UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
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.) |
| 276 Greenpoint Ave, Suite 208, Brooklyn, NY | 11222 | |
| (Address of principal executive offices) | (Zip Code) |
631-756-9116
(Registrant’s telephone number, including area 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 | ||
| Series 1 Warrants | CETXW | 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.
| [X] | 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).
| [X] | 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 | [X] | No |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of August 11, 2020,June 18, 2021, the issuer had 16,743,33418,711,463 shares of common stock issued and outstanding.
Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | 12,939,493 | $ | 1,769,994 | ||||
| Restricted cash | 1,334,245 | 1,088,091 | ||||||
| Short-term investments | 1,778,739 | 412,730 | ||||||
| Accounts receivables, net | 4,804,475 | 6,458,984 | ||||||
| Accounts receivables - related party | 221,509 | 227,019 | ||||||
| Notes receivable - short-term | 1,713,371 | 1,713,371 | ||||||
| Inventory –net of allowance for inventory obsolescence | 6,591,608 | 5,207,155 | ||||||
| Prepaid expenses and other assets | 1,757,567 | 2,000,265 | ||||||
| Total current assets | 31,141,007 | 18,877,609 | ||||||
| Property and equipment, net | 19,158,694 | 16,776,552 | ||||||
| Right-of-use assets | 2,454,603 | - | ||||||
| Goodwill | 4,370,894 | 4,370,894 | ||||||
| Notes receivable - long-term | 1,586,918 | 1,586,918 | ||||||
| Deferred tax asset | 2,098,711 | 2,282,867 | ||||||
| Investment in related party | 500,000 | - | ||||||
| Other | 1,515,194 | 497,857 | ||||||
| Total Assets | $ | 62,826,021 | $ | 44,392,697 | ||||
| Liabilities & Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,602,556 | $ | 4,236,945 | ||||
| Short-term liabilities | 6,334,945 | 6,817,534 | ||||||
| Lease liabilities - short-term | 694,178 | 22,718 | ||||||
| Deposits from customers | 35,077 | 33,074 | ||||||
| Accrued expenses | 2,540,568 | 2,673,646 | ||||||
| Deferred revenue | 1,457,179 | 1,433,803 | ||||||
| Accrued income taxes | 311,109 | 419,541 | ||||||
| Total current liabilities | 13,975,612 | 15,637,261 | ||||||
| Long-term liabilities | ||||||||
| Loans payable to bank, net of current portion | 2,014,922 | 2,240,526 | ||||||
| Long-term lease liabilities, net of current portion | 1,845,165 | 20,061 | ||||||
| Notes payable, net of current portion | 4,435,737 | 2,817,661 | ||||||
| Mortgage payable, net of current portion | 2,373,188 | - | ||||||
| Other long-term liabilities | 3,273,320 | 1,221,549 | ||||||
| Series 1 preferred stock dividends payable | 1,026,900 | - | ||||||
| Deferred Revenue - long-term | 366,805 | 489,535 | ||||||
| Total long-term liabilities | 15,336,037 | 6,789,332 | ||||||
| Total liabilities | 29,311,649 | 22,426,593 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock , $0.001 par value, 20,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,216,683 shares issued and outstanding as of June 30, 2020 and 2,110,718 shares issued and outstanding as of September 30, 2019 (liquidation value of $10 per share) | 2,217 | 2,111 | ||||||
| Series A, 1,000,000 shares authorized, issued and outstanding at June 30, 2020 and September 30, 2019 | 1,000 | 1,000 | ||||||
| Series C, 100,000 shares authorized, issued and outstanding at June 30, 2020 | 100 | - | ||||||
| Common stock, $0.001 par value, 20,000,000 shares authorized, 16,263,715 shares issued and outstanding at June 30, 2020 and 3,962,790 shares issued and outstanding at September 30, 2019 | 16,264 | 3,963 | ||||||
| Additional paid-in capital | 60,543,674 | 40,344,837 | ||||||
| Accumulated deficit | (28,812,321 | ) | (20,067,685 | ) | ||||
| Treasury stock at cost | (190,483 | ) | - | |||||
| Accumulated other comprehensive income | 949,424 | 796,004 | ||||||
| Cemtrex stockholders’ equity | 32,509,875 | 21,080,230 | ||||||
| Non-controlling interest | 1,004,497 | 885,874 | ||||||
| Total liabilities and stockholders’ equity | $ | 62,826,021 | $ | 44,392,697 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| (UNAUDITED) | (Restated) | |||||||
| March 31, | September 30, | |||||||
| Assets | 2021 | 2020 | ||||||
| Current assets | ||||||||
| Cash and equivalents | $ | 15,573,734 | $ | 19,490,061 | ||||
| Restricted cash | 1,706,926 | 1,582,798 | ||||||
| Short-term investments | 522,612 | 887,746 | ||||||
| Trade receivables, net | 5,403,292 | 6,686,797 | ||||||
| Trade receivables - related party | 1,498,776 | 1,432,209 | ||||||
| Inventory –net of allowance for inventory obsolescence | 7,358,808 | 6,793,806 | ||||||
| Prepaid expenses and other assets | 1,820,031 | 1,188,317 | ||||||
| Total current assets | 33,884,179 | 38,061,734 | ||||||
| Property and equipment, net | 7,335,201 | 6,961,751 | ||||||
| Right-of-use assets | 2,862,154 | 2,728,380 | ||||||
| Assets held for sale | 8,323,321 | 8,323,321 | ||||||
| Goodwill | 5,886,096 | 4,370,894 | ||||||
| Other | 1,074,861 | 744,207 | ||||||
| Total Assets | $ | 59,365,812 | $ | 61,190,287 | ||||
| Liabilities & Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,314,545 | $ | 2,857,817 | ||||
| Short-term liabilities | 6,595,935 | 7,034,510 | ||||||
| Lease liabilities - short-term | 764,108 | 721,036 | ||||||
| Deposits from customers | 96,468 | 29,660 | ||||||
| Accrued expenses | 2,676,724 | 2,392,487 | ||||||
| Deferred revenue | 1,473,041 | 1,651,784 | ||||||
| Accrued income taxes | 553 | 89,318 | ||||||
| Total current liabilities | 13,921,374 | 14,776,612 | ||||||
| Long-term liabilities | ||||||||
| Loans payable to bank | 1,323,989 | 1,871,201 | ||||||
| Long-term lease liabilities | 2,106,545 | 2,027,406 | ||||||
| Notes payable | 3,154,743 | 6,029,999 | ||||||
| Mortgage payable | 2,306,834 | 2,355,542 | ||||||
| Other long-term liabilities | 1,075,171 | 1,063,733 | ||||||
| Paycheck Protection Program Loans | 5,406,477 | 2,169,437 | ||||||
| Deferred Revenue - long-term | 784,667 | 467,329 | ||||||
| Total long-term liabilities | 16,158,426 | 15,984,647 | ||||||
| Total liabilities | 30,079,800 | 30,761,259 | ||||||
| Commitments and contingencies | - | - | ||||||
| Shareholders’ equity | ||||||||
| Preferred stock , $0.001 par value, 10,000,000 shares authorized,Series 1, 3,000,000 shares authorized, 1,795,004 shares issued and outstanding as of March 31, 2021 and 2,156,784 shares issued and outstanding as of September 30, 2020 (liquidation value of $10 per share) | 1,795 | 2,157 | ||||||
| Series A, 1,000,000 shares authorized, zero shares issued and outstanding at March 31, 2021 and 1,000,000 shares issued and outstanding at September 30, 2020 - 1,000 Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at March 31, 2021 and 100,000 shares issued and outstanding at September 30, 2020 | 50 | 100 | ||||||
| Common stock, $0.001 par value, 50,000,000 shares authorized, 18,711,463 shares issued and outstanding at March 31, 2021 and 17,622,539 shares issued and outstanding at September 30, 2020 | 18,711 | 17,623 | ||||||
| Additional paid-in capital | 58,320,570 | 60,221,766 | ||||||
| Retained earnings (accumulated deficit) | (31,758,563 | ) | (32,520,084 | ) | ||||
| Treasury stock at cost | (148,291 | ) | (148,291 | ) | ||||
| Accumulated other comprehensive income (loss) | 1,824,350 | 1,777,112 | ||||||
| Total Cemtrex stockholders’ equity | 28,258,622 | 29,351,383 | ||||||
| Non-controlling interest | 1,027,390 | 1,077,645 | ||||||
| Total liabilities and shareholders’ equity | $ | 59,365,812 | $ | 61,190,287 | ||||
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
(Unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
| Revenues | $ | 8,440,867 | $ | 10,928,933 | $ | 32,774,797 | $ | 28,371,927 | ||||||||
| Cost of revenues | 5,161,015 | 6,870,920 | 18,800,355 | 17,319,532 | ||||||||||||
| Gross profit | 3,279,852 | 4,058,013 | 13,974,442 | 11,052,395 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 5,606,659 | 4,057,081 | 16,187,890 | 14,365,707 | ||||||||||||
| Research and development | 331,936 | 285,853 | 1,113,455 | 1,136,981 | ||||||||||||
| Total operating expenses | 5,938,595 | 4,342,934 | 17,301,345 | 15,502,688 | ||||||||||||
| Operating loss | (2,658,743 | ) | (284,921 | ) | (3,326,903 | ) | (4,450,293 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other Income | 158,134 | 150,561 | 830,251 | 145,991 | ||||||||||||
| Loss on equity interests | - | - | - | (342,776 | ) | |||||||||||
| Interest expense | (1,982,101 | ) | (2,313,415 | ) | (3,812,921 | ) | (2,945,427 | ) | ||||||||
| Total other expense, net | (1,823,967 | ) | (2,162,854 | ) | (2,982,670 | ) | (3,142,212 | ) | ||||||||
| Net loss before income taxes | (4,482,710 | ) | (2,447,775 | ) | (6,309,573 | ) | (7,592,505 | ) | ||||||||
| Income tax benefit/(expense) | (7,658 | ) | 780,742 | (197,201 | ) | 1,954,251 | ||||||||||
| Loss from continuing operations | (4,490,368 | ) | (1,667,033 | ) | (6,506,774 | ) | (5,638,254 | ) | ||||||||
| Loss from discontinued operations, net of tax | - | (221,923 | ) | - | (767,026 | ) | ||||||||||
| Net loss | (4,490,368 | ) | (1,888,956 | ) | (6,506,774 | ) | (6,405,280 | ) | ||||||||
| Less noncontrolling interest | (35,751 | ) | 36,662 | 151,312 | (319,493 | ) | ||||||||||
| Net loss | $ | (4,454,617 | ) | $ | (1,925,618 | ) | $ | (6,658,086 | ) | $ | (6,085,787 | ) | ||||
| Preferred dividends | - | 1,007,720 | 2,086,550 | 1,965,500 | ||||||||||||
| Net loss available to Cemtrex, Inc. shareholders | $ | (4,454,617 | ) | $ | (2,933,338 | ) | $ | (8,744,636 | ) | $ | (8,051,287 | ) | ||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation gain/(loss) | 310,797 | (169,928 | ) | 153,420 | (1,198,688 | ) | ||||||||||
| Other comprehensive income attribitable to noncontrolling interest | (5,515 | ) | - | (32,689 | ) | - | ||||||||||
| Comprehensive loss | 305,282 | (169,928 | ) | 120,731 | (1,198,688 | ) | ||||||||||
| Comprehensive loss | $ | (4,149,335 | ) | $ | (3,103,266 | ) | $ | (8,623,905 | ) | $ | (9,249,975 | ) | ||||
| Loss Per Share-Basic | ||||||||||||||||
| Continuing Operations | $ | (0.41 | ) | $ | (1.47 | ) | $ | (1.22 | ) | $ | (3.49 | ) | ||||
| Discontinued Operations | $ | - | $ | (0.12 | ) | $ | - | $ | (0.37 | ) | ||||||
| Loss Per Share-Diluted | ||||||||||||||||
| Continuing Operations | $ | (0.41 | ) | $ | (1.47 | ) | $ | (1.22 | ) | $ | (3.49 | ) | ||||
| Discontinued Operations | $ | - | $ | (0.12 | ) | $ | - | $ | (0.37 | ) | ||||||
| Weighted Average Number of Shares-Basic | 10,933,926 | 1,844,895 | 7,161,785 | 2,087,195 | ||||||||||||
| Weighted Average Number of Shares-Diluted | 10,933,926 | 1,844,895 | 7,161,785 | 2,087,195 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
Preferred Stock Series 1 Par Value $0.001 | Preferred Stock Series A Par Value $0.001 | Preferred Stock Series C Par Value $0.001 | Common Stock Par Value $0.01 | Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Additional Paid-in | Earnings (Accumulated | Treasury Stock, | other Comprehensive | Cemtrex Stockholders’ | Non- controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 2,110,718 | $ | 2,111 | 1,000,000 | $ | 1,000 | - | $ | - | 3,962,790 | $ | 3,963 | $ | 40,344,837 | $ | (20,067,685 | ) | $ | - | $ | 796,004 | $ | 21,080,230 | $ | 885,874 | |||||||||||||||||||||||||||||||
| Comprehensive income | 564,597 | 564,597 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 100,000 | 100 | 119,004 | 119,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay accounts payable | 18,358 | 18 | 27,520 | 27,538 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | 338,393 | 338 | 359,712 | 360,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 105,042 | 105 | 130,147 | 130,252 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | 105,965 | 106 | 1,059,544 | (1,059,650 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | 18,429 | 18,429 | 176,482 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (334,165 | ) | (334,165 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 2,216,683 | $ | 2,217 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 4,424,583 | $ | 4,424 | $ | 42,040,764 | $ | (21,461,500 | ) | $ | - | $ | 1,379,030 | $ | 21,966,035 | $ | 1,062,356 | |||||||||||||||||||||||||||||||
| Comprehensive income | (749,148 | ) | (749,148 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 24,104 | 24,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | 847,000 | 847 | 1,160,253 | 1,161,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 2,518,045 | 2,519 | 3,499,747 | 3,502,266 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued dividends | (1,026,900 | ) | (1,026,900 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | 150,000 | 150 | 170,850 | 171,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | (190,483 | ) | (190,483 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | 8,745 | 8,745 | (16,593 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (1,869,304 | ) | (1,869,304 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 2,216,683 | $ | 2,217 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 7,939,628 | $ | 7,940 | $ | 46,895,718 | $ | (24,357,704 | ) | $ | (190,483 | ) | $ | 638,627 | $ | 22,997,415 | $ | 1,045,763 | ||||||||||||||||||||||||||||||
| Comprehensive income | 305,282 | 305,282 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 24,104 | 24,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | 5,458,479 | 5,459 | 10,095,311 | 10,100,770 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 2,595,608 | 2,595 | 3,298,811 | 3,301,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | 270,000 | 270 | 229,730 | 230,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | 5,515 | 5,515 | (41,266 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (4,454,617 | ) | (4,454,617 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 2,216,683 | $ | 2,217 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 16,263,715 | $ | 16,264 | $ | 60,543,674 | $ | (28,812,321 | ) | $ | (190,483 | ) | $ | 949,424 | $ | 32,509,875 | $ | 1,004,497 | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, 2021 | March 31, 2020 | March 31, 2021 | March 31, 2020 | |||||||||||||
| Revenues | 9,260,385 | 12,113,847 | 18,096,461 | 24,333,930 | ||||||||||||
| Cost of revenues | 5,331,501 | 6,767,743 | 10,162,107 | 13,639,340 | ||||||||||||
| Gross profit | 3,928,884 | 5,346,104 | 7,934,354 | 10,694,590 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 5,249,985 | 5,458,071 | 10,667,181 | 10,032,481 | ||||||||||||
| Research and development | 641,497 | 404,933 | 1,275,722 | 781,519 | ||||||||||||
| Total operating expenses | 5,891,482 | 5,863,004 | 11,942,903 | 10,814,000 | ||||||||||||
| Operating income/(loss) | (1,962,598 | ) | (516,900 | ) | (4,008,549 | ) | (119,410 | ) | ||||||||
| Other income/(expense) | ||||||||||||||||
| Other income/(expense) | 1,679,944 | 447,792 | 2,630,932 | 672,117 | ||||||||||||
| Settlement Agreement - Related Party | 3,674,165 | - | 3,674,165 | - | ||||||||||||
| Interest Expense | (849,076 | ) | (1,348,298 | ) | (1,458,017 | ) | (1,830,820 | ) | ||||||||
| Total other income/(expense), net | 4,505,033 | (900,506 | ) | 4,847,080 | (1,158,703 | ) | ||||||||||
| Net loss before income taxes | 2,542,435 | (1,417,406 | ) | 838,531 | (1,278,113 | ) | ||||||||||
| Income tax benefit/(expense) | (98,477 | ) | (189,543 | ) | (127,431 | ) | (189,543 | ) | ||||||||
| Net income/(loss) | 2,443,958 | (1,606,949 | ) | 711,100 | (1,467,656 | ) | ||||||||||
| Less income in noncontrolling interest | (10,174 | ) | (7,848 | ) | (50,421 | ) | 187,063 | |||||||||
| Net income/(loss) attributable to Cemtrex, Inc. shareholders | $ | 2,454,132 | $ | (1,599,101 | ) | $ | 761,521 | $ | (1,654,719 | ) | ||||||
| Net income/(loss) | $ | 2,443,958 | $ | (1,606,949 | ) | $ | 711,100 | $ | (1,467,656 | ) | ||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Foreign currency translation gain/(loss) | (87,972 | ) | (749,826 | ) | (40,491 | ) | (166,800 | ) | ||||||||
| Defined benefit plan actuarial gain/(loss) | 87,895 | - | 87,895 | - | ||||||||||||
| Comprehensive income/(loss) | 2,443,881 | (2,356,775 | ) | 758,504 | (1,634,456 | ) | ||||||||||
| Less comprehensive income/(loss) attributable to noncontrolling interest | 19,625 | (897 | ) | 50,255 | (214,237 | ) | ||||||||||
| Comprehensive income/(loss) attributable to Cemtrex, Inc. shareholders | $ | 2,424,256 | $ | (2,355,878 | ) | $ | 708,249 | $ | (1,420,219 | ) | ||||||
| Income/(loss) Per Share-Basic | $ | 0.13 | $ | (0.26 | ) | $ | 0.04 | $ | (0.31 | ) | ||||||
| Income/(loss) Per Share-Diluted | $ | 0.13 | $ | (0.26 | ) | $ | 0.04 | $ | (0.31 | ) | ||||||
| Weighted Average Number of Shares-Basic | 18,559,113 | 6,250,761 | 18,195,731 | 5,292,167 | ||||||||||||
| Weighted Average Number of Shares-Diluted | 18,629,064 | 6,250,761 | 18,200,974 | 5,292,167 | ||||||||||||
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/Restated)
| Preferred Stock Series 1 | Preferred Stock Series A | Preferred Stock Series C | Common Stock Par | Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Par Value $0.001 | Value $0.01 | Additional | Earnings | Treasury | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-in | (Accumulated | Stock, | Comprehensive | Stockholders’ | controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020, as reported | 2,156,784 | $ | 2,157 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 17,622,539 | $ | 17,623 | $ | 63,313,336 | $ | (33,172,690 | ) | $ | (148,291 | ) | $ | 853,643 | $ | 28,269,693 | $ | 1,077,645 | ||||||||||||||||||||||||||||||
| Adjustment | (3,091,570 | ) | 652,606 | 923,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020, as restated | 2,156,784 | $ | 2,157 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 17,622,539 | $ | 17,623 | $ | 60,221,766 | $ | (32,520,084 | ) | $ | (148,291 | ) | $ | 1,777,112 | $ | 29,351,383 | $ | 1,077,645 | ||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | 37,864 | 37,864 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 16,071 | 16,071 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | 345,638 | 345 | �� | 407,507 | 407,852 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | 108,169 | 108 | (108 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) attributable to noncontrolling interest | - | (40,247 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income/(loss) attributable to noncontrolling interest | - | 9,617 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (1,692,611 | ) | (1,692,611 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 2,264,953 | $ | 2,265 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 17,968,177 | $ | 17,968 | $ | 60,645,236 | $ | (34,212,695 | ) | $ | (148,291 | ) | $ | 1,814,976 | $ | 28,120,559 | $ | 1,047,015 | ||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | (78,521 | ) | (78,521 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plan actuarial gain/(loss) | 87,895 | 87,895 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 49,246 | 49,246 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | 743,286 | 743 | 1,298,733 | 1,299,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income in noncontrolling interest | (19,625 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares and options surrendered in settelment agreement | (469,949 | ) | (470 | ) | (1,000,000.00 | ) | (1,000 | ) | (50,000 | ) | (50 | ) | (3,672,645 | ) | (3,674,165 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | 2,454,132 | 2,454,132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 1,795,004 | $ | 1,795 | - | $ | - | 50,000 | $ | 50 | 18,711,463 | $ | 18,711 | $ | 58,320,570 | $ | (31,758,563 | ) | $ | (148,291 | ) | $ | 1,824,350 | $ | 28,258,622 | $ | 1,027,390 | ||||||||||||||||||||||||||||||
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)(Unaudited/Restated)
Preferred Stock Par Value $0.001 | Preferred Stock Par Value $0.001 | Common Stock Value $0.01 | Additional | Retained Earnings | Accumulated other | Total | Non-controlling | |||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-in | (Accumulated | Comprehensive | Stockholders’ | interest of | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Income(loss) | Equity | Vicon | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2018 | 1,914,168 | $ | 1,914 | 1,000,000 | $ | 1,000 | 1,621,719 | $ | 1,622 | $ | 31,496,671 | $ | 4,262,756 | $ | (483,297 | ) | $ | 35,280,666 | $ | - | ||||||||||||||||||||||||
| Foreign currency translations | �� | - | (857,552 | ) | (857,552 | ) | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 36,108 | 36,108 | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued in Subscription Rights Offering | 25,126 | 25 | 138,669 | 138,694 | ||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 26,342 | 26 | 224,974 | 225,000 | ||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | 95,778 | 96 | 957,684 | (957,780 | ) | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | (2,176,298 | ) | (2,176,298 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 2,009,946 | $ | 2,010 | 1,000,000 | $ | 1,000 | 1,673,187 | $ | 1,673 | $ | 32,854,106 | $ | 1,128,678 | $ | (1,340,849 | ) | $ | 32,646,618 | $ | - | ||||||||||||||||||||||||
| Foreign currency translations | - | (171,208 | ) | (171,208 | ) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 36,108 | 36,108 | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 117,774 | 118 | 713,772 | 713,890 | ||||||||||||||||||||||||||||||||||||||||
| Shares issued in trust for ATM Offering | 27,953 | 27 | (27 | ) | - | |||||||||||||||||||||||||||||||||||||||
| Shares sold in ATM Offering | 34,547 | 35 | 203,644 | 203,679 | ||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreement | 2,500 | 3 | 129,508 | 129,511 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | (1,983,867 | ) | (1,983,867 | ) | ||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest of Vicon | - | - | 781,871 | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | 2,009,946 | $ | 2,010 | 1,000,000 | $ | 1,000 | 1,855,961 | $ | 1,856 | $ | 33,937,111 | $ | (855,189 | ) | $ | (1,512,057 | ) | $ | 31,574,731 | $ | 781,871 | |||||||||||||||||||||||
| Foreign currency translations | (169,928 | ) | (169,928 | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 559,378 | 559 | 1,715,015 | 1,715,574 | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 36,108 | 36,108 | ||||||||||||||||||||||||||||||||||||||||||
| Series B Conversion | 175,562 | 176 | 356,270 | 356,446 | ||||||||||||||||||||||||||||||||||||||||
| Reverse split rounding shares | 3,338 | 3 | 3 | |||||||||||||||||||||||||||||||||||||||||
| Discount on Series B (deemed dividend) | (154,511 | ) | (154,511 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | 100,772 | 101 | 1,007,618 | (1,007,719 | ) | - | ||||||||||||||||||||||||||||||||||||||
| QTR Results | (1,925,618 | ) | (1,925,618 | ) | ||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest of Vicon | - | (323,337 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | 2,110,718 | $ | 2,111 | 1,000,000 | $ | 1,000 | 2,594,239 | $ | 2,594 | $ | 36,897,611 | (3,788,526 | ) | $ | (1,681,985 | ) | 31,432,805 | $ | 458,534 | |||||||||||||||||||||||||
| Preferred Stock Series 1 | Preferred Stock Series A | Preferred Stock Series C | Common Stock Par | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Par Value $0.001 | Value $0.01 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Additional | Earnings | Treasury | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||||||||
| of | of | of | of | Paid-in | (Accumulated | Stock, | Comprehensive | Stockholders’ | controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 2,110,718 | $ | 2,111 | 1,000,000 | $ | 1,000 | - | $ | - | 3,962,790 | $ | 3,963 | $ | 39,339,862 | $ | (23,679,587 | ) | $ | - | $ | 1,791,153 | $ | 17,458,502 | $ | 885,874 | |||||||||||||||||||||||||||||||
| Foreign currency translation gain | 582,156 | 582,156 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 100,000 | 100 | 119,004 | 119,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay accounts payable | 18,358 | 18 | 27,520 | 27,538 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | 338,393 | 338 | 359,712 | 360,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 105,042 | 105 | 130,147 | 130,252 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | 105,965 | 106 | (106 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) attributable to noncontrolling interest | - | 194,911 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income/(loss) attributable to noncontrolling interest | - | (18,429 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (55,618 | ) | (55,618 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 2,216,683 | $ | 2,217 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 4,424,583 | $ | 4,424 | $ | 39,976,139 | $ | (23,735,205 | ) | $ | - | $ | 2,373,309 | $ | 18,621,984 | $ | 1,062,356 | |||||||||||||||||||||||||||||||
| Foreign currency translation gain | (748,929 | ) | (748,929 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 24,104 | 24,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | 847,000 | 847 | 1,160,253 | 1,161,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | 2,518,045 | 2,519 | 3,499,747 | 3,502,266 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | 150,000 | 150 | 170,850 | 171,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | (190,483 | ) | (190,483 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | - | (16,593 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (1,599,101 | ) | (1,599,101 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 2,216,683 | $ | 2,217 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 7,939,628 | $ | 7,940 | $ | 44,831,093 | $ | (25,334,306 | ) | $ | (190,483 | ) | $ | 1,624,380 | $ | 20,941,941 | $ | 1,045,763 | ||||||||||||||||||||||||||||||
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)(Unaudited/Restated)
| For the nine months ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (6,506,774 | ) | $ | (6,405,280 | ) | ||
| Net loss from discontinued operations | - | (767,026 | ) | |||||
| Net loss from continuing operations | (6,506,774 | ) | (5,638,254 | ) | ||||
| Adjustments to reconcile net loss to net cash provided/(used) by operating activities: | ||||||||
| Depreciation and amortization | 2,158,938 | 3,208,933 | ||||||
| Gain/(loss) on disposal of property & equipment | 457 | 465,029 | ||||||
| Amortization of right-of-use assets | 352,691 | - | ||||||
| Change in allowance for inventory obsolescence | 726,824 | 25,469 | ||||||
| Change in allowance for doubtful accounts | 126 | 236,113 | ||||||
| Share-based compensation | 167,312 | 108,324 | ||||||
| Interest expense paid in equity shares | 2,505,924 | 1,253,516 | ||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Accounts receivable | 1,654,383 | 1,283,756 | ||||||
| Accounts receivable - related party | 5,510 | (50,904 | ) | |||||
| Inventory | (2,111,277 | ) | (175,159 | ) | ||||
| Prepaid expenses and other curent asstets | 242,698 | (719,271 | ) | |||||
| Other assets | (1,017,337 | ) | (1,135,190 | ) | ||||
| Other liabilities | (117,667 | ) | 354,332 | |||||
| Accounts payable | (1,205,851 | ) | 19,660 | |||||
| Accounts payable - related party | - | 155,600 | ||||||
| Deposits from customers | 2,003 | 9,390 | ||||||
| Accrued expenses | 938,132 | 2,367,665 | ||||||
| Deferred revenue | (99,354 | ) | 109,493 | |||||
| Income taxes payable | 75,724 | (153,734 | ) | |||||
| Net cash provided by operating activities - continuing operations | (2,227,538 | ) | 1,724,768 | |||||
| Net cash provided by operating activities - discontinued operations | - | 1,636,714 | ||||||
| Net cash provided/(used) by operating activities | (2,227,538 | ) | 3,361,482 | |||||
| Cash Flows from Investing Activities | ||||||||
| Net change in self-insured benefit deposits | (246,154 | ) | (468,870 | ) | ||||
| Purchase of property and equipment | (4,541,537 | ) | (1,525,998 | ) | ||||
| Purchase of marketable securities | (1,366,009 | ) | - | |||||
| Investment in related party | (500,000 | ) | - | |||||
| Net cash used by investing activities - continuing operations | (6,653,700 | ) | (1,994,868 | ) | ||||
| Net cash used by investing activities - discontinued operations | - | (119,482 | ) | |||||
| Net cash used by investing activities | (6,653,700 | ) | (2,114,350 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | 4,485,000 | 1,100,000 | ||||||
| Payments on notes payable | (726,640 | ) | (264,560 | ) | ||||
| Proceeds on bank loans | 5,947,101 | - | ||||||
| Payments on bank loans | (224,196 | ) | (1,453,506 | ) | ||||
| Proceeds from securities purchase agreements | 12,462,648 | - | ||||||
| Expenses on securities purchase agreements | (840,728 | ) | - | |||||
| Proceeds from at-the-market offerings | - | 490,237 | ||||||
| Expenses on at-the-market offerings | - | (18,323 | ) | |||||
| Proceeds from the issuance of Series B Preferred Stock | - | 500,000 | ||||||
| Expenses from the issuance of Series B Preferred Stock | - | (25,000 | ) | |||||
| Settlement of Series B Preferred Stock in cash | (273,092 | ) | ||||||
| Revolving line of credit | (425,812 | ) | 122,918 | |||||
| Purchases of treasury stock | (190,483 | ) | - | |||||
| Payments on lease liabilities | (310,730 | ) | (18,812 | ) | ||||
| Net cash provided by financing activities - continuing operations | 20,176,160 | 159,862 | ||||||
| Net cash used by financing activities - discontinued operations | - | (78,123 | ) | |||||
| Net cash provided by financing activities | 20,176,160 | 81,739 | ||||||
| Effect of currency translation | 120,731 | (1,198,688 | ) | |||||
| Net increase in cash, cash equivalents, and restricted cash | 11,294,922 | 1,328,871 | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 2,858,085 | 2,315,935 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 14,273,738 | $ | 2,446,118 | ||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | 12,939,493 | $ | 1,572,825 | ||||
| Restricted cash | 1,334,245 | 873,293 | ||||||
| Total cash, cash equivalents, and restricted cash | $ | 14,273,738 | $ | 2,446,118 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | 342,268 | $ | 715,722 | ||||
| Cash paid during the period for income taxes | $ | 75,724 | $ | 162,871 | ||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Stock issued to pay for products and/or services | $ | 428,538 | $ | - | ||||
| Stock issued to pay notes payable | $ | 6,933,924 | $ | 1,790,469 | ||||
| Dividends paid in equity shares | $ | 1,059,650 | $ | 1,965,500 | ||||
| Amortization of original issue discounts on notes payable | $ | 757,278 | $ | 11,889 | ||||
| For the six months ended | ||||||||
| March 31, | ||||||||
| Cash Flows from Operating Activities | 2021 | 2020 | ||||||
| (unaudited) | (restated) | |||||||
| Net income/(loss) | $ | 711,100 | $ | (1,467,656 | ) | |||
| Adjustments to reconcile net loss to net cash provided/(used) by operating activities: | ||||||||
| Depreciation and amortization | 680,004 | 888,391 | ||||||
| Gain on disposal of property and equipment | 9,219 | 311 | ||||||
| Amortization of right-of-use assets | 438,539 | 281,758 | ||||||
| Change in allowance for inventory obsolescence | (948,733 | ) | (19,569 | ) | ||||
| Change in allowance for doubtful accounts | (137,356 | ) | (6,416 | ) | ||||
| Share-based compansation | 65,318 | 143,208 | ||||||
| Income tax expense/ (benefit) | 127,431 | 189,543 | ||||||
| Interest expense paid in equity shares | 657,329 | 1,004,518 | ||||||
| Accrued interest on notes payable | 41,833 | 291,384 | ||||||
| Amortization of original issue discounts on notes payable | 475,000 | 317,667 | ||||||
| Gain on marketable securities | (1,869,338 | ) | (338,057 | ) | ||||
| Settlement Agreement - Related Party | (3,674,165 | ) | - | |||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Accounts receivable | 1,420,861 | (62,013 | ) | |||||
| Accounts receivable - related party | (71,581 | ) | (90 | ) | ||||
| Inventory | 383,731 | (419,711 | ) | |||||
| Prepaid expenses and other curent asstets | (631,714 | ) | (297,176 | ) | ||||
| Other assets | 169,346 | (834,561 | ) | |||||
| Other liabilities | 11,438 | (90,121 | ) | |||||
| Accounts payable | (543,272 | ) | (854,616 | ) | ||||
| Operating lease liabilities | (450,102 | ) | (293,138 | ) | ||||
| Deposits from customers | 66,808 | 9,166 | ||||||
| Accrued expenses | 161,820 | (143,160 | ) | |||||
| Deferred revenue | 138,595 | 227,172 | ||||||
| Income taxes payable | (88,765 | ) | 102,463 | |||||
| Net cash used by operating activities | (2,856,654 | ) | (1,370,703 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | (944,601 | ) | (4,340,023 | ) | ||||
| Investment in Virtual Driver Interactive | (900,000 | ) | - | |||||
| Investment in MasterpieceVR | (500,000 | ) | - | |||||
| Proceeds from sale of marketable securities | 7,080,375 | 13,083,547 | ||||||
| Purchase of marketable securities | (4,845,903 | ) | (12,347,199 | ) | ||||
| Purchases of treasury stock | - | (190,483 | ) | |||||
| Note Receivable - Related party | - | - | ||||||
| Net cash used by investing activities | (110,129 | ) | (3,794,158 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | - | 2,990,000 | ||||||
| Payments on notes payable | (2,070,257 | ) | (676,640 | ) | ||||
| Proceeds on bank loans | - | 2,476,000 | ||||||
| Payments on bank loans | (655,276 | ) | (133,414 | ) | ||||
| Proceeds from Paycheck Protection Program Loans | 1,970,785 | - | ||||||
| Proceeds from securities purchase agreements | - | 1,580,100 | ||||||
| Expenses on securities purchase agreements | - | (58,950 | ) | |||||
| Revolving line of credit | - | 387,598 | ||||||
| Net cash provided/(used) by financing activities | (754,748 | ) | 6,564,694 | |||||
| Effect of currency translation | (70,668 | ) | (193,974 | ) | ||||
| Net increase in cash, cash equivalents, and restricted cash | (3,721,531 | ) | 1,399,833 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 21,072,859 | 2,858,085 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | 17,280,660 | $ | 4,063,944 | |||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | 15,573,734 | $ | 2,809,591 | ||||
| Restricted cash | 1,706,926 | 1,254,353 | ||||||
| Total cash, cash equivalents, and restricted cash | $ | 17,280,660 | $ | 4,063,944 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | 283,855 | $ | 342,268 | ||||
| Cash paid during the period for income taxes | $ | 88,765 | $ | 188 | ||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Investment in Virtual Driver Interactive | $ | 439,774 | $ | - | ||||
| Stock issued to pay for products and/or services | $ | - | $ | 198,583 | ||||
| Stock issued to pay notes payable | $ | 1,707,327 | $ | 3,632,518 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
| 7 |
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 research & development from a small environmental monitoring instruments companygrowth into a world leading multi-industry technology company. The Company now specializes in the development of Internet of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR) enabled technologies that drive innovationhas expanded in a wide range of sectors, including consumer products,smart technologies, virtual and augmented realities, industrial manufacturing, digital applications,solutions, and intelligent security & surveillance systems. 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 continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019,2018, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Accordingly, the Company has reported the results of the Electronics Manufacturing business as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets. These changes have been applied for all periods presented. During fiscal 2019, the Company also reached a strategic decision to exit its originalthe environmental products business, which was part of the Industrial Services Segment. Accordingly, the Company has reported the results of the environmental control products business as discontinued operations in the Consolidated Statements of Operations and sold those operations.in the Consolidated Balance Sheets.
Now the Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS).
Advanced Technologies (AT)
Cemtrex’s Advanced Technologies segment delivers cutting-edge technologies in the Internet of Things (IoT), Wearables and Smart Devices, such as the SmartDesk. Through the Company’s advanced engineering and product design, the Company delivers Virtual Reality (VR) and Augmented Reality (AR) productssolutions that provide higher productivity, progressive design and impactful experiences for consumer products, digital applicationsand various commercial and industrial manufacturing.applications. The Company is in the process of developing its own virtual reality applications for commercialization over the next couple years.
The AT business segment also includes the Company’s majority owned subsidiary, Vicon Industries, which provides end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based Videovideo monitoring systems and facialanalytics-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 cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI). based data algorithms.
Industrial Services (IS)
Cemtrex’s IS segment, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the 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.
| 8 |
Acquisition of Virtual Driver Interactive
On October 26, 2020, the company acquired Virtual Driver Interactive (“VDI”), a California based provider of innovative driver training simulation solutions for a purchase price of $1,339,774 plus contingent consideration.
For over 10 years, VDI has been known for its effective and engaging driver training systems, designed for users of all ages and skill levels. The Company offers comprehensive training for new teen and novice drivers, along with advanced training for corporate fleets and truck drivers. VDI’s wide range of training courses and system options provide customers with highly portable, affordable and effective solutions, all while focusing on the dangers of distracted driving. Result for VDI will be reported under the AT segment.
The Company paid $900,000 in cash and issued a Note payable in the amount of $439,774. This note carries interest of 5% and is payable in two installments of $239,774 plus accumulated interest on October 26, 2021, and $200,000 plus accumulated interest on October 26, 2022. Additionally, the Company paid contingent consideration of $175,428 in May 2021. There is no further contingent consideration specified in the purchase agreement. The Company has accounted for this acquisition as a business combination and is in the process of calculating the allocation of purchase price. All amounts paid have been included in goodwill in the accompanying condensed consolidated balance sheet.
Strategic Investment
On November 13, 2020, Cemtrex made a $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 using the fair value method. No impairment has been recorded for the three and six months ended March 31, 2021.
Potential Impacts of COVID-19 on our Business
The current COVID-19 pandemic has impacted our business operations and the results of our operations in this fiscal year, primarily with delays in expected orders by many customers and new product development. Overall bookings level in both business segments have been impacted. In addition, due to delays in certain supply chain areas, the expected launch times of our new products and new versions of existing products have been delayed for several months. We are also starting to see the costs of certain components that are facing shortages, increase in price which may affect gross margins.
The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic has the potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities.
The extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
| 9 |
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, 20192020, of Cemtrex Inc.
The accompanying condensed consolidated balance sheet has been derived from the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2020, adjusted and restated as further discussed in Note 2 of these financial statements. Additionally, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss), the Condensed Consolidated Statement of Stockholders’ Equity, the Condensed Consolidated Statements of Cash Flows, and notes to the financial statements related to the results of the three and six month periods ended March 31, 2020, have been restated.
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-ownedwholly owned subsidiaries, Cemtrex Advanced Technologies Inc., Cemtrex Ltd., Cemtrex Technologies Pvt. Ltd., Griffin Filters, LLC, Cemtrex XR Inc., and Advanced Industrial Services, Inc. and the Company’s majority-ownedmajority owned subsidiary Vicon Industries, Inc. and its subsidiaries, Telesite USA, IQInVision, Vicon Industries Ltd., Vicon Deutschland GmbH, and Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Restatement of Financial Statements
Significant Accounting Policies
Background
On February 23, 2021, Cemtrex’s Board of Directors determined that certain transactions between Cemtrex Inc. and Recent First Commercial, a company owned by former Executive Director, former Controlling Shareholder and former CFO, Aron Govil, were incorrectly handled and accounted for.
The total amount of disputed transfers was approximately $7,100,000 and occurred in fiscal year 2017 in the amount of $5,600,000 and in fiscal year 2018 in the amount of $1,500,000. Cemtrex did not find any other such transfers during this period or thereafter, upon further review of the Company’s records.
Upon the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial statements. The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted for, and subsequent years were affected by the roll forward effects of these entries. The Company found unsupported advertising expenses in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000 of intangible assets and $975,000 of research and development expenses, as translated at from Indian Rupee at the time, were recorded on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated. The total amount of unsubstantiated transfers recorded by Cemtrex India and the unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000, corresponding with the total amount in question regarding First Commercial transfers during fiscal years 2017 and 2018.
| 10 |
As part of the restatement investigation, it was determined that the Company did not follow GAAP in the treatment of its Series 1 Preferred dividends. The Company currently has a deficit in retained earnings and in accordance with guidance has reversed the accrual for dividends payable and placed the amount of the accrual back into retained earnings.
Position and Adjusting Entries
The Company has determined that these transactions are not material in the years that they occurred and conclude that prior financial reports can be relied upon. The Company’s determination is based on the following: The adjustments do not cause any changes to the previously reported cash and debt balances as of the end of each of the periods in FY 2019 and 2020. The adjustments also do not cause any changes to revenues in any of the prior periods. In addition, the Company expects to maintain compliance with its debt covenants based on a preliminary review of the covenants for all the impacted periods. The Company has also determined that the adjustments have little effect on the trend of earnings over the last three fiscal years. In 2017 the operations of the Company were vastly different with both the environmental and circuit board manufacturing segments accounting for approximately 75% of revenues. These businesses are now either sold or discontinued. The current reported 2017 financial statements of the Company do not give an accurate representation of the Company today because only 16% of the $120M business operations are still a part of current operations.
The table below represents the balances of the affected accounts on the Condensed Consolidated Balance Sheets as of September 30, 2020, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and six months ended March 31, 2020, Condensed Consolidated Statement of Stockholders’ Equity, and the Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2020.
Condensed Consolidated Balance Sheets
| Balance as reported on September 30, 2020 | Adjustment of net value of intangible assets | Cumulative effect of derecognition of expenses | Loss on amounts transferred to First Commercial | Restatement on Dividends | Cumulative effect of currency translation | Adjusted balance at September 30, 2020 | ||||||||||||||||||||||
| Property and equipment, net | $ | 9,558,936 | $ | (2,597,185 | ) | $ | 6,961,751 | |||||||||||||||||||||
| Series 1 preferred stock dividends payable | $ | 1,081,690 | $ | (1,081,690 | ) | $ | - | |||||||||||||||||||||
| Additional paid-in capital | $ | 63,313,336 | $ | (3,091,570 | ) | $ | 60,221,766 | |||||||||||||||||||||
| Retained earnings (accumulated deficit) | $ | (33,172,690 | ) | $ | 3,579,346 | $ | (7,100,000 | ) | $ | 4,173,260 | $ | (32,520,084 | ) | |||||||||||||||
| Accumulated other comprehensive income | $ | 853,643 | $ | 923,469 | $ | 1,777,112 | ||||||||||||||||||||||
Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
| For the three months ended | ||||||||||||
| March 31, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net Income income/(loss) attributable to Cemtrex, Inc. shareholders | $ | (1,886,648 | ) | $ | 287,547 | $ | (1,599,101 | ) | ||||
| Foreign currency translation gain/(loss) | $ | (750,696 | ) | $ | 870 | $ | (749,826 | ) | ||||
| Loss Per Share-Basic | $ | (0.30 | ) | $ | 0.05 | $ | (0.26 | ) | ||||
| Loss Per Share-Diluted | $ | (0.30 | ) | $ | 0.05 | $ | (0.26 | ) | ||||
| For the six months ended | ||||||||||||
| March 31, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net loss available to Cemtrex, Inc. shareholders | $ | (2,203,469 | ) | $ | 548,750 | $ | (1,654,719 | ) | ||||
| Foreign currency translation gain | $ | (157,377 | ) | $ | (9,423 | ) | $ | (166,800 | ) | |||
| Loss Per Share-Basic | $ | (0.42 | ) | $ | 0.10 | $ | (0.31 | ) | ||||
| Loss Per Share-Diluted | $ | (0.42 | ) | $ | 0.10 | $ | (0.31 | ) | ||||
| 11 |
Condensed Consolidated Statement of Stockholders’ Equity
| For the six months ended | ||||||||||||
| March 31, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Retained earnings (accumulated deficit) at September 30, 2019 | $ | (20,067,685 | ) | $ | (3,611,902 | ) | $ | (23,679,587 | ) | |||
| Net income/(loss) | $ | (2,203,469 | ) | $ | 548,750 | $ | (1,654,719 | ) | ||||
| Retained earnings (accumulated deficit) at March 31, 2020 | $ | (24,357,704 | ) | $ | (976,602 | ) | $ | (25,334,306 | ) | |||
| Accumulated other comprehensive income/(loss)at September 30, 2019 | $ | 796,004 | $ | 806,889 | $ | 1,602,893 | ||||||
| Comprehensive income/(loss) | $ | 564,597 | $ | (870 | ) | $ | 563,727 | |||||
| Accumulated other comprehensive income/(loss) at March 31, 2020 | $ | 1,379,030 | $ | 806,019 | $ | 2,185,049 | ||||||
| Additional paid-in capital | $ | 46,895,763 | $ | (2,064,670 | ) | $ | 44,831,093 | |||||
Condensed Consolidated Statements of Cash Flows
| For the six months ended | ||||||||||||
| March 31, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net loss | $ | (2,016,406 | ) | $ | 548,750 | $ | (1,467,656 | ) | ||||
| Depreciation and amortization | $ | 1,427,718 | $ | (539,327 | ) | $ | 888,391 | |||||
| Net cash used by operating activities | $ | (1,380,126 | ) | $ | 9,423 | $ | (1,370,703 | ) | ||||
| Effect of currency translation | $ | (184,551 | ) | $ | (9,423 | ) | $ | (193,974 | ) | |||
On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.
As part of the Settlement Agreement, Mr. Govil was required to pay the Company consideration of $7,100,000 (the “Settlement Amount”) by entering into the Agreement. The Settlement Amount was satisfied in a combination of Mr. Govil forfeiting certain Preferred Stock and outstanding options and executing a secured note in the amount of $1,533,280. The Independent Board of Directors in coordination with Management concluded the settlement represented fair value.
In March 2021, Mr. Govil returned to the Company 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 shares of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively, the “Securities”). For the purposes of accounting recognition, the Company determined the fair value of the Series A, Series C, and Series 1 Preferred stock based on the closing trading value of the Series 1 Preferred Stock on the date of the agreement. The options surrendered were valued using the Black-Scholes option pricing model.
The Company recognized the gain with respect to the surrendered Securities during this reporting period. The gain of $3,674,165 is reported as Settlement Agreement - Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
As discussed above, Mr. Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note matures and is due in full in two years and bears interest at 9% per annum and is secured by all of Mr. Govil’s assets. Mr. Govil also agreed to sign an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note is fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain will not 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 and Comprehensive Income/(Loss).
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, 2019,2020, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently Adopted Accounting Pronouncements
Adoption of ASU 2016-02 (Topic 842)
On October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors may use the effective date method and elected certain practical expedients allowing the Company not to reassess:
| 12 |
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.
See Note 10 for the impact implementing this standard had on our financial statements.
Recently Issued Accounting Standards
In August 2018, the FASB issued amended guidance, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB Concepts Statements, including the consideration of costs and benefits. The new standard is effective for the Company from October 1, 2020. The Company believes adoption will not have a material effect on the Company’s financial position.
In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes, to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company on October 1, 2021; early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statement disclosures, results of operations and financial position.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). The update provides optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020, through December 31, 2022. The Company adopted this guidance in the second quarter of 2020. The adoption of this guidance had no impact on the Company’s Condensed Consolidated Financial Statements or the related disclosures.
NOTE 3 – LOSS PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants.
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Basic weighted average shares outstanding | 10,933,926 | 1,844,895 | 7,161,785 | 2,087,195 | ||||||||||||
| Dilutive effect of options | - | - | - | - | ||||||||||||
| Dilutive effect of convertible debt | - | - | - | - | ||||||||||||
| Diluted weighted average shares outstanding | 10,933,926 | 1,844,895 | 7,161,785 | 2,087,195 | ||||||||||||
For the three and ninesix months ended June 30,March 31, 2021, and 2020, and 2019, 1,483,965 and 538,076 shares of common stock, respectively,the following items were excluded from the computation of diluted earningsnet loss per common share because theas their effect of their inclusion would be anti-dilutive.is anti-dilutive:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Warrants to purchase shares | 433,965 | 433,965 | 433,965 | 433,965 | ||||||||||||
| Options | 880,049 | 1,050,000 | 944,757 | 1,050,000 | ||||||||||||
NOTE 4 – SEGMENT INFORMATION
The Company reports and evaluates financial information for two segments: Advanced Technologies (AT) segment, and the Industrial Services (IS) segment. The AT segment develops smart devices and provides progressive design and development solutions to create impactful experiences for mobile, web, virtual and augmented reality, wearables and television as well as providing cutting edge, mission critical security and video surveillance. The IS segment offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers in USA in industries such as: chemical,manufacturing, steel, printing, construction, & petrochemical.
The following tables summarize the Company’s segment information:
| For the three months ended | For the nine months ended | For the three months ended | For the six months ended | |||||||||||||||||||||||||||||
| June 30, | June 30, | March 31, | March 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||||||||||
| Advanced Technologies | $ | 4,977,424 | $ | 6,528,486 | $ | 18,389,057 | $ | 13,924,097 | $ | 5,487,414 | $ | 6,186,400 | $ | 10,160,283 | $ | 13,411,633 | ||||||||||||||||
| Industrial Services | 3,463,443 | 4,400,447 | 14,385,740 | 14,447,830 | $ | 3,772,971 | 5,927,447 | 7,936,178 | 10,922,297 | |||||||||||||||||||||||
| Total revenues | $ | 8,440,867 | $ | 10,928,933 | $ | 32,774,797 | $ | 28,371,927 | $ | 9,260,385 | $ | 12,113,847 | $ | 18,096,461 | $ | 24,333,930 | ||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Advanced Technologies | $ | 1,837,957 | $ | 2,528,340 | $ | 8,712,543 | $ | 5,831,813 | $ | 2,646,926 | $ | 3,331,799 | $ | 4,993,198 | $ | 6,874,586 | ||||||||||||||||
| Industrial Services | 1,441,895 | 1,529,673 | 5,261,899 | 5,220,582 | 1,281,958 | 2,014,305 | 2,941,156 | 3,820,004 | ||||||||||||||||||||||||
| Total gross profit | $ | 3,279,852 | $ | 4,058,013 | $ | 13,974,442 | $ | 11,052,395 | $ | 3,928,884 | $ | 5,346,104 | $ | 7,934,354 | $ | 10,694,590 | ||||||||||||||||
| Operating loss | ||||||||||||||||||||||||||||||||
| Advanced Technologies | $ | (1,854,346 | ) | $ | (391,053 | ) | $ | (2,494,371 | ) | $ | (4,058,782 | ) | $ | (1,693,377 | ) | $ | (630,814 | ) | $ | (3,535,723 | ) | $ | (91,275 | ) | ||||||||
| Industrial Services | (804,397 | ) | 106,132 | (832,532 | ) | (391,511 | ) | (269,221 | ) | 113,914 | (472,826 | ) | (28,135 | ) | ||||||||||||||||||
| Total operating loss | $ | (2,658,743 | ) | $ | (284,921 | ) | $ | (3,326,903 | ) | $ | (4,450,293 | ) | $ | (1,962,598 | ) | $ | (516,900 | ) | $ | (4,008,549 | ) | $ | (119,410 | ) | ||||||||
| Other expense | ||||||||||||||||||||||||||||||||
| Other income/(expense) | ||||||||||||||||||||||||||||||||
| Advanced Technologies | $ | (1,795,637 | ) | $ | (351,466 | ) | $ | (2,868,033 | ) | $ | (545,851 | ) | $ | 3,497,148 | $ | (850,329 | ) | $ | 3,864,383 | $ | (1,072,396 | ) | ||||||||||
| Industrial Services | (28,330 | ) | (1,811,388 | ) | (114,637 | ) | (2,596,361 | ) | 735,518 | (50,177 | ) | 710,330 | (86,307 | ) | ||||||||||||||||||
| Total other expense | $ | (1,823,967 | ) | $ | (2,162,854 | ) | $ | (2,982,670 | ) | $ | (3,142,212 | ) | $ | 4,232,666 | $ | (900,506 | ) | $ | 4,574,713 | $ | (1,158,703 | ) | ||||||||||
| Depreciation and Amortization | (restated) | (restated) | ||||||||||||||||||||||||||||||
| Advanced Technologies | $ | 253,712 | $ | 245,248 | $ | 1,019,779 | $ | 1,112,240 | $ | 89,746 | $ | 111,638 | $ | 205,578 | $ | 226,740 | ||||||||||||||||
| Industrial Services | 477,508 | 750,293 | 1,139,159 | 2,096,693 | 229,680 | 371,524 | 474,426 | 661,651 | ||||||||||||||||||||||||
| Total depreciation and amortization | $ | 731,220 | $ | 995,541 | $ | 2,158,938 | $ | 3,208,933 | $ | 319,426 | $ | 483,162 | $ | 680,004 | $ | 888,391 | ||||||||||||||||
| June 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Identifiable Assets | ||||||||
| Advanced Technologies | $ | 38,335,385 | $ | 19,365,582 | ||||
| Industrial Services | 15,673,359 | 16,209,838 | ||||||
| Discontinued operations | 8,817,277 | $ | 8,817,277 | |||||
| Total Assets | $ | 62,826,021 | $ | 44,392,697 | ||||
The Company generates revenue from product sales and services from its subsidiaries located in the United States, The United Kingdom, and India. Revenue information for the Company is as follows:
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| Revenues | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| U.S. Operations | $ | 8,341,384 | $ | 10,811,119 | $ | 32,464,794 | $ | 27,987,544 | ||||||||
| Non-U.S. Operations | 99,483 | 117,814 | 310,003 | 384,383 | ||||||||||||
| $ | 8,440,867 | $ | 10,928,933 | $ | 32,774,797 | $ | 28,371,927 | |||||||||
| March 31, | September 30, | |||||||
| 2020 | 2020 | |||||||
| (restated) | ||||||||
| Identifiable Assets | ||||||||
| Advanced Technologies | $ | 32,297,470 | $ | 36,732,018 | ||||
| Industrial Services | 18,025,093 | 15,590,448 | ||||||
| Discontinued operations | 8,867,821 | 8,867,821 | ||||||
| Total Assets | $ | 59,190,384 | $ | 61,190,287 | ||||
NOTE 5 – 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. We measure 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.
| 14 |
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, goodwill, intangible assets, and property, plant and equipment, which are measured at fair value using a discounted cash flow approach when they are impaired.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 June 30, 2020 and 2019March 31, 2021 are as follows;follows.
| Quoted Prices | Significant | Quoted Prices | ||||||||||||||||||||||||||||||
| in Active | Other | Significant | Balance | in Active | Significant | |||||||||||||||||||||||||||
| Markets for | Observable | Unobservable | as of | Markets for | Other | Significant | Balance | |||||||||||||||||||||||||
| Identical Assets | Inputs | Inputs | June 30, | Identical Assets | Observable Inputs | Unobservable Inputs | as of March 31, | |||||||||||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2020 | (Level 1) | (Level 2) | (Level 3) | 2021 | |||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Investment in marketable securities | ||||||||||||||||||||||||||||||||
| (included in short-term investments) | $ | 1,778,739 | $ | - | $ | - | $ | 1,778,739 | $ | 522,612 | $ | - | $ | - | $ | 522,612 | ||||||||||||||||
| Investment in MasterpieceVR | $ | 500,000 | $ | 500,000 | ||||||||||||||||||||||||||||
| (included in Other assets) | ||||||||||||||||||||||||||||||||
| $ | 1,778,739 | $ | - | $ | - | $ | 1,778,739 | |||||||||||||||||||||||||
| $ | 522,612 | $ | - | $ | 500,000 | $ | 1,022,612 | |||||||||||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Observable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | June 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2019 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | 13,692 | $ | - | $ | - | $ | 13,692 | ||||||||
| $ | 13,692 | $ | - | $ | - | $ | 13,692 | |||||||||
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 $1,334,245$1,549,511 as of June 30, 2020. TheMarch 31, 2021. Additionally, the Company also recordshas a liabilitystandby letter of credit for claims that have been incurred but not recorded atdeposit on a building lease and payable against. a money market account, the end of each year. The amount of the liabilitystandby letter of credit is determined by Benecon Group. The liability recorded in accrued expenses amounted to $124,626 and $118,889 as of June 30, 2020 and September 30, 2019, respectively.$157,415.
NOTE 7 – ACCOUNTS RECEIVABLE, NET
Accounts receivables, net consist of the following:
| June 30, | September 30, | March 31, | September 30, | |||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Accounts receivable | $ | 5,410,652 | $ | 7,065,035 | $ | 5,606,784 | $ | 7,027,645 | ||||||||
| Allowance for doubtful accounts | (606,177 | ) | (606,051 | ) | (203,492 | ) | (340,848 | ) | ||||||||
| $ | 4,804,475 | $ | 6,458,984 | $ | 5,403,292 | $ | 6,686,797 | |||||||||
Accounts receivable include amounts due for shipped products and services rendered.
Allowance for doubtful accounts include estimated losses resulting from the inability of our customers to make required payments.
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NOTE 8 – INVENTORY, NET
Inventory, net, consist of the following:
| June 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Raw materials | $ | 3,767,732 | $ | 4,917,700 | ||||
| Work in progress | 1,420,929 | 543,857 | ||||||
| Finished goods | 6,067,983 | 3,683,810 | ||||||
| 11,256,644 | 9,145,367 | |||||||
| Less: Allowance for inventory obsolescence | (4,665,036 | ) | (3,938,212 | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | 6,591,608 | $ | 5,207,155 | ||||
| March 31, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | 4,170,573 | $ | 3,959,888 | ||||
| Work in progress | 137,037 | 995,184 | ||||||
| Finished goods | 6,677,658 | 6,413,927 | ||||||
| 10,985,268 | 11,368,999 | |||||||
| Less: Allowance for inventory obsolescence | (3,626,460 | ) | (4,575,193 | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | 7,358,808 | $ | 6,793,806 | ||||
NOTE 9 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| March 31, | September 30, | |||||||||||||||
| June 30, | September 30, | 2021 | 2020 | |||||||||||||
| 2020 | 2019 | (restated) | ||||||||||||||
| Land | $ | 790,373 | $ | - | $ | 790,373 | $ | 790,373 | ||||||||
| Building and leasehold improvements | 3,860,026 | 1,233,733 | 3,950,430 | 3,875,796 | ||||||||||||
| Furniture and office equipment | 631,820 | 614,569 | 677,643 | 621,790 | ||||||||||||
| Computers and software | 5,173,341 | 5,166,922 | 269,851 | 264,940 | ||||||||||||
| Trade show display | 89,330 | 89,330 | 89,330 | 89,330 | ||||||||||||
| Machinery and equipment | 24,133,952 | 23,463,953 | 14,594,734 | 13,668,263 | ||||||||||||
| 34,678,842 | 30,568,507 | 20,372,361 | 19,310,492 | |||||||||||||
| Less: Accumulated depreciation | (15,520,148 | ) | (13,791,955 | ) | (13,037,160 | ) | (12,348,741 | ) | ||||||||
| Property and equipment, net | $ | 19,158,694 | $ | 16,776,552 | $ | 7,335,201 | $ | 6,961,751 | ||||||||
Depreciation expense for the three and six months ended June 30,March 31, 2021, and 2020 were $319,426 and 2019 were $731,220$483,162, and $995,541 respectively. Depreciation expense for the nine months ended June 30, 2020$680,004 and 2019 were $2,158,938 and $3,208,933,$888,391, respectively.
NOTE 10 – LEASES
ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842 October 1, 2019, using the effective date method and elected certain practical expedients allowing the Company not to reassess:
| ● | whether expired or existing contracts contain leases under the new definition of a lease; |
| ● | lease classification for expired or existing leases; and |
| ● | whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
| 16 |
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.
The Company entered into a financing lease for a single vehicle in the Industrial services segment with a term of 3 years. The Company enters into operating leases for its facilities in New York, United Kingdom, and India, as well as for vehicles for use in our Industrial Services segment. The operating lease terms range from 2 to 7 years. The Company excluded the renewal option on its applicable facility leases from the calculation of its right-of-use assets and lease liabilities.
Finance and operating lease liabilities consist of the following:
| June 30, | September 30, | |||||||||||||||
| 2020 | 2019 | March 31, 2021 | September 30, 2020 | |||||||||||||
| Lease liabilities - current | ||||||||||||||||
| Finance leases | $ | 22,452 | $ | 22,452 | $ | 8,501 | $ | 20,061 | ||||||||
| Operating leases | 671,726 | - | 755,607 | 700,975 | ||||||||||||
| 694,178 | 22,452 | 764,108 | 721,036 | |||||||||||||
| Lease liabilities - net of current portion | ||||||||||||||||
| Finance leases | $ | 6,223 | $ | 20,061 | $ | - | $ | - | ||||||||
| Operating leases | 1,838,942 | - | 2,106,545 | 2,027,406 | ||||||||||||
| $ | 1,845,165 | $ | 20,061 | $ | 2,106,545 | $ | 2,027,406 | |||||||||
A reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated balance sheet at June 30, 2020March 31, 2021, is set forth below:
| Finance leases | Operating Leases | Total | ||||||||||||||||||||||
| Years ending September 30, | Finance leases | Operating Leases | Total | |||||||||||||||||||||
| Remainder of 2020 | $ | 11,872 | $ | 288,033 | $ | 299,905 | ||||||||||||||||||
| 2021 | 17,604 | 769,867 | 787,471 | 8,528 | 404,419 | 412,947 | ||||||||||||||||||
| 2022 | - | 630,534 | 630,534 | - | 799,784 | 799,784 | ||||||||||||||||||
| 2023 | - | 504,539 | 504,539 | - | 616,607 | 616,607 | ||||||||||||||||||
| 2024 | - | 378,949 | 378,949 | - | 480,881 | 480,881 | ||||||||||||||||||
| 2025 | 344,624 | 344,624 | - | 457,078 | 457,078 | |||||||||||||||||||
| 2026 | 344,624 | 344,624 | ||||||||||||||||||||||
| 2027 | 172,312 | 172,312 | ||||||||||||||||||||||
| 2026 & Thereafter | - | 573,198 | 573,198 | |||||||||||||||||||||
| Undiscounted lease payments | 29,476 | 3,433,482 | 3,462,958 | 8,528 | 3,331,967 | 3,340,495 | ||||||||||||||||||
| Amount representing interest | (801 | ) | (922,814 | ) | (923,615 | ) | (27 | ) | (469,815 | ) | (469,842 | ) | ||||||||||||
| Discounted lease payments | $ | 28,675 | $ | 2,510,668 | $ | 2,539,343 | $ | 8,501 | $ | 2,862,152 | $ | 2,870,653 | ||||||||||||
Additional disclosures of lease data are set forth below:
| Six months ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Lease costs: | ||||||||
| Finance lease costs: | ||||||||
| Depreciation of finance lease assets | $ | 11,456 | $ | 11,456 | ||||
| Interest on lease liabilities | 61 | 416 | ||||||
| Operating lease costs: | ||||||||
| Amortization of right-of-use assets | 438,539 | 275,822 | ||||||
| Interest on lease liabilities | 34,613 | 20,375 | ||||||
| Total lease cost | $ | 484,669 | $ | 308,069 | ||||
| Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating leases | $ | 450,102 | $ | 11,872 | ||||
| Finance leases | 20,034 | 398,580 | ||||||
| $ | 470,136 | $ | 410,452 | |||||
| Weighted-average remaining lease term - finance leases (months) | 3 | 16 | ||||||
| Weighted-average remaining lease term - operating leases (months) | 72 | 28 | ||||||
| Weighted-average discount rate - finance leases | 3.63 | % | 3.63 | % | ||||
| Weighted-average discount rate - operating leases | 6.85 | % | 6.57 | % | ||||
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.
NOTE 11 – PREPAID AND OTHER CURRENT ASSETS
On JuneMarch 31, 2021, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $1,040,370, other current assets of $779,661. On September 30, 2020, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $407,243, other current assets of $1,350,324. On September 30, 2019, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $530,447,$101,308, and other current assets of $1,469,818.$1,087,009.
NOTE 12 - OTHER ASSETS
As of JuneMarch 31, 2021, the Company had other assets of $1,074,861 which was comprised of rent security of $294,978, a strategic investment in MasterpieceVR of $500,000, and other assets of $280,074. As of September 30, 2020, the Company had other assets of $1,515,194$744,207 which was comprised of rent security deposits of $127,373,$294,553 and other assets of $1,387,821. As of September 30, 2019, the Company had other assets of $497,857 which was comprised of rent security of $140,246 and other assets of $357,611.$449,654.
NOTE 13 – SHORT-TERM LIABILITIES
The Company’s subsidiaries have revolving lines of credit with various banks in order to fund operations. As of June 30, 2020, these accounts had no balance.
As of June 30, 2020, there were $6,334,945 in current portion of long-term liabilities.
NOTE 1413 – 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, is President, for total consideration of $550,000. As of JuneMarch 31, 2021, and September 30, 2020, there were $221,509was $1,498,776 and $1,432,209 in receivables due from Ducon Technologies, Inc., respectively. At March 31, 2021, $500,000 of the balance due is for the sale of Griffin, which was due in February 2021, and as of June 30, 2019, there were no payables orthe remaining balance are various receivables with various due to or from Ducon.dates within the next fiscal year. The Company is currently negotiating a payment agreement surrounding all these amounts due.
Please see Note 2 for further transactions relating to Aron Govil.
NOTE 14 – LINES OF CREDIT AND LONG-TERM LIABILITIES
Lines of credit
The Company currently has a line of credit with Fulton Bank for $3,500,000. The line carries an interest of LIBOR plus 2.00% per annum (2.19% as of March 31, 2021). At March 31, 2021 there was no outstanding balance on this line of credit.
Loans payable to bank
On December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $5,250,000 in order to fund the purchase of Advanced Industrial Services, Inc. $5,000,000 of the proceeds went to direct purchase of AIS. This loan carries interest of LIBOR plus 2.25% per annum (2.44% as of March 31, 2021) and is payable on December 15, 2022. This loan carries loan covenants which the Company was in compliance with as of March 31, 2021.
On December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $620,000 in order to fund the operations of Advanced Industrial Services, Inc. This loan carries interest of LIBOR plus 2.00% per annum (2.19% as of March 31, 2021) and was fully paid on December 15, 2020.
On May 1, 2020,2018, the Company invested $500,000acquired a loan from Fulton Bank in a registered S-1 stock offeringthe amount of Telidyne$400,000 in order to fund new equipment for Advanced Industrial Services, Inc., an OTC listed company, by purchasing 166,667 shares This loan carries interest of common stock at $3.00LIBOR plus 2.00% per share. Telidyne Inc.annum (2.19% as of March 31, 2021) and is controlled bypayable on May 1, 2023. This loan carries loan covenants which the Company’s CFO and Executive Director, Aron Govil.Company was in compliance with as of March 31, 2021.
NOTE 15 – LONG-TERM LIABILITIESOn January 28, 2020, the Company acquired a loan from Fulton Bank in the amount of $360,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carries interest of LIBOR plus 2.25% per annum (2.44% as of March 31, 2021) and is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of March 31, 2021.
Notes payable
On October 25, 2019, the Company, issued a note payable to an independent third-party in the amount of $1,725,000. This note carries interest of 8% and matures on April 25, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000, the Company received $1,495,000 in cash.
On December 23, 2019, the Company, issued a note payable to an independent third-partyprivate lender in the amount of $1,725,000. This note carries interest of 8% and matures on June 23, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000, the Company received $1,495,000 in cash. This note was satisfied on November 2, 2020.
On April 24, 2020, the Company, issued a note payable to an independent third-partyprivate lender in the amount of $1,725,000. This note carries interest of 8% and matures on June 23,October 24, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000, the Company received $1,495,000 in cash. This note was satisfied on January 21, 2021.
On September 30, 2020, the Company, issued a note payable to an independent private lender in the amount of $4,605,000. This note carries interest of 8% and matures on March 30, 2022. After deduction of an original issue discount of 600,000 and legal fees of $5,000, the Company received $4,000,000 in cash.
On March 3, 2020, Vicon, a subsidiary of the Company amended the $5,600,000 Term Loan Agreement with NIL Funding Corporation (“NIL”). Upon closing, $500,000 of outstanding borrowings were repaid to NIL, additionally, another $500,000 is to be paid in one year. The Agreement requires monthly payments of accrued interest that began on October 1, 2018. This note carries interest of 8.85% and matures on March 30, 2022. This note carries loan covenants which the Company is in compliance with as of June 30, 2020.
Long-term lease liabilitiesMarch 31, 2021.
On October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. As of June 30, 2020, the Company has lease liabilities of $2,539,343 of which $694,178 is classified as short-term. The Company has calculated that at September 30, 2019 it would have had an additional $1,351,317 with $289,235 classified as short-term.
Mortgage Payable
On January 28, 2020, the Company’s subsidiary, Advanced Industrial Services, Inc., completed the purchase of two buildings for a total purchase price of $3,381,433. The Company paid $905,433 in cash and acquired a mortgage from Fulton Bank in the amount of $2,476,000. This mortgage carries interest of LIBOR plus 2.50% per annum (2.69% as of March 31, 2021) and is payable on January 28, 2040. This loan carries loan covenants similar to covenants on The Company’s other loans from Fulton Bank. As of June 30, 2020,March 31, 2021, the Company was in compliance with these covenants.
Series 1 preferred stock dividends payable
On March 20, 2020, the Company had announced that it would pay its semiannual dividend to the holders of record on close of business on March 31, 2020 of Series 1 Preferred Stock by April 6, 2020. In light of the COVID-19 lock down announced by the state government, the Company on March 26, 2020, decided to postpone the payment of this dividend for 90 days. The Company paid these dividends with shares of Series 1 Preferred Stock on July 6, 2020 to the shareholders of record as of June 30, 2020.
Paycheck Protection Program Loans
In April and May of 2020, the Company and its subsidiaries applied for and were granted $3,471,100 in Paycheck Protection Program loans under the CARES Act. These loans bear interest of 2%1% and mature in two years. The Company will apply for and fully expects these loans to be forgiven under the provisions of the CARES Act and any subsequent legislation that may be applicable. These loans are recorded under Other long-term liabilitiesPaycheck Protection Program Loans on our Condensed Consolidated Balance Sheet as of JuneSeptember 30, 2020, net of the short-term portion of $1,301,663.$710,046. In April and June of 2021 $3,156,700 and $193,000 of these loans were forgiven.
On January 24, 2021, and April 17, 2021, subsidiaries of the company received additional $1,970,785 and $971,500, respectively, of Paycheck Protection Program funds as part of the second Paycheck Protection Program for which the subsidiary qualifies due to the decrease in revenues. These loans bear interest of 1% and mature in five years.
NOTE 16 15– STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 20,000,00010,000,000 shares of Preferred Stock, $0.001 par value. As of June 30, 2020,March 31, 2021, and September 30, 2019,2020, there were 3,316,6831,845,004 and 3,110,7183,364,953 shares issued and outstanding, respectively.
Series 1 Preferred Stock
On March 30, 2020, the Company amended the Certificate of Designation (the “Amended Certificate of Designation”) for our Series 1 Preferred Stock (the “Series 1 Stock”). The Amended Certificate of Designation increased the number of authorized preferred shares under the designation for our Series 1 Preferred Stock from 3,000,000 shares to 4,000,000 shares.
For the ninesix months ended June 30, 2020, 105,965March 31, 2021, 108,169 shares of Series 1 Preferred Stock were issued to pay $1,059,650 worth of dividends to holders of Series 1 Preferred Stock.
During the nine monthsthree-month period ended June 30, 2020,March 31, 2021, the Company purchased 162,888retired 469,949 shares of its Series 1 Preferred Stock on the open market at an average price per share of $1.17, for an aggregate cost of approximately $190,483,surrendered by Aron Govil as part of its ongoing share repurchase program announced earlier. The Company retired these shares on July 13, 2020.the settlement agreement (see Note 2).
As of June 30, 2020,March 31, 2021, and September 30, 2019,2020, there were 2,216,6831,795,004 and 2,110,7182,156,784 shares of Series 1 Preferred Stock issued and outstanding, respectively.
Series A Preferred stock
During the nine-monththree-month period ended June 30, 2020,March 31, 2021, the Company did not issue anyretired 1,000,000 shares of Series A Preferred Stock.Stock surrendered by Aron Govil as part of the settlement agreement (see Note 2).
As of June 30, 2020,March 31, 2021, and September 30, 2019,2020, there were zero and 1,000,000 shares of Series A Preferred Stock issued and outstanding.outstanding, respectively.
Series C Preferred Stock
On October 3, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up to one hundred thousand (100,000) shares, par value $0.001. Under the Certificate of Designation, holders of Series C Preferred Stock are entitled to the number of votes equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors.
| 20 |
For
During the nine monthsthree-month period ended June 30, 2020, 100,000March 31, 2021, the Company retired 50,000 shares of Series C Preferred Stock were issued tosurrendered by Aron Govil Executive Director and CFO of the Company as part of his employment agreement. In order to determine the fair market value of these shares the Company used the closing price of its Series 1 preferred stock of $0.95 on October 3, 2019. On July 10, 2020, Aron Govil transferred 50,000 shares of the Series C Preferred Stock to Saagar Govil.settlement agreement (see Note 2).
As of JuneMarch 31, 2021, and September 30, 2020, there were 50,000 and 100,000 shares of Series C Preferred Stock issued and outstanding.outstanding, respectively.
Common Stock
The Company is authorized to issue 20,000,00050,000,000 shares of common stock, $0.001 par value. As of June 30, 2020,March 31, 2021, there were 16,263,71518,711,463 shares issued and outstanding and at September 30, 2019,2020, there were 3,962,79017,622,539 shares issued and outstanding.
During the ninesix months ended June 30, 2020, 5,218,695March 31, 1,088,654 shares of the Company’s common stock have been issued to satisfy $4,428,000$550,000 of notes payable, $220,537$191,556 in accrued interest, and $2,285,387$465,772 of excess value of shares issued recorded as interest expense; 6,643,872 shares were issued in Securities Subscription Agreements (See below); 438,358 shares were issued in exchange for $428,538 of goods and services.
Subscription Rights Offeringexpense.
On December 4, 2019, the “Company entered into a Subscription Agreement relatingShares Surrendered in Settlement
In March 2021, Mr. Govil returned to the public offeringCompany 1,000,000 shares of 338,393Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 shares (the “Shares”of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively, the “Securities”). For the purposes of accounting recognition, the Company determined the fair value of the Company’s commonSeries A, Series C, and Series 1 Preferred stock parbased on the closing trading value $0.001 per share, all of which were sold by the Company (the “Offering”) to an accredited investor. The Offering price of the Shares was $1.12 per share for gross proceeds of $379,000. After deducting offering expenses of $18,950Series 1 Preferred Stock on the Company received $360,050 in net proceeds.
On January 24, 2020, the “Company entered into a Subscription Agreement relating to the public offering of 500,000 shares (the “Shares”)date of the Company’s common stock, par value $0.001 per share, all of whichagreement. The options surrendered were sold byvalued using the Company (the “Offering”) to an accredited investor. The Offering price of the Shares was $1.50 per share for gross proceeds of $750,000. After deducting offering expenses of $37,500 the Company received $712,500 in net proceeds.Black-Scholes option pricing model.
On February 26, 2020, the “Company entered into a Subscription Agreement relating to the public offering of 347,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, all of which were sold by the Company (the “Offering”) to an accredited investor. The Offering price of the Shares was $1.30 per share for gross proceeds of $451,100. After deducting offering expenses of $2,500 the Company received $448,600 in net proceeds.
On June 1, 2020, the “Company entered into a Subscription Agreement relating to the public offering of 3,055,556 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, all of which were sold by the Company (the “Offering”) to accredited investors. The Offering price of the Shares was $1.80 per share for gross proceeds of $5,500,000. After deducting offering expenses of $395,000 the Company received $5,105,000 in net proceeds.
On June 9, 2020, the “Company entered into a Subscription Agreement relating to the public offering of 2,402,923 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, all of which were sold by the Company (the “Offering”) to accredited investors. The Offering price of the Shares was $2.24 per share for gross proceeds of $5,382,548. After deducting offering expenses of $386,778 the Company received $4,995,769 in net proceeds.
NOTE 17 16– SHARE-BASED COMPENSATION
For the ninesix months ended June 30,March 31, 2021, and 2020, and 2019, the Company recognized $167,212$65,317 and $112,200$143,208 of share-based compensation expense on its outstanding options, respectively. As of June 30, 2020, $332,781March 31, 2021, $443,964 of unrecognized share-based compensation expense is expected to be recognized over a period of fourfive years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
NOTE 18 17– COMMITMENTS AND CONTINGENCIES
The Company has moved its corporate activities to New York City with a month-to-month lease of 2,500 square feet of office space at a rate of $11,556$13,000 per month that expires June 30, 2020.month. The Company has recognized $104,000$78,000 of lease expense for this lease, for the ninesix months ended June 30, 2020. The Company has not renewed this lease but will continue to rent the space on a month-by-month basis.March 31, 2021.
The Company’s IS 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, 2022. The Company has paid $27,330 for this lease, for the six months ended March 31, 2021.
The Company’s AT 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, the Company has recognized $58,077 of lease expensepaid $38,718 for this lease, for the ninesix months ended June 30, 2020,March 31, 2021, (ii) approximately 27,00030,000 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, the Company recognized $152,880 of lease expensepaid $172,314 for prior lease on this property, induring the six months ended March 31, 2020, and has recognized $53,654 of lease expense for the current lease during the three months ended June 30, 20202021 and (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 2021 and 2026, the Company has recognized $65,961 of lease expensepaid $43,974 for this lease for the ninesix months ended June 30, 2020.March 31, 2021.
NOTE 19 – DISCONTINUED OPERATIONS
During fiscal 2019, the Company reached a strategic decision to exit the environmental products business, which was part of Industrial Services group. Additionally, the Company sold its Electronics Manufacturing segment. Accordingly, the Company has reported the results of the environmental control products business and the Electronics Manufacturing segment as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets.
Income (loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of the ROB Cemtrex Companies and the environmental products business which are presented in total as discontinued operations, net of tax in the Company’s Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019, are as follows:
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Total net sales | $ | - | $ | 11,523,119 | $ | - | $ | 34,972,164 | ||||||||
| Cost of sales | - | 7,009,550 | - | 21,008,465 | ||||||||||||
| Operating, selling, general and administrative expenses | - | 4,811,870 | - | 14,576,012 | ||||||||||||
| Other expenses | - | (341,366 | ) | - | (43,615 | ) | ||||||||||
| Income (loss) from discontinued operations | - | 43,065 | - | (568,698 | ) | |||||||||||
| Loss on sale of discontinued operations | - | - | - | - | ||||||||||||
| Income tax provision | - | 264,988 | - | 198,328 | ||||||||||||
| Discontinued operations, net of tax | $ | - | $ | (221,923 | ) | $ | - | $ | (767,026 | ) | ||||||
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NOTE 20 18- SUBSEQUENT EVENTS
Cemtrex has evaluated subsequent events up to the date the condensed consolidated financial statements were issued. Cemtrex concluded that the following subsequent events have occurred and require recognition or disclosure in the condensed consolidated financial statements.
Potential Impacts of COVID-19 on our BusinessPaycheck Protection Program Loan
The current COVID-19 pandemic has impacted our business operationsOn April 17, 2021, a subsidiary of the Company received an additional $971,500 of Paycheck Protection Program funds as part of the second Paycheck Protection Program for which the subsidiary qualifies due to the decrease in revenues.
In April and the resultsJune of 2021 $3,156,700 and $193,000 of our operations in the second and third quarters, primarily with delays in expected orders by many customers and deployment of newer versions of surveillance software since our technical facility in Pune, India has been under lock down. Overall bookings level in the IS segment of our business is down by more than 50%, however our AT segment has experienced relatively less slow down. In addition, due to delays in certain supply chain areas, the expected launch times of our new products and new versions are also delayed by several months.
The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic has the potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities. However, on the other hand, opportunities in the video surveillance field have been growing for Vicon products.
The extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.first round Paycheck Protection Program Loans were forgiven.
Common shares issued subsequent to financial statements date.Series 1 Preferred Stock Dividend
In July and AugustOn March 18, 2021, The Board of 2020,Directors of Cemtrex, Inc. passed a resolution that the Company issued 479,619 shares of common stock to satisfy $600,000 worth of notes payable.
Preferred shares issued forcompany will pay its dividend
On July 6, the Company issued 111,134 shares of its on Series 1 Preferred Stock in additional shares of Series 1 Preferred Stock. The holders of the Series 1 Preferred Stock are entitled to forreceive dividends at the dividends that were accrued forrate of 10% annually, based on the $10.00 per share Preference Amount, payable semiannually. The Company issued 90,147 shares of our Series 1 Preferred Stock on April 6, 2021, to the holders of record on close of business on March 31, 2020 dividend payment but were delated due the COVID-19 crisis. The dividend was paid to shareholders of record as of June 30, 2020.2021.
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 research & development from a small environmental monitoring instruments companygrowth into a world leading multi-industry technology company. The Company now specializes in the development of Internet of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR) enabled technologies that drive innovationhas expanded in a wide range of sectors, including consumer products,smart technologies, virtual and augmented realities, industrial manufacturing, digital applications,solutions, and intelligent security & surveillance systems. 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 continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019,2018, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Accordingly, the Company has reported the results of the Electronics Manufacturing business as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets. These changes have been applied for all periods presented. During fiscal 2019, the Company also reached a strategic decision to exit its originalthe environmental products business, which was part of the Industrial Services Segment. Accordingly, the Company has reported the results of the environmental control products business as discontinued operations in the Consolidated Statements of Operations and sold those operations.in the Consolidated Balance Sheets.
Now the Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS).
Advanced Technologies (AT)
Cemtrex’s Advanced Technologies segment delivers cutting-edge technologies in the Internet of Things (IoT), Wearables and Smart Devices, such as the SmartDesk. Through the Company’s advanced engineering and product design, the Company delivers Virtual Reality (VR) and Augmented Reality (AR) productssolutions that provide higher productivity, progressive design and impactful experiences for consumer products, digital applicationsand various commercial and industrial manufacturing.applications. The Company is in the process of developing its own virtual reality applications for commercialization over the next couple years.
The AT business segment also includes the Company’s majority owned subsidiary, Vicon Industries, which provides end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based Videovideo monitoring systems and facialanalytics-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 cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI). based data algorithms.
Industrial Services (IS)
Cemtrex’s IS segment, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the 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.
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, 2019.2020.
Results of Operations - For the three months ending June 30,March 31, 2021, and 2020 and 2019
Total revenue for the three months ended June 30,March 31, 2021, and 2020 was $9,260,385 and 2019 was $8,440,867 and $10,928,933,$12,113,847, respectively, a decrease of $2,488,066,$2,853,462, or 23%24%. Loss from continuing operations for the three months ended June 30,March 31, 2021, was $1,962,598 compared to $516,900 for the three months ended March 31, 2020, and 2019 was $4,490,368 and $1,667,033, respectively, an increase on the loss of $2,823,335,$1,445,698, or 169%280%. Total revenue for the quarter decreased, as compared to total revenue in the same period last year, due to shutdowns and limited operations of businesses due to the COVID-19 crisis. Loss from continuing operations increased due to decreased sales duringrevenues as a result of the COVID-19 crisis.
Revenues
Our Advanced Technologies segment revenues for the three months ended June 30, 2020,March 31, 2021, decreased by $1,551,062$698,986 or 24%11% to $4,977,424$5,487,414 from $6,520,486$6,186,400 for the three months ended June 30, 2019.March 31, 2020. This decrease is mainly due to the impact of the COVID-19 crisis.
Our Industrial Services segment revenues for the three months ended June 30, 2020,March 31, 2021, decreased by $937,004$2,154,476 or 21%36%, to $3,463,443$3,772,971 from $4,440,447$5,927,447 for the three months ended June 30, 2019.March 31, 2020. This decrease is mainly due to the impact of the COVID-19 crisis.
Gross Profit
Gross Profit for the three months ended June 30, 2020March 31, 2021, was $3,279,852$3,928,884 or 39%42% of revenues as compared to gross profit of $4,058,013$5,346,104 or 38%44% of revenues for the three months ended June 30, 2019.March 31, 2020. Gross profit decreased in the three months ended June 30, 2020,March 31, 2021, compared to the three months ended June 30, 2019March 31, 2020, due to lower sales, however the percentage increase is due to a shift by management in the last fiscal year to focus on products with higher gross margins.revenues. The Company’s gross profit margins vary from product to product and from customer to customer.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2020 increased $1,549,578March 31, 2021, decreased $208,086 or 38%4% to $5,606,659$5,249,985 from $4,057,081$5,458,071 for the three months ended June 30, 2019.March 31, 2031. General and administrative expenses as a percentage of revenue was 66%57% and 37%45% of revenues for the three-month periods ended June 30, 2020March 31, 2021, and 2019.2020. The increase in General and Administrative Expenses both as a percentage of revenue is the reduction in salesrevenues from the same quarter last year and the decrease on a dollar per dollar basis is the result of increased salaries expense.decreased travel, marketing and sales expenses.
Research and Development Expenses
Research and Development expenses for the three months ended June 30, 2020March 31, 2021, was $331,936$641,497 compared to $285,583$404,933 for the three months ended June 30, 2019.March 31, 2020. Research and Development expenses are primarily related to the Advanced Technologies Segment’s development of proprietary technology and further developments of the SmartDesk and Artificial Intelligence (AI) connectedand next generation solutions associated with security and surveillance systems software.
Other Income/(Expense)
Other income/(expense) for the thirdsecond quarter of fiscal 20202021, was $(1,823,967)$4,505,033 as compared to $(2,162,854)$(900,506) for the thirdfirst quarter of fiscal 2019.2020. Other income/(Expense)(expense) for the three months ended June 30, 2020 was primarily due to interest expense.March 31, 2021, included the following one-time items (i) the settlement with Aron Govil (see Note 2), generated other income of $3,674,165, (ii) employee retention credits of $736,899. Additionally, the company had realized and unrealized gains on marketable securities of $926,622.
Provision for Income Taxes
During the thirdsecond quarter of fiscal 20202021, the Company recorded an income tax expenseprovision of $7,658 compared$98,477compared to a benefit of $780,742$189,543 for the thirdsecond quarter of fiscal 2019.2020. 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.jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Comprehensive lossNet income/(loss) attributable to Cemtrex, Inc. shareholders
The Company had a comprehensive lossnet income attributable to Cemtrex, Inc. shareholders of $4,149,335$2,454,132, or 49%27% of revenues, for the three-month period ended June 30, 2020March 31, 2021 as compared to a comprehensivenet loss attributable to Cemtrex, Inc. shareholders of $3,103,266$1,599,101 or 28%13% of revenues, for the three months ended June 30, 2019. Comprehensive lossMarch 31, 2020. Net income/(loss) attributable to Cemtrex, Inc. shareholders increased in the thirdsecond quarter as compared to comprehensive loss in the same period last year as a result of the reduction in saleswas primarily due to the COVID-19 crisis.other income items mentioned above.
Results of Operations - For the ninesix months ending June 30,March 31, 2021, and 2020 and 2019
Total revenue for the ninesix months ended June 30,March 31, 2021, and 2020 was $18,096,461 and 2019 was $32,774,797 and $28,371,927,$24,333,930, respectively, an increasea decrease of $4,402,870,$6,237,469, or 16%26%. Loss from continuing operations for the ninesix months ended June 30,March 31, 2021, was $4,008,549 compared to $119,410 for the six months ended March 31, 2020, and 2019 was $6,506,774 and $5,638,254, respectively, an increase on the loss of $868,520,$3,889,139, or 15%3,257%. Total revenue for the first three quarters increased,period decreased, as compared to total revenue in the same period last year, due to sales increases inshutdowns and limited operations of businesses due to the Advanced Technologies Segment.COVID-19 crisis. Loss from continuing operations increased due to the lossdecreased revenues as a result of sales in the third quarter due to the COVID-19 crisis.
Revenues
Our Advanced Technologies segment revenues for the ninesix months ended June 30, 2020, increasedMarch 31, 2021, decreased by $4,464,960$3,251,350 or 32%24% to $18,389,057$10,160,283 from $13,924,097$13,411,633 for the ninesix months ended June 30, 2019.March 31, 2020. This increase representsdecrease is mainly due to the consolidationimpact of Vicon Industries, Inc starting in the second quarter of fiscal year 2019.COVID-19 crisis.
Our Industrial Services segment revenues for the ninesix months ended June 30, 2020,March 31, 2021, decreased by $62,090$2,986,119 or 0.4%27%, to $14,385,740$7,936,178 from $14,447,830$10,922,297 for the ninesix months ended June 30, 2019. TheMarch 31, 2020. This decrease was primarilyis mainly due to the timing and recognitionimpact of revenue.the COVID-19 crisis.
Gross Profit
Gross Profit for the ninesix months ended June 30, 2020March 31, 2021, was $13,974,442$7,934,354 or 43%44% of revenues as compared to gross profit of $11,052,395$10,694,590 or 39%44% of revenues for the ninesix months ended June 30, 2019.March 31, 2020. Gross profit increaseddecreased in the ninesix months ended June 30, 2020,March 31, 2021, compared to the ninesix months ended June 30, 2019March 31, 2020, due to a shift by management in the last fiscal year to focus on products with higher gross margins.lower revenues. The Company’s gross profit margins vary from product to product and from customer to customer.
General and Administrative Expenses
General and administrative expenses for the ninesix months ended June 30, 2020March 31, 2021, increased $1,822,183$634,700 or 13%6% to $16,187,890$10,667,181 from $14,365,707$10,032,481 for the ninesix months ended June 30, 2019.March 31, 2020. General and administrative expenses as a percentage of revenue was 49%59% and 51%41% of revenues for the nine-monthsix-month periods ended June 30, 2020March 31, 2021, and 2019.2020. The decreaseincrease in General and Administrative Expenses as a percentage of revenue is the result of reduction in overhead expenses. Thisrevenues from the same period last year and the increase on a dollar per dollar basis represents mainlyis the consolidationresult of Vicon Industries, Inc starting in the second quarter of fiscal year 2019.increased personnel, legal and accounting fees, and marketing and sales expenses.
Research and Development Expenses
Research and Development expenses for the ninesix months ended June 30, 2020March 31, 2021, was $1,113,455$1,275,722 compared to $1,136,981$781,519 for the ninesix months ended June 30, 2019.March 31, 2020. Research and Development expenses are primarily related to the Advanced Technologies Segment’s development of proprietary technology and further developments of the SmartDesk and Artificial Intelligence (AI) connectedand next generation solutions associated with security and surveillance systems software.
Other Income/(Expense)
Other income/(expense) for the first threeand second quarters of fiscal 20202021 was $(2,982,670)$4,847,080 as compared to $(3,142,212)$(1,158,703) for the first threeand second quarters of fiscal 2019.2020. Other income/(Expense)(expense) for the ninesix months ended June 30, 2020 was primarily due to interest expense.March 31, 2021, included the following one-time items (i) the settlement with Aron Govil (see Note 2), generated other income of $3,674,165, (ii) employee retention credits of $736,899. Additionally, the company had realized and unrealized gains on marketable securities of $1,869,366.
Provision for Income Taxes
During the first threeand second quarters of fiscal 20202021 the Company recorded an income tax expenseprovision of $197,201$127,431 compared to a benefit of $1,954,251$189,543 for the first three quarterssecond quarter of fiscal 2019.2020. 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.jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Comprehensive lossNet income/(loss) attributable to Cemtrex, Inc. shareholders
The Company had a comprehensive lossnet income attributable to Cemtrex, Inc. shareholders of $8,623,905$711,100, or 26%4% of revenues, for the nine-monthsix-month period ended June 30, 2020March 31, 2021, as compared to a comprehensivenet loss attributable to Cemtrex, Inc. shareholders of $9,249,975$1,654,719 or 33%7% of revenues, for the ninethree months ended June 30, 2019. Comprehensive loss decreasedMarch 31, 2020. Net income/(loss) attributable to Cemtrex, Inc. shareholders increased in the first threeand second quarters as compared to comprehensive loss in the same period last year as a result of the increased sales and foreign currency translation gain.was primarily due to other income items mentioned above.
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Effects of Inflation
The Company’s business and operations have not been materially affected by inflation during the periods for which financial information is presented.
Liquidity and Capital Resources
Working capital was $17,165,395$19,962,805 at June 30, 2020March 31, 2021, compared to $3,240,348$23,285,122 at September 30, 2019.2020. This includes cash and equivalents and restricted cash of $14,273,738$17,280,660 at June 30, 2020March 31, 2021, and $2,858,085$21,072,859 at September 30, 2019,2020, respectively. The increasedecrease in working capital was primarily due to the reduction of the Company’s raisingcash and equivalents, and trade receivables during the first and second quarters of capital through equity offerings in June 2020.fiscal year 2021.
Accounts receivable decreased $1,654,509$1,283,505 or 26%19% to $4,804,475$5,403,292 at June 30, 2020March 31, 2021, from $6,458,984$6,686,797 at September 30, 2019.2020. The decrease in accounts receivable is attributable to lower salesrevenues in the third quarterfirst and second quarters of fiscal year 20202021 due to the COVID-19 crisis.
Inventories increased $1,384,453$565,002 or 27%8% to $6,591,608$7,358,808 at June 30, 2020March 31, 2021, from $5,207,155$6,793,806 at September 30, 2019.2020. The increase inventories is attributable to the purchase of inventories for new products the Company plans to fulfill sales bookings not shippedship in the third quarter.future.
Operating activities used $2,227,538 of$2,856,654 cash for the ninesix months ended June 30, 2020March 31, 2021, compared to providing $3,361,482 ofusing $1,370,703 cash for the ninesix months ended June 30, 2019.March 31, 2020. The decreaseincrease in operating cash flows was primarily due to the increasedecrease in operating assets,the Company’s accounts receivable, as compared to the same period a year ago. Discontinued operations for the nine months ended June 30, 2019 provided cash of $1,636,714.
Investment activities used $6,653,700$110,129 of cash for the ninesix months ended June 30, 2020March 31, 2021, compared to using cash of $2,114,350$3,794,158 during the nine-monthsix-month period ended June 30, 2019.March 31, 2020. Investing activities for the first three quartersquarter of fiscal year 20202021 were driven by the Company’s investment in Virtual Driver Interactive, MasterpieceVR Software, purchase of fixed assets, and marketable securities. Discontinued operations for the nine months ended June 30, 2019 used cash of $119,482.securities transactions.
Financing activities provided $20,176,160used $754,748 of cash in the nine-monthsix-month period ended June 30, 2020March 31, 2021, as compared to providing cash of $81,739$6,564,694 in the nine-monthsix-month period ended June 30, 2019.March 31, 2020. Financing activities were primarily driven by proceeds from notes payable, proceeds from bank loans, and proceeds from securities purchase agreements offset by payments on bank loans notes payable, expenses ofand notes payable and equity offerings, and useproceeds from the second round of the Company’s revolving credit lines. Discontinued operations for the nine months ended June 30, 2019 used cash of $78,123.Paycheck Protection Program loans.
We believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations during the 20202021 fiscal year (ending September 30, 2020)2021). Any major increases in sales, particularly in new products, may require substantial capital investment. Failure to obtain sufficient capital could materially adversely impact our growth potential.
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 expansion goals and working capital needs.
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 June 30, 2020.March 31, 2021. Based on their evaluation, our management has concluded that as of June 30, 2020March 31, 2021, 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 personal resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. This deficiency is common in small companies, similar to us, 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, 2021, 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 weakness, the Board of Directors has assigned a priority to the short-term and long-term improvement of our internal control over financial reporting. Our Board of Directors will work with management to continuously review controls and procedures to identified deficiencies and implement remediation within our internal controls over financial reporting and our disclosure controls and procedures.
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 taking steps to improve its internal controls by obtaining additional accounting personnel.
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.
NONE.
See Risk Factors included in our Annual Report on Form 10-K for 2019.2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the ninesix months ended June 30,March 31, 2020, the Company issued an aggregate of 5,567,0531,088,654 shares of common stock in exchange for aggregate consideration of $7,362,462,$1,207,328, which was used for working capital and research and development. Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
| * | 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 | Incorporated by reference from Form S-8 filed on May 1, | |
| 6 | Incorporated by reference from Form 8-K filed on June 12, 2019. | |
| 7 | Incorporated by reference from Form 8-K/A filed on November 24, 2017. | |
| 8 | Incorporated by reference from Form |
| 9 | Incorporated by reference from Form |
| 30 |
| 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 | |
| 14 | Incorporated by reference from Form 8-K filed on March 22, 2019. | |
| 15 | ||
| 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. |
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: | By: | /s/Saagar Govil . |
| Saagar Govil | ||
| Chief Executive Officer | ||
| Dated: | /s/ | |
| Chief Financial Officer | ||
| and Principal Financial Officer | ||