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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ___________to ____________
Commission
File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(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 | ||
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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.
☒
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).
☒
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 ☐ | |
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Smaller
reporting company
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Emerging
growth company
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of February 9, 2024, the issuer had shares of common stock issued and outstanding.
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Restricted cash |
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||||||
| Short-term investments |
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||||||
| Trade receivables, net |
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||||||
| Trade receivables, net - related party |
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||||||
| Inventory, net |
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||||||
| Contract assets, net |
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||||||
| Prepaid expenses and other current assets |
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||||||
| Total current assets |
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||||||
| Property and equipment, net |
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||||||
| Right-of-use operating lease assets |
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| Royalties receivable, net- related party |
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||||||
| Note receivable, net - related party |
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||||||
| Goodwill |
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||||||
| Other |
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||||||
| Total Assets | $ |
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$ |
|
||||
| Liabilities & Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ |
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$ |
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||||
| Accounts payable - related party |
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||||||
| Sales tax payable |
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||||||
| Revolving line of credit |
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|||||||
| Current maturities of long-term liabilities |
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||||||
| Operating lease liabilities - short-term |
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||||||
| Deposits from customers |
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||||||
| Accrued expenses |
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||||||
| Contract liabilities |
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||||||
| Deferred revenue |
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||||||
| Accrued income taxes |
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||||||
| Total current liabilities |
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||||||
| Long-term liabilities | ||||||||
| Loans payable to bank |
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||||||
| Long-term operating lease liabilities |
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||||||
| Notes payable |
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||||||
| Mortgage payable |
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||||||
| Other long-term liabilities |
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||||||
| Paycheck Protection Program Loans |
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||||||
| Deferred Revenue - long-term |
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||||||
| Total long-term liabilities |
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||||||
| Total liabilities |
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||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
|
Preferred
stock , $
par value,
shares authorized, Series 1,
shares authorized,
shares issued and
shares outstanding as of December 31, 2023 and
shares issued and
shares outstanding as of September 30, 2023
(liquidation value of $
|
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||||||
| Series C, shares authorized, shares issued and outstanding at December 31, 2023 and September 30, 2023 |
|
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||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at December 31, 2023 and shares issued and outstanding at September 30, 2023 |
|
|
||||||
| Additional paid-in capital |
|
|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| Treasury stock, shares of Series 1 Preferred Stock at December 31, 2023 and September 30, 2023 |
(
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) |
(
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) | ||||
| Accumulated other comprehensive income |
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||||||
| Total Cemtrex stockholders’ equity |
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||||||
| Non-controlling interest |
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||||||
| Total liabilities and stockholders’ equity | $ |
|
$ |
|
||||
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 | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Revenues | $ |
|
$ |
|
||||
| Cost of revenues |
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||||||
| Gross profit |
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||||||
| Operating expenses | ||||||||
| General and administrative |
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||||||
| Research and development |
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||||||
| Total operating expenses |
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||||||
| Operating loss |
(
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) |
(
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) | ||||
| Other (expense)/income | ||||||||
| Other income/(expense), net |
|
(
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) | |||||
| Interest expense |
(
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) |
(
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) | ||||
| Total other (expense)/income, net |
(
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) |
(
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) | ||||
| Net loss before income taxes |
(
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) |
(
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) | ||||
| Income tax expense |
(
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) | ||||||
| Loss from Continuing operations |
(
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) |
(
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) | ||||
| Income/(loss) from discontinued operations, net of tax |
|
(
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) | |||||
| Net loss |
(
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) |
(
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) | ||||
| Less loss in noncontrolling interest |
(
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) |
(
|
) | ||||
| Net loss attributable to Cemtrex, Inc. stockholders | $ |
(
|
) | $ |
(
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) | ||
| Income/(loss) per share - Basic & Diluted | ||||||||
| Continuing Operations | $ | ) | $ | ) | ||||
| Discontinued Operations | $ | $ | ) | |||||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| For the three months ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Other comprehensive loss | ||||||||
| Net loss | $ |
(
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) | $ |
(
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) | ||
| Foreign currency translation gain |
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||||||
| Comprehensive loss |
(
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) |
(
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) | ||||
| Less comprehensive income attributable to noncontrolling interest |
(
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) |
(
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) | ||||
| Comprehensive loss attributable to Cemtrex, Inc. stockholders | $ |
(
|
) | $ |
(
|
) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
|
Preferred Stock Series 1 Par Value $0.001 |
Preferred Stock Series C Par Value $0.001 |
Common Stock Par Value $0.001 |
Additional |
Treasury Stock, 64,100 shares of Series 1 |
Accumulated other |
Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
|
Number of Shares |
Amount |
Number of Shares |
Amount |
Number of Shares |
Amount |
Paid-in Capital |
Accumulated Deficit |
Preferred Stock |
Comprehensive Income |
Stockholders’ Equity |
controlling interest |
|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 |
|
$ |
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$ |
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$ |
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$ |
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$ |
(
|
) | $ |
(
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) | $ |
|
$ |
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$ |
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|||||||||||||||||||||||||
| Foreign currency translation gain |
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|
||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation |
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||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares |
|
|
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest |
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay for services |
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||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements .
| 5 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
|
Preferred Stock Series 1 Par Value $0.001 |
Preferred Stock Series C Par Value $0.001 |
Common Stock Par Value $0.001 |
Additional |
Treasury Stock, 64,100 shares of Series 1 |
Accumulated
other |
Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
|
Number of Shares |
Amount |
Number of Shares |
Amount |
Number of Shares |
Amount |
Paid-in Capital |
Accumulated Deficit |
Preferred Stock |
Comprehensive Income |
Stockholders’
Equity |
controlling interest |
|||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||
| Foreign currency translation gain |
|
|
||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation |
|
|
||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable |
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares |
|
|
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest |
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ |
(
|
) | $ |
(
|
) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Depreciation and amortization |
|
|
||||||
| Gain on disposal of property and equipment |
(
|
) | ||||||
| Noncash lease expense |
|
|
||||||
| Bad debt expense |
|
|
||||||
| Share-based compensation |
|
|
||||||
| Income tax expense |
|
|||||||
| Interest expense paid in equity shares |
|
|||||||
| Accounts payable paid in equity shares |
|
|||||||
| Accrued interest on notes payable |
|
|
||||||
| Non-cash royalty income |
(
|
) | ||||||
| Amortization of original issue discounts on notes payable |
|
|||||||
| Amortization of loan origination costs |
|
|||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Trade receivables |
(
|
) |
(
|
) | ||||
| Trade receivables - related party |
(
|
) |
(
|
) | ||||
| Inventory |
|
(
|
) | |||||
| Contract assets |
|
(
|
) | |||||
| Prepaid expenses and other current assets |
|
(
|
) | |||||
| Other assets |
(
|
) |
(
|
) | ||||
| Accounts payable |
(
|
) |
(
|
) | ||||
| Accounts payable - related party |
|
(
|
) | |||||
| Sales tax payable |
(
|
) |
(
|
) | ||||
| Operating lease liabilities |
(
|
) |
(
|
) | ||||
| Deposits from customers |
|
|
||||||
| Accrued expenses |
(
|
) |
|
|||||
| Contract liabilities |
|
|
||||||
| Deferred revenue |
(
|
) |
(
|
) | ||||
| Income taxes payable |
(
|
) |
(
|
) | ||||
| Other liabilities |
(
|
) |
(
|
) | ||||
| Net cash used by operating activities - continuing operations |
(
|
) |
(
|
) | ||||
| Net cash provided by operating activities - discontinued operations |
|
|||||||
| Net cash used by operating activities |
(
|
) |
(
|
) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment |
(
|
) |
(
|
) | ||||
| Proceeds from sale of property and equipment |
|
|||||||
| Proceeds from sale of marketable securities |
|
|||||||
| Investment in MasterpieceVR |
(
|
) | ||||||
| Net cash used by by investing activities - continuing operations |
(
|
) |
(
|
) | ||||
| Net cash provided by investing activities - discontinued operations |
|
|||||||
| Net cash used by investing activities |
(
|
) |
(
|
) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds on revolving line of credit |
|
|||||||
| Payments on revolving line of credit |
(
|
) | ||||||
| Payments on debt |
(
|
) |
(
|
) | ||||
| Payments on Paycheck Protection Program Loans |
(
|
) | ||||||
| Proceeds on bank loans |
|
|||||||
| Payments on bank loans |
(
|
) |
(
|
) | ||||
| Net cash provided by/(used by) financing activities |
|
(
|
) | |||||
| Effect of currency translation |
|
|
||||||
| Net decrease in cash, cash equivalents, and restricted cash |
(
|
) |
(
|
) | ||||
| Less cash attributed to discontinued operations |
(
|
) | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period |
|
|
||||||
| Cash, cash equivalents, and restricted cash at end of period | $ |
|
$ |
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Restricted cash |
|
|
||||||
| Total cash, cash equivalents, and restricted cash | $ |
|
$ |
|
||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ |
|
$ |
|
||||
| Cash paid during the period for income taxes, net of refunds | $ |
|
$ |
|
||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued to pay for services | $ |
|
$ | |||||
| Shares issued to pay notes payable | $ | $ |
|
|||||
| Financing of fixed asset purchase | $ |
|
$ | |||||
| Investment in right of use asset | $ | $ |
|
|||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
Cemtrex, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS
Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
The Company’s reporting segments consist of Security and Industrial Services.
Security
Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which provides end-to-end security solutions to meet the toughest corporate, industrial, and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
Acquisition of Heisey Mechanical
On
July 1, 2023, the Company under AIS, completed the acquisition of a leading service contractor and steel fabricator that specializes
in industrial and water treatment markets, Heisey Mechanical, Ltd. (“Heisey”) based in Columbia, Pennsylvania for $
Heisey
provides the water treatment industry with a variety of fabricated vessels and equipment including ASME pressure vessels, heat exchangers,
mix tanks, reactors, and other specialized fabricated equipment. Additionally, the contracting team assists with installation and service
of fabricated items. The company has over
The purchase price allocation presented below is still preliminary but has been developed based on an estimate of fair values of Heisey’s identifiable tangible and intangible assets acquired and liabilities assumed as of July 1, 2023. The final allocation of the purchase price will be determined within one year from the closing date of the Heisey acquisition.
| 9 |
The consideration transferred and preliminary allocation of Heisey’s tangible and intangible assets and liabilities, are as follows:
| Consideration Transferred: | ||||
| Cash | $ |
|
||
| Seller’s note |
|
|||
| Financed amount |
|
|||
| Total consideration transferred | $ |
|
||
| Purchase Price Allocation: | ||||
| Inventory |
|
|||
| Contract assets |
|
|||
| Machinery and equipment |
|
|||
| Contract liabilities |
(
|
) | ||
| Accrued expenses |
(
|
) | ||
| Goodwill |
|
|||
| Total consideration transferred | $ |
|
The
pro forma summary below presents the results of operations as if the Heisey acquisition occurred on October 1, 2022. Proforma adjustments
for the three months ended December 31, 2022, includes $
| Unaudited | ||||
|
for the three months ended |
||||
| December 31, 2022 | ||||
| Revenues | $ |
|
||
| Net loss |
(
|
) | ||
On
August 30, 2023, the Company acquired a mortgage in the amount of $
Nasdaq Notices for Listing Deficiencies
On July 29, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s Series 1 preferred stock listed on Nasdaq was below $ 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. On September 8, 2023, the Company received a letter from the Nasdaq Hearings Panel (“Panel”) informing the Company that the Panel has granted the Company a temporary exception to regain compliance with The Nasdaq Stock Market LLC’s (“Nasdaq” or the “Exchange”) Listing Rule 5555(a)(1) (the “Bid Price Rule”) by no later than January 19, 2024. The Company has announced a special meeting of Series 1 Preferred stock shareholders was scheduled for December 26, 2023, to approve the reverse stock split. On December 26, 2023, the meeting was adjourned to December 29, 2023, due to insufficient votes represented by proxy or virtually in person to constitute a quorum for the transaction of business at the Special Meeting. On December 29, 2023, there were still insufficient votes represented by proxy or virtually in person to constitute a quorum thus the resolution did not pass.
| 10 |
Subsequent
to the balance sheet date, the Company has bought back
shares for $
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 $
While
our working capital deficit and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going
concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through
the issuance of common stock, thus reducing our cash requirement to meet our operating needs. The Company has approximately $
| 11 |
The condensed consolidated financial statements do not include any adjustments relating to this uncertainty.
NOTE 2 – INTERIM STATEMENT PRESENTATION
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2023, of Cemtrex, Inc.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Significant Accounting Policies
Note 2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30, 2023, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Update 2016-13”). Update 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2022, including interim periods within that reporting period. On October 1, 2023, the Company implemented this standard and there has been no material change to the financial statements.
The Company estimates credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
The Company will utilize the Probability-of-default method for financing receivables and loans. Expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default). The Company considers sources of repayment associated with a financial asset when determining its credit losses, including collection against the collateral and certain embedded credit enhancements, such as guarantees or insurance. The allowance for credit losses were immaterial as of December 31, 2023.
| 12 |
Recently Issued Accounting Pronouncements Not Yet Effective
On June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting for fiscal 2025 and for interim period reporting beginning in fiscal 2026 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of ASU 2023-07 on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2026 for the annual reporting period ending September 30, 2026. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements.
The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.
NOTE 3 – DISCONTINUED OPERATIONS
On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil.
Due
to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated
with the SmartDesk sale at $
Based
on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $
| 13 |
The following table summarizes the loss on the sale recorded during the three months ended December 31, 2022, included in Income/(loss) from discontinued operations, net of tax in the accompanying condensed consolidated statement of Operations:
| Purchase Price | $ |
|
||
| Less cash and cash equivalents transferred |
(
|
) | ||
| Less liabilities assumed |
(
|
) | ||
| Net purchase price | $ |
|
||
| Assets Sold | ||||
| Accounts receivable, net | $ |
|
||
| Inventory, net |
|
|||
| Prepaid expenses and other assets |
|
|||
| Property and equipment, net |
|
|||
| Goodwill |
|
|||
|
|
||||
| Liabilities Transferred | ||||
| Accounts payable |
|
|||
| Short-term liabilities |
|
|||
| Long-term liabilities |
|
|||
|
|
||||
| Net assets sold | $ |
|
||
| Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies | $ |
(
|
) |
As of December 31, 2023, and September 30, 2023, there were no assets or liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets.
During
the first quarter of fiscal 2023, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in Israel.
The Company received funds related to benefit obligations of $
| 14 |
Income/(loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies, Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations, net of tax in the Company’s Condensed Consolidated Statements of Operations for the three month periods ended December 31, 2023 and 2022, are as follows:
|
For the three months ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| Total net sales | $ | $ |
|
|||||
| Cost of sales |
|
|||||||
| Operating, selling, general and administrative expenses |
|
|||||||
| Other (income)/expenses |
|
|||||||
| Income (loss) from discontinued operations |
(
|
) | ||||||
| Amortization of discounted royalties |
|
|
||||||
| Loss on sale of discontinued operations |
(
|
) | ||||||
| Adjustment of benefit obligation |
|
|||||||
| Income tax provision |
|
|||||||
| Discontinued operations, net of tax | $ |
|
$ |
(
|
) | |||
NOTE 4 – REVENUE
The following table illustrates the approximate disaggregation of the Company’s revenue based off timing of revenue recognition for the three months ended December 31, 2023 and 2022:
| For the three months ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Over time |
|
% |
|
% | ||||
| Point-in-time |
|
% |
|
% | ||||
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the three months ended December 31, 2023, and 2022, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Options |
|
|
||||||
| 15 |
| For the three months | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss from Continuing operations | $ |
(
|
) | $ |
(
|
) | ||
| Less loss in noncontrolling interest |
(
|
) |
(
|
) | ||||
| Preferred stock dividends | ||||||||
| Net loss applicable to common shareholders |
(
|
) |
(
|
) | ||||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||
| Loss per share - Basic & Diluted - Continuing Operations | $ | ) | $ | ) | ||||
NOTE 6 – SEGMENT INFORMATION
The Company reports and evaluates financial information for two reportable segments: the Security segment and the Industrial Services segment.
The following tables summarize the Company’s reportable segment information and corporate expenses:
|
Three months ended December 31, 2023 |
Three months ended December 31, 2022 |
|||||||||||||||||||||||||||||||
| Reportable Segments | Reportable Segments | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ | $ |
|
$ |
|
$ |
|
$ | $ |
|
||||||||||||||||||
| Cost of revenues |
|
|
|
|
|
|
||||||||||||||||||||||||||
| Gross profit | $ |
|
$ |
|
$ | $ |
|
$ |
|
$ |
|
$ | $ |
|
||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| General, and administrative |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Research and development |
|
|
|
|
||||||||||||||||||||||||||||
| Operating (loss)/income | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||
| Other income/(expense) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||||||
NOTE 7 – 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 $
NOTE 8 – 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.
| 16 |
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 December 31, 2023, and September 30, 2023, are as follows.
|
Quoted
Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Balance
as of December 31, 2023 |
|||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities (included in short-term investments) | $ |
|
$ | $ | $ |
|
||||||||||
| $ |
|
$ | $ | $ |
|
|||||||||||
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Balance
as of September 30, 2023 |
|||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities (included in short-term investments) | $ |
|
$ | $ | $ |
|
||||||||||
| $ |
|
$ | $ | $ |
|
|||||||||||
NOTE 9 – TRADE RECEIVABLES, NET
Trade receivables, net consist of the following:
|
December 31, 2023 |
September 30, 2023 | |||||||
| Trade receivables | $ |
|
$ |
|
||||
| Allowance for credit losses |
(
|
) |
(
|
) | ||||
| $ |
|
$ |
|
|||||
Trade receivables include amounts due for shipped products and services rendered.
Allowance for credit losses include estimated losses resulting from the inability of our customers to make the required payments.
| 17 |
NOTE 10 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| December 31, 2023 | September 30, 2023 | |||||||
| Prepaid expenses | $ |
|
$ |
|
||||
| Prepaid inventory |
|
|
||||||
| Deferred costs |
|
|
||||||
| Loan origination costs |
|
|||||||
| Prepaid income taxes |
|
|||||||
| VAT and GST tax receivable |
|
|
||||||
| Prepaid expenses and other current assets total | $ |
|
$ |
|
||||
NOTE 11 – INVENTORY, NET
Inventory, net consisted of the following:
| December 31, 2023 | September 30, 2023 | |||||||
| Raw materials | $ |
|
$ |
|
||||
| Work in progress |
|
|
||||||
| Finished goods |
|
|
||||||
| Inventory, net |
|
|
||||||
The
Company maintained an allowance for obsolete inventories of $
NOTE 12 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| December 31, 2023 | September 30, 2023 | |||||||
| Land | $ |
|
$ |
|
||||
| Building and leasehold improvements |
|
|
||||||
| Furniture and office equipment |
|
|
||||||
| Computers and software |
|
|
||||||
| Machinery and equipment |
|
|
||||||
|
|
|
|||||||
| Less: Accumulated depreciation |
(
|
) |
(
|
) | ||||
| Property and equipment, net | $ |
|
$ |
|
||||
Depreciation
expense for the three months ended December 31, 2023, and 2022, was $
NOTE 13 – GOODWILL
Changes in the carrying amount of goodwill, by segment, are as follows:
| Security |
Industrial Services |
Corporate | Consolidated | |||||||||||||
| Balance at September 30, 2023 | $ |
|
$ |
|
$ | $ |
|
|||||||||
| Balance at December 31, 2023 | $ |
|
$ |
|
$ | $ |
|
|||||||||
As
of December 31, 2023, and September 30, 2023, accumulated impairment losses of $
| 18 |
NOTE 14 – OTHER ASSETS
On
November 13, 2020, Cemtrex made a $
Other assets consisted of the following:
| December 31, 2023 | September 30, 2023 | |||||||
| Rental deposits | $ |
|
$ |
|
||||
| Investment in Masterpiece VR |
|
|
||||||
| Other deposits |
|
|
||||||
| Demonstration equipment supplied to resellers |
|
|
||||||
| Other assets total | $ |
|
$ |
|
||||
NOTE 15 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
| December 31, 2023 | September 30, 2023 | |||||||
| Accrued expenses | $ |
|
$ |
|
||||
| Accrued payroll |
|
|
||||||
| Accrued warranty |
|
|
||||||
| Accrued expenses total | $ |
|
$ |
|
||||
NOTE 16 – DEFERRED REVENUE
The Company’s deferred revenue as of and for the three months ended December 31, 2023, and 2022, were as follows:
| For the three months ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Deferred revenue at beginning of period | $ |
|
$ |
|
||||
| Net additions: | ||||||||
| Deferred software revenues |
|
|
||||||
| Recognized as revenue: | ||||||||
| Deferred software revenues |
|
|
||||||
| Deferred revenue at end of period |
|
|
||||||
| Less: current portion |
|
|
||||||
| Long-term deferred revenue at end of period | $ |
|
$ |
|
||||
For the three months ended December 31, 2023 and 2022, the Company recognized revenue of $
| 19 |
NOTE 17 – CONTRACT ASSETS AND LIABILITIES
Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of the Company’s performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statements of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in the balance sheets under the caption “Contract assets.” Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in the balance sheets under the caption “Contract liabilities.” Conditional retainage represents the portion of the contract price withheld until the work is substantially complete for assurance of the Company’s obligations to complete the job.
The following is a summary of the Company’s uncompleted contracts:
| December 31, 2023 | December 31, 2022 | |||||||
| Costs incurred on uncompleted contracts | $ |
|
$ |
|
||||
| Estimated gross profit |
|
|
||||||
|
|
|
|||||||
| Applicable billings to date |
(
|
) |
(
|
) | ||||
| Net billings in excess of costs, Ending balance | $ |
|
$ |
(
|
) | |||
| December 31, 2023 | September 30, 2023 | |||||||
| Included in the accompanying balance sheet under the following captions | ||||||||
| Contract assets, net | ||||||||
| Costs in excess, net | $ |
|
$ |
|
||||
| Conditional retainage, net |
|
|
||||||
| Total contract assets , net | $ |
|
$ |
|
||||
| Contract liabilities | ||||||||
| Billings in excess |
(
|
) |
(
|
) | ||||
| Total contract liabilities | $ |
(
|
) | $ |
(
|
) | ||
| December 31, 2022 | September 30, 2022 | |||||||
| Included in the accompanying balance sheet under the following captions | ||||||||
| Contract assets, net | ||||||||
| Costs in excess, net | $ |
|
$ |
|
||||
| Total contract assets, net | $ |
|
$ |
|
||||
| Contract liabilities | ||||||||
| Billings in excess |
(
|
) |
(
|
) | ||||
| Total contract liabilities | $ |
(
|
) | $ |
(
|
) | ||
For
the three months ended December 31, 2023 and 2022, the Company recognized revenue of $
NOTE 18 – 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 $
As
of December 31, 2023, and September 30, 2023, there was $
As
of December 31, 2023, and September 30, 2023, there was $
| 20 |
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. Cemtrex XR, Inc. was purchased for $
As
of December 31, 2023, there was $
As
of December 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $
NOTE 19 – 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
The Company has elected not to recognize lease assets and liabilities for leases with a term of 12 months or less.
The
Company’s corporate segment leases approximately
The
Company’s security segment leases approximately
| 21 |
A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at December 31, 2023, is set forth below:
| Years ending September 30, | Operating Leases | |||
| 2024 |
|
|||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 & Thereafter |
|
|||
| Undiscounted lease payments |
|
|||
| Amount representing interest |
(
|
) | ||
| Discounted lease payments | $ |
|
||
Lease costs for the three months ended December 31, 2023, and 2022 are set forth below:
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Lease costs: | ||||||||
| Operating lease costs |
|
|
||||||
| Short-term lease costs |
|
|||||||
| Total lease cost | $ |
|
$ |
|
||||
NOTE 20 – LINES OF CREDIT AND LONG-TERM LIABILITIES
Revolving line of credit
On
October 5, 2023, the Company obtained a revolving line of credit in the amount of $
Standstill Agreement
On
August 31, 2023, the Company and Streeterville Capital, LLC entered into a standstill agreement for the two notes held by Streeterville
Capital, LLC. The terms of this agreement are the earlier of (a) the date that is ninety (90) days from the Effective Date, and (b) the
date that the Company completes an equity offering on either Form S-1 or Form S-3 (the “Standstill Period”), Streeterville
Capital, LLC will not seek to redeem any portion of the Notes, and (c) the Company agrees to prepay to Lender fifty percent (50%) of
the net proceeds received by Borrower in connection with all equity financings until such time as Borrower has raised at least $
| 22 |
The following table outlines the Company’s secured liabilities:
| December 31, | September 30, | |||||||||||
| Interest Rate | Maturity | 2023 | 2023 | |||||||||
|
Fulton
Bank - $
|
SOFR
plus
|
|
|
|
||||||||
|
Fulton
Bank mortgage $
|
SOFR
plus
|
|
|
|
||||||||
|
Fulton
Bank (HEISEY) - $
|
SOFR
plus
|
|
|
|
||||||||
|
Fulton
Bank (HEISEY) - $
|
SOFR
plus
|
|
|
|
||||||||
|
Note
payable - $
|
|
|
|
|
||||||||
|
Note
payable - $
|
|
|
|
|
||||||||
|
Note
Payable - $
|
|
|
|
|
||||||||
|
Term
Loan Agreement with NIL Funding Corporation (“NIL”) - $
|
|
|
|
|||||||||
|
Paycheck
Protection Program loan - $
|
|
|
|
|
||||||||
|
Software
License Agreement - $
|
N/A |
|
|
|
||||||||
|
HDFC
Bank Auto Loan - $
|
|
|
|
|||||||||
| Total secured liabilities | $ |
|
$ |
|
||||||||
| Less: Current maturities |
(
|
) |
(
|
) | ||||||||
| Less: Unamortized original issue discount | ||||||||||||
| Secured liabilities, Long Term | $ |
|
$ |
|
||||||||
NOTE 21 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of Preferred Stock, $ par value. As of December 31, 2023, and September 30, 2023, there were and shares issued and and shares outstanding, respectively.
| 23 |
Series 1 Preferred Stock
During the three months ended December 31, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
As of December 31, 2023, and September 30, 2023, 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 December 31, 2023, and September 30, 2023, 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 December 31, 2023, there were shares issued and outstanding and at September 30, 2023, there were shares issued and outstanding.
During
the three months ended December 31, 2023,
shares of the Company’s common stock have been issued in exchange for services
valued at $
For the three months ended December 31, 2023, and 2022, the Company recognized $ and $ of share-based compensation expense on its outstanding options, respectively. As of December 31, 2023, $ of unrecognized share-based compensation expense is expected to be recognized over a period of two years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the three months ended December 31, 2023, no options were granted, cancelled, or forfeited.
NOTE 23 – COMMITMENTS AND CONTINGENCIES
The
Company’s Industrial Services segment leases approximately
The
Company’s Security segment leases (i) approximately
From time to time, the Company and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. The Company continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, the Corporation does not expect that such legal proceedings will have a material adverse impact on its condensed consolidated financial statements.
NOTE 24 – SUBSEQUENT EVENTS
Delisting from NASDAQ Capital Market and Repurchase of Series 1 Preferred Stock
Subsequent
to the balance sheet date, the Company has bought back
shares for $
The Company’s Series 1 Preferred Stock was suspended from the Nasdaq Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP.”
Nasdaq informed the Company that Nasdaq will complete the delisting by filing a Form 25 Notification of Delisting with the SEC following the lapse of applicable appeal periods. The Company does not intend to appeal the Panel’s decision. After the Form 25 is filed, the delisting will become effective 10 days later. The deregistration of the Company’s Series 1 Preferred Stock under Section 12(b) of the Exchange Act will be effective for 90 days, or such shorter period as the SEC may determine, after filing of the Form 25.
Filing of Registration Statement on Form S-1
On January 17, 2024, the Company filed a preliminary Prospectus on Form S-1 to register shares of our common stock and common stock warrants for sale through a placement agent.
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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.
The Company’s reporting segments consist of Security and Industrial Services.
Security
Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which provides end-to-end security solutions to meet the toughest corporate, industrial, and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
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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, 2023.
Results of Operations – For the three months ended December 31, 2023, and 2022
Revenues
Our Security segment revenues for the three months ended December 31, 2023, increased by $2,163,057 or 31% to $9,167,801 from $7,004,744 for the three months ended December 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 December 31, 2023, increased by $2,744,867 or 55%, to $7,710,365 from $4,965,498 for the three months ended December 31, 2022. This increase is mainly due to increased demand for the segment’s services and the additional business from the Heisey acquisition.
Our Corporate segment is the holding company for the other two segments and did not generate any revenue for the three months ended December 31, 2023 or 2022.
Gross Profit
Gross Profit for the three months ended December 31, 2023, was $7,082,399 or 42% of revenues as compared to gross profit of $5,042,615 or 42% of revenues for the three months ended December 31, 2022.
Gross profit in our Security segment was $4,516,947 or 49% of the segment’s revenues for the three months ended December 31, 2023, as compared to gross profit of $3,403,690 or 49% of the segment’s revenues for the period ended December 31, 2022. Gross profit as a percentage of revenues remained constant in the three months ended December 31, 2023, compared to the three months ended December 31, 2022.
Gross profit in our Industrial Services segment was $2,565,452 or 33% of the segment’s revenues for the three months ended December 31, 2023, as compared to gross profit of $1,638,925 or 33% of the segment’s revenues for the period ended December 31, 2022. Gross profit as a percentage of revenues remained constant in the three months ended December 31, 2023, compared to the three months ended December 31, 2022.
General and Administrative Expenses
General and administrative expenses for the three months ended December 31, 2023, increased $1,516,133 or 28% to $6,971,966 from $5,455,833 for the three months ended December 31, 2022. The increase in general and administrative expenses is mainly related to increased payroll, insurance, office supplies and repairs and maintenance expenses offset by decreased depreciation, professional fees, rent, and travel expenses. One-time fees in the current quarter include approximately $155,000 in severance payments.
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Research and Development Expenses
Research and Development expenses for the three months ended December 31, 2023, were $848,805 compared to $1,538,218 for the three months ended December 31, 2022, a decrease of $689,413 or 45%. 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 Income/Expense
Other expense for the three months ended December 31, 2023, was $505,272, as compared to $1,145,317 for the three months ended December 31, 2022. Other expense for the three months ended December 31, 2023, and 2022, was mainly driven by interest on the Company’s debt. Decreases in interest expense relate to $221,831 in deferral charges and $441,733 of amortization of original issue discounts in the three months ended December 31, 2022, that did not occur in the current period.
Provision for Income Taxes
During the three months ended December 31, 2023 and 2022, the Company had income tax expense from continuing operations of $70,751 and $0. The provision for income tax is based upon the current 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 current ability to utilize net loss carryforwards.
Income/(loss) from Discontinued Operations
For the three months ended December 31, 2023, the Company had income on discontinued operations, net of tax of $10,492. This income is mainly related to the recognition of the royalties due from CXR, Inc. Losses on discontinued operations for the three months ended December 31, 2022, were $3,239,621 attributable to the operations and sale of the Cemtrex brands discussed in Note 3 to the financial statements included herein.
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 deficit was $2,284,787 at December 31, 2023, compared to working capital of $1,948,923 at September 30, 2023. This includes cash and equivalents and restricted cash of $4,016,732 at December 31, 2023, and $6,349,562 at September 30, 2022. The decrease in working capital was primarily due to the Company’s payment of accounts payable and accrued expenses.
Cash used by operating activities for continuing operations for the three months ended December 31, 2023, and 2022 was $3,139,073 and $5,872,310, respectively. Cash provided by operating activities for discontinued operations for the three months ended December 31, 2022, was $2,501,426.
Trade receivables increased by $694,860 or 8% to $9,904,555 at December 31, 2023, from $9,209,695 at September 30, 2023. The increase in trade receivables is attributable to increased sales in the Security segment.
Cash used by investing activities for continuing operations for the three months ended December 31, 2023, was $390,310 compared to $568,111 for the three months ended December 31, 2022. Cash provided by investing activities for discontinued operations was $207,329 for the three months ended December 31, 2022. Investing activities for the three months ended December 31, 2023, were driven by the Company’s purchase of property and equipment and investment in Masterpiece VR.
Cash provided by financing activities for the three months ended December 31, 2023, was $998,099 compared to using cash of $600,920 for the three months ended December 31, 2022. Financing activities were primarily driven by proceeds and payments on the Company’s revolving line of credit and payments on its secured debt. Financing activities for the three months ended December 31, 2022, were primarily driven by payments on the Company’s debt.
While our working capital deficit and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through the issuance of common stock, thus reducing our cash requirement to meet our operating needs. The Company has approximately $2.84 million in cash as of December 31, 2023. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of December 31, 2023, has available capacity of $1,642,676, (ii) sold unprofitable brands, reducing the cash required to maintain those brands, (iii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, and (iv) has effected a 35:1 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability to potentially raise capital through equity offerings that we may use to satisfy debt. In the event additional capital is raised through equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on our existing stockholders. While the Company believes these plans if successful, would be sufficient to meet the capital demands of our current operations for at least the next twelve months, there is no guarantee that we will succeed. Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our working capital needs. The Company currently does not have adequate cash or available liquidity/available capacity on our lines of credit to meet our short or long-term needs. Absent an ability to raise additional outside capital and restructure or refinance all or a portion of our debt, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date.
Each segment of the Company’s operations has positioned itself for growth and the Company’s long-term objectives include, increasing marketing and sales for the Company’s products and services in each segment, increasing the Company’s presence through collaboration partnerships in each segment and through strategic acquisitions of complementary businesses for each segment. These long-term objectives will require sufficient cash to complete, and the Company expects to fund these objectives with cash on hand, issuance of debt, and from proceeds from the sale of the Company’s securities, which may not be sufficient to fully implement our growth initiatives.
The condensed 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 December 31, 2023. Based on their evaluation, our management has concluded that as of December 31, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended December 31, 2023, 9,853 shares of the Company’s common stock have been issued in exchange for services valued at $40,000.
Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.
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
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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: February 13, 2024 | By: | /s/ Saagar Govil | |
| Saagar Govil | |||
| Chief Executive Officer | |||
| Dated: February 13, 2024 | /s/ Paul J. Wyckoff | ||
| Paul J. Wyckoff | |||
| Interim Chief Financial Officer | |||
| and Principal Financial Officer | |||
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