Part
I
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K includes “forward-looking statements” within the meaning of the Securities Act of 1933
(the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). Any statements contained
in this Annual Report on Form 10-K, other than statements of historical fact, including statements about management’s beliefs
and expectations, are forward-looking statements and should be evaluated as such. These statements are made on the basis of management’s
views and assumptions regarding future events and business performance. These forward-looking statements include, but are
not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements
relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates
and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results
may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous
factors, including those described above and those risks discussed from time to time in this report, including the risks described
under “Risk Factors” and any risks described in any other filings we make with the SEC. Any forward-looking statements
speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement
to reflect events or circumstances after the date of this report.
Management’s
discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, right-of-use
asset valuation, bad debts, goodwill impairment, inventory obsolescence, income tax valuation, and contingencies
and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
ITEM
1. BUSINESS
Cemtrex
was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading
multi-industry technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual
and augmented realities, industrial solutions, and intelligent security 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 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 the 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 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) 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) solutions that provide higher productivity, progressive design and impactful experiences for consumer products,
and various commercial and industrial applications. The Company is in the process of developing 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
video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every
aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools,
and federal and state government offices. Vicon provides 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.
Recent
Developments
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, including 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 20%, 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 has resulted in delays of 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.
Business
Strategy
We
intend to continue utilizing our resource capabilities to deliver exceptional value for our customers, shareholders, and employees.
Our focus is to grow in markets where we see significant long-term opportunity to create an attractive return on shareholder equity.
We leverage our engineering, manufacturing expertise and strong customer relationships to develop new cutting-edge technologies
and advanced products that solve technological challenges faced by our customers. We thoroughly analyze new product opportunities
by considering projected demand for the product or service, and expected operating costs, and then only pursue those opportunities
which we believe will contribute to earnings growth in the future. In addition, we believe our senior management team has substantial
business and technical experience to enable us to pursue our business strategies.
The
Company believes its ability to attract and retain new customers comes from their ongoing commitment to understanding its customers’
business performance requirements and our expertise in meeting or exceeding these requirements and enhancing their competitive
edge through cutting edge technology. We work closely with our customers from an operational and senior executive level to achieve
a deep understanding of our customer’s goals, challenges, strategies, operations, and products to ultimately provide the
best solutions for them.
We
continue to seek and execute additional strategic acquisitions and focus on expanding our products and services as well as entering
into new markets. We believe that the diversity of our products & services and our ability to deliver full solutions to a
variety of end markets provides us with multiple sources of stable growth and a competitive advantage relative to other players
in the industry. We constantly look for opportunities to gain new customers and penetrate geographic locations and end markets
or acquire new product or service opportunities through acquisitions that are operationally and financially beneficial for the
Company. However, there can be no assurance that we will succeed in our strategies.
SUPPLIERS
The
Company is not dependent on, nor expects to become dependent on, any one or a limited number of suppliers. The Company buys
parts and components to assemble and manufacture its equipment and products. The Company also utilizes sub-suppliers and
third-party vendors to procure from or fabricate its components based on its design, engineering and specifications. The
Company also enters into subcontracts for field installation, which the Company supervises; and the Company manages all
technical, physical and commercial aspects of the performance of the Company contracts. To date, the Company has not
experienced major difficulties either in obtaining fabricated components and other materials and parts or in obtaining
qualified subcontractors for installation work, however, there have been some delays in certain components due to
COVID-19. The Company seeks to have many sources of supply for each of its major requirements in order to avoid
significant dependence on any one or a few suppliers. However, the supply of materials or other items could be disrupted by
natural disasters, international trade tariffs, wars, pandemics, disputes and or other events. Despite market price
volatility for certain requirements and materials pricing pressures at some of our businesses, the raw materials and various
purchased components needed for the Company’s products have generally been available in sufficient
quantities.
COMPETITION
The
Company faces substantial competition in each of its products & services and principal markets. Most of its competitors are
larger and have greater financial resources than the Company; several are divisions of multi-national companies. The Company competes
on the basis of price, engineering and technological expertise, know-how and the quality of its products, systems and services.
Additionally, the Company’s management believes that the successful delivery, installation and performance of the Company’s
products and systems is a key factor in gaining business as customers typically prefer to make significant purchases from a company
with a solid performance history.
The
Company obtains virtually all its contracts through competitive bidding. Although price is an important factor and may in some
cases be the governing factor, it is not always determinative, and contracts are often awarded on the basis of the efficiency
or reliability of products, past performance records, and the engineering and technical expertise of the bidder. Several companies
market products that compete directly with Company’s products. Other companies offer products that potential customers may
consider to be acceptable alternatives to Company’s products and services. The Company faces direct competition from companies
with far greater financial, technological, manufacturing and personnel resources.
INTELLECTUAL
PROPERTY
Over
the years, the Company has developed proprietary technologies that give it an edge in competing with its competitors. Thus, the
Company relies on a combination of trade secrets and know-how to protect its intellectual property. The Company currently has
multiple patents and patent claims that it owns. Additionally, the Company has multiple patent applications pending related
to the development of SmartDesk and will pursue those patents based upon its financial resources. Cemtrex continues to invest
in research and development with intention of developing proprietary technology and intellectual property as allowed by its financial
resources.
MARKETING
The
Company sells its products globally and relies on direct sales force, manufacturing representatives, distributors, integrators
and installers, commission sales agents, magazine advertisements, internet advertising, trade shows, trade directories and catalogue
listings to market its products and services. The Company uses independent manufacturing representatives in the United States
and throughout the world, backed by its sales management and technical professionals. The Company’s arrangements with independent
sales representatives accord each a defined territory within which to sell some or all of its products and systems, provide for
the payment of agreed-upon sales commissions or wholesale pricing and are terminable at will. The Company’s sales representatives
do not have authority to execute contracts on the Company’s behalf.
The
Company’s sales representatives also serve as ongoing liaison function between the Company and its customers during
the installation phase of the products and systems and address customers’ questions or concerns arising thereafter. The
Company selects representatives based upon industry reputation, prior sales performance including number of prospective leads
generated and sales closure rates, and the breadth of territorial coverage, among other criteria.
Technical
inquiries received from potential customers are referred to the engineering personnel. Thereafter, the Company’s sales and
engineering personnel jointly prepare a budget proposal, or a final bid. The period between initial customer contact and issuance
of an order is generally between two and twelve months.
The
Company has been selling its SmartDesk directly from its website whereby customers can place orders and make payments.
The Company has been marketing SmartDesk through direct to consumer internet channels, including social media sites
such as Facebook and Instagram as well as showcasing the product at several trade shows. The Company plans to continue its marketing
efforts for the SmartDesk by marketing the product to enterprise clients and increase its overall marketing and sales efforts
in online media.
CUSTOMERS
The
Company’s principal customers in its AT segment are generally consumers, government agencies or commercial businesses. The
Company’s principal customers in its IS segment include businesses engaged in manufacturing, chemical, packaging, printing,
electronics, automotive, construction, and metallurgical processing. Historically, most of the customers have purchased individual
products or systems which, in many instances, operate in conjunction with products and systems supplied by others. No one single
customer accounts for more than 10% of its annual sales.
For
the AT segment, the Company is responsible for the design, production, supply, and delivery of products to its customers. In order
to satisfy customer orders, the Company must consistently meet production deadlines and maintain a high standard of quality.
INSURANCE
The
Company currently maintains different types of insurance, including general liability and property coverage. The Company also
maintains product liability insurance with respect to its products and equipment. Management believes that the insurance coverage
that it has is adequate for its current business needs.
EMPLOYEES
The
Company employs approximately 284 full-time employees and approximately 10 part-time employees as of December 30, 2020,
including 101 engaged in engineering, 101 in manufacturing & field service and 92 in administrative, sales and marketing functions.
GOVERNMENT
REGULATION
The
Company’s operations are subject to certain foreign, federal, state and local regulatory requirements relating to, among
others, environmental, waste management, labor and health and safety matters. Management believes that the Company’s business
is operated in material compliance with all such regulations.
ITEM
1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below,
together with all of the other information in this report, including the consolidated audited financial statements and the related
notes appearing at the end of this annual report on Form 10-K, with respect to any investment in shares of our common stock. If
any of the following risks actually occurs, our business, financial condition, results of operations and future prospects would
likely be materially and adversely affected. In that event, the market price of our common stock could decline, and you could
lose all or part of your investment. These statements, like all statements in this report, speak only as of the date of this report
(unless another date is indicated) and we undertake no obligation to update or revise the statements in light of future development.
Risks
Related to our Business
There
is no guarantee that cash flow from operations and/or debt and equity financings will provide sufficient capital to meet our expansion
goals and working capital needs.
Our
current strategic plan includes the expansion of our company both organically and through acquisitions if market conditions and
competitive conditions allow. Due to the long-term nature of investments in acquisitions and other financial needs to support
organic growth, including working capital, we expect our long-term and working capital needs to periodically exceed the short-term
fluctuations in cash flow from operations. We anticipate that we will likely raise additional external capital from the sale of
common stock, preferred stock and debt instruments as market conditions may allow, in addition to cash flow from operations (which
may not always be sufficient), to fund our growth and working capital needs.
In
the event that we need to raise significant amounts of external capital at any time or over an extended period, we face a risk
that we may need to do so under adverse capital market conditions with the result that our existing shareholders, as well as persons
who acquire our common stock, may incur significant and immediate dilution should we raise capital from the sale of our common
or preferred stock. Similarly, we may need to meet our external capital needs from the sale of secured or unsecured debt instruments
at interest rates and with such other debt covenants and conditions as the market then requires. In all of these transactions
we anticipate that we will likely need to raise significant amounts of additional external capital to support our growth. However,
there can be no guarantee that we will be able to raise external capital on terms that are reasonable in light of current market
conditions. In the event that we are not able to do so, those who acquire our common stock may face significant and immediate
dilution and other adverse consequences. Further, debt covenants contained in debt instruments that we issue may limit our financial
and operating flexibility with consequent adverse impact on our common stock market price.
We
are substantially dependent upon the success and continued market acceptance of our technology; the absence of which may significantly
reduce our sales, profits and cash flow and adversely impact our financial condition.
In
addition to overall reduced market demand, other competing technologies may be offered by both existing competitors or by those
that enter the market and these competing technologies may offer a better cost-benefit ratio than our products and/or at lower
prices with the result that our sales, profits, and cash flow may suffer significantly over an extended period with serious adverse
impact on our financial condition.
Our
future operating results depend in part on continued successful research, development and marketing of new and improved products
and services through our subsidiary Cemtrex Advanced Technologies, and there can be no assurance that we will successfully introduce
new products and services into the market.
The
success of new and improved products and services through our Cemtrex Advanced Technologies Inc. subsidiary depends on our research
and development efforts and the initial acceptance of our products by consumers. This is a new line of business for our company,
and our management has limited experience with consumer products in general, and with IoT products in particular. Our business
is affected by varying degrees of technological change and corresponding shifts in customer demand, which result in unpredictable
product transitions, shortened life cycles and increased importance of being first to market with new products and services. We
may experience difficulties or delays in the research & development, production and/or marketing of new products and services
due to lack of capital, which may negatively impact our operating results and prevent us from recouping or realizing a return
on the investments required to continue to bring new products and services to market.
Our
failure to successfully develop, sell and market our new SmartDesk in a timely and cost-effective manner could adversely affect
our future profitability.
We
believe that our profitability will depend in part on our ability to effectively (i) market and sell SmartDesk, (ii) continue
our engineering effort to develop new features for the SmartDesk as requested by customers, (iii) market SmartDesk through our
own marketing organization and via third-party distribution channels in the United States and internationally, and (iv) deliver
SmartDesk to customers with appropriate installation and service. Failure to successfully execute these tasks in a timely and
cost-effective manner could adversely affect profitability. There can be no assurance that we will be successful in these efforts
or that even when our SmartDesk is delivered, it will achieve market acceptance in a timely fashion. Further, there can be no
assurance that expenses incurred in connection with the development, sales and marketing of SmartDesk will not exceed our expectations,
or that SmartDesk will generate revenues sufficient to offset these expenses. In addition, although we have filed numerous U.S.
patent applications relating to various aspects and features of our SmartDesk, there can be no assurance that any patents will
issue on any of the pending patent applications.
We
have broad discretion in the use of the net proceeds from our universal shelf registration statement and may not use them effectively.
We
intend to continue to allocate the net proceeds that we received from our registered shelf offering that went effective with
the SEC on June 14, 2017 (i) to further the development, and sales and marketing of our new smart device, known as the
SmartDesk, a proprietary advanced technology workspace solution developed entirely by our Advanced Technologies business
segment, and (ii) for general corporate purposes, including for working capital purposes, to increase sales and operational
capabilities in each of our market segments. The Company on an on-going basis invests its excess cash in large cap
securities, both stocks and options, listed on major exchanges pending use of net proceeds for business matters. While these
investments may prove to be lucrative to the company, these investments may prove to be disappointing and we could lose some
or all of the net proceeds in this fashion. Our
management will have broad discretion in the actual application of the net proceeds, and the failure by our management to
apply these funds effectively could have a material adverse effect on our business.
The
Company is exposed to credit risk, market risk, and fluctuations in the values of its investment portfolio.
The
Company invests excess cash that the Company has on hand in large cap securities listed on major exchanges, including
stocks and options. The Company’s investments can be negatively affected by liquidity, credit deterioration, financial
results, market and economic conditions, political risk, sovereign risk, interest rate fluctuations or other factors. As a result,
the value and liquidity of the Company’s cash, cash equivalents, and marketable securities may fluctuate substantially.
Therefore, although the Company has not realized any significant losses on its cash, cash equivalents, and marketable securities,
future fluctuations in their value could result in significant losses and could have an adverse impact on the Company’s
financial condition and operating results.
We
have substantial debt which could adversely affect our ability to raise additional capital to fund operations and prevent us from
meeting our obligations under outstanding indebtedness.
As
of September 30, 2020, our total indebtedness was approximately $19.4 million, including notes payable of $10.8 million, mortgage
payable of $2.4 million, and bank loans of $6.2 million, including $3.5 million of PPP loans that the Company expects to be forgiven.
Approximately $7 million of such debt is classified as current. This substantial debt could have important consequences, including
the following: (i) a substantial portion of our cash flow from operations may be dedicated to the payment of principal and interest
on indebtedness, thereby reducing the funds available for operations, future business opportunities and capital expenditures;
(ii) our ability to obtain additional financing for working capital, debt service requirements and general corporate purposes
in the future may be limited; (iii) we may face a competitive disadvantage to lesser leveraged competitors; (iv) our debt service
requirements could make it more difficult to satisfy other financial obligations; and (v) we may be vulnerable in a downturn in
general economic conditions or in our business and we may be unable to carry out activities that are important to our growth.
Our
ability to make scheduled payments of the principal of, or to pay interest on, or to refinance our indebtedness depends on and
is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial,
competitive, business and other factors beyond management’s control. If we are unable to generate sufficient cash flow to
service our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt,
which could impair our liquidity. Any refinancing of indebtedness, if available at all, could be at higher interest rates and
may require us to comply with more onerous covenants that could further restrict our business operations. Despite our significant
amount of indebtedness, we may need to incur significant additional amounts of debt, which could further exacerbate the risks
associated with our substantial debt.
Our
ability to secure and maintain sufficient credit arrangements is key to our continued operations and there is no assurance we
will be able to obtain sufficient additional equity or debt financing in the future.
There
is no assurance that we will be able to retain or renew our credit agreements and other finance agreements in the future. In the
event our company grows rapidly, the uncertain economic climate continues, or we acquire one or more other companies, additional
financing resources will likely be necessary in the current or future fiscal years. As a smaller public company with a limited
ability to attract and obtain financing, there is no assurance that we will be able to obtain sufficient additional equity or
debt financing in the future on terms that are reasonable in light of current market conditions.
We
are involved in an ongoing SEC investigation, which could divert management’s focus, result in substantial investigation
expenses and have an adverse impact on our reputation, financial condition, results of operations and cash flows.
The
Company has received subpoenas from the Securities and Exchange Commission (“SEC”). The subpoenas request documents
and information concerning, among other things, a company known as Telidyne Inc., a company controlled by our prior officer and
director, Aron Govil, securities offerings related to Telidyne, and the Company’s own product and services, business operations,
securities’ offerings and use of proceeds. Although the Company is not currently the subject of any enforcement proceedings,
the investigation could lead to enforcement proceedings if the SEC contends that the Company has not complied with securities
laws. The Company is fully cooperating with the SEC's requests. The Company has incurred legal expenses and may incur significant
legal and accounting expenditures in connection with the SEC’s investigation. The Company is unable to predict how long
the SEC’s investigation will continue or its outcome.
Our
sales and gross margins depend significantly on market demand for our products, as to which there can be no assurance.
The
uncertainty in the United States and in the international economic and political environment could result in a decline in demand
for our products in any industry. Our gross margins are dependent upon our ability to maintain sales volumes at levels that allow
us to cover our fixed costs and variable costs per unit. To the extent that one or more product lines experience a significant
and protracted decline in sales volume, we may experience significant declines in our gross margins that may result in losses.
Further, any adverse changes in tax rates and laws affecting our customers could result in decreases in demand of our products
and thus decrease our gross margins. Any of these factors could negatively impact our business, results of operations and financial
condition.
In
these circumstances, we anticipate that we could be required to increase or decrease staffing and more closely manage other expenses
in order to meet the anticipated demand of our existing and future customers. Orders from our customers are subject to cancellation,
and delivery schedules from our customers fluctuate as a result of changes in our customers’ demand, thereby adversely affecting
our results of operations, and may result in higher inventory levels. Higher inventory levels may cause us to need greater external
financing, which adversely affects our financial performance.
Our
products face competitive challenges, including rapid technological changes, and pricing pressure from competitors, which could
adversely affect our business.
All
of our product lines are subject to significant competition from existing and future competitors, market conditions and technological
change, or a combination of them, and our sales revenues and gross margins may suffer protracted and serious declines with the
result that we would likely incur protracted losses. Further, the barriers to entry in several of our lines of business are not
so significant that we may be facing competition from others who see significant opportunities to enter the market and undercut
our prices with products that possess superior technological attributes at prices that offer our customers a better value. In
this instance, we could incur protracted and significant losses and persons who acquire our common stock would suffer losses thereby.
Factors
affecting the industries that utilize our products could negatively impact our customers and us.
We
have no real control over factors affecting the industries that utilize our products and to the extent that any one or more of
these industries change dramatically, we may be facing significant financial challenges that are in excess of our existing capabilities.
These factors include:
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increased
competition among our customers and their competitors;
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the
inability of our customers to develop and market their products;
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recessionary
periods in our customers’ markets;
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the
potential that our customers’ products become obsolete;
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our
customers’ inability to react to rapidly changing technology; and
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our
customers’ inability to pay for our products, which could, in turn, affect the company’s results of operations.
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If
we are unable to develop new products, our competitors may develop and market products with better features that may reduce demand
for our existing and potential products or otherwise result in our products becoming obsolete and could materially and adversely
affect our ability to sustain profitability.
There
are many larger competitors who compete directly with us and who have significantly greater financial, technological and research
resources. This may serve to severely damage our ability to market and sell our products at price levels that would allow us to
achieve and maintain profit margins and positive cash flow.
We
are a smaller public company and we face rapid technological change in many of our product markets and we may not be able to introduce
any successful new products or any enhancements to our existing products on a timely basis, or at all. This could result in prolonged
and significant losses. In addition, our introduction of new products could adversely affect sales of certain of our existing
products if these new products directly compete with our existing products. If our competitors develop innovative technologies
that are superior to our products or if we fail to accurately anticipate market trends and respond on a timely basis with our
own innovations, we may not achieve sufficient growth in its revenues to attain profitability or if we do, we may not be able
sustain profitability.
Developing
and maintaining a patent portfolio is an expensive and time-consuming process and there is no assurance the Company will successfully
develop patents to protect the intellectual property it is working on.
If
we fail to establish, maintain and enforce intellectual property rights with respect to our technology, our financial condition,
results of operations and business could be negatively impacted.
Our
ability to establish, maintain and enforce intellectual property rights with respect to our proprietary technologies, patents,
patent applications, software and other rights will be a significant factor in determining our future financial and operating
performance. We seek to protect our intellectual property rights by relying on a combination of patent, trade secret and copyright
laws. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential
know-how and trade secrets.
We
have filed patent applications with respect to many aspects of our technologies. However, we cannot provide any assurances that
any of these applications will ultimately result in issued patents or, if patents are issued, that they will provide sufficient
protections for our technology against competitors. Although we have filed various patent applications for some of our core technologies,
we currently hold only six issued patents, with two in the United States and four in Canada, and we may face delays and
difficulties in obtaining our other filed patents, or we may not be able to obtain such patents at all.
Outside
of these patent applications, we seek to protect our technology as trade secrets and technical know-how. However, trade secrets
and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular,
only patents will allow us to prohibit others from using independently developed technology that are similar. If competitors develop
knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through
other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value
of our trade secrets and technical know-how would be diminished.
While
we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how,
these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into
agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets,
technical know-how and confidential information , we cannot provide any assurance that these agreements will be sufficient
to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future ,
which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure,
which may limit or compromise our ability to continue to protect such technology as a trade secret.
Monitoring
and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact
infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation.
Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion
of resources and management attention.
From
our customers’ standpoint, the strength of the intellectual property under which we control can be a critical determinant
of the value of our products and services. If we are unable to secure, protect and enforce our intellectual property, it may become
more difficult for us to attract new customers. Any such development could have a material adverse effect on our business, prospects,
financial condition and results of operations.
We
may not have sufficient financial resources to defend our intellectual property rights or otherwise successfully defend against
claims that we have infringed on a third party’s intellectual property and, as a result, it may adversely affect our business,
financial condition and results of operations.
Even
if such claims are not valid, they could subject us to significant costs. In addition, it may be necessary in the future to enforce
our intellectual property rights to determine the validity and scope of the proprietary rights of others. Litigation may also
be necessary to defend against claims of infringement or invalidity by others. We may not have sufficient financial resources
to defend our intellectual property rights or otherwise to successfully defend the company against valid or spurious claims that
we have infringed upon the intellectual property rights of others. An adverse outcome in litigation or any similar proceedings
could force us to take actions that could harm its business. These include: (i) ceasing to sell products that contain allegedly
infringing property; (ii) obtaining licenses to the relevant intellectual property which we may not be able to obtain on terms
that are acceptable, or at all; (iii) indemnifying certain customers or strategic partners if it is determined that we have infringed
upon or misappropriated another party’s intellectual property; and (iv) redesigning products that embody allegedly infringing
intellectual property. Any of these results could adversely and significantly affect our business, financial condition and results
of operations. In addition, the cost of defending or asserting any intellectual property claim, both in legal fees and expenses,
and the diversion of management resources, regardless of whether the claim is valid, could be significant and lead to significant
and protracted losses.
We
have grown through acquisitions and are continuously looking to fund other acquisitions; our failure to raise funds for acquisitions
may have the effect of slowing down our growth and our use of funds for acquisitions subjects us to acquisition-related risks.
We
intend to make acquisitions of complementary (including competitive) businesses, products and technologies. However, any future
acquisitions may result in material transaction costs, increased interest and amortization expenses related to goodwill and other
intangible assets, increased depreciation expense and increased operating expenses, any of which could have an adverse effect
on our operating results and financial position. Acquisitions will require integration of acquired assets and management into
our operations to realize economies of scale and control costs. Acquisitions may involve other risks, including diversion of management
attention that would otherwise be available for ongoing internal development of our business and risks inherent in entering markets
in which we have no or limited prior experience. In connection with future acquisitions, we may make potentially dilutive issuances
of equity securities. In addition, consummation of acquisitions may subject us to unanticipated business uncertainties, contingent
liabilities or legal matters relating to those acquired businesses for which the sellers of the acquired businesses may not fully
indemnify us. There can be no assurance that our business will grow through acquisitions, as anticipated.
The
loss of the services of Saagar Govil for any reason would materially and adversely affect our business operations and prospects.
Our
financial success is dependent to a significant degree upon the efforts of Saagar Govil, our Chairman, President and Chief Executive
Officer. Saagar Govil possesses engineering, sales and marketing experience concerning our company that our other officers do
not have. We have not entered into an employment arrangement with Mr. Govil and we have not obtained key man insurance over him.
There can be no assurance that Saagar Govil will continue to provide services to us. A voluntary or involuntary departure by Saagar
Govil could have a materially adverse effect on our business operations if we were not able to attract a qualified replacement
for them in a timely manner.
Risks
Related to Our Common Stock
Our
management stockholders have significant stockholdings in and influence over our company which could make it impossible for public
stockholders to influence the affairs of our company.
We
are a “controlled company” under Nasdaq Listing Rules. Approximately 90% of our outstanding voting shares, which includes
our common stock, Series A preferred stock, Series C preferred stock and Series 1 preferred stock, are beneficially held by Aron
Govil, our Founder, former officer and Director, and Saagar Govil, our Chairman, President and Chief Executive Officer
and Director. Pursuant to the certificate of designation for our Series A preferred stock, each outstanding share of Series
A preferred stock is entitled to the number of votes equal to the result of (i) the total number of shares of our common stock
outstanding at the time of such vote multiplied by 1.01, divided by (ii) the total number of shares of our Series A preferred
stock outstanding at the time of such vote, at each meeting of stockholders of our company with respect to any and all matters
presented to our stockholders for their action or consideration, including the election of directors. Pursuant to certificate
of designation for our Series C preferred, each outstanding share of Series C Preferred Stock is 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. As a result of Aron Govil’s and Saagar Govil’s ownership of our common stock and Aron Govil’s
ownership of our Series A and Series C preferred stock and Series 1 preferred stock, our management stockholders control, and
will control in the future, substantially all matters requiring approval by the stockholders of our company, including the election
of all directors and approval of significant corporate transactions. This could make it impossible for public stockholders to
influence the affairs of our company.
Sales
of substantial amounts of our common stock in the public market could depress the market price of our common stock.
Our
common stock is listed for trading on the Nasdaq Capital Market. If our stockholders sell substantial amounts of our common stock
in the public market, including the shares of common stock issuable upon the exercise of our Series 1 warrants and stock options,
and shares issued as consideration in future acquisitions, or the market perceives that such sales may occur, the market price
of our common stock could fall and we may be unable to sell our common stock in the future.
Our
common stock may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment
in us less appealing.
The
market price of our common stock may fluctuate substantially due to a variety of factors, including:
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our
business strategy and plans;
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changing
factors related to doing business in various jurisdictions within the United States;
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new
regulatory pronouncements and changes in regulatory guidelines and timing of regulatory approvals;
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general
and industry-specific economic conditions;
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additions
to or departures of our key personnel;
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variations
in our quarterly financial and operating results;
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changes
in market valuations of other companies that operate in our business segments or in our industry;
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lack
of trading liquidity;
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announcements
about our business partners;
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changes
in accounting principles; and
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general
market conditions.
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The
market prices of the securities of early-stage companies, particularly companies like ours without consistent product revenues
and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been
unrelated to the operating performance of particular companies. In the past, companies that experience volatility in the market
price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought
against us could result in substantial costs, divert our management’s attention and resources and harm our financial condition
and results of operations.
Our
Series 1 preferred stock and all of our existing and future indebtedness rank senior to our common stock in the event of a liquidation,
winding up or dissolution of our business.
In
the event of our liquidation, winding up or dissolution, our assets would be available to make payments to holders of all existing
and future indebtedness and Series 1 preferred stock before payments to holders of our common stock. In the event of our bankruptcy,
liquidation or winding up, there may not be sufficient assets remaining, after paying amounts to the holders of our indebtedness
and Series 1 preferred stock, to pay anything to common stockholders. As of September 30, 2020, we had total consolidated debt
of approximately $19.4 million and 2,156,784 shares of Series 1 preferred stock outstanding. Any liquidation, winding up or dissolution
of our company or of any of our wholly or partially owned subsidiaries would have a material adverse effect on holders of our
common stock.
Our
common stockholders may be adversely affected by the issuance of any subsequent series of preferred stock.
Our
certificate of incorporation does not restrict our ability to offer one or more additional new series of preferred stock, any
or all of which may rank equally with or have preferences over our common stock as to dividend payments, voting rights, rights
upon liquidation or other types of rights. We would have no obligation to consider the specific interests of the holders of common
stock in creating any such new series of preferred stock or engaging in any such offering or transaction. Our creation of any
new series of preferred stock or our engaging in any such offering or transaction could have a material adverse effect on holders
of our common stock.
The
public trading market for the common stock may be limited in the future.
Our
common stock is listed for trading on the Nasdaq Capital Market under the symbol CETX. The trading volume fluctuates and there
have been time periods during which the common stock trading volume has been limited. Management can make no assurances that trading
volume will not be similarly limited in the future. Without an active trading market, there can be no assurance of any liquidity
or resale value of the common stock, and stockholders may be required to hold their shares of common stock for an indefinite period
of time.
We
may not pay cash dividends on our common stock.
Our
board of directors declared a one-time cash dividend on our common stock in April 2017. The terms of our series 1 preferred stock
provide for the payment of semiannual dividends on the last day of March and September in each year, which began in March 2017.
No other cash dividends have been declared or paid by us on our stock during either of the two most recent fiscal years or the
period through the date of this prospectus. Other than with respect to our series 1 preferred stock, our board of directors declares
dividends when, in its discretion, it determines that a dividend payment, as opposed to another use of cash, is in the best interests
of the stockholders. Such decisions are based on the facts and circumstances then existing including, without limitation, our
results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors
our board of directors deems relevant. As a result, we cannot predict when, or whether, another dividend on our common stock will
be declared in the future.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
The
Company has the following properties:
The
Company has moved its head office to New York City with a lease of 2,500 square feet of office space at a rate of $13,000 per
month on a month to month lease.
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’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, (ii) approximately 30,000
square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of
$28,719 expiring on March 31, 2027, (iii) approximately 9,400 square feet of office and warehouse space in Southampton, England
in a fifteen-year lease with at an annual rent of $87,745 (£69,250) which expires on March 24, 2031 and contains
provisions to terminate in 2021 and 2026.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have
a material adverse effect on our business, financial condition or operating results.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s Common Stock currently trades on the NASDAQ Capital Markets under the symbol “CETX”.
As
of December 30, 2019, the Company had 68 shareholders of record. This amount does not take into account shareholders whose
shares are held in “street name” by brokerage houses or other intermediaries.
The
Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.001 and 40,000,000 shares of common
stock, $0.001 par value per share. On December 30, 2020, there were 17,968,177 shares of common stock issued and outstanding,
1,000,000 shares of Series A preferred stock issued and outstanding, and 2,264,953 shares of Series 1 preferred stock issued and
outstanding, and 100,000 shares of Series C preferred stock issued and outstanding.
The
price ranges presented below represent the highest and lowest quoted bid prices during the calendar quarters for 2018, 2019 and
2020 reported by the exchange. The quotes represent prices between dealers and do not reflect mark-ups, markdowns or commissions
and therefore may not necessarily represent actual transactions.
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Stock Price
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Year
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|
Fiscal Period
|
|
High
|
|
|
Low
|
|
2020
|
|
4th Quarter
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|
$
|
1.75
|
|
|
$
|
0.97
|
|
|
|
3rd Quarter
|
|
$
|
3.11
|
|
|
$
|
0.67
|
|
|
|
2nd Quarter
|
|
$
|
2.51
|
|
|
$
|
0.66
|
|
|
|
1st Quarter
|
|
$
|
1.64
|
|
|
$
|
1.18
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|
2019
|
|
4th Quarter
|
|
$
|
2.48
|
|
|
$
|
1.33
|
|
|
|
3rd Quarter
|
|
$
|
4.31
|
|
|
$
|
1.70
|
|
|
|
2nd Quarter
|
|
$
|
7.44
|
|
|
$
|
4.00
|
|
|
|
1st Quarter
|
|
$
|
12.00
|
|
|
$
|
4.59
|
|
2018
|
|
4th Quarter
|
|
$
|
18.08
|
|
|
$
|
11.28
|
|
|
|
3rd Quarter
|
|
$
|
23.44
|
|
|
$
|
16.40
|
|
|
|
2nd Quarter
|
|
$
|
24.33
|
|
|
$
|
19.68
|
|
|
|
1st Quarter
|
|
$
|
24.11
|
|
|
$
|
19.84
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|
As
reported by NASDAQ Capital Markets, on December 29, 2020 the closing sales price of the Company’s Common Stock was
$1.31 per share.
Dividend
Policy
Our
board of directors declared a one-time cash dividend on our common stock in April 2017. The terms of our series 1 preferred stock
provide for the payment of semiannual dividends on the last day of March and September in each year, which began in March 2017.
No other cash dividends have been declared or paid by us on our stock during either of the two most recent fiscal years or the
period through the date of this prospectus. Other than with respect to our series 1 preferred stock, our board of directors declares
dividends when, in its discretion, it determines that a dividend payment, as opposed to another use of cash, is in the best interests
of the stockholders. Such decisions are based on the facts and circumstances then existing including, without limitation, our
results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors
our board of directors deems relevant. As a result, we cannot predict when, or whether, another dividend on our common stock will
be declared in the future.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table presents certain information as of September 30, 2019 regarding our equity compensation plans:
Plan category
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|
Number of Common Stock
Shares to be Issued upon Exercise of Outstanding Options
|
|
|
Weighted Average Exercise
Price of Outstanding
Options
|
|
|
Number of Securities Remaining
Available for Future Issuance under Plans (1)
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Equity Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
945,833
|
|
|
$
|
1.91
|
|
|
|
|
|
Total
|
|
|
945,833
|
|
|
$
|
1.91
|
|
|
|
2,000,000
|
|
|
(1)
|
See more detailed
information regarding our equity compensation plans in the Notes to Consolidated Financial Statements in this 2020 Form 10-K.
|
Recent
Sales of Unregistered Securities
The
information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during
the reporting period which were not previously included in an Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current
Report on Form 8-K.
For
the fiscal year ended September 30, 2020, 217,099 shares of Series 1 Preferred Stock were issued to pay $2,089,540 worth
of dividends to holders of Series 1 Preferred Stock. For the fiscal years ended September 30, 2020, the Company purchased 235,133
shares of its Series 1 Preferred Stock on the open market at an average price per share of $1.92, for an aggregate cost of approximately
$338,774, as part of its ongoing share repurchase program announced earlier. The Company retired 171,033 shares worth $190,484
during fiscal 2020.
For
the fiscal year ended September 30, 2020, we issued 6,530,473 shares of common stock to satisfy $8,737,125 of notes payable and
accumulated interest.
During
fiscal year 2020, the Company issued 513,358 shares in exchange for $532,788 worth of goods and services.
For
the year ended September 30, 2020, 100,000 shares of Series C Preferred Stock were issued to Aron Govil, former Executive former
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.
On
November 3, 2020, the Company issued 345,648 shares of common stock to satisfy $323,517 worth of notes payable and accumulated
interest.
These
securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented
their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given
adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising.
We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted
stock.
Use
of Proceeds
On
June 14, 2017, our Registration Statement on Form S-3 (File No. 333-218501) was declared effective by the SEC for our universal
shelf registration statement. The universal shelf registration statement permitted the Company to offer and sell, from time to
time, on a continuous or delayed basis in the future, up to $20 million of equity, debt or other types of securities described
in the shelf registration statement, or any combination of such securities, in one or more future public offerings. The shelf
registration statement expired on June 14, 2020. During effectiveness, the Company offered and sold the following securities in
fiscal year 2020:
On
December 4, 2019, the Company entered into a Subscription Agreement relating to the public offering of 338,393 shares of the Company’s
common stock, par value $0.001 per share, all of which were sold by the Company 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 $18,950 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 of the Company’s
common stock, par value $0.001 per share, all of which were sold by the Company 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.
On
February 26, 2020, the Company entered into a Subscription Agreement relating to the public offering of 347,000 shares of the
Company’s common stock, par value $0.001 per share, all of which were sold by the Company 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 of the Company’s
common stock, par value $0.001 per share, all of which were sold by the Company 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 of the Company’s
common stock, par value $0.001 per share, all of which were sold by the Company 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.
On
August 3, 2020, the Company announced that its new universal shelf registration statement on Form S-3 was declared effective by
the Securities and Exchange Commission. The universal shelf registration statement permits the Company to offer and sell, from
time to time, on a continuous or delayed basis in the future, up to $50 million of equity, debt or other types of securities described
in the shelf registration statement, or any combination of such securities, in one or more future public offerings, along with
a sales agreement prospectus covering the offer, issuance and sale by us of up to a maximum aggregate offering price of up to
$20,000,000 of our common stock that may be issued and sold from time to time under a sales agreement with A.G.P / Alliance Global
Partners (the “Sales Agreement”). The shelf registration statement replaces the shelf registration statement on Form
S-3 which was declared effective on June 14, 2017 and which has expired.
The
Company believes that the shelf registration statement and Sales Agreement provides it with continued financial flexibility pursuant
to the sale of the registered securities, from time to time. If and when the Company offers any securities under the registration
statement, the Company will prepare and make available a prospectus supplement that includes the specific terms of the securities
being offered, the use of proceeds and other terms of the offering.
ITEM
6. SELECTED FINANCIAL DATA
Not
required under Regulation S-K for “smaller reporting companies
ITEM
7. 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. 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 this report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as
a result of future events or developments.
Overview
Cemtrex
was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading
multi-industry technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual
and augmented realities, industrial solutions, and intelligent security systems.
We
are a diversified company that predominantly operates in the United States. We believe our diversity of business segments, and
the breadth of our product and services portfolios, have helped mitigate the economic impact of any one particular industry sector
or any single region on our consolidated operating results and we expect the same in the future. We believe growth for our products
and services is driven by the increasing demand for newer technology products and overall industrial economic growth. These trends
stimulate investment in new consumer and industrial products with related infrastructure, and in upgrades of existing facilities.
We continue to focus on revenue growth, market expansion and increasing profitability by expanding our presence in emerging technologies.
Our outlook is to continue expanding our scope of technology, products, and services horizontally through selective acquisitions
and the formation of new business units by leveraging our technical and financial resources.
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, including 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 20%, 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 has resulted in delays of 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.
Business
Strategy
We
intend to continue utilizing our resource capabilities to deliver exceptional value for our customers, shareholders, and employees.
Our focus is to grow in markets where we see significant long-term opportunity to create an attractive return on shareholder equity.
We leverage our engineering, manufacturing expertise and strong customer relationships to develop new cutting-edge technologies
and advanced products that solve technological challenges faced by our customers. We thoroughly analyze new product opportunities
by considering projected demand for the product or service, and expected operating costs, and then only pursue those opportunities
which we believe will contribute to earnings growth in the future. In addition, we believe our senior management team has substantial
business and technical experience to enable us to pursue our business strategies.
The
Company believes its ability to attract and retain new customers comes from their ongoing commitment to understanding its customers’
business performance requirements and our expertise in meeting or exceeding these requirements and enhancing their competitive
edge through cutting edge technology. We work closely with our customers from an operational and senior executive level to achieve
a deep understanding of our customer’s goals, challenges, strategies, operations, and products to ultimately provide the
best solutions for them.
We
continue to seek and execute additional strategic acquisitions and focus on expanding our products and services as well as entering
into new markets. We believe that the diversity of our products & services and our ability to deliver full solutions to a
variety of end markets provides us with multiple sources of stable growth and a competitive advantage relative to other players
in the industry. We constantly look for opportunities to gain new customers and penetrate geographic locations and end markets
or acquire new product or service opportunities through acquisitions that are operationally and financially beneficial for the
Company. However, there can be no assurance that we will succeed in our strategies.
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) 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) solutions that provide higher productivity, progressive design and impactful experiences for consumer products,
and various commercial and industrial applications. The Company is in the process of developing 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
Video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect
of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal
and state government offices. Vicon provides 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
The
following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of our financial statements requires
management to make estimates and assumptions that affect the reported amounts of revenues and expenses, and assets and liabilities
during the periods reported. Estimates are used when accounting for certain items such as revenues, allowances for returns, early
payment discounts, customer discounts, doubtful accounts, employee compensation programs, depreciation and amortization periods,
taxes, inventory values, and valuations of investments, goodwill, other intangible assets and long-lived assets. We base our estimates
on historical experience, where applicable and other assumptions that we believe are reasonable under the circumstances. Actual
results may differ from our estimates under different assumptions or conditions.
Please
see Note 2 for detailed information regarding our significant accounting policies and estimates in the Notes to Consolidated Financial
Statements in this 2020 Form 10-K.
Results
of Operations - For the fiscal years ending September 30, 2020 and 2019
Total
revenue for the years ended September 30, 2020 and 2019 was $43,518,384 and $39,265,041, respectively, an increase of $4,253,343,
or 11%. Comprehensive net loss for the years ended September 30, 2020 and 2019 was a $13,082,711 and $23,051,140, respectively,
a decrease of $9,968,429 or 43%. Total revenue for the fiscal year increased, as compared to total revenue in the
same period last year, due to sales increases in the Advanced Technology Segment. Net loss decreased due to the sale of discontinued
operations of the Electronics Manufacturing Segment and our Environmental Products lines in fiscal year 2019. For the year ended
September 30, 2020 the Company had a loss of $812,895 on discontinued operations and for the year ended September 30, 2019, the
Company had a loss of $10,559,963 on discontinued operations.
Revenues
Our
Advanced Technologies segment revenues for the years ended September 30, 2020 and 2019 were $25,750,684 and $19,268,687, respectively,
an increase of $6,481,997 or 34%. This increase represents the increase in demand for technology and security products during
the fiscal year as well as the consolidation of Vicon.
Our
Industrial Services segment revenues for the year ended September 30, 2020 decreased by $2,228,654 or 11%, to $17,767,700 from
$19,996,354 for the year ended September 30, 2019. The decrease was primarily due to the decrease in demand for services due to
the COVID-19 crisis.
Gross
Profit
Gross
Profit for the year ended September 30, 2020 was $19,364,447 or 44% of revenues as compared to gross profit of $15,562,674 or
40% of revenues for the year ended September 30, 2019. The increase in gross profit percentage in the year ended September 30,
2020, as compared to the prior year, was a result of the sale of products and services with higher profit margins.
General
and Administrative Expenses
General
and Administrative Expenses for the year ended September 30, 2020 increased $42,521 or less than 1% to $21,570,666 from $21,528,145
for the year ended September 30, 2019. The increases in General and Administrative Expenses in dollars is the result of
increases in personnel costs and insurance, offset by savings measures enacted during the fiscal year.
Research
and Development Expenses
Research
and Development expenses for the year ended September 30, 2020 and 2019 were $1,827,286 and $1,481,879, respectively. Research
and Development expenses have increased with the increased capital resources of the Company and focus on new product development.
Other
Income/(Expense)
Interest
and other income/(expense) for fiscal 2020 was $(2,786,424) as compared to $(5,190,987) for fiscal 2019. For fiscal year
2020 other income/(expense) was due was primarily due to interest on notes payable offset by income on the sale of marketable
securities.
Provision
for Income Taxes
During
the fiscal year of 2020 we recorded an income tax expense of $2,073,835 compared
to a benefit of $1,335,584 for the fiscal year of 2019. The increase in the provision for income tax is mainly due to
the increase in the valuation allowance in the Company’s deferred taxes.
Net
Income/(Loss)
The
Company had a net loss of $9,933,775 or 23% of revenues, for the year ended September 30, 2020 as compared to a
net loss of $22,364,941 or 57% of revenues, for the year ended September 30, 2019. Net loss in this period as compared
to the previous period was lower due to the discontinued operations of the Environmental Products business and its Electronics
Manufacturing Segment. For the year ended September 30, 2020 the Company had a loss of $812,895 on discontinued operations and
for the year ended September 30, 2019, the Company had a gain of $10,559,963 on discontinued operations.
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 $23,285,122 at September 30, 2020 compared to $3,240,348 at September 30, 2019. This includes cash and cash
equivalents and restricted cash of $21,072,859 at September 30, 2020 and $2,858,085 at September 30, 2019, respectively.
The increase in working capital was primarily due to the increase in the Company’s current assets of $19,184,125 and
a decrease in the Company’s current liabilities of $860,649. The primary reason for the increase in current
assets was the cash raised by equity offerings during the fiscal year and the primary reason for the decrease in current liabilities
was the decrease in the Company’s accounts payable balance.
Accounts
receivable increased by $277,813 or 4% to $6,686,797 at September 30, 2020 from $6,458,984 at September 30, 2019. The increase
in accounts receivable is mainly due to the increase in revenue over that past fiscal year.
Inventories
increased by $1,586,651 or 30% to $6,793,806 at September 30, 2020 from $5,207,155 at September 30, 2019. The increase in inventories
is attributable to the company’s purchase of inventory for its security business to maintain sufficient stock on hand for
sale.
Operating
activities for continuing operations used $3,280,162 for the year ended September 30, 2020 compared to using $3,571,616
of cash for the year ended September 30, 2019. Operating activities for discontinued operations used $812,895 and provided
$7,507,090 of cash for the year ended September 30, 2020 and 2019, respectively.
Investing
activities for continuing operations provided $764,552 of cash during the year ended September 30, 2020 compared to using
$2,043,771 during the year ended September 30, 2019. In fiscal 2019 discontinued operations provided $8,883,541 of cash.
Financing
activities for continuing operations provided $21,520,985 for the year ended September 30, 2020 as compared to using $2,391,839
in the year ended September 30, 2019. In fiscal 2020 our financing activities were mainly comprised of the proceeds from subscription
rights offering and notes payable offset by payments on our debt. In fiscal 2019 discontinued operations used $9,465,508.
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 2021 fiscal year (ending September 30, 2021). Any major increases in sales, particularly in new products, may require
additional 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.
We
have on file with the SEC a shelf registration statement that became effective on August 3, 2020. The universal shelf registration
statement permits the Company to offer and sell, from time to time, on a continuous or delayed basis in the future, up to $50
million of equity, debt or other types of securities described in the shelf registration statement, or any combination of such
securities, in one or more future public offerings, along with a sales agreement prospectus covering the offer, issuance and sale
by us of up to a maximum aggregate offering price of up to $20,000,000 of our common stock that may be issued and sold from time
to time under a Sales Agreement. We have sold no shares under this registration statement and there is no guarantee that we will
be able to or raise capital in such amounts as is necessary for our existing or future operations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for “smaller reporting companies”.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page
F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On
October 9, 2019, the Company engaged Haynie & Company to serve as our independent registered public accounting firm
for the year ending September 30, 2019. The engagement of Haynie & Company was approved by our Audit Committee.
On
October 15, 2020, the Company engaged Haynie & Company to serve as our independent registered public accounting firm
for the year ending September 30, 2020. The engagement of Haynie & Company was approved by our Audit Committee.
There
have been no disagreements with Haynie & Company, our independent registered public accountants, on accounting and financial
disclosure matters.
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed
by us in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired
control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures.
Our
management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of September 30, 2020, and concluded that the disclosure controls
and procedures were not effective, because certain deficiencies involving internal controls constituted material weaknesses as
discussed below. The material weaknesses identified did not result in the restatement of any previously reported financial statements
or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of our financial
statements for the current reporting period.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance
with GAAP. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements.
Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our
management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness
of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its evaluation, our
management concluded that as of September 30, 2020 there is a material weakness in our internal control over financial reporting.
The material weakness relates to the Company lacking sufficient, qualified, accounting personnel. The shortage of qualified 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.
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.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to Commission rules that permit the Company to provide only management’s report in this annual
report.
This
report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities
of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
Changes
in Internal Control Over Financial Reporting
There
was no change in our internal control over financial reporting that occurred in the year ended September 30, 2020 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION
Cemtrex
was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading
multi-industry technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual
and augmented realities, industrial solutions, and intelligent security 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 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 the 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 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) 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) solutions that provide higher productivity, progressive design and impactful experiences for consumer products,
and various commercial and industrial applications. The Company is in the process of developing 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
video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for
every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools,
and federal and state government offices. Vicon provides 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.
Cemtrex
Inc. and Subsidiaries
Going
Concern Considerations
The
Company has incurred substantial losses over the past two fiscal years and has debt obligations over the next fiscal year that
raise going concern considerations. The Company has raised capital and will continue to reduce expenses through the use of (i)
issuance of notes and subsequent settlement of such notes with equity, (ii) equity offering to qualified investors and at-the-market
offerings, (iii) review and improve our business processes for more efficiency, (iv) sale or reallocation of fixed assets held
from exited business segments to raise capital or increase revenue in continuing business segments, (v) development of additional
products for the Advanced Technologies segment to increase revenues, (vi) cost reductions to improve overall profitability in
all segments. The Company believes that these going concern considerations have been alleviated by management’s plans.
NOTE
2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Use of Estimates
The
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness
of accounting policies and their application. Critical accounting policies and practices are those that are both most important
to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective,
or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted
accounting principles.
Basis
of Presentation
The
accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
Fiscal
Year-End
The
Company elected September 30 as its fiscal year-end date.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates
include, but are not limited to, provisions for doubtful accounts receivable, net realizable value of inventory, warranty obligations,
income tax accruals, deferred tax valuation and assessments of the recoverability of the Company’s long-lived assets. Actual
results could differ from those estimates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Cemtrex Advanced Technologies
Inc., Cemtrex Ltd., Cemtrex Technologies Pvt. Ltd., and Advanced Industrial Services, Inc. and the Company’s majority-owned
subsidiary Vicon Industries, Inc. and its subsidiaries, Telesite USA, Vicon Industries Ltd., Vicon Deutschland GmbH, and Vicon
Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Carrying
Value, Recoverability and Impairment of Long-Lived Assets
The
Company’s long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated
with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair
value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter
than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated
useful lives.
The
impairment charges, if any, is included in operating expenses in the accompanying statements of operations.
Cemtrex
Inc. and Subsidiaries
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs on-going credit
evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness,
as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical
write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.
Account
balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company determines when receivables are past due or delinquent based on how recently payments have been
received.
The
Company has $340,848 and $606,051 allowance for doubtful accounts at September 30, 2020 and 2019, respectively.
The
Company does not have any off-balance-sheet credit exposure to its customers at September 30, 2020 or 2019.
Inventory
and Cost of Goods Sold
The
Company values inventory, consisting of finished goods, at the lower of cost or market. Cost is determined on the first-in and
first- out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence,
damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market
value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates,
(ii) estimates of future demand, and (iii) competitive pricing pressures.
The
Company classifies inventory markdowns in the income statement as a component of cost of goods sold. These markdowns are estimates,
which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from
expectations.
There
was $4,575,193 and $3,938,212 in inventory obsolescence at September 30, 2020 and 2019, respectively. The increase in inventory
obsolescence is due to the addition of slow moving and out of date products.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are
charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method over the estimated
useful lives of the respective assets, shown in the table below;
|
|
Estimated Useful Life
|
|
|
|
(Years)
|
|
Building
|
|
|
30
|
|
Furniture and office equipment
|
|
|
5
|
|
Computer software
|
|
|
7
|
|
Machinery and equipment
|
|
|
7
|
|
Cemtrex
Inc. and Subsidiaries
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is reflected in statements of operations.
Goodwill
Goodwill
represents the excess of cost over the fair value of net assets of businesses acquired. The Company accounts for goodwill under
the guidance of the ASC Topic 350, “Intangibles: Goodwill and Other”. Goodwill acquired in a purchase business combination
and determined to have an indefinite useful life is not amortized, but instead tested for impairment, at least annually, in accordance
with this guidance. The recoverability of goodwill is subject to an annual impairment test or whenever an event occurs or circumstances
change that would more likely than not result in an impairment. The Company tests goodwill for impairment at the reporting unit
level on an annual basis as of September 30 and between annual tests when an event occurs or circumstances change that could indicate
that the asset might be impaired. In accordance with the FASB revised guidance on “Testing of Goodwill for Impairment,”
a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that
it is more-likely-than- not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment
test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a two-step goodwill
impairment test. The first step compares the fair value of each reporting unit to its carrying amount. If the fair value of each
reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.
If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill
to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar
to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets
and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized
for any excess in the carrying value of goodwill over the implied fair value of goodwill.
For
the years ended September 30, 2020, and 2019, there was no impairment of the Company’s goodwill.
Leases
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:
|
●
|
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.
|
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.
Related
Parties
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: a. the nature of the relationship(s) involved b. description of the transactions, including transactions to which no
amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information
deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of
transactions for each of the periods for which income statements are presented and the effects of any change in the method of
establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of
each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Cemtrex
Inc. and Subsidiaries
Commitment
and Contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company,
but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material
adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is
no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and
results of operations or cash flows.
Revenue
Recognition
On
October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective
transition method. Management determined that there was no cumulative effect adjustment to the consolidated financial statements
and the adoption of the standard did not require any adjustments to the consolidated financial statements for prior periods. Under
the guidance of the standard, revenue represents the amount received or receivable for goods and services supplied by the Company
to its customers. Company recognizes revenue at the time a good or service is transferred to a customer and the customer obtains
control of that good or receives the service performed. Most of the Company’s sales arrangements with customers are short-term
in nature involving single performance obligations related to the delivery of goods or repair of equipment and generally provide
for transfer of control at the time of shipment to the customer. The Company generally permits returns of product or repaired
equipment due to defects; however, returns are historically insignificant.
In
accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue from cost
reimbursable contracts based on the services provided, typically represented by man-hours worked, and is measured by reference
to agreed charge-out rates or to the estimated total contract revenue. Revenue from long-term fixed price contracts is recognized
using the percentage-of-completion method, measured by reference to physical completion or the ratio of costs incurred to total
estimated contract costs. If the outcome of a contract cannot be estimated reliably, as may be the case in the initial stages
of completion of the contract, revenue is recognized only to the extent of the costs incurred that are expected to be recoverable.
If a contract is expected to be loss-making, the expected amount of the loss is recognized immediately in the income statement.
Revenue from short-term contracts is recognized when delivery has occurred, and collection of the resulting receivable is deemed
probable. Timing of revenue recognition may differ from the timing of invoicing to customers.
The
Company records a liability when receiving cash in advance of delivering goods or services to the customer. This liability is
reversed against the receivable recognized when those goods or services are delivered
Cemtrex
Inc. and Subsidiaries
Warranties
The
Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty
obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure.
Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated
warranty liability may be required.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with paragraph 605-45 of the FASB Accounting Standards Codification.
Amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods
sold as incurred.
Income
Tax Provision
The
Company accounts for income taxes under ASC 740-10, which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Income in the period that includes the
enactment date.
The
Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty
(50) percent likelihood of being realized upon ultimate settlement. The Company will accrue for interest and penalties on income
taxes when there is a likelihood that they will occur and can be reasonably estimated.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carrybacks and carry-forwards. The Company periodically reviews the recoverability
of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions including the United States,
India, and The United Kingdom, and is subject to audit in these jurisdictions. In management’s opinion, adequate
provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Uncertain
Tax Positions
For
the years ended September 30, 2020 and 2019, the Company did not take any uncertain tax positions and had no adjustments to its
income tax liabilities or benefits. The Company will record any interest and/or penalties arising from uncertain tax provisions
when they are likely to occur and reasonably estimable.
Accounting
for Share-Based Compensation
The
Company follows ASC 718 (“Share-Based Payment”), which requires that all share-based payments to employees, including
stock options, stock appreciation rights (SARs) and common stock share awards, be recognized as compensation expense in the consolidated
financial statements based on their fair values and over the requisite service period.
Cemtrex
Inc. and Subsidiaries
The
fair value for options granted was determined at the date of grant using a Black-Scholes valuation model and the straight-line
attribution approach using the following weighted average assumptions: The risk-free interest rate used in the Black-Scholes valuation
method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. Other
than a one-time dividend paid in fiscal year 2017, the Company never declared or paid any cash dividends and does not currently
expect to do so in the future. Expected volatility is based on the annualized daily historical volatility of the Company’s
stock over a representative period. The weighted-average expected life represents the period over which stock-based awards are
expected to be outstanding and was determined based on a number of factors, including historical weighted average and projected
holding periods for the remaining unexercised shares, the contractual terms of the Company’s stock-based awards, vesting
schedules and expectations of future employee behavior.
Net
Income (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.
As of September 30, 2020, and 2019, the following items were excluded from the computation of diluted net loss per common share
as their effect is anti-dilutive:
|
|
For the years ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Warrants to purchase shares
|
|
|
945,833
|
|
|
|
1,050,000
|
|
Options
|
|
|
433,965
|
|
|
|
433,965
|
|
Foreign
Currency Translation Gain and Comprehensive Income (Loss)
In
countries in which the Company operates, and the functional currency is other than the U.S. dollar, assets and liabilities are
translated using published exchange rates in effect at the consolidated balance sheet date. Revenues and expenses and cash flows
are translated using an approximate weighted average exchange rate for the period. Resulting translation adjustments are recorded
as a component of accumulated other comprehensive income on the accompanying consolidated balance sheet. For the years ending
September 30, 2020 and September 30, 2019, comprehensive loss includes a gain of $22,295 and a gain of $1,279,301, respectively,
which were entirely from foreign currency translation.
As
of and for the year ended September 30, 2020 the Company used the following exchange rates.
Currency
|
|
Exchange rate at
December 31, 2019
|
|
|
Approximate
weighted
average
exchange
rate
For the three months ended
December 31, 2019
|
|
|
Exchange rate at
September 30, 2020
|
|
|
Approximate
weighted
average
exchange
rate
For the year ended
September 30, 2020
|
|
Indian Rupee
|
|
|
0.001
|
|
|
|
0.014
|
|
|
|
0.014
|
|
|
|
0.014
|
|
Great Britain Pound
|
|
|
1.320
|
|
|
|
1.290
|
|
|
|
1.287
|
|
|
|
1.248
|
|
Cemtrex
Inc. and Subsidiaries
Cash
Flows Reporting
The
Company adopted uses the indirect or reconciliation method (“Indirect method”) as to report net cash flow from operating
activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all
deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments
and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports
the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows
and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation
of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing
activities not resulting in cash receipts or payments in the period.
Subsequent
Events
The
Company will evaluate subsequent events through the date when the financial statements were issued. It is the Company’s
policy to disclose subsequent information that it feels is important to the context of the financial statements.
Reclassifications
Certain
reclassifications have been made to prior period amounts to conform to the current period presentation.
Recently
Issued Accounting Pronouncements Not Yet Effective
Intangibles
– Goodwill and Other - Internal-Use Software
In
August 2018, the FASB issued No. ASU 2018-15, which addresses a customer’s accounting for implementation costs incurred
in a cloud computing arrangement that is a service contract. Under the new standard, customers will apply the same criteria for
capitalizing implementation costs as they would for an arrangement that has a software license. ASU 2018-15 is effective for annual
reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, with early
adoption permitted. As of September 30, 2020, the Company does not have significant implementation costs incurred in a cloud computing
arrangement that is a service contract and therefore upon adoption the impact of the new standard on its consolidated financial
statements and related disclosures is not expected to be material. All future implementation costs in such arrangements will be
capitalized and amortized over the life of the arrangement, which may have a material impact in those future periods if such costs
are material.
Fair
Value
In
August 2018, the FASB issued ASU No. 2018-13, which changes the fair value measurement disclosure requirements of ASC 820. ASU
2018-13 will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within
those annual reporting periods, with early adoption permitted for any eliminated or modified disclosures upon issuance of
this ASU. Upon adoption, the new standard will eliminate certain disclosure requirements in the Company’s consolidated financial
statements.
Financial
Instruments – Credit Losses
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities
to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is effective for smaller reporting companies
for annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods,
with early adoption permitted. The Company is currently evaluating the impact of the new standard on its consolidated financial
statements and related disclosures.
All
other Accounting Standards Updates issued but not yet effective are not expected to have a material effect on the Company’s
future consolidated financial statements or related disclosures.
Cemtrex
Inc. and Subsidiaries
NOTE
3 PURCHASED ASSETS AND INVESTMENTS
On
March 23, 2018, in a private resale transaction, Cemtrex purchased 3,643 (7,284,824 prior to a 2,000-1 reverse stock split) shares
of common stock and a warrant to purchase an additional 750 (1,500,000 prior to a 2,000-1 reverse stock split) shares of common
stock of Vicon Industries, Inc. (OTCMKTS: VCON), (“Vicon”), from a former Vicon shareholder NIL Funding Corporation,
pursuant to the terms of a Securities Purchase Agreement. Cemtrex’s purchase of the Vicon Industries common stock and warrant
resulted in its beneficial ownership of approximately 46% of the outstanding shares of common stock of Vicon. Cemtrex purchased
the shares of common stock and warrant of Vicon Industries in exchange for 126,579 shares of Cemtrex common stock. Following the
closing of the transaction, Saagar Govil, Cemtrex’s Chairman and Chief Executive Officer, and Aron Govil, Cemtrex’s
Executive Director, joined the Vicon Industries Board of Directors and Saagar Govil assumed the position of Chief Executive Officer
of Vicon Industries. Following the resignation of all other Board members by January 2019, the Company gained the ability to exercise
significant management control over the operations of Vicon. Because of this increased management ability, and pursuant to GAAP,
the Company has consolidated the accounts of Vicon into its financial statements beginning as of January 14, 2019. Prior to January
14, 2019, the Company reported its 48% ownership of Vicon as an asset with a balance of $1,356,495 and was using the equity method
of accounting for this asset. At January 14, 2019, the fair market value of the Company’s investment in Vicon was determined
to be $527,089 and the Company reported as other expense a loss of $829,406, to adjust the carrying value to fair value under
ASC 805. Upon recording the fair value of the assets and liabilities of Vicon, $1,893,075 was recorded as Goodwill. On May 13,
2019, the Company acquired 7,500 (15,000,000 prior to a 2,000-1 reverse stock split) shares of Vicon common stock in exchange
for $300,000 owed by Vicon to the Company for services provided. On February 21, 2020, the Company purchased 71,429
shares for $500,000. The Company now owns approximately 95% of Vicon’s outstanding shares of common stock.
NOTE
4 – DISCONTINUED OPERATIONS
EXIT
FROM ENVIRONMENTAL BUSINESS
During
fiscal 2019, the Company also reached a strategic decision to exit the environmental products business, which was part of Industrial
Services group. Accordingly, the Company has reported the results of the environmental control products business as discontinued
operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets.
Assets
and liabilities included within discontinued operations on the Company’s Consolidated Balance Sheets at September 30, 2020
and 2019 are as follows;
|
|
September 30,
|
|
|
September 30,
|
|
Assets
|
|
2020
|
|
|
2019
|
|
Current assets
|
|
|
|
|
|
|
|
|
Trade receivables - related party
|
|
|
544,500
|
|
|
|
555,600
|
|
Total current assets
|
|
|
544,500
|
|
|
|
555,600
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
8,761,677
|
|
Assetss held for sale
|
|
|
8,323,321
|
|
|
|
-
|
|
Total Assets
|
|
$
|
8,867,821
|
|
|
$
|
9,317,277
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
263,832
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
263,832
|
|
Cemtrex
Inc. and Subsidiaries
Loss
from discontinued operations, net of tax and the loss on sale
of discontinued operations, net of tax, of the ROB Cemtrex Companies and Griffin Filters business, sold during fiscal year
2019, which are presented in total as discontinued operations, net of tax in the Company’s Consolidated Statements of
Operations for the years ended September 30, are as follows:
|
|
Year ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
-
|
|
|
$
|
42,614,107
|
|
Cost of sales
|
|
|
-
|
|
|
|
25,788,268
|
|
Operating, selling, general and administrative expenses
|
|
|
812,895
|
|
|
|
20,374,141
|
|
Other expenses
|
|
|
-
|
|
|
|
264,505
|
|
Income (loss) from discontinued operations
|
|
|
(812,895
|
)
|
|
|
(3,812,807
|
)
|
Loss on sale of discontinued operations
|
|
|
-
|
|
|
|
(6,374,563
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
372,593
|
|
Discontinued operations, net of tax
|
|
$
|
(812,895
|
)
|
|
$
|
(10,559,963
|
)
|
NOTE
5 – SEGMENT AND GEOGRAPHIC 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,
steel, printing, construction, & petrochemical.
Cemtrex
Inc. and Subsidiaries
The
following tables summarize the Company’s segment information:
|
|
For the years ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
Advanced Technologies
|
|
$
|
25,750,684
|
|
|
$
|
19,268,687
|
|
Industrial Services
|
|
|
17,767,700
|
|
|
|
19,996,354
|
|
Total revenues
|
|
$
|
43,518,384
|
|
|
$
|
39,265,041
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
Advanced Technologies
|
|
$
|
12,924,371
|
|
|
$
|
8,296,186
|
|
Industrial Services
|
|
|
6,440,076
|
|
|
|
7,266,488
|
|
Total gross profit
|
|
$
|
19,364,447
|
|
|
$
|
15,562,674
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
|
|
|
Advanced Technologies
|
|
$
|
(2,700,997
|
)
|
|
$
|
(5,633,572
|
)
|
Industrial Services
|
|
|
(1,332,508
|
)
|
|
|
(1,813,778
|
)
|
Total operating loss
|
|
$
|
(4,033,505
|
)
|
|
$
|
(7,447,350
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Advanced Technologies
|
|
$
|
(2,588,609
|
)
|
|
$
|
(4,441,385
|
)
|
Industrial Services
|
|
|
(197,815
|
)
|
|
|
(406,826
|
)
|
Total other expense
|
|
$
|
(2,786,424
|
)
|
|
$
|
(4,848,211
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
Advanced Technologies
|
|
$
|
1,519,022
|
|
|
$
|
1,350,079
|
|
Industrial Services
|
|
|
1,379,377
|
|
|
|
1,663,907
|
|
Total depreciation and amortization
|
|
$
|
2,898,399
|
|
|
$
|
3,013,986
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
39,953,522
|
|
|
$
|
19,365,582
|
|
Industrial
Services
|
|
|
15,510,629
|
|
|
|
16,209,838
|
|
Discontinued
operations
|
|
|
8,867,821
|
|
|
$
|
9,317,277
|
|
Total
Assets
|
|
$
|
64,331,972
|
|
|
$
|
44,892,697
|
|
Cemtrex
Inc. and Subsidiaries
The
Company generates revenue from product sales and services from its subsidiaries located in the United States, The United Kingdom,
and India. Revenue and long-lived asset information for the Company is as follows:
|
|
September
30,
|
|
|
September
30,
|
|
Revenues
|
|
2020
|
|
|
2019
|
|
U.S.
Operations
|
|
$
|
40,211,773
|
|
|
$
|
35,320,625
|
|
Non-U.S.
Operations
|
|
|
3,306,611
|
|
|
|
3,944,416
|
|
|
|
$
|
43,518,384
|
|
|
$
|
39,265,041
|
|
|
|
September
30,
|
|
|
September
30,
|
|
Long-lived
Assets
|
|
2020
|
|
|
2019
|
|
U.S.
Operations
|
|
$
|
6,793,597
|
|
|
$
|
5,395,353
|
|
Non-U.S.
Operations
|
|
|
2,765,339
|
|
|
|
11,381,199
|
|
|
|
$
|
9,558,936
|
|
|
$
|
16,776,552
|
|
NOTE
6 – 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.
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. 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.
Cemtrex
Inc. and Subsidiaries
The
Company’s fair value assets for the years ended September 30, 2020 and 2019 are as follows;
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Balance
as of
September 30,
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (included in short-term investments)
|
|
$
|
887,746
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
887,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
887,746
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
887,746
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Observable
Inputs
(Level
3)
|
|
|
Balance
as of
September 30,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (included in short-term investments)
|
|
$
|
412,730
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
412,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
412,730
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
412,730
|
|
The
Company’s investments are actively traded in the stock and bond markets. Therefore, there is either a realized gain or
loss that is recorded when a sale happens. For the fiscal year ended September 30, 2020 the Company had sales of equity
securities which yielded gross realized gains of $1,663,311 and gross realized losses of $28,229.
NOTE
7 – RESTRICTED CASH
A
subsidiary of the Company participates in a consortium in order to self-insure group care coverage for its employees. The plan
is administrated by Benecon Group and the Company makes monthly deposits in a trust account to cover medical claims and any administrative
costs associated with the plan. These funds, as required by the plan are restricted in nature and amounted to $1,582,798
and $1,088,091 as of September 30, 2020 and 2019, respectively. The Company also records a liability for claims that have been
incurred but not recorded at the end of each year. The amount of the liability is determined by Benecon Group. The liability recorded
in accrued expenses amounted to $98,056 and $118,889 as of September 30, 2020 and 2019, respectively.
NOTE
8 – ACCOUNTS RECEIVABLE, NET
Accounts
receivable, net consists of the following:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable
|
|
$
|
7,027,645
|
|
|
$
|
7,065,035
|
|
Allowance for doubtful accounts
|
|
|
(340,848
|
)
|
|
|
(606,051
|
)
|
|
|
$
|
6,686,797
|
|
|
$
|
6,458,984
|
|
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.
Cemtrex
Inc. and Subsidiaries
NOTE
9 – INVENTORY, NET
Inventory,
net of reserves, consist of the following:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
3,959,888
|
|
|
$
|
4,917,700
|
|
Work in progress
|
|
|
995,184
|
|
|
|
543,857
|
|
Finished goods
|
|
|
6,413,927
|
|
|
|
3,683,810
|
|
|
|
|
11,368,999
|
|
|
|
9,145,367
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for inventory obsolescence
|
|
|
(4,575,193
|
)
|
|
|
(3,938,212
|
)
|
Inventory –net of allowance for inventory obsolescence
|
|
$
|
6,793,806
|
|
|
$
|
5,207,155
|
|
NOTE
10 – PROPERTY AND EQUIPMENT
Property
and equipment are summarized as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
790,373
|
|
|
$
|
-
|
|
Building and leasehold improvements
|
|
|
3,875,796
|
|
|
|
1,233,733
|
|
Furniture and office equipment
|
|
|
621,790
|
|
|
|
614,569
|
|
Computers and software
|
|
|
4,985,749
|
|
|
|
5,166,922
|
|
Trade show display
|
|
|
89,330
|
|
|
|
89,330
|
|
Machinery and equipment
|
|
|
13,668,263
|
|
|
|
23,463,953
|
|
|
|
|
24,031,301
|
|
|
|
30,568,507
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(14,472,365
|
)
|
|
|
(13,791,955
|
)
|
Property and equipment, net
|
|
$
|
9,558,936
|
|
|
$
|
16,776,552
|
|
The
Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair
value of property and equipment, substantially exceeded their carrying values at September 30, 2019. Depreciation and amortization
of property and equipment totaled approximately $2,898,399 and $3,013,986 for fiscal years ended September 30, 2020 and 2019,
respectively.
At
September 30, 2020, the Company has $8,323,321 net value of property and equipment reported on the Consolidated Balance Sheet
as Assets held for sale.
NOTE
11 – 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.
|
Cemtrex
Inc. and Subsidiaries
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:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Lease liabilities - current
|
|
|
|
|
|
|
|
|
Finance leases
|
|
$
|
20,061
|
|
|
$
|
22,452
|
|
Operating leases
|
|
|
700,975
|
|
|
|
-
|
|
|
|
|
721,036
|
|
|
|
22,452
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities - net of current portion
|
|
|
|
|
|
|
|
|
Finance leases
|
|
$
|
-
|
|
|
$
|
20,061
|
|
Operating leases
|
|
|
2,027,406
|
|
|
|
-
|
|
|
|
$
|
2,027,406
|
|
|
$
|
20,061
|
|
A
reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated
balance sheet at September 30, 2020 is set forth below:
Years ending September 30,
|
|
Finance leases
|
|
|
Operating Leases
|
|
|
Total
|
|
2021
|
|
|
20,862
|
|
|
|
838,028
|
|
|
|
858,890
|
|
2022
|
|
|
-
|
|
|
|
659,505
|
|
|
|
659,505
|
|
2023
|
|
|
-
|
|
|
|
505,550
|
|
|
|
505,550
|
|
2024
|
|
|
-
|
|
|
|
387,998
|
|
|
|
387,998
|
|
2025
|
|
|
-
|
|
|
|
364,974
|
|
|
|
364,974
|
|
2026
|
|
|
-
|
|
|
|
375,923
|
|
|
|
375,923
|
|
Undiscounted lease payments
|
|
|
20,862
|
|
|
|
3,131,978
|
|
|
|
3,152,840
|
|
Amount representing interest
|
|
|
(801
|
)
|
|
|
(403,597
|
)
|
|
|
(404,398
|
)
|
Discounted lease payments
|
|
$
|
20,061
|
|
|
$
|
2,728,381
|
|
|
$
|
2,748,442
|
|
Cemtrex
Inc. and Subsidiaries
Additional
disclosures of lease data are set forth below:
|
|
For the year ended
|
|
|
|
September 30, 2020
|
|
Lease costs:
|
|
|
|
|
Finance lease costs:
|
|
|
|
|
Depreciation of finance lease assets
|
|
$
|
22,912
|
|
Interest on lease liabilities
|
|
|
832
|
|
|
|
|
|
|
Operating lease costs:
|
|
|
|
|
Amortization of right-of-use assets
|
|
|
816,550
|
|
Interest on lease liabilities
|
|
|
59,122
|
|
Total lease cost
|
|
$
|
899,416
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating leases
|
|
$
|
816,549
|
|
Finance leases
|
|
|
22,718
|
|
|
|
$
|
839,267
|
|
|
|
|
|
|
Weighted-average remaining lease term - finance leases (months)
|
|
|
10
|
|
Weighted-average remaining lease term - operating leases (months)
|
|
|
51
|
|
|
|
|
|
|
Weighted-average discount rate - finance leases
|
|
|
3.63
|
%
|
Weighted-average discount rate - operating leases
|
|
|
6.64
|
%
|
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
12 – PREPAID AND OTHER CURRENT ASSETS
On
September 30, 2020, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $101,308,
and other current assets of $1,087,009. On September 30, 2019, the Company had prepaid and other current assets consisting of
prepayments on inventory purchases of $530,447, and other current assets of $925,318.
NOTE
13 - OTHER ASSETS
As
of September 30, 2020, the Company had other assets of $744,207 which was comprised of rent security deposits of $294,553,
other assets of $449,654. As of September 30, 2019, the Company had other assets of $497,857 which was comprised of rent security
deposits of $127,246, other assets of $370,611.
Cemtrex
Inc. and Subsidiaries
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 (3.98% as of September 30, 2020). At September 30, 2020 there was no outstanding balance on this line of
credit.
Loans
payable to bank
On
December 15, 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 (4.23% as of September 30, 2020) and is payable on December 15, 2022. This loan carries loan
covenants which the Company was in compliance with as of September 30, 2020.
On
December 15, 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 (3.98% as of September 30, 2020)
and is payable on December 15, 2020. This loan carries loan covenants which the Company was in compliance with as of
September 30, 2020.
On
May 1, 2018, the Company acquired a loan from Fulton Bank in the amount of $400,000 in order to fund new equipment for Advanced
Industrial Services, Inc. This loan carries interest of LIBOR plus 2.00% per annum (3.98% as of September 30, 2020) and is payable
on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of September 30, 2020.
On
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 (4.23% as of September 30, 2019) and is payable
on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of September 30, 2020.
Notes
payable
On
December 23, 2019, the Company, issued a note payable to an independent private 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.
On
April 24, 2020, the Company, issued a note payable to an independent private lender in the amount of $1,725,000. This note carries
interest of 8% and matures on 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.
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 September 30, 2020.
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 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 September 30, 2020, the Company
was in compliance with these covenants.
Cemtrex
Inc. and Subsidiaries
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% 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 Paycheck Protection Program Loans on our Condensed Consolidated Balance Sheet as of September 30, 2020,
net of the short-term portion of $1,301,663.
Estimated
maturities of our long-term debt over the next 5 years are as follows;
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulton Bank - $5,250,000
|
|
$
|
713,548
|
|
|
|
782,269
|
|
|
|
668,767
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,164,584
|
|
Fulton Bank - $620,000
|
|
$
|
58,897
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
58,897
|
|
Fulton Bank - $400,000
|
|
$
|
78,995
|
|
|
|
85,792
|
|
|
|
81,886
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
246,673
|
|
Fulton Bank - $360,000
|
|
$
|
67,291
|
|
|
|
69,024
|
|
|
|
72,243
|
|
|
|
75,111
|
|
|
|
47,866
|
|
|
|
-
|
|
|
$
|
331,535
|
|
Fulton Bank - Mortgage payable
|
|
$
|
81,329
|
|
|
|
84,574
|
|
|
|
88,266
|
|
|
|
92,120
|
|
|
|
96,142
|
|
|
|
1,913,111
|
|
|
$
|
2,355,542
|
|
NIL Funding
|
|
$
|
800,000
|
|
|
|
3,825,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4,625,000
|
|
PPP Loans
|
|
$
|
1,301,663
|
|
|
|
2,169,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,471,100
|
|
Notes Payable (1)
|
|
$
|
3,932,787
|
|
|
|
2,205,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,137,787
|
|
TOTAL
|
|
$
|
7,034,510
|
|
|
$
|
9,221,096
|
|
|
$
|
911,162
|
|
|
$
|
167,231
|
|
|
$
|
144,008
|
|
|
$
|
1,913,111
|
|
|
$
|
19,391,118
|
|
|
(1)
|
Net of unamortized original issue discounts
of $875,000
|
NOTE
15 – 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 CFO, is President, for total consideration of $550,000. As of September 30, 2020,
and 2019, there was $1,432,209 and $771,519 in receivables due from Ducon Technologies, Inc., respectively. At September 30,
2020, $500,000 of the balance due is for the sale of Griffin, due in February 2021, and the remaining balance are various receivables
with various due dates within the next fiscal year.
On May 1, 2020,
Company invested $500,000 in a registered S-1 stock offering of Telidyne Inc., an OTC listed company, by purchasing 166,667
shares of common stock at $3.00 per share. Telidyne Inc. is controlled by the Company’s former CFO and Executive
Director, Aron Govil. On September 30, 2020, the Company decided to withdraw its investment, the transaction was
cancelled, and all proceeds were returned.
NOTE
16 – SHAREHOLDERS’ EQUITY
On
July 27, 2020, the Company amended the Company’s Certificate of Incorporation (the “Amended Certificate of Incorporation”)
which was duly approved by the Company’s Board of Directors and duly adopted by the Company’s shareholders increasing
the number of authorized shares of all classes of stock from 30,000,000 shares to 50,000,000 shares with 40,000,000 designated
as Common Stock and 10,000,000 designated as Preferred Stock.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of Preferred Stock, $0.001 par value. As of September 30, 2020, and September
30, 2019, there were 3,256,784 and 3,110,718 shares issued and outstanding, respectively.
Series
A Preferred stock
Each
issued and outstanding Series A Preferred Share shall be entitled to the number of votes per share equal to the result
of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01;
divided by (ii) the total number of Series A Preferred Shares issued and outstanding at the time of such vote, at each meeting
of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action
or consideration, including the election of directors. Holders of Series A Preferred Shares shall vote together with the holders
of Common Shares as a single class.
Cemtrex
Inc. and Subsidiaries
The
Series A Preferred Stock has no liquidation value or preference.
During
the twelve-month periods ended September 30, 2020 and 2019, the Company did not issue any Series A Preferred Stock.
As
of September 30, 2020, and September 30, 2019, there were 1,000,000 shares of Series A Preferred Stock issued and 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 per share
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.
For
the year ended September 30, 2020, 100,000 shares of Series C Preferred Stock were issued to Aron Govil, Executive former 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.
As
of September 30, 2020, there were 100,000 shares of Series C Preferred Stock issued and outstanding.
Series
1 Preferred Stock
Dividends
Holders
of the Series 1 Preferred will be entitled to receive cumulative cash dividends at the rate of 10% of the purchase price per year,
payable semiannually on the last day of March and September in each year. Dividends may also be paid, at our option, in additional
shares of Series 1 Preferred, valued at their liquidation preference. The Series 1 Preferred will rank senior to the common stock
with respect to dividends. Dividends will be entitled to be paid prior to any dividend to the holders of our common stock.
Liquidation
Preference
The
Series 1 Preferred will have a liquidation preference of $10 per share, equal to its purchase price. In the event of any liquidation,
dissolution or winding up of our company, any amounts remaining available for distribution to stockholders after payment of all
liabilities of our company will be distributed first to the holders of Series 1 Preferred, and then pari passu to the holders
of the Series A preferred stock and our common stock. The holders of Series 1 Preferred will have preference over the holders
of our common stock on any liquidation, dissolution or winding up of our company. The holders of Series 1 Preferred will also
have preference over the holders of our Series A preferred stock.
Voting
Rights
Except
as otherwise provided in the certificate of designation, preferences and rights or as required by law, the Series 1 Preferred
will vote together with the shares of our common stock (and not as a separate class) at any annual or special meeting of stockholders.
Except as required by law, each holder of shares of Series 1 Preferred will be entitled to two votes for each share of Series
1 Preferred held on the record date as though each share of Series 1 Preferred were 2 shares of our common stock. Holders of the
Series 1 Preferred will vote as a class on any amendment altering or changing the powers, preferences or special rights of the
Series 1 Preferred so as to affect them adversely.
Cemtrex
Inc. and Subsidiaries
No
Conversion
The
Series 1 Preferred will not be convertible into or exchangeable for shares of our common stock or any other security.
Rank
The
Series 1 Preferred will rank with respect to distribution rights upon our liquidation, winding-up or dissolution and dividend
rights, as applicable:
|
●
|
senior
to our Series A preferred stock, common stock and any other class of capital stock we issue in the future unless the terms
of that stock provide that it ranks senior to any or all of the Series 1 Preferred;
|
|
●
|
on
a parity with any class of capital stock we issue in the future the terms of which provide that it will rank on a parity with
any or all of the Series 1 Preferred;
|
|
●
|
junior
to each class of capital stock issued in the future the terms of which expressly provide that such capital stock will rank
senior to the Series 1 Preferred and the common stock; and
|
|
●
|
junior
to all of our existing and future indebtedness.
|
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.
As
of September 30, 2020, and 2019 there were 2,156,784 and 2,110,718 shares of Series 1 Preferred Stock issued and outstanding,
respectively.
For
the fiscal years ended September 30, 2020 and 2019, 217,099 and 196,550 shares of Series 1 Preferred Stock were issued to pay
$2,089,540 and $1,965,500 worth of dividends to holders of Series 1 Preferred Stock, respectively.
For
the fiscal years ended September 30, 2020, the Company purchased 235,133 shares of its Series 1 Preferred Stock on the open market
at an average price per share of $1.92, for an aggregate cost of approximately $338,775, as part of its ongoing share repurchase
program announced earlier. The Company retired 171,033 shares worth $190,484 during fiscal 2020.
Common
Stock
The
Company is authorized to issue 40,000,000 shares of common stock, $0.001 par value. As of September 30, 2020, there were 17,622,539
shares issued and outstanding and at September 30, 2019, there were 3,962,790 shares issued and outstanding.
During
the fiscal years ended September 30, 2020 and 2019, 6,530,473 and 1,847,832 shares of the Company’s common stock have been
issued to satisfy $8,737,125 and $5,047,569 of notes payable and accumulated interest, respectively.
During
fiscal year 2020, the Company issued 6,643,872 shares of the Company’s common stock for $12,462,648 in gross proceeds in
various subscription rights offerings. After deducting offering expenses of $840,728 the Company received $11,621,920 in net
proceeds (see below).
During
fiscal year 2020, the Company issued 513,358 shares in exchange for $532,788 worth of goods and services.
During
fiscal year 2020, the Company cancelled 27,954 shares that were issued in trust for an ATM offering in the prior fiscal year that
were not sold.
Cemtrex
Inc. and Subsidiaries
Series
1 Warrants
There
are currently 433,965 shares of our common stock issuable upon the exercise of our publicly traded Series 1 warrants that have
an exercise price of $50.48 per share.
During
the years ended September 30, 2020 and 2019, none of our outstanding Series 1 Warrants have been exercised.
Subscription
Rights Offering
On
December 4, 2019, the “Company entered into a Subscription Agreement relating to the public offering of 338,393 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 $1.12 per share for gross proceeds of
$379,000. After deducting offering expenses of $18,950 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”) 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 $1.50 per share for gross proceeds of
$750,000. After deducting offering expenses of $37,500 the Company received $712,500 in net proceeds.
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
19 – SHARE-BASED COMPENSATION
On
September 25, 2019, the Company cancelled all outstanding options granted to Saagar Govil, the Company’s Chairman and CEO
and granted a stock option for 400,000 shares. These options have an exercise price of $1.90 per share, which vested upon grant
and they expire after seven years. Additionally, Mr. Govil was granted additional future options;
(i)
100,000 shares of the Corporation’s common stock, CETX at an exercise price of $1.92 per share on September 25,
2021;
(ii)
100,000 shares of the Corporation’s common stock, CETX at an exercise price of $2.30 per share on September 25, 2023;
and
(iii)
100,000 shares of the Corporation’s common stock, CETX at an exercise price of $2.76 per share on September 25,
2025.
Cemtrex
Inc. and Subsidiaries
On
September 25, 2019, the Company granted to Aron Govil, the Company’s former Executive Director and CFO, a stock option for
200,000 shares. These options have an exercise price of $1.90 per share, which vested upon grant and they expire after seven years.
Upon Mr. Govil’s retirement his outstanding options that were vested remain available to him until they expire. Mr. Govil’s
remaining options are;
(i)
25,000 shares of the Corporation’s common stock, CETX at an exercise price of $1.92 per share on September 25,
2021;
(ii)
12,500 shares of the Corporation’s common stock, CETX at an exercise price of $2.30 per share on September 25, 2023;
and
(iii)
8,333 shares of the Corporation’s common stock, CETX at an exercise price of $2.76 per share on September 25,
2025.
The
following weighted-average assumptions were used to estimate the fair value of the common stock option liability at September
30, 2019;
|
|
September 30, 2019
|
|
Expected term
|
|
|
5
Years
|
|
Risk-free interest rate
|
|
|
1.56
|
%
|
Expected volatility
|
|
|
94.74
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
During
the years ended September 30, 2020 and 2019 the Company recognized $191,416 and $622,232 of share-based compensation expense
on its outstanding options, respectively.
As
of September 30, 2020, there was $64,278 of total unrecognized compensation cost related to non-vested stock options, which is
expected to be recognized over a weighted-average period of 4 years.
|
|
Number
of Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term
(in
years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at September 30, 2018
|
|
|
79,111
|
|
|
$
|
22.40
|
|
|
|
4.09
|
|
|
$
|
-
|
|
Options granted
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(4,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Options granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
(104,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
945,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2020
|
|
|
737,500
|
|
|
$
|
1.71
|
|
|
|
3.00
|
|
|
$
|
-
|
|
NOTE
20 – 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 $13,000 per month. The Company has recognized $143,000 of lease expense for this lease, for the year ended September
30, 2020.
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 recognized $54,660 of lease expense for this lease, for the year ended September 30, 2020.
Cemtrex
Inc. and Subsidiaries
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
$77,436 of lease expense for this lease, for the year ended September 30, 2020, (ii) approximately 27,000 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 expense for prior lease on this property, in the six months ended March 31,
2020, and has recognized $139,721 of lease expense for the current lease during the six months ended September 30, 2020 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 $87,948 of lease expense for this lease for the year ended September 30, 2020.
NOTE
21 – INCOME TAXES
The
Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the maximum U.S. federal
corporate tax rate from 35% to 21%, allows net operating losses incurred in 2018 and beyond to be carried forward indefinitely,
allows alternative minimum tax carryforwards to be partially refunded, beginning in 2018, and fully refunded by 2021, and creates
new taxes on certain foreign sourced earnings.
The
following is a geographical breakdown of loss before the provision for income taxes:
|
|
Year ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Domestic
|
|
$
|
(5,886,398
|
)
|
|
$
|
(10,774,136
|
)
|
Foreign
|
|
|
(933,531
|
)
|
|
|
(1,864,201
|
)
|
Loss before provision for income
taxes
|
|
$
|
(6,819,929
|
)
|
|
$
|
(12,638,337
|
)
|
The
provision for income taxes consisted of the following:
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
Current (benefit)/provision
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
(209,032
|
)
|
|
|
7,978
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total current (benefit)/provision
|
|
|
(209,032
|
)
|
|
|
7,978
|
|
|
|
|
|
|
|
|
|
|
Deferred provision
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,282,867
|
|
|
|
(1,343,562
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total deferred provision
|
|
$
|
2,282,867
|
|
|
$
|
(1,343,562
|
)
|
|
|
|
|
|
|
|
|
|
Total (benefit)/provision for income taxes
|
|
$
|
2,073,835
|
|
|
$
|
(1,335,584
|
)
|
|
|
|
|
|
|
|
|
|
Effective Income tax rate
|
|
|
-30.41
|
%
|
|
|
10.57
|
%
|
Cemtrex
Inc. and Subsidiaries
The
following is a reconciliation of the effective income tax rate to the federal and state statutory rates:
|
|
For the Fiscal Year
|
|
|
For the Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
U.S. statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State statutory rate
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
Foreign tax rate differential
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Change in valuation allowance
|
|
|
-33.00
|
%
|
|
|
-12.83
|
%
|
Effect of change in rates
|
|
|
0.00
|
%
|
|
|
-6.23
|
%
|
Nondeducttible expenses
|
|
|
-24.91
|
%
|
|
|
2.13
|
%
|
Effective rate
|
|
|
-30.41
|
%
|
|
|
10.57
|
%
|
The
components of our deferred tax assets and liabilities are summarized as follows:
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
15,136,466
|
|
|
$
|
15,473,774
|
|
Inventory
|
|
|
1,475,593
|
|
|
|
1,121,788
|
|
Prepaid expenses
|
|
|
74,149
|
|
|
|
-
|
|
Allowance for bad debt
|
|
|
52,168
|
|
|
|
121,485
|
|
Depreciation
|
|
|
331,924
|
|
|
|
341,093
|
|
Non-qualified stock options
|
|
|
393,191
|
|
|
|
393,518
|
|
Warrants (interest expense)
|
|
|
78,557
|
|
|
|
78,622
|
|
Accrued compensation
|
|
|
623,996
|
|
|
|
327,487
|
|
Warranty Reserve
|
|
|
100,926
|
|
|
|
101,010
|
|
Unearned revenue
|
|
|
109,013
|
|
|
|
113,111
|
|
Other
|
|
|
61
|
|
|
|
638,022
|
|
Total gross deferred taxes
|
|
|
18,376,044
|
|
|
|
18,709,910
|
|
Valuation allowance
|
|
|
(17,168,322
|
)
|
|
|
(15,292,817
|
)
|
Net deferred tax assets
|
|
|
1,207,722
|
|
|
|
3,417,093
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Accrued vacation
|
|
|
-
|
|
|
|
(1,804
|
)
|
Inventory
|
|
|
(41,526
|
)
|
|
|
-
|
|
Prepaid expenses
|
|
|
(45,563
|
)
|
|
|
(25,305
|
)
|
Goodwill amortization
|
|
|
(163,839
|
)
|
|
|
(112,800
|
)
|
Research and development expenses
|
|
|
(42,274
|
)
|
|
|
(42,216
|
)
|
Depreciation
|
|
|
(807,096
|
)
|
|
|
(821,440
|
)
|
Gain/loss on fixed asset disposal
|
|
|
(106,753
|
)
|
|
|
(130,661
|
)
|
Other
|
|
|
(671
|
)
|
|
|
-
|
|
Total deferred tax liabilities
|
|
|
(1,207,722
|
)
|
|
|
(1,134,226
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
2,282,867
|
|
Cemtrex
Inc. and Subsidiaries
NOTE
22– SUBSEQUENT EVENTS
Cemtrex
has evaluated subsequent events up to the date the consolidated financial statements were issued. Centrex concluded that the following
subsequent events have occurred and require recognition or disclosure in the consolidated financial statements.
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.
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.
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.
Preferred
shares issued for dividend
On
October 6, 2020, the Company issued 108,169 shares of its Series 1 Preferred Stock to for the dividends that were accrued
for the September 30, 2020 dividend payment. The dividend was paid to shareholders of record as of September 30, 2020.
Common
shares issued subsequent to financial statements date.
On
November 3, 2020, the Company issued 345,648 shares of common stock to satisfy $323,517 worth of notes payable and accumulated
interest.
Strategic
Investment in MasterpieceVR
On
November 13, 2020, Cemtrex made an equity investment of $500,000 in MasterpieceVR and the investment represents roughly an 8%
stake in MasterpieceVR. MasterpieceVR is a software company that is developing powerful software for content creation using virtual
reality. Currently, creative professionals worldwide are challenged in creating 3D visual content because existing software is
too complex and slow to use, creating a significant unmet market. Thanks to advances in machine learning and virtual reality,
MasterpieceVR’s software platform is the first end to end solution to enable any creative professional to make 3D content
fast and easy. Masterpiece Studio has partnered with leading technology companies and its software is used by a host of the world’s
major studios.