944,794   $692,742 
Foreign currency translation gain                                                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   $66,913,540   $(61,206,231)  $(148,291)  $2,601,094   $8,163,139   $633,579 

 

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

 

6
 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2023   2022 
   For the three months ended 
   December 31, 
   2023   2022 
Cash Flows from Operating Activities        
         
Net loss  $(1,303,903)  $(6,336,374)
           
Adjustments to reconcile net loss to net cash used by operating activities          
Depreciation and amortization   368,301    530,830 
Gain on disposal of property and equipment   -    (3,547)
Noncash lease expense   193,281    197,198 
Bad debt expense   11,964    4,510 
Share-based compensation   7,557    39,842 
Income tax expense   70,751    - 
Interest expense paid in equity shares   -    32,145 
Accounts payable paid in equity shares   40,000    - 
Accrued interest on notes payable   327,132    528,100 
Non-cash royalty income   (13,282)   - 
Amortization of original issue discounts on notes payable   -    441,734 
Amortization of loan origination costs   18,133    - 
           
Changes in operating assets and liabilities net of effects from acquisition of subsidiaries:          
Trade receivables   (696,824)   (1,541,371)
Trade receivables - related party   (163,349)   (383,710)
Inventory   800,602    (116,942)
Contract assets   45,066    (260,647)
Prepaid expenses and other current assets   636,906    (410,327)
Other assets   (54,592)   (146,356)
Accounts payable   (2,072,392)   (327,945)
Accounts payable - related party   221    (99)
Sales tax payable   (25,116)   (2,387)
Operating lease liabilities   (193,130)   (132,963)
Deposits from customers   26,179    416,523 
Accrued expenses   (941,698)   977,328 
Contract liabilities   8,406    1,037,897 
Deferred revenue   (54,982)   (95,395)
Income taxes payable   (78,574)   (94,848)
Other liabilities   (95,730)   (225,506)
Net cash used by operating activities - continuing operations   (3,139,073)   (5,872,310)
Net cash provided by operating activities - discontinued operations   -    2,501,426 
Net cash used by operating activities   (3,139,073)   (3,370,884)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (290,666)   (571,658)
Proceeds from sale of property and equipment   -    3,547 
Proceeds from sale of marketable securities   356    - 
Investment in MasterpieceVR   (100,000)   - 
Net cash used by by investing activities - continuing operations   (390,310)   (568,111)
Net cash provided by investing activities - discontinued operations   -    207,329 
Net cash used by investing activities   (390,310)   (360,782)
           
Cash Flows from Financing Activities          
Proceeds on revolving line of credit   11,655,935    - 
Payments on revolving line of credit   (8,371,144)   - 
Payments on debt   (2,204,743)   (294,370)
Payments on Paycheck Protection Program Loans   (10,120)   - 
Proceeds on bank loans   28,331    - 
Payments on bank loans   (100,160)   (306,550)
Net cash provided by/(used by) financing activities   998,099    (600,920)
           
Effect of currency translation   198,454    229,243 
Net decrease in cash, cash equivalents, and restricted cash   (2,531,284)   (4,332,586)
Less cash attributed to discontinued operations   -    (714,420)
Cash, cash equivalents, and restricted cash at beginning of period   6,349,562    12,188,096 
Cash, cash equivalents, and restricted cash at end of period  $4,016,732   $7,370,333 

 

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 (Continued)

(Unaudited)

 

Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash        
Cash and cash equivalents  $2,835,216   $5,768,610 
Restricted cash   1,181,516    1,601,723 
Total cash, cash equivalents, and restricted cash  $4,016,732   $7,370,333 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the period for interest  $238,418   $126,255 
           
Cash paid during the period for income taxes, net of refunds  $176,378   $94,848 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Shares issued to pay for services  $40,000   $- 
Shares issued to pay notes payable  $-   $232,145 
Financing of fixed asset purchase  $28,331   $- 
Investment in right of use asset  $-   $76,506 

 

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

 

8
 

 

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.

 

The Company’s reporting segments consist of Security and Industrial Services.

 

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.

 

Acquisition of Heisey Mechanical 

 

On July 1, 2023, the Company under AIS, completed the acquisition of a leading service contractor and steel fabricator that specializes in industrial and water treatment markets, Heisey Mechanical, Ltd. (“Heisey”) based in Columbia, Pennsylvania for $2,400,000 plus adjustments for the outstanding contract assets and liabilities of $393,291. The real estate of the business was purchased at fair market value on August 30, 2023, for $1,500,000 in a separate transaction.

 

Heisey provides the water treatment industry with a variety of fabricated vessels and equipment including ASME pressure vessels, heat exchangers, mix tanks, reactors, and other specialized fabricated equipment. Additionally, the contracting team assists with installation and service of fabricated items. The company has over 33,000 square feet of manufacturing floor space in its facility and an experienced staff of fabricators, welders, and field mechanics.

 

The purchase price allocation presented below is still preliminary but has been developed based on an estimate of fair values of Heisey’s identifiable tangible and intangible assets acquired and liabilities assumed as of July 1, 2023. The final allocation of the purchase price will be determined within one year from the closing date of the Heisey acquisition.

 

9
 

 

The consideration transferred and preliminary allocation of Heisey’s tangible and intangible assets and liabilities, are as follows:

 

Consideration Transferred:     
Cash  $393,291 
Seller’s note   240,000 
Financed amount   2,160,000 
Total consideration transferred  $2,793,291 
      
Purchase Price Allocation:     
Inventory   300,000 
Contract assets   667,259 
Machinery and equipment   1,625,000 
Contract liabilities   (216,469)
Accrued expenses   (57,499)
Goodwill   475,000 
Total consideration transferred  $2,793,291 

 

The pro forma summary below presents the results of operations as if the Heisey acquisition occurred on October 1, 2022. Proforma adjustments for the three months ended December 31, 2022, includes $63,900 of depreciation expense from acquired fixed assets, $33,400 of interest expense on the debt used in the acquisition. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any cost savings, operating synergies or revenue enhancements that might have been achieved from combining the operations. The unaudited pro forma summary is provided for illustrative purposes only and does not purport to represent the Company’s actual consolidated results of operations had the acquisition been completed as of the date presented, nor should it be considered indicative of the Company’s future consolidated results of operations.

 

   Unaudited 
  

for the three

months ended

 
   December 31, 2022 
     
Revenues  $13,173,838 
Net loss   (6,440,203)

 

On August 30, 2023, the Company acquired a mortgage in the amount of $1,200,000 from Fulton Bank to finance the purchase of the properties formerly owned by Heisey Mechanical Ltd. The mortgage carries interest at the Secured Overnight Financing Rate (SOFR) plus 2.8% and matures on September 30, 2043.

 

Nasdaq Notices for Listing Deficiencies

 

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 September 8, 2023, the Company received a letter from the Nasdaq Hearings Panel (“Panel”) informing the Company that the Panel has granted the Company a temporary exception to regain compliance with The Nasdaq Stock Market LLC’s (“Nasdaq” or the “Exchange”) Listing Rule 5555(a)(1) (the “Bid Price Rule”) by no later than January 19, 2024. The Company has announced a special meeting of Series 1 Preferred stock shareholders was scheduled for December 26, 2023, to approve the reverse stock split. On December 26, 2023, the meeting was adjourned to December 29, 2023, due to insufficient votes represented by proxy or virtually in person to constitute a quorum for the transaction of business at the Special Meeting. On December 29, 2023, there were still insufficient votes represented by proxy or virtually in person to constitute a quorum thus the resolution did not pass.

 

10
 

 

Subsequent to the balance sheet date, the Company has bought back 71,951 shares for $69,705 under the Share Repurchase Program approved on August 22, 2023, that allows the Company to repurchase shares of the Series 1 Preferred Stock through various means, including through privately negotiated transactions and through an open market program. The Company’s Series 1 Preferred Stock was delisted from the NASDAQ Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP”.

 

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 $9,196,875 and $13,020,958 for fiscal years 2023 and 2022, respectively, and has losses on continuing operations for the three months ending December 31, 2023, of $1,314,395 and has current liabilities of $28,696,123 and working capital deficit of $2,284,787, that raise substantial doubt with respect to the Company’s ability to continue as a going concern.

 

While our working capital deficit 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. The Company has approximately $2.84 million in cash as of December 31, 2023. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of December 31, 2023, has available capacity of $1,642,676, (ii) sold unprofitable brands, reducing the cash required to maintain those brands, (iii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, and (iv) 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 if successful, would be sufficient to meet the capital demands of our current operations for at least the next twelve months, there 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 or available liquidity/available capacity on our lines of credit to meet our short or long-term needs. Absent an ability to raise additional outside capital and restructure or refinance all or a portion of our debt, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date.

 

11
 

 

The condensed consolidated financial statements do not include any adjustments relating to this uncertainty. 

 

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, 2023, 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.

 

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, 2023, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

 

Recently Adopted Accounting Pronouncements

 

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. On October 1, 2023, the Company implemented this standard and there has been no material change to the financial statements.

 

The Company estimates credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.

 

The Company will utilize the Probability-of-default method for financing receivables and loans. Expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default). The Company considers sources of repayment associated with a financial asset when determining its credit losses, including collection against the collateral and certain embedded credit enhancements, such as guarantees or insurance. The allowance for credit losses were immaterial as of December 31, 2023.

 

12
 

 

Recently Issued Accounting Pronouncements Not Yet Effective

 

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.

 

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting for fiscal 2025 and for interim period reporting beginning in fiscal 2026 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of ASU 2023-07 on our consolidated financial statements.

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2026 for the annual reporting period ending September 30, 2026. The Company is currently in the process of evaluating the impact of adoption on its Consolidated 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 three-month periods ended December 31, 2023, and 2022, has recognized $13,282, and $4,427, respectively, of royalties due and will amortize the remaining amount over the period the royalties are due.

 

13
 

 

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)

 

As of December 31, 2023, and September 30, 2023, there were no assets or liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets.

 

During the first quarter of fiscal 2023, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in Israel. The Company received funds related to benefit obligations of $96,095, which at the time of operational closure were not guaranteed to be retrievable. The company paid $7,010 in consulting fees for assistance in retrieving these funds. The net amount of $89,085 is recognized on the Company’s Condensed Consolidated Income Statement as part of the Loss on Discontinued Operations.

 

14
 

 

Income/(loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies, Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations, net of tax in the Company’s Condensed Consolidated Statements of Operations for the three month periods ended December 31, 2023 and 2022, are as follows:

 

   2023   2022 
  

For the three months ended

December 31,

 
   2023   2022 
         
Total net sales  $-   $649,061 
Cost of sales   -    228,086 
Operating, selling, general and administrative expenses   -    1,295,572 
Other (income)/expenses   -    3,195 
Income (loss) from discontinued operations   -    (877,792)
Amortization of discounted royalties   13,282    4,427 
Loss on sale of discontinued operations   -    (2,455,341)
Adjustment of benefit obligation   -    89,085 
Income tax provision   2,790    - 
Discontinued operations, net of tax  $10,492   $(3,239,621)

 

NOTE 4 – REVENUE

 

The following table illustrates the approximate disaggregation of the Company’s revenue based off timing of revenue recognition for the three months ended December 31, 2023 and 2022:

 

   For the three months ended 
   December 31, 2023   December 31, 2022 
Over time   52%   51%
Point-in-time   48%   49%

 

NOTE 5 – LOSS PER COMMON SHARE

 

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the three months ended December 31, 2023, and 2022, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:

 

    2023    2022 
   For the three months ended 
   December 31, 
    2023    2022 
           
Options   28,796    34,579 

 

15
 

 

For the three months ended December 31, 2023 and 2022, loss per share basic and diluted for continuing operations are calculated as follows:

 

   2023   2022 
   For the three months 
   December 31, 
   2023   2022 
Loss from Continuing operations  $(1,314,395)  $(3,096,753)
Less loss in noncontrolling interest   (96,409)   (59,163)
Preferred stock dividends   -    - 
Net loss applicable to common shareholders   (1,217,986)   (3,037,590)
Weighted Average Number of Shares-Basic & Diluted   1,047,624    761,571 
Loss per share - Basic & Diluted - Continuing Operations  $(1.16)  $(3.99)

 

NOTE 6 – SEGMENT INFORMATION

 

The Company reports and evaluates financial information for two reportable segments: the Security segment and the Industrial Services segment.

 

The following tables summarize the Company’s reportable segment information and corporate expenses:

 

   Security   Industrial Services   Corporate   Consolidated   Security   Industrial Services   Corporate   Consolidated 
  

Three months ended

December 31, 2023

  

Three months ended

December 31, 2022

 
   Reportable Segments           Reportable Segments         
   Security   Industrial Services   Corporate   Consolidated   Security   Industrial Services   Corporate   Consolidated 
Revenues  $9,167,801   $7,710,365   $-   $16,878,166   $7,004,744   $4,965,498   $-   $11,970,242 
Cost of revenues   4,650,854    5,144,913    -    9,795,767    3,601,054    3,326,573    -    6,927,627 
Gross profit  $4,516,947   $2,565,452   $-   $7,082,399   $3,403,690   $1,638,925   $-   $5,042,615 
Operating expenses                                        
General, and administrative   4,327,628    1,529,263    746,774    6,603,665    2,749,429    1,188,865    986,709    4,925,003 
Depreciation and amortization   128,152    240,149    -    368,301    331,155    167,521    32,154    530,830 
Research and development   848,805    -    -    848,805    1,538,218    -    -    1,538,218 
Operating (loss)/income  $(787,638)  $796,040   $(746,774)  $(738,372)  $(1,215,112)  $282,539   $(1,018,863)  $(1,951,436)