NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND PLAN OF OPERATIONS
Cemtrex
was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal research &
development from a small environmental monitoring instruments company into a world leading multi-industry technology company.
The Company now specializes in the development of Internet of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR)
enabled technologies that drive innovation in a wide range of sectors, including consumer products, industrial manufacturing,
digital applications, and intelligent security & surveillance systems. Unless the context requires otherwise, all references
to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex”
or “management” refer to Cemtrex, Inc. and its subsidiaries.
The
Company continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives
and positioned to maximize growth and return in the coming years. During fiscal 2019, the Company made a strategic decision to
exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. During fiscal 2019,
the Company also reached a strategic decision to exit its original environmental products business and sold those operations.
Now
the Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS)
Advanced
Technologies (AT)
Cemtrex’s
Advanced Technologies segment delivers cutting-edge technologies in the Internet of Things (IoT), Wearables and Smart Devices,
such as the SmartDesk. Through the Company’s advanced engineering and product design, Company delivers Virtual Reality (VR)
and Augmented Reality (AR) products that provide higher productivity, progressive design and impactful experiences for consumer
products, digital applications and industrial manufacturing.
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 facial 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).
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.
NOTE
2 – INTERIM STATEMENT PRESENTATION
Basis
of Presentation and Use of Estimates
The
accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2019 of
Cemtrex Inc.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”).
Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative
of the results of operations for the entire year.
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure
of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported
amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those
estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience
and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
The
condensed 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, IQInVision, Vicon Industries Ltd., Vicon
Deutschland GmbH, and Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Significant
Accounting Policies and Recent Accounting Pronouncements
Significant
Accounting Policies
Note
2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30,
2019, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently
Adopted Accounting Pronouncements
Adoption
of ASU 2016-02 (Topic 842)
On
October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 requires that a lessee recognize
the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position
a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying
asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors may use the
effective date method and elected certain practical expedients allowing the Company not to reassess:
|
●
|
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.
See
Note 10 for the impact implementing this standard had on our financial statements.
Recently
Issued Accounting Standards
In
August 2018, the FASB issued amended guidance, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB
Concepts Statements, including the consideration of costs and benefits. The new standard is effective for the Company from October
1, 2020. The Company believes adoption will not have a material effect on the Company’s financial position.
In
December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes, to remove certain exceptions to
the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas
of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company on October 1, 2021; early adoption
is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statement disclosures,
results of operations and financial position.
NOTE
3 – LOSS PER COMMON SHARE
Basic
net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average
number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the
potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants.
|
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
10,933,926
|
|
|
|
1,844,895
|
|
|
|
7,161,785
|
|
|
|
2,087,195
|
|
Dilutive
effect of options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dilutive
effect of convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted
weighted average shares outstanding
|
|
|
10,933,926
|
|
|
|
1,844,895
|
|
|
|
7,161,785
|
|
|
|
2,087,195
|
|
For
the three and nine months ended June 30, 2020 and 2019, 1,483,965 and 538,076 shares of common stock, respectively, were excluded
from the computation of diluted earnings per share because the effect of their inclusion would be anti-dilutive.
NOTE
4 – SEGMENT INFORMATION
The
Company reports and evaluates financial information for two segments: Advanced Technologies (AT) segment, and the Industrial Services
(IS) segment. The AT segment develops smart devices and provides progressive design and development solutions to create impactful
experiences for mobile, web, virtual and augmented reality, wearables and television as well as providing cutting edge, mission
critical security and video surveillance. The IS segment offers single-source expertise and services for rigging, millwrighting,
in plant maintenance, equipment erection, relocation, and disassembly to diversified customers in USA in industries such as: chemical,
steel, printing, construction, & petrochemical.
The
following tables summarize the Company’s segment information:
|
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
4,977,424
|
|
|
$
|
6,528,486
|
|
|
$
|
18,389,057
|
|
|
$
|
13,924,097
|
|
Industrial
Services
|
|
|
3,463,443
|
|
|
|
4,400,447
|
|
|
|
14,385,740
|
|
|
|
14,447,830
|
|
Total
revenues
|
|
$
|
8,440,867
|
|
|
$
|
10,928,933
|
|
|
$
|
32,774,797
|
|
|
$
|
28,371,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
1,837,957
|
|
|
$
|
2,528,340
|
|
|
$
|
8,712,543
|
|
|
$
|
5,831,813
|
|
Industrial
Services
|
|
|
1,441,895
|
|
|
|
1,529,673
|
|
|
|
5,261,899
|
|
|
|
5,220,582
|
|
Total
gross profit
|
|
$
|
3,279,852
|
|
|
$
|
4,058,013
|
|
|
$
|
13,974,442
|
|
|
$
|
11,052,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
(1,854,346
|
)
|
|
$
|
(391,053
|
)
|
|
$
|
(2,494,371
|
)
|
|
$
|
(4,058,782
|
)
|
Industrial
Services
|
|
|
(804,397
|
)
|
|
|
106,132
|
|
|
|
(832,532
|
)
|
|
|
(391,511
|
)
|
Total
operating loss
|
|
$
|
(2,658,743
|
)
|
|
$
|
(284,921
|
)
|
|
$
|
(3,326,903
|
)
|
|
$
|
(4,450,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
(1,795,637
|
)
|
|
$
|
(351,466
|
)
|
|
$
|
(2,868,033
|
)
|
|
$
|
(545,851
|
)
|
Industrial
Services
|
|
|
(28,330
|
)
|
|
|
(1,811,388
|
)
|
|
|
(114,637
|
)
|
|
|
(2,596,361
|
)
|
Total
other expense
|
|
$
|
(1,823,967
|
)
|
|
$
|
(2,162,854
|
)
|
|
$
|
(2,982,670
|
)
|
|
$
|
(3,142,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
253,712
|
|
|
$
|
245,248
|
|
|
$
|
1,019,779
|
|
|
$
|
1,112,240
|
|
Industrial
Services
|
|
|
477,508
|
|
|
|
750,293
|
|
|
|
1,139,159
|
|
|
|
2,096,693
|
|
Total
depreciation and amortization
|
|
$
|
731,220
|
|
|
$
|
995,541
|
|
|
$
|
2,158,938
|
|
|
$
|
3,208,933
|
|
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Identifiable
Assets
|
|
|
|
|
|
|
|
|
Advanced
Technologies
|
|
$
|
38,335,385
|
|
|
$
|
19,365,582
|
|
Industrial
Services
|
|
|
15,673,359
|
|
|
|
16,209,838
|
|
Discontinued
operations
|
|
|
8,817,277
|
|
|
$
|
8,817,277
|
|
Total
Assets
|
|
$
|
62,826,021
|
|
|
$
|
44,392,697
|
|
The
Company generates revenue from product sales and services from its subsidiaries located in the United States, The United Kingdom,
and India. Revenue information for the Company is as follows:
|
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
Revenues
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
U.S.
Operations
|
|
$
|
8,341,384
|
|
|
$
|
10,811,119
|
|
|
$
|
32,464,794
|
|
|
$
|
27,987,544
|
|
Non-U.S.
Operations
|
|
|
99,483
|
|
|
|
117,814
|
|
|
|
310,003
|
|
|
|
384,383
|
|
|
|
$
|
8,440,867
|
|
|
$
|
10,928,933
|
|
|
$
|
32,774,797
|
|
|
$
|
28,371,927
|
|
NOTE
5 – FAIR VALUE MEASUREMENTS
Fair
value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The
three levels of the fair value hierarchy under the guidance for fair value measurements are described below:
Level
1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement date. Our Level 1 assets include cash equivalents, banker’s acceptances,
trading securities investments and investment funds. We measure trading securities investments and investment funds at quoted
market prices as they are traded in an active market with sufficient volume and frequency of transactions.
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.
The
Company’s fair value assets at June 30, 2020 and 2019 are as follows;
|
|
Quoted
Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in
Active
|
|
|
Other
|
|
|
Significant
|
|
|
Balance
|
|
|
|
Markets
for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
as
of
|
|
|
|
Identical
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
June
30,
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(included
in short-term investments)
|
|
$
|
1,778,739
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,778,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,778,739
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,778,739
|
|
|
|
Quoted
Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in
Active
|
|
|
Other
|
|
|
Significant
|
|
|
Balance
|
|
|
|
Markets
for
|
|
|
Observable
|
|
|
Observable
|
|
|
as
of
|
|
|
|
Identical
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
June
30,
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(included
in short-term investments)
|
|
$
|
13,692
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,692
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,692
|
|
NOTE
6 – RESTRICTED CASH
A
subsidiary of the Company participates in a consortium in order to self-insure group care coverage for its employees. The plan
is administrated by Benecon Group and the Company makes monthly deposits in a trust account to cover medical claims and any administrative
costs associated with the plan. These funds, as required by the plan are restricted in nature and amounted to $1,334,245 as of
June 30, 2020. 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 $124,626 and
$118,889 as of June 30, 2020 and September 30, 2019, respectively.
NOTE
7 – ACCOUNTS RECEIVABLE, NET
Accounts
receivables, net consist of the following:
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts
receivable
|
|
$
|
5,410,652
|
|
|
$
|
7,065,035
|
|
Allowance
for doubtful accounts
|
|
|
(606,177
|
)
|
|
|
(606,051
|
)
|
|
|
$
|
4,804,475
|
|
|
$
|
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.
NOTE
8 – INVENTORY, NET
Inventory,
net, consist of the following:
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Raw
materials
|
|
$
|
3,767,732
|
|
|
$
|
4,917,700
|
|
Work
in progress
|
|
|
1,420,929
|
|
|
|
543,857
|
|
Finished
goods
|
|
|
6,067,983
|
|
|
|
3,683,810
|
|
|
|
|
11,256,644
|
|
|
|
9,145,367
|
|
|
|
|
|
|
|
|
|
|
Less:
Allowance for inventory obsolescence
|
|
|
(4,665,036
|
)
|
|
|
(3,938,212
|
)
|
Inventory
–net of allowance for inventory obsolescence
|
|
$
|
6,591,608
|
|
|
$
|
5,207,155
|
|
NOTE
9 – PROPERTY AND EQUIPMENT
Property
and equipment are summarized as follows:
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
790,373
|
|
|
$
|
-
|
|
Building
and leasehold improvements
|
|
|
3,860,026
|
|
|
|
1,233,733
|
|
Furniture
and office equipment
|
|
|
631,820
|
|
|
|
614,569
|
|
Computers
and software
|
|
|
5,173,341
|
|
|
|
5,166,922
|
|
Trade
show display
|
|
|
89,330
|
|
|
|
89,330
|
|
Machinery
and equipment
|
|
|
24,133,952
|
|
|
|
23,463,953
|
|
|
|
|
34,678,842
|
|
|
|
30,568,507
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
(15,520,148
|
)
|
|
|
(13,791,955
|
)
|
Property
and equipment, net
|
|
$
|
19,158,694
|
|
|
$
|
16,776,552
|
|
Depreciation
expense for the three months ended June 30, 2020 and 2019 were $731,220 and $995,541 respectively. Depreciation expense for the
nine months ended June 30, 2020 and 2019 were $2,158,938 and $3,208,933, respectively.
NOTE
10 – LEASES
ASC
842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee
should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
In transition, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective
date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified
retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast,
under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period
presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition
method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842
October 1, 2019 using the effective date method and elected certain practical expedients allowing the Company not to reassess:
|
●
|
whether
expired or existing contracts contain leases under the new definition of a lease;
|
|
●
|
lease
classification for expired or existing leases; and
|
|
●
|
whether
previously capitalized initial direct costs would qualify for capitalization under Topic 842.
|
The
Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months
or less.
The
Company entered into a financing lease for a single vehicle in the Industrial services segment with a term of 3 years. The Company
enters into operating leases for its facilities in New York, United Kingdom, and India, as well as for vehicles for use in our
Industrial Services segment. The operating lease terms range from 2 to 7 years. The Company excluded the renewal option on its
applicable facility leases from the calculation of its right-of-use assets and lease liabilities.
Finance
and operating lease liabilities consist of the following:
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Lease
liabilities - current
|
|
|
|
|
|
|
|
|
Finance
leases
|
|
$
|
22,452
|
|
|
$
|
22,452
|
|
Operating
leases
|
|
|
671,726
|
|
|
|
-
|
|
|
|
|
694,178
|
|
|
|
22,452
|
|
|
|
|
|
|
|
|
|
|
Lease
liabilities - net of current portion
|
|
|
|
|
|
|
|
|
Finance
leases
|
|
$
|
6,223
|
|
|
$
|
20,061
|
|
Operating
leases
|
|
|
1,838,942
|
|
|
|
-
|
|
|
|
$
|
1,845,165
|
|
|
$
|
20,061
|
|
A
reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated
balance sheet at June 30, 2020 is set forth below:
Years
ending September 30,
|
|
Finance
leases
|
|
|
Operating
Leases
|
|
|
Total
|
|
Remainder
of 2020
|
|
$
|
11,872
|
|
|
$
|
288,033
|
|
|
$
|
299,905
|
|
2021
|
|
|
17,604
|
|
|
|
769,867
|
|
|
|
787,471
|
|
2022
|
|
|
-
|
|
|
|
630,534
|
|
|
|
630,534
|
|
2023
|
|
|
-
|
|
|
|
504,539
|
|
|
|
504,539
|
|
2024
|
|
|
-
|
|
|
|
378,949
|
|
|
|
378,949
|
|
2025
|
|
|
|
|
|
|
344,624
|
|
|
|
344,624
|
|
2026
|
|
|
|
|
|
|
344,624
|
|
|
|
344,624
|
|
2027
|
|
|
|
|
|
|
172,312
|
|
|
|
172,312
|
|
Undiscounted
lease payments
|
|
|
29,476
|
|
|
|
3,433,482
|
|
|
|
3,462,958
|
|
Amount
representing interest
|
|
|
(801
|
)
|
|
|
(922,814
|
)
|
|
|
(923,615
|
)
|
Discounted
lease payments
|
|
$
|
28,675
|
|
|
$
|
2,510,668
|
|
|
$
|
2,539,343
|
|
Additional
disclosures of lease data are set forth below:
|
|
Nine
months ended
|
|
|
|
June
30, 2020
|
|
Lease
costs:
|
|
|
|
|
Finance
lease costs:
|
|
|
|
|
Amortization
of right-of-use assets
|
|
|
11,456
|
|
Interest
on lease liabilities
|
|
|
416
|
|
|
|
|
|
|
Operating
lease costs:
|
|
|
156,777
|
|
Total
lease cost
|
|
|
168,649
|
|
|
|
|
|
|
Other
information:
|
|
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
leases
|
|
|
11,872
|
|
Finance
leases
|
|
|
398,580
|
|
|
|
|
410,452
|
|
|
|
|
|
|
Weighted-average
remaining lease term - finance leases (months)
|
|
|
13
|
|
Weighted-average
remaining lease term - operating leases (months)
|
|
|
73
|
|
|
|
|
|
|
Weighted-average
discount rate - finance leases
|
|
|
6.95
|
%
|
Weighted-average
discount rate - operating leases
|
|
|
6.98
|
%
|
The
Company used the rate implicit in the lease, where known, or its incremental borrowing rate as the rate used to discount the future
lease payments.
NOTE
11 – PREPAID AND OTHER CURRENT ASSETS
On
June 30, 2020, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $407,243,
other current assets of $1,350,324. On September 30, 2019, the Company had prepaid and other current assets consisting of prepayments
on inventory purchases of $530,447, and other current assets of $1,469,818.
NOTE
12 - OTHER ASSETS
As
of June 30, 2020, the Company had other assets of $1,515,194 which was comprised of rent security of $127,373, and other assets
of $1,387,821. As of September 30, 2019, the Company had other assets of $497,857 which was comprised of rent security of $140,246
and other assets of $357,611.
NOTE
13 – SHORT-TERM LIABILITIES
The
Company’s subsidiaries have revolving lines of credit with various banks in order to fund operations. As of June 30, 2020,
these accounts had no balance.
As
of June 30, 2020, there were $6,334,945 in current portion of long-term liabilities.
NOTE
14 – 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 June 30, 2020, there
were $221,509 due from Ducon and as of June 30, 2019, there were no payables or receivables due to or from Ducon.
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 CFO and Executive Director,
Aron Govil.
NOTE
15 – LONG-TERM LIABILITIES
Notes
payable
On
October 25, 2019, the Company, issued a note payable to an independent third-party in the amount of $1,725,000. This note carries
interest of 8% and matures on April 25, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000,
the Company received $1,495,000 in cash.
On
December 23, 2019, the Company, issued a note payable to an independent third-party 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 third-party 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
March 3, 2020, Vicon, a subsidiary of the Company amended the $5,600,000 Term Loan Agreement with NIL Funding Corporation (“NIL”).
Upon closing, $500,000 of outstanding borrowings were repaid to NIL, additionally, another $500,000 is to be paid in one year.
The Agreement requires monthly payments of accrued interest that began on October 1, 2018. This note carries interest of 8.85%
and matures on March 30, 2022. This note carries loan covenants which the Company is in compliance with as of June 30, 2020.
Long-term
lease liabilities
On
October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 requires that a lessee recognize
the assets and liabilities that arise from operating leases. As of June 30, 2020, the Company has lease liabilities of $2,539,343
of which $694,178 is classified as short-term. The Company has calculated that at September 30, 2019 it would have had an additional
$1,351,317 with $289,235 classified as short-term.
Mortgage
Payable
On
January 28, 2020, the Company’s subsidiary, Advanced Industrial Services, Inc., completed the purchase of two buildings
for a total purchase price of $3,381,433. The Company paid $905,433 in cash and acquired a mortgage from Fulton Bank in the amount
of $2,476,000. This mortgage carries interest of LIBOR plus 2.50% per annum and is payable on January 28, 2040. This loan carries
loan covenants similar to covenants on The Company’s other loans from Fulton Bank. As of June 30, 2020, the Company was
in compliance with these covenants.
Series
1 preferred stock dividends payable
On
March 20, 2020, the Company had announced that it would pay its semiannual dividend to the holders of record on close of business
on March 31, 2020 of Series 1 Preferred Stock by April 6, 2020. In light of the COVID-19 lock down announced by the state government,
the Company on March 26, 2020, decided to postpone the payment of this dividend for 90 days. The Company paid these dividends
with shares of Series 1 Preferred Stock on July 6, 2020 to the shareholders of record as of June 30, 2020.
Paycheck
Protection Program Loans
In
April and May of 2020, the Company and its subsidiaries applied for and were granted $3,471,100 in Paycheck Protection Program
loans under the CARES Act. These loans bear interest of 2% and mature in two years. The Company will apply for and fully expects
these loans to be forgiven under the provisions of the CARES Act and any subsequent legislation that may be applicable. These
loans are recorded under Other long-term liabilities on our Condensed Consolidated Balance Sheet as of June 30, 2020, net of the
short-term portion of $1,301,663.
NOTE
16 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue 20,000,000 shares of Preferred Stock, $0.001 par value. As of June 30, 2020, and September 30,
2019, there were 3,316,683 and 3,110,718 shares issued and outstanding, respectively.
Series
1 Preferred Stock
On
March 30, 2020, the Company amended the Certificate of Designation (the “Amended Certificate of Designation”) for
our Series 1 Preferred Stock (the “Series 1 Stock”). The Amended Certificate of Designation increased the number of
authorized preferred shares under the designation for our Series 1 Preferred Stock from 3,000,000 shares to 4,000,000 shares.
For
the nine months ended June 30, 2020, 105,965 shares of Series 1 Preferred Stock were issued to pay $1,059,650 worth of dividends
to holders of Series 1 Preferred Stock.
During
the nine months ended June 30, 2020, the Company purchased 162,888 shares of its Series 1 Preferred Stock on the open market at
an average price per share of $1.17, for an aggregate cost of approximately $190,483, as part of its ongoing share repurchase
program announced earlier. The Company retired these shares on July 13, 2020.
As
of June 30, 2020, and September 30, 2019, there were 2,216,683 and 2,110,718 shares of Series 1 Preferred Stock issued and outstanding,
respectively.
Series
A Preferred stock
During
the nine-month period ended June 30, 2020, the Company did not issue any Series A Preferred Stock.
As
of June 30, 2020, and September 30, 2019, there were 1,000,000 shares of Series A Preferred Stock issued and outstanding.
Series
C Preferred Stock
On
October 3, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to designate a class of
preferred stock entitled Series C Preferred Stock, consisting of up to one hundred thousand (100,000) shares, par value $0.001.
Under the Certificate of Designation, holders of Series C Preferred Stock are entitled to the number of votes equal to the result
of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii)
the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders
with respect to any and all matters presented to our shareholders for their action or consideration, including the election of
directors.
For
the nine months ended June 30, 2020, 100,000 shares of Series C Preferred Stock were issued to Aron Govil, Executive Director
and CFO of the Company as part of his employment agreement. In order to determine the fair market value of these shares the Company
used the closing price of its Series 1 preferred stock of $0.95 on October 3, 2019. On July 10, 2020, Aron Govil transferred 50,000
shares of the Series C Preferred Stock to Saagar Govil.
As
of June 30, 2020, there were 100,000 shares of Series C Preferred Stock issued and outstanding.
Common
Stock
The
Company is authorized to issue 20,000,000 shares of common stock, $0.001 par value. As of June 30, 2020, there were 16,263,715
shares issued and outstanding and at September 30, 2019, there were 3,962,790 shares issued and outstanding.
During
the nine months ended June 30, 2020, 5,218,695 shares of the Company’s common stock have been issued to satisfy $4,428,000
of notes payable, $220,537 in accrued interest, and $2,285,387 of excess value of shares issued recorded as interest expense;
6,643,872 shares were issued in Securities Subscription Agreements (See below); 438,358 shares were issued in exchange for $428,538
of goods and services.
Subscription
Rights 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
17 – SHARE-BASED COMPENSATION
For
the nine months ended June 30, 2020 and 2019, the Company recognized $167,212 and $112,200 of share-based compensation expense
on its outstanding options, respectively. As of June 30, 2020, $332,781 of unrecognized share-based compensation expense is expected
to be recognized over a period of four years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
NOTE
18 – COMMITMENTS AND CONTINGENCIES
The
Company has moved its corporate activities to New York City with a lease of 2,500 square feet of office space at a rate of $11,556
per month that expires June 30, 2020. The Company has recognized $104,000 of lease expense for this lease, for the nine months
ended June 30, 2020. The Company has not renewed this lease but will continue to rent the space on a month-by-month basis.
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, the Company has recognized
$58,077 of lease expense for this lease, for the nine months ended June 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 $53,654 of lease expense for the current lease during the three months ended June 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 $65,961 of lease expense for this lease for the nine months ended June 30, 2020.
NOTE
19 – DISCONTINUED OPERATIONS
During
fiscal 2019, the Company reached a strategic decision to exit the environmental products business, which was part of Industrial
Services group. Additionally, the Company sold its Electronics Manufacturing segment. Accordingly, the Company has reported the
results of the environmental control products business and the Electronics Manufacturing segment as discontinued operations in
the Consolidated Statements of Operations and in the Consolidated Balance Sheets.
Income
(loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of the ROB
Cemtrex Companies and the environmental products business which are presented in total as discontinued operations, net of tax
in the Company’s Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019, are
as follows:
|
|
Three
months ended June 30,
|
|
|
Nine
months ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$
|
-
|
|
|
$
|
11,523,119
|
|
|
$
|
-
|
|
|
$
|
34,972,164
|
|
Cost
of sales
|
|
|
-
|
|
|
|
7,009,550
|
|
|
|
-
|
|
|
|
21,008,465
|
|
Operating,
selling, general and administrative expenses
|
|
|
-
|
|
|
|
4,811,870
|
|
|
|
-
|
|
|
|
14,576,012
|
|
Other
expenses
|
|
|
-
|
|
|
|
(341,366
|
)
|
|
|
-
|
|
|
|
(43,615
|
)
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
|
43,065
|
|
|
|
-
|
|
|
|
(568,698
|
)
|
Loss
on sale of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income
tax provision
|
|
|
-
|
|
|
|
264,988
|
|
|
|
-
|
|
|
|
198,328
|
|
Discontinued
operations, net of tax
|
|
$
|
-
|
|
|
$
|
(221,923
|
)
|
|
$
|
-
|
|
|
$
|
(767,026
|
)
|
NOTE
20 - SUBSEQUENT EVENTS
Cemtrex
has evaluated subsequent events up to the date the condensed consolidated financial statements were issued. Cemtrex concluded
that the following subsequent events have occurred and require recognition or disclosure in the condensed consolidated financial
statements.
Potential
Impacts of COVID-19 on our Business
The
current COVID-19 pandemic has impacted our business operations and the results of our operations in the second and third quarters,
primarily with delays in expected orders by many customers and deployment of newer versions of surveillance software since our
technical facility in Pune, India has been under lock down. Overall bookings level in the IS segment of our business is down by
more than 50%, however our AT segment has experienced relatively less slow down. In addition, due to delays in certain supply
chain areas, the expected launch times of our new products and new versions are also delayed by several months.
The
broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic has the
potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience
more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in
our new product development activities. However, on the other hand, opportunities in the video surveillance field have been growing
for Vicon products.
The
extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments,
which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic,
the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on
governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity.
Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence
the likely impact of the COVID-19 pandemic on our future operations.
Common
shares issued subsequent to financial statements date.
In
July and August of 2020, the Company issued 479,619 shares of common stock to satisfy $600,000 worth of notes payable.
Preferred
shares issued for dividend
On
July 6, the Company issued 111,134 shares of its Series 1 Preferred Stock to for the dividends that were accrued for the March
31, 2020 dividend payment but were delated due the COVID-19 crisis. The dividend was paid to shareholders of record as of June
30, 2020.