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 March 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 |
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 May 8, 2023, the issuer had shares of common stock issued and outstanding.
Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | 6,634,037 | $ | 9,895,761 | ||||
| Restricted cash | 645,297 | 1,577,915 | ||||||
| Short-term investments | 13,663 | 13,721 | ||||||
| Trade receivables, net | 7,271,488 | 5,399,216 | ||||||
| Trade receivables - related party | 408,464 | |||||||
| Inventory –net of allowance for inventory obsolescence | 8,561,026 | 8,487,817 | ||||||
| Prepaid expenses and other assets | 2,588,400 | 2,421,644 | ||||||
| Assets of discontinued operations | 3,971,693 | |||||||
| Total current assets | 26,122,375 | 31,767,767 | ||||||
| Property and equipment, net | 5,052,796 | 5,280,442 | ||||||
| Right-of-use assets | 2,297,293 | 2,641,198 | ||||||
| Royalties receivable - related party | 678,330 | |||||||
| Note receivable - related party | 761,585 | 761,585 | ||||||
| Goodwill | 3,906,891 | 3,906,891 | ||||||
| Other | 1,584,910 | 1,399,745 | ||||||
| Total Assets | $ | 40,404,180 | $ | 45,757,628 | ||||
| Liabilities & Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 3,307,521 | $ | 3,050,937 | ||||
| Accounts payable - related party | 3,368 | 19,133 | ||||||
| Short-term liabilities | 16,441,488 | 16,894,743 | ||||||
| Lease liabilities - short-term | 732,680 | 754,495 | ||||||
| Deposits from customers | 74,762 | 73,144 | ||||||
| Accrued expenses | 3,062,806 | 2,271,188 | ||||||
| Deferred revenue | 2,058,661 | 1,551,088 | ||||||
| Accrued income taxes | 57,150 | 94,848 | ||||||
| Liabilities of discontinued operations | 805,219 | |||||||
| Total current liabilities | 25,738,436 | 25,514,795 | ||||||
| Long-term liabilities | ||||||||
| Loans payable to bank | 73,407 | 110,331 | ||||||
| Long-term lease liabilities | 1,564,613 | 1,822,468 | ||||||
| Notes payable | 1,604,743 | |||||||
| Mortgage payable | 2,125,864 | 2,160,169 | ||||||
| Other long-term liabilities | 575,900 | 807,898 | ||||||
| Paycheck Protection Program Loans | 70,816 | 97,120 | ||||||
| Deferred Revenue - long-term | 581,193 | 607,309 | ||||||
| Total long-term liabilities | 6,596,536 | 5,605,295 | ||||||
| Total liabilities | 32,334,972 | 31,120,090 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock , $ par value, shares authorized, Series 1, shares authorized, shares issued and shares outstanding as of March 31, 2023 and shares issued and shares outstanding as of September 30, 2022 (liquidation value of $10 per share) | 2,183 | 2,079 | ||||||
| Series C, shares authorized, shares issued and outstanding at March 31 31, 2023 and September 30, 2022 | 50 | 50 | ||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2023 and shares issued and outstanding at September 30, 2022 | 828 | 755 | ||||||
| Additional paid-in capital | 67,042,743 | 66,641,698 | ||||||
| Accumulated deficit | (61,801,025 | ) | (54,929,020 | ) | ||||
| Treasury stock, shares of Series 1 Preferred Stock at March 31, 2023 and September 30, 2022 | (148,291 | ) | (148,291 | ) | ||||
| Accumulated other comprehensive income | 2,283,876 | 2,377,525 | ||||||
| Total Cemtrex stockholders’ equity | 7,380,364 | 13,944,796 | ||||||
| Non-controlling interest | 688,844 | 692,742 | ||||||
| Total liabilities and shareholders’ equity | $ | 40,404,180 | $ | 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)
| For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Revenues | $ | 16,073,397 | $ | 11,746,017 | $ | 28,043,639 | $ | 21,159,412 | ||||||||
| Cost of revenues | 8,734,916 | 7,976,236 | 15,662,543 | 14,167,381 | ||||||||||||
| Gross profit | 7,338,481 | 3,769,781 | 12,381,096 | 6,992,031 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 5,318,267 | 5,424,669 | 10,482,605 | 10,713,844 | ||||||||||||
| Research and development | 1,615,341 | 1,239,334 | 3,445,054 | 2,471,008 | ||||||||||||
| Total operating expenses | 6,933,608 | 6,664,003 | 13,927,659 | 13,184,852 | ||||||||||||
| Operating income/(loss) | 404,873 | (2,894,222 | ) | (1,546,563 | ) | (6,192,821 | ) | |||||||||
| Other income/(expense) | ||||||||||||||||
| Other income | 376,504 | 90,922 | 359,421 | 1,021,060 | ||||||||||||
| Interest expense | (1,335,138 | ) | (1,313,483 | ) | (2,463,372 | ) | (2,715,887 | ) | ||||||||
| Total other expense, net | (958,634 | ) | (1,222,561 | ) | (2,103,951 | ) | (1,694,827 | ) | ||||||||
| Net loss before income taxes | (553,761 | ) | (4,116,783 | ) | (3,650,514 | ) | (7,887,648 | ) | ||||||||
| Income tax benefit/(expense) | ||||||||||||||||
| Loss from Continuing operations | (553,761 | ) | (4,116,783 | ) | (3,650,514 | ) | (7,887,648 | ) | ||||||||
| Income/(loss) from discontinued operations, net of tax | 14,232 | (685,140 | ) | (3,225,389 | ) | (1,444,098 | ) | |||||||||
| Net loss | (539,529 | ) | (4,801,923 | ) | (6,875,903 | ) | (9,331,746 | ) | ||||||||
| Less income/(loss) in noncontrolling interest | 55,265 | (80,676 | ) | (3,898 | ) | (132,548 | ) | |||||||||
| Net loss attributable to Cemtrex, Inc. shareholders | $ | (594,794 | ) | $ | (4,721,247 | ) | $ | (6,872,005 | ) | $ | (9,199,198 | ) | ||||
| Income (loss) per share - Basic & Diluted | ||||||||||||||||
| Continuing Operations | $ | (0.75 | ) | $ | (5.86 | ) | $ | (4.63 | ) | $ | (11.51 | ) | ||||
| Discontinued Operations | $ | 0.02 | $ | (1.00 | ) | $ | (4.09 | ) | $ | (2.14 | ) | |||||
| Weighted Average Number of Shares-Basic & Diluted | 815,498 | 688,255 | 788,265 | 673,943 | ||||||||||||
| Weighted Average Number of Shares-Diluted | 815,498 | 688,255 | 788,265 | 673,943 | ||||||||||||
| 4 |
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Net loss | $ | (539,529 | ) | $ | (4,801,923 | ) | $ | (6,875,903 | ) | $ | (9,331,746 | ) | ||||
| Foreign currency translation loss | (317,218 | ) | (199,623 | ) | (93,649 | ) | (140,131 | ) | ||||||||
| Comprehensive loss | (856,747 | ) | (5,001,546 | ) | (6,969,552 | ) | (9,471,877 | ) | ||||||||
| Less comprehensive (loss) income attributable to noncontrolling interest | (55,265 | ) | 80,676 | 3,898 | 132,548 | |||||||||||
| Comprehensive loss attributable to Cemtrex, Inc. shareholders | $ | (801,482 | ) | $ | (5,082,222 | ) | $ | (6,973,450 | ) | $ | (9,604,425 | ) | ||||
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)
| Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Treasury Stock, 64,100 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Series 1 | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-in | Accumulated | Preferred | Comprehensive | Stockholders’ | 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 | |||||||||||||||||||||||||
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 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Series 1 | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-in | Accumulated | Preferred | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Income(loss) | 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 | |||||||||||||||||||||||||||||||||
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 six months ended | ||||||||
| March 31, | ||||||||
| Cash Flows from Operating Activities | 2023 | 2022 | ||||||
| Net loss | $ | (6,875,903 | ) | $ | (9,331,746 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Depreciation and amortization | 448,388 | 610,327 | ||||||
| Loss on disposal of property and equipment | 64,908 | 30,558 | ||||||
| Noncash lease expense | 420,411 | 293,506 | ||||||
| Bad debt expense | (1,543 | ) | (1,839 | ) | ||||
| Share-based compensation | 66,577 | 72,417 | ||||||
| Interest expense paid in equity shares | 32,145 | 1,521,992 | ||||||
| Accounts payable paid in equity shares | 102,500 | |||||||
| Accrued interest on notes payable | 1,290,615 | 329,264 | ||||||
| Amortization of original issue discounts on notes payable | 883,467 | 583,333 | ||||||
| Gain/(loss) on marketable securities | 58 | (159,905 | ) | |||||
| Discharge of Paycheck Protection Program Loans | (971,500 | ) | ||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Trade receivables | (1,870,729 | ) | 1,572,113 | |||||
| Trade receivables - related party | (408,464 | ) | 14,641 | |||||
| Inventory | (73,209 | ) | (1,396,073 | ) | ||||
| Prepaid expenses and other current assets | (166,756 | ) | (708,456 | ) | ||||
| Other assets | (185,165 | ) | (78,146 | ) | ||||
| Other liabilities | (231,998 | ) | (17,163 | ) | ||||
| Accounts payable | 256,584 | 432,372 | ||||||
| Accounts payable - related party | (15,765 | ) | ||||||
| Operating lease liabilities | (356,176 | ) | (201,578 | ) | ||||
| Deposits from customers | 1,618 | (288,503 | ) | |||||
| Accrued expenses | 791,618 | (312,693 | ) | |||||
| Deferred revenue | 481,457 | 722,975 | ||||||
| Income taxes payable | (37,698 | ) | (312,006 | ) | ||||
| Net cash used by operating activities - continuing operations | (5,383,060 | ) | (7,596,110 | ) | ||||
| Net cash provided by operating activities - discontinued operations | 2,488,144 | 133,512 | ||||||
| Net cash used by operating activities | (2,894,916 | ) | (7,462,598 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | (263,732 | ) | (706,392 | ) | ||||
| Proceeds from sale of property and equipment | 11,026 | 230,901 | ||||||
| Investment in MasterpieceVR | (500,000 | ) | ||||||
| Proceeds from sale of marketable securities | 176,945 | |||||||
| Purchase of marketable securities | (4,626,862 | ) | ||||||
| Net cash used by investing activities - continuing operations | (252,706 | ) | (5,425,408 | ) | ||||
| Net cash provided by investing activities - discontinued operations | (2,349 | ) | ||||||
| Net cash used by investing activities | (252,706 | ) | (5,427,757 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | 8,000,000 | |||||||
| Payments on notes payable | (544,370 | ) | (901,763 | ) | ||||
| Payments on Paycheck Protection Program Loans | (10,033 | ) | ||||||
| Payments on bank loans | (365,724 | ) | (613,900 | ) | ||||
| Net cash (used)/provided by financing activities | (920,127 | ) | 6,484,337 | |||||
| Effect of currency translation | (126,593 | ) | (150,076 | ) | ||||
| Net decrease in cash, cash equivalents, and restricted cash | (4,067,749 | ) | (6,406,018 | ) | ||||
| 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 | $ | 7,279,334 | $ | 10,630,229 | ||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | 6,634,037 | $ | 8,970,324 | ||||
| Restricted cash | 645,297 | 1,659,905 | ||||||
| Total cash, cash equivalents, and restricted cash | $ | 7,279,334 | $ | 10,630,229 | ||||
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 | $ | 257,145 | $ | 288,397 | ||||
| Cash paid during the period for income taxes, net of refunds | $ | 37,698 | $ | 312,806 | ||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued to pay notes payable | $ | 232,145 | $ | 3,288,071 | ||||
| Shares issued in connection with note payable | $ | $ | 700,400 | |||||
| Investment in right of use asset | $ | 76,506 | $ | 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. |
| 10 |
| ● | 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.
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 $ 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 $ 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.
The Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and July 24, 2023 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 $ 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 $ 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.
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.
| 11 |
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 first half of fiscal year 2023 of $6,872,005 and has debt obligations over the next year of $16,441,488 and working capital of $108,939, 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.
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.
| 12 |
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.
The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Technologies Pvt. Ltd., Advanced Industrial Services, 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.
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.
| 13 |
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 six-month ended March 31, 2023, has recognized $678,330 of royalties due and will amortize the remaining amount over the period the royalties are due.
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 | |||
| 3,545,145 | ||||
| Liabilities Transferred | ||||
| Accounts payable | 370,774 | |||
| Short-term liabilities | 364,775 | |||
| Long-term liabilities | 318,981 | |||
| 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 March 31, 2023 and September 30, 2022 are as follows;
| March 31, | 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 | |||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | 205,622 | |||||
| Short-term liabilities | 464,429 | |||||||
| Deposits from customers | 125,032 | |||||||
| Accrued expenses | 10,136 | |||||||
| Total current liabilities | 805,219 | |||||||
| Long-term liabilities | ||||||||
| Deferred revenue | 6,273 | |||||||
| Total long-term liabilities | 6,273 | |||||||
| Total liabilities | $ | $ | 811,492 | |||||
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.
| 15 |
Gain/(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 and six month periods ended March 31, 2023 and 2022, are as follows:
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Total net sales | $ | $ | 982,198 | $ | 649,061 | $ | 2,241,292 | |||||||||
| Cost of sales | 699,368 | 228,086 | 1,311,518 | |||||||||||||
| Operating, selling, general and administrative expenses | 492 | 1,207,945 | 1,296,064 | 2,610,813 | ||||||||||||
| Other (income)/expenses | (239,975 | ) | 3,195 | (236,941 | ) | |||||||||||
| Income (loss) from discontinued operations | (492 | ) | (685,140 | ) | (878,284 | ) | (1,444,098 | ) | ||||||||
| Amortization of discounted royalties | 14,724 | 19,151 | ||||||||||||||
| Loss on sale of discontinued operations | (2,455,341 | ) | ||||||||||||||
| Adjustment of benefit obligation | 89,085 | |||||||||||||||
| Income tax provision | ||||||||||||||||
| Discontinued operations, net of tax | $ | 14,232 | $ | (685,140 | ) | $ | (3,225,389 | ) | $ | (1,444,098 | ) | |||||
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 and six months ended March 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:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Options | 28,796 | 22,858 | 28,796 | 22,858 | ||||||||||||
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NOTE 5 – SEGMENT INFORMATION
During the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure. The Company reports and evaluates financial information for three current segments: the Security segment, Industrial Services segment and the Corporate segment.
The following tables summarize the Company’s segment information:
Three months ended March 31, 2023 | Six months ended March 31, 2023 | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 9,913,898 | $ | 6,159,499 | $ | $ | 16,073,397 | $ | 16,918,642 | $ | 11,124,997 | $ | $ | 28,043,639 | ||||||||||||||||||
| Cost of revenues | 4,791,608 | 3,943,308 | 8,734,916 | 8,392,662 | 7,269,881 | 15,662,543 | ||||||||||||||||||||||||||
| Gross profit | $ | 5,122,290 | $ | 2,216,191 | $ | $ | 7,338,481 | $ | 8,525,980 | $ | 3,855,116 | $ | $ | 12,381,096 | ||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Sales, general, and administrative | 2,965,659 | 1,336,313 | 807,242 | 5,109,214 | 5,715,088 | 2,525,178 | 1,793,951 | 10,034,217 | ||||||||||||||||||||||||
| Depreciation and amortization | 31,543 | 157,385 | 20,125 | 209,053 | 71,203 | 324,906 | 52,279 | 448,388 | ||||||||||||||||||||||||
| Research and development | 1,615,341 | 1,615,341 | 3,445,054 | 3,445,054 | ||||||||||||||||||||||||||||
| Operating income/(loss) | $ | 509,747 | $ | 722,493 | $ | (827,367 | ) | $ | 404,873 | $ | (705,365 | ) | $ | 1,005,032 | $ | (1,846,230 | ) | $ | (1,546,563 | ) | ||||||||||||
| Other income/(expense) | $ | 337,191 | $ | (29,866 | ) | $ | (1,265,959 | ) | $ | (958,634 | ) | $ | 224,792 | $ | (61,426 | ) | $ | (2,267,317 | ) | $ | (2,103,951 | ) | ||||||||||
Three months ended March 31, 2022 | Six months ended March 31, 2022 | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 6,740,109 | $ | 5,005,908 | $ | $ | 11,746,017 | $ | 11,099,532 | 10,059,880 | $ | $ | 21,159,412 | |||||||||||||||||||
| Cost of revenues | 4,436,346 | 3,539,890 | 7,976,236 | 7,003,704 | 7,163,677 | 14,167,381 | ||||||||||||||||||||||||||
| Gross profit | $ | 2,303,763 | $ | 1,466,018 | $ | $ | 3,769,781 | $ | 4,095,828 | $ | 2,896,203 | $ | $ | 6,992,031 | ||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Sales, general, and administrative | 2,438,851 | 1,213,788 | 1,123,329 | 4,775,968 | 5,298,815 | 2,624,649 | 2,052,752 | 9,976,216 | ||||||||||||||||||||||||
| Depreciation and amortization | 366,929 | 176,490 | 36,702 | 580,121 | 398,707 | 355,713 | 73,404 | 827,824 | ||||||||||||||||||||||||
| Research and development | 1,306,862 | 1,052 | 1,307,914 | 2,379,760 | 1,052 | 2,380,812 | ||||||||||||||||||||||||||
| Operating (loss)/income | $ | (1,808,879 | ) | $ | 75,740 | $ | (1,161,083 | ) | $ | (2,894,222 | ) | $ | (3,981,454 | ) | $ | (84,159 | ) | $ | (2,127,208 | ) | $ | (6,192,821 | ) | |||||||||
| Other income/(expense) | $ | (37,015 | ) | $ | (25,741 | ) | $ | (1,159,805 | ) | $ | (1,222,561 | ) | $ | 824,685 | $ | (76,789 | ) | $ | (2,442,723 | ) | $ | (1,694,827 | ) | |||||||||
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Identifiable Assets | ||||||||
| Security | $ | 17,951,806 | $ | 15,257,235 | ||||
| Industrial Services | 17,667,808 | 16,658,984 | ||||||
| Corporate | 4,784,566 | 9,869,716 | ||||||
| Discontinued operations | 3,971,693 | |||||||
| Total Assets | $ | 40,404,180 | $ | 45,757,628 | ||||
NOTE 6 – RESTRICTED CASH
A subsidiary of the Company participates in a consortium in order to self-insure group care coverage for its employees. The plan is administrated by Benecon Group and the Company makes monthly deposits in a trust account to cover medical claims and any administrative costs associated with the plan. These funds, as required by the plan are restricted in nature and amounted to $645,297 at March 31, 2023 and $1,577,915 at September 30, 2022.
NOTE 7 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under the guidance for fair value measurements are described below:
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Our Level 1 assets include cash equivalents, banker’s acceptances, trading securities investments and investment funds. The Company measures trading securities investments and investment funds at quoted market prices as they are traded in an active market with sufficient volume and frequency of transactions.
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Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified contractual term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments. Quantitative information for Level 3 assets and liabilities reviewed at each reporting period includes indicators of significant deterioration in the earnings performance, credit rating, asset quality, business prospects of the investee, and financial indicators of the investee’s ability to continue as a going concern.
The Company’s fair value assets at March 31, 2023 and September 30, 2022, are as follows.
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | March 31, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | 13,663 | $ | $ | $ | 13,663 | ||||||||||
| $ | 13,663 | $ | $ | $ | 13,663 | |||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | September 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2022 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | 13,721 | $ | $ | $ | 13,721 | ||||||||||
| $ | 13,721 | $ | $ | $ | 13,721 | |||||||||||
NOTE 8 – TRADE RECEIVABLES, NET
Trade receivables, net consist of the following:
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Trade receivables | $ | 7,519,384 | $ | 5,648,655 | ||||
| Allowance for doubtful accounts | (247,896 | ) | (249,439 | ) | ||||
| $ | 7,271,488 | $ | 5,399,216 | |||||
Trade receivables include amounts due for shipped products and services rendered.
Allowance for doubtful accounts includes estimated losses resulting from the inability of our customers to make the required payments.
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NOTE 9 – INVENTORY, NET
Inventory, net, consist of the following:
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | 1,560,503 | $ | 1,375,933 | ||||
| Work in progress | 216,724 | 120,026 | ||||||
| Finished goods | 7,809,788 | 8,080,235 | ||||||
| 9,587,015 | 9,576,194 | |||||||
| Less: Allowance for inventory obsolescence | (1,025,989 | ) | (1,088,377 | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | 8,561,026 | $ | 8,487,817 | ||||
NOTE 10 – PREPAID AND OTHER CURRENT ASSETS
On March 31, 2023, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $665,525, costs and estimated earnings in excess of billings on uncompleted contracts of $794,416, and other current assets of $1,128,459. On September 30, 2022, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $414,997, costs and estimated earnings in excess of billings on uncompleted contracts of $781,819, accrued income taxes refunds on foreign operations of $37,761, and prepaid expenses and other current assets of $1,187,067.
NOTE 11 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Land | $ | 790,373 | $ | 790,373 | ||||
| Building and leasehold improvements | 2,914,854 | 2,906,953 | ||||||
| Furniture and office equipment | 561,183 | 546,548 | ||||||
| Computers and software | 208,135 | 365,892 | ||||||
| Machinery and equipment | 10,747,542 | 11,242,709 | ||||||
| 15,222,087 | 15,852,475 | |||||||
| Less: Accumulated depreciation | (10,169,291 | ) | (10,572,033 | ) | ||||
| Property and equipment, net | $ | 5,052,796 | $ | 5,280,442 | ||||
Depreciation expense for the three months ended March 31, 2023, and 2022 were $209,053 and $347,494, respectively. Depreciation expense for the six months ended March 31, 2023, were $448,388, and $610,327, respectively.
NOTE 12 – OTHER ASSETS
As of March 31, 2023, the Company had other assets of $1,584,910 which was comprised of rent security of $199,088, a strategic investment in MasterpieceVR of $1,000,000 (see below), and other assets of $385,822. As of September 30, 2022, the Company had other assets of $1,399,745 which was comprised of rent security deposits of $204,388, Investment in Masterpiece VR valued at $1,000,000, and other assets of $195,357.
On November 13, 2020, Cemtrex made a $500,000 investment and on January 19, 2022, made an additional $500,000 investment via a simple agreement for future equity (“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the three and six months ended March 31, 2023.
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NOTE 13 – RELATED PARTY TRANSACTIONS
On August 31, 2019, the Company entered into an Asset Purchase Agreement for the sale of Griffin Filters, LLC to Ducon Technologies, Inc., which Aron Govil, the Company’s Founder and former CFO, for total consideration of $550,000. On July 31, 2022, the Company negotiated a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. totaling $. This agreement is in the form of a secured promissory note earning interest at a rate of 5% per annum and matures on July 31, 2024.
As of March 31, 2023, and September 30, 2022, there was $ and $ payable due to Ducon Technologies, Pvt Ltd., respectively.
Receivables of $ that represented the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India were written off to bad debt in fiscal year 2022.
On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding transactions Cemtrex’s Board of Directors determined were incorrectly handled and accounted for. Mr. Govil executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note matured and was due in full on February 26, 2023, and bore interest at 9% per annum and was secured by all of Mr. Govil’s assets. On April 27, 2023, the Company and Mr. Govil signed an amendment to the note, extending the maturity date one year to February 28, 2024. Mr. Govil also signed an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note to be fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain was not to be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of 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, and Cemtrex XR, Inc., which include the brands SmartDesk, Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil (see NOTE 1).
As of March 31, 2023, there was $ in trade receivables due from these companies. Of these receivables $123,812 are related to costs paid by Cemtrex related to payroll during the transition of employees to the new company. The remaining $ are related to services provided by Cemtrex Technologies Pvt. Ltd. in the normal course of business.
As of March 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $678,330.
NOTE 14 – LEASES
The Company is party to contracts where we lease property from others under contracts classified as operating leases. The Company primarily leases office and operating facilities, vehicles, and office equipment. The weighted average remaining term of our operating leases was approximately 3.3 years at March 31, 2023 and 3.0 years at March 31, 2022. Lease liabilities were $2,297,293 with $732,680 classified as short-term at March 31, 2023, and $2,576,963 with $754,495, classified as short-term at September 30, 2022. The weighted average discount rate used to measure lease liabilities was approximately 5.66% at March 31, 2023 and March 31, 2022. The Company used the rate implicit in the lease, where known, or its incremental borrowing rate as the rate used to discount the future lease payments.
The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less.
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A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2023, is set forth below:
| Years ending September 30, | Operating Leases | |||
| 2023 | 431,540 | |||
| 2024 | 755,686 | |||
| 2025 | 733,327 | |||
| 2026 | 539,279 | |||
| 2027 & Thereafter | 205,358 | |||
| Undiscounted lease payments | 2,665,190 | |||
| Amount representing interest | (367,897 | ) | ||
| Discounted lease payments | $ | 2,297,293 | ||
Lease costs for the three and six months ended March 31, 2023 and 2022 are set forth below.:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Lease costs: | ||||||||||||||||
| Finance lease costs | $ | $ | $ | $ | ||||||||||||
| Operating lease costs | 223,213 | 130,511 | 484,646 | 369,363 | ||||||||||||
| Total lease cost | $ | 223,213 | $ | 130,511 | $ | 484,646 | $ | 369,363 | ||||||||
NOTE 15 – LINES OF CREDIT AND LONG-TERM LIABILITIES
On January 12, 2023, the Company entered into a standstill agreement with Streeterville Capital, LLC. The lender has agreed to refrain and forbear temporarily from making redemptions under the notes for a period ending on April 12, 2023. In addition, the company has agreed to an increase of the outstanding balance of the note issued on September 30, 2021 for the original amount of $5,755,000 by $148,000, and the outstanding balance of the note issued on February 22, 2022 for the original amount of $9,205,000 by $303,422. The aggregate amount of $451,422 has been recorded as interest expense on the Company’s Consolidated Condensed Statement of Operations and Condensed Consolidated Statements of Cash Flow.
On February 15, 2023, the Company and Fulton Bank agreed to an amendment to the Master Agreement Regarding Financial Covenants and Financial Deliverables dated September 22, 2020.
On March 3, 2023, the Company and NIL Funding agreed at an amendment to the term loan agreement dated September 18, 2018. This agreement amends the maturity date to December 31, 2024 and amends the interest rate to 11.5%. Additionally, the Company paid $10,000 in fees and made an additional principal payment of $100,000 on March 29, 2023 and is required to make another additional principal payment of $100,000 on or before March 29, 2024. The Company has accounted for this amendment as a debt modification.
On May 3, 2023, the Company and Streeterville Capital, LLC. agreed to an amendment to the note issued on September 30, 2021 for the original amount of $5,755,000. The agreement extends the maturity date to June 30, 2024, in exchange for a fee of 5% of the outstanding balance or approximately $252,912 added to the outstanding balance of the note. The Company has accounted for this amendment as a debt modification.
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The following table outlines the Company’s lines of credit and secured liabilities.
| March 31, | September 30, | |||||||||||||
| Interest Rate | Maturity | 2023 | 2022 | |||||||||||
| Fulton Bank line of credit $3,500,000 - The terms of this line of credit are subject to the bank’s review annually on February 1. | Secured Overnight Financing Rate (“SOFR”) plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | N/A | $ | $ | ||||||||||
| Fulton Bank loan $5,250,000 for the purchase of AIS $5,000,000 of the proceeds went to the direct purchase of AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37%(7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | 12/15/2022 | 247,284 | |||||||||||
| Fulton Bank loan $400,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | 5/1/2023 | 16,070 | 63,280 | ||||||||||
| Fulton Bank - $360,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022). | 5/1/2023 | 146,915 | 183,839 | ||||||||||
| Fulton Bank mortgage $2,476,000. The Company was in compliance with loan covenants as of March 31, 2023. | SOFR plus 2.62% (7.49% as of March 31, 2023 and 5.6% as of September 30, 2022). | 1/28/2040 | 2,211,359 | 2,245,664 | ||||||||||
| Note payable - $439,774. For the purchase of VDI. Payable in two installments on October 26, 2021, and October 26, 2022. | 5 | % | 10/26/2022 | 219,370 | ||||||||||
| Note payable - $5,755,000 - Less original issue discount $750,000 and legal fees $5,000, net cash received $5,000,000 Unamortized original issue discount balance of $0 and $250,000, as of March 31, 2023 and September 30, 2022 respectively. | 8 | % | 6/30/2024 | 5,171,271 | 4,943,929 | |||||||||
| Note payable - $9,205,000. Less original issue discount $1,200,000 and legal fees $5,000,net cash received $8,000,000.shares of common stock valued at $700,400 recognized as additional original issue discount. Unamortized original issue discount balance of $422,311 and $1,064,778 as of March 31, 2023 and September 30, 2022 respectivly. | 8 | % | 8/23/2023 | 10,601,904 | 9,738,632 | |||||||||
| Term Loan Agreement with NIL Funding Corporation (“NIL”) - $5,600,000 The Company was in compliance with loan covenants as of March 31, 2023. | 11.50 | % | 12/31/2024 | 2,479,743 | 2,804,743 | |||||||||
| Paycheck Protection Program loan - $121,400 - The issuing bank determined that this loan qualifies for loan forgiveness; however the Company is awaiting final approval from the Small Business Administration. | 1 | % | 5/5/2025 | 111,367 | 121,400 | |||||||||
| Total lines of credit and secured liabilities | $ | 20,738,629 | $ | 20,568,141 | ||||||||||
| Less: Current maturities | (16,441,488 | ) | (16,894,743 | ) | ||||||||||
| Less: Unamortized original issue discount | (422,311 | ) | (1,305,778 | ) | ||||||||||
| Lines of credit and secured liabilities, Long Term | $ | 3,874,830 | $ | 2,367,620 | ||||||||||
NOTE 16 – SHAREHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of Preferred Stock, $ par value. As of March 31, 2023, and September 30, 2022, there were and shares issued and and shares outstanding, respectively.
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Series 1 Preferred Stock
During the six months ended March 31, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
As of March 31, 2023, and September 30, 2022, there were and shares of Series 1 Preferred Stock issued and and shares of Series 1 Preferred Stock outstanding, respectively.
Series C Preferred Stock
As of March 31, 2023, and September 30, 2022, there were shares of Series C Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue shares of common stock, $ par value. As of March 31, 2023, there were shares issued and outstanding and at September 30, 2022, there were shares issued and outstanding.
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. On February 2, 2023, shares were issued for rounding shares of the reverse stock split.
During the six months ended March 31, 2023, shares of the Company’s common stock have been issued to satisfy $31,331 of notes payable, $168,669 in accrued interest, and $32,145 of excess value of shares issued recorded as interest expense.
During the three and six months ended March 31, 2023, shares of the Company’s common stock have been issued in exchange for services valued at $102,500.
For the six months ended March 31, 2023, and 2022, the Company recognized $ and $ of share-based compensation expense on its outstanding options, respectively. As of March 31, 2023, $ of unrecognized share-based compensation expense is expected to be recognized over a period of two years and six months. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the six months ended March 31, 2023, options to purchase shares of the Company’s common stock at an exercise price of $ per share and options to purchase shares of the Company’s common stock at an exercise price of $ per share were cancelled.
NOTE 18 – COMMITMENTS AND CONTINGENCIES
The Company’s corporate segment leases approximately 100 square feet of office space in Brooklyn, NY on a month-to-month lease at a rent of $600 per month.
The Company’s Industrial Services segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-year lease at a monthly rent of $4,555 expiring on August 31, 2025.
The Company’s Security segment leases (i) approximately 6,700 square feet of office and warehouse space in Pune, India from a third party in an five year lease at a monthly rent of $6,453 (INR456,972) expiring on February 28, 2024, (ii) approximately 30,000 square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of $28,719 expiring on March 31, 2027, (iii) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-year lease with at a monthly rent of $7,329 (£5,771) which expires on March 24, 2031 and contains provisions to terminate in 2026, and (iv) approximately 280 square feet of office space in Clovis, CA on a month-to-month lease at a monthly rent of $1,504.
NOTE 19 – SUBSEQUENT EVENTS
On April 6, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The holders of the Series 1 Preferred Stock are entitled to receive dividends at the rate of 10% annually, based on the $ per share Preference Amount, payable semiannually.
On April 13, 2023, the Company issued an aggregate of shares of common stock to settle $150,000 of notes payable and accrued interest, and $53,069 of excess value of shares issued to be recorded as interest expense.
On May 4, 2023, the Company issued an aggregate of shares of common stock to settle $275,000 of notes payable and accrued interest, and $87,256 of excess value of shares issued to be recorded as interest expense.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the impact of competitive products and their pricing; unexpected manufacturing or supplier problems; the Company’s ability to maintain sufficient credit arrangements; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the Company’s SEC reports, including its recent report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.
General Overview
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.
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Significant Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.
Certain of our accounting policies are deemed “significant”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our significant accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2022.
Results of Operations – For the three months ending March 31, 2023, and 2022
Total revenue for the three months ended March 31, 2023, and 2022 was $16,073,789 and $11,746,017, respectively, an increase of $4,327,380, or 37%. Loss from continuing operations for the three months ended March 31, 2023, was $553,761 compared to $4,116,783 for the three months ended March 31, 2022, a decrease on the loss of $3,563,022, or 87%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues as compared to the same period in the prior year.
Revenues
Our Security segment revenues for the three months ended March 31, 2023, increased by $3,173,789 or 47% to $9,913,898 from $6,740,109 for the three months ended March 31, 2022. This increase is due to an increased demand for the Security segment’s products and services.
Our Industrial Services segment revenues for the three months ended March 31, 2023, increased by $1,153,591 or 23%, to $6,159,499 from $5,005,908 for the three months ended March 31, 2022. This increase is mainly due to increased demand for the segment’s products and services.
Gross Profit
Gross Profit for the three months ended March 31, 2023, was $7,338,481 or 46% of revenues as compared to gross profit of $3,769,781 or 32% of revenues for the three months ended March 31, 2022.
Gross profit in our Security segment was $5,122,290 or 52% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $2,303,763 or 34% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due to price increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
Gross profit in our Industrial Services segment was $2,216,191 or 36% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $1,466,018or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2023, decreased $106,402 or 2% to $5,318,267 from $5,424,669 for the three months ended March 31, 2022. General and administrative expenses as a percentage of revenues were 33% and 46% of revenues for the three-month periods ended March 31, 2023, and 2022, respectively. The reduction in general and administrative expenses is mainly related to reduced employee costs and legal expenses.
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Research and Development Expenses
Research and Development expenses for the three months ended March 31, 2023, were $1,615,341 compared to $1,239,334 for the three months ended March 31, 2022, an increase of $376,007 or 30%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Expense
Other expense for the three months ended March 31, 2023, was $958,634, as compared to other expense of $1,222,561 for the three months ended March 31, 2022. Other expense for the three months ended March 31, 2023, was mainly driven by interest on the Company’s debt, offset by a one-time income related to employee retention credits of $416,502.
Provision for Income Taxes
During the three months ended March 31, 2023, and 2022, the Company took no provision on income taxes. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Income/(loss) from Discontinued Operations
The Company had income on discontinued operations of $14,232. This income is mainly related to the recognition of the royalties due from CXR, Inc. Losses on discontinued operations for the three months ended March 31, 2022 were $685,140 attributable to the operations of the Cemtrex brands discussed in Note 3.
Results of Operations – For the six months ending March 31, 2023, and 2022
Total revenue for the six months ended March 31, 2023, and 2022 was $28,043,639 and $21,159,412, respectively, an increase of $6,884,227, or 33%. Loss from continuing operations for the six months ended March 31, 2023, was $3,650,514 compared to $7,887,648 for the six months ended March 31, 2022, a decrease on the loss of $4,237,134, or 54%. Total revenue for the period increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues and improved gross profit margins as compared to the same period in the prior year.
Revenues
Our Security segment revenues for the six months ended March 31, 2023, increased by $5,819,110 or 52% to $16,918,642 from $11,099,532 for the six months ended March 31, 2022. This increase is due to an increased demand for the Security segment’s products and services.
Our Industrial Services segment revenues for the six months ended March 31, 2023, increased by $1,065,117 or 11%, to $11,124,997 from $10,059,880 for the six months ended March 31, 2022. This increase is mainly due to increased demand for the segment’s products and services.
Gross Profit
Gross Profit for the six months ended March 31, 2023, was $12,381,096 or 44% of revenues as compared to gross profit of $6,992,031 or 33% of revenues for the six months ended March 31, 2022.
Gross profit in our Security segment was $8,525,980 or 50% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $4,095,828 or 37% of the segment’s revenues for the six-month period ended March 31, 2022. Gross profit as a percentage of revenues increased in the six months ended March 31, 2023, compared to the six months ended March 31, 2022, due to price increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
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Gross profit in our Industrial Services segment was $3,855,116 or 35% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $2,896,203 or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the six months ended March 31, 2023, compared to the six months ended March 31, 2022, was primarily due to lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the six months ended March 31, 2023, decreased $231,239 or 2% to $10,482,605 from $10,713,844 for the six months ended March 31, 2022. General and administrative expenses as a percentage of revenues were 37% and 51% of revenues for the six-month periods ended March 31, 2023, and 2022, respectively. The reduction in general and administrative expenses is mainly related to reduced employee costs and legal expenses.
Research and Development Expenses
Research and Development expenses for the six months ended March 31, 2023, were $3,445,054 compared to $2,471,008 for the six months ended March 31, 2022, an increase of $974,046 or 39%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Expense
Other expense for the six months ended March 31, 2023, was $2,103,951 as compared to an expense of $1,694,827 for the six months ended March 31, 2022. Other expense for the six months ended March 31, 2023, was mainly driven by interest on the Company’s debt, offset by a one-time income related to employee retention credits of $416,502. Other expense for the six months ended March 31, 2022, included the gain on the forgiveness of our PPP loans of $971,500.
Provision for Income Taxes
During the six months ended March 31, 2023, and 2022, the Company took no provision on income taxes. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Loss from Discontinued Operations
The Company had losses on discontinued operations of $3,225,389. The losses are comprised of the $2,455,341 loss on the sale of Cemtrex Advanced Technologies, and Cemtrex XR, Inc. The net loss of $878,284 for the six months ended March 31, 2023, the recognition of discounted royalties of $19,151, and the net gain on the recovery of cash from Vicon Industries Ltd. of $89,085. Losses on discontinued operations for the six months ended March 31, 2022 were $1,444,098 attributable to the operations of the Cemtrex brands discussed in Note 3.
Effects of Inflation
The Company’s business and operations have been affected by inflation during the periods for which financial information is presented. In response, the Company has instituted price increases and initiated cost-saving measures to mitigate the effects of inflation on operations.
Liquidity and Capital Resources
Working capital was $383,939 at March 31, 2023, compared to working capital of $6,252,972 at September 30, 2022. This includes cash and equivalents and restricted cash of $7,279,334 at March 31, 2023, and $11,473,676 at September 30, 2022. The decrease in working capital was primarily due to the Company’s sale of assets and liabilities of discontinued operations and an increase in accounts payable, accrued expenses, and deferred revenue during the six months ended March 31, 2023.
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Cash used by operating activities for continuing operations for the six months ended March 31, 2023 and 2022 was $5,383,060 and $6,152,012, respectively. Cash provided by operating activities for discontinued operations for the six months ended March 31, 2023 was $2,488,144, compared to using cash of $1,310,586 for the six months ended March 31, 2022.
Trade receivables increased by $1,872,272 or 35% to $7,271,488 at March 31, 2023, from $5,399,216 at September 30, 2022. The increase in trade receivables is attributable to increased sales in the Security segment.
Cash used by investment activities for continuing operations for the six months ended March 31, 2023 was $252,706 compared to $5,425,408 for the six months ended March 31, 2022. Cash used by investing activities for discontinued operations for the six months ended March 31, 2022 was $2,349. Investing activities for the six months ended March 31, 2023 were driven by the Company’s purchase of property and equipment.
Cash used by financing activities for the six months ended March 31, 2023, was $920,127 compared to providing cash of $6,484,337 for the six months ended March 31, 2022. Financing activities were primarily driven by payments on the Company’s debt. Financing activities for the six months ended March 31, 2022 were primarily driven by proceeds from the note payable issued in February of 2022.
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 recently 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 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improved 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. We currently do not have adequate cash to meet our short or long-term needs. The consolidated financial statements do not include any adjustments relating to this uncertainty.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based on their evaluation, our management has concluded that as of March 31, 2023, our disclosure controls and procedures were not effective and there is a material weakness in our internal control over financial reporting. The material weakness relates to the Company lacking sufficient accounting personnel. The shortage of accounting personnel resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. Additionally, the Company’s current processes and systems do not provide for necessary, timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. This deficiency is common in small companies, similar to ours, with limited personnel.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of March 31, 2023, were not effective, and notwithstanding the material weakness in our internal control over financial reporting described below, management believes that the unaudited condensed financial statements and related financial information included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.
In order to mitigate the material weaknesses, the Company has implemented measures that it believes have mitigated these weaknesses but has not had sufficient time to fully evaluate these measures. These measures include; (i) updating our accounting software to ensure tighter control over entries and providing improved data for timely reconciliation of certain accounts, and (ii) engaged a third-party consulting firm to provide review of period-end reporting processes, accounting policies and public disclosures. The Company believes that given more time these new measures will be sufficient in remediating the material weakness in internal controls.
Changes in Internal Control Over Financial Reporting
While there was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, the Company is continuing to improve its internal controls through the actions mentioned above.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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Part II Other Information
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
See Risk Factors included in our Annual Report on Form 10-K filed with the SEC on December 28, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended March 31, 2023, 39,016 shares of the Company’s common stock have been issued to satisfy $31,331 of notes payable, $168,669 in accrued interest, and $32,145 of excess value of shares issued recorded as interest expense.
During the three and six months ended March 31, 2023, 15,529 shares of the Company’s common stock have been issued in exchange for services valued at $102,500.
Subsequent to the reporting period, the Company issued an aggregate of 56,966 shares of common stock to settle $425,000 of notes payable and accrued interest, and $140,325 of excess value of shares issued recorded as interest expense.
Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None.
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Item 6. Exhibits
| * | Filed herewith | |
| 1 | Incorporated by reference from Form 10-12G filed on May 22, 2008. | |
| 2 | Incorporated by reference from Form 8-K filed on September 10, 2009. | |
| 3 | Incorporated by reference from Form 8-K filed on August 22, 2016. | |
| 4 | Incorporated by reference from Form 8-K filed on July 1, 2016. | |
| 5 | Intentionally left blank | |
| 6 | Incorporated by reference from Form 8-K filed on June 12, 2019. | |
| 7 | Incorporated by reference from Form 8-K filed on January 20, 2023. | |
| 8 | Incorporated by reference from Form 8-K/A filed on September 26, 2016. | |
| 9 | Incorporated by reference from Form 10-Q filed on May 28, 2021. | |
| 10 | Incorporated by reference from Form S-1 filed on August 29, 2016 and as amended on November 4, 2016, November 23, 2016, and December 7, 2016. | |
| 11 | Incorporated by reference from Form 8-K filed on January 24, 2017. | |
| 12 | Incorporated by reference from Form 8-K filed on September 8, 2017. | |
| 13 | Incorporated by reference from Form 8-K filed on February 26, 2021. | |
| 14 | Incorporated by reference from Form 8-K filed on March 22, 2019. | |
| 15 | Incorporated by reference from Form 10-Q filed on May 16, 2022. | |
| 16 | Incorporated by reference from Form 8-K filed on April 1, 2020. | |
| 17 | Incorporated by reference from Form 8-K filed on March 9, 2020. | |
| 18 | Incorporated by reference from Form 8-K filed on June 4, 2020. | |
| 19 | Incorporated by reference from Form 8-K filed on June 12, 2020. | |
| 20 | Incorporated by reference from Form 10-K filed on January 5, 2021. | |
| 21 | Incorporated by reference from Form 8-K filed on October 4, 2022. | |
| 22 | Incorporated by reference from Form 8-K filed on November 29, 2022. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Cemtrex, Inc. | ||
| Dated: May 11, 2023 | By: | /s/Saagar Govil |
| Saagar Govil | ||
| Chief Executive Officer | ||
| Dated: May 11, 2023 | /s/Paul J. Wyckoff | |
| Paul J. Wyckoff | ||
| Interim Chief Financial Officer | ||
| and Principal Financial Officer |
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