UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the quarterly period ended June 30, 2020

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the transition period from ___________to ____________

 

Commission File Number 001-37464

 

 

CEMTREX, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   30-0399914

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

276 Greenpoint Ave, Suite 208, Brooklyn, NY   11222
(Address of principal executive offices)   (Zip Code)

 

631-756-9116

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol   Name of each exchange on which registered
Common Stock   CETX   Nasdaq Capital Market
Series 1 Preferred Stock   CETXP   Nasdaq Capital Market
Series 1 Warrants   CETXW   Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

[X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ]   Accelerated filer [  ]
  Non-accelerated filer [X]   Smaller reporting company [X]
      Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

[  ] Yes [X] No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

As of August 11, 2020, the issuer had 16,743,334 shares of common stock issued and outstanding.

  

 

 

 

 

 

Table of Contents

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2020 and September 30, 2019 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months ended June 30, 2020 and June 30, 2019 (Unaudited) 4
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2020 (Unaudited) 5
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2019 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flow for the nine months ended June 30, 2020 and June 30, 2019 (Unaudited) 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
 Item 4. Controls and Procedures 27
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 28
     
Item 1A Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 6. Exhibits 29
     
SIGNATURES 31

 

2

 

 

Part I. Financial Information

 

Item 1. Financial Statements

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

    June 30,     September 30,  
  2020     2019  
Assets            
Current assets                
Cash and equivalents   $ 12,939,493     $ 1,769,994  
Restricted cash     1,334,245       1,088,091  
Short-term investments     1,778,739       412,730  
Accounts receivables, net     4,804,475       6,458,984  
Accounts receivables - related party     221,509       227,019  
Notes receivable - short-term     1,713,371       1,713,371  
Inventory –net of allowance for inventory obsolescence     6,591,608       5,207,155  
Prepaid expenses and other assets     1,757,567       2,000,265  
Total current assets     31,141,007       18,877,609  
                 
Property and equipment, net     19,158,694       16,776,552  
Right-of-use assets     2,454,603       -  
Goodwill     4,370,894       4,370,894  
Notes receivable - long-term     1,586,918       1,586,918  
Deferred tax asset     2,098,711       2,282,867  
Investment in related party     500,000       -  
Other     1,515,194       497,857  
Total Assets   $ 62,826,021     $ 44,392,697  
                 
Liabilities & Stockholders’ Equity                
Current liabilities                
Accounts payable   $ 2,602,556     $ 4,236,945  
Short-term liabilities     6,334,945       6,817,534  
Lease liabilities - short-term     694,178       22,718  
Deposits from customers     35,077       33,074  
Accrued expenses     2,540,568       2,673,646  
Deferred revenue     1,457,179       1,433,803  
Accrued income taxes     311,109       419,541  
Total current liabilities     13,975,612       15,637,261  
                 
Long-term liabilities                
Loans payable to bank, net of current portion     2,014,922       2,240,526  
Long-term lease liabilities, net of current portion     1,845,165       20,061  
Notes payable, net of current portion     4,435,737       2,817,661  
Mortgage payable, net of current portion     2,373,188       -  
Other long-term liabilities     3,273,320       1,221,549  
Series 1 preferred stock dividends payable     1,026,900       -  
Deferred Revenue - long-term     366,805       489,535  
Total long-term liabilities     15,336,037       6,789,332  
                 
Total liabilities     29,311,649       22,426,593  
                 
Commitments and contingencies     -       -  
                 
Stockholders’ equity                
Preferred stock , $0.001 par value, 20,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,216,683 shares issued and outstanding as of June 30, 2020 and 2,110,718 shares issued and outstanding as of September 30, 2019 (liquidation value of $10 per share)     2,217       2,111  
Series A, 1,000,000 shares authorized, issued and outstanding at June 30, 2020 and September 30, 2019     1,000       1,000  
Series C, 100,000 shares authorized, issued and outstanding at June 30, 2020     100       -  
Common stock, $0.001 par value, 20,000,000 shares authorized, 16,263,715 shares issued and outstanding at June 30, 2020 and 3,962,790 shares issued and outstanding at September 30, 2019     16,264       3,963  
Additional paid-in capital     60,543,674       40,344,837  
Accumulated deficit     (28,812,321 )     (20,067,685 )
Treasury stock at cost     (190,483 )     -  
Accumulated other comprehensive income     949,424       796,004  
Cemtrex stockholders’ equity     32,509,875       21,080,230  
Non-controlling interest     1,004,497       885,874  
Total liabilities and stockholders’ equity   $ 62,826,021     $ 44,392,697  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

3

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)

(Unaudited)

 

    For the three months ended     For the nine months ended  
    June 30, 2020     June 30, 2019     June 30, 2020     June 30, 2019  
                         
Revenues   $ 8,440,867     $ 10,928,933     $ 32,774,797     $ 28,371,927  
Cost of revenues     5,161,015       6,870,920       18,800,355       17,319,532  
Gross profit     3,279,852       4,058,013       13,974,442       11,052,395  
                                 
Operating expenses                                
General and administrative     5,606,659       4,057,081       16,187,890       14,365,707  
Research and development     331,936       285,853       1,113,455       1,136,981  
Total operating expenses     5,938,595       4,342,934       17,301,345       15,502,688  
Operating loss     (2,658,743 )     (284,921 )     (3,326,903 )     (4,450,293 )
                                 
Other income (expense)                                
Other Income     158,134       150,561       830,251       145,991  
Loss on equity interests     -       -       -       (342,776 )
Interest expense     (1,982,101 )     (2,313,415 )     (3,812,921 )     (2,945,427 )
Total other expense, net     (1,823,967 )     (2,162,854 )     (2,982,670 )     (3,142,212 )
                                 
Net loss before income taxes     (4,482,710 )     (2,447,775 )     (6,309,573 )     (7,592,505 )
Income tax benefit/(expense)     (7,658 )     780,742       (197,201 )     1,954,251  
Loss from continuing operations     (4,490,368 )     (1,667,033 )     (6,506,774 )     (5,638,254 )
                                 
Loss from discontinued operations, net of tax     -       (221,923 )     -       (767,026 )
                                 
Net loss     (4,490,368 )     (1,888,956 )     (6,506,774 )     (6,405,280 )
                                 
Less noncontrolling interest     (35,751 )     36,662       151,312       (319,493 )
Net loss   $ (4,454,617 )   $ (1,925,618 )   $ (6,658,086 )   $ (6,085,787 )
Preferred dividends     -       1,007,720       2,086,550       1,965,500  
Net loss available to Cemtrex, Inc. shareholders   $ (4,454,617 )   $ (2,933,338 )   $ (8,744,636 )   $ (8,051,287 )
                                 
Other comprehensive loss                                
Foreign currency translation gain/(loss)     310,797       (169,928 )     153,420       (1,198,688 )
Other comprehensive income attribitable to noncontrolling interest     (5,515 )     -       (32,689 )     -  
Comprehensive loss     305,282       (169,928 )     120,731       (1,198,688 )
                                 
Comprehensive loss   $ (4,149,335 )   $ (3,103,266 )   $ (8,623,905 )   $ (9,249,975 )
                                 
Loss Per Share-Basic                                
Continuing Operations   $ (0.41 )   $ (1.47 )   $ (1.22 )   $ (3.49 )
Discontinued Operations   $ -     $ (0.12 )   $ -     $ (0.37 )
Loss Per Share-Diluted                                
Continuing Operations   $ (0.41 )   $ (1.47 )   $ (1.22 )   $ (3.49 )
Discontinued Operations   $ -     $ (0.12 )   $ -     $ (0.37 )
                                 
Weighted Average Number of Shares-Basic     10,933,926       1,844,895       7,161,785       2,087,195  
Weighted Average Number of Shares-Diluted     10,933,926       1,844,895       7,161,785       2,087,195  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

4

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

   

Preferred Stock Series 1

Par Value $0.001

   

Preferred Stock Series A

Par Value $0.001

   

Preferred Stock Series C

Par Value $0.001

   

Common Stock

Par Value $0.01

        Retained         Accumulated          
    Number of          

Number

of

          Number of          

Number

of

          Additional Paid-in     Earnings (Accumulated     Treasury Stock,     other Comprehensive     Cemtrex Stockholders’     Non- controlling  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit)     At cost     Income(loss)     Equity     interest  
Balance at September 30, 2019     2,110,718     $ 2,111       1,000,000     $ 1,000       -     $ -       3,962,790     $ 3,963     $ 40,344,837     $ (20,067,685 )   $ -     $ 796,004     $ 21,080,230     $ 885,874  
Comprehensive income                                                                                             564,597       564,597          
Share-based compensation                                     100,000       100                       119,004                               119,104          
Shares issued to pay accounts payable                                                     18,358       18       27,520                               27,538          
Shares sold in Securities Purchase Agreements, net of offering costs                                                     338,393       338       359,712                               360,050          
Stock issued to pay notes payable                                                     105,042       105       130,147                               130,252          
Dividends paid in Series 1 preferred shares     105,965       106                                                       1,059,544       (1,059,650 )                     -          
Noncontrolling interest                                                                                             18,429       18,429       176,482  
Net loss                                                                             (334,165 )                     (334,165 )        
Balance at December 31, 2019     2,216,683     $ 2,217       1,000,000     $ 1,000       100,000     $ 100       4,424,583     $ 4,424     $ 42,040,764     $ (21,461,500 )   $ -     $ 1,379,030     $ 21,966,035     $ 1,062,356  
Comprehensive income                                                                                             (749,148 )     (749,148 )        
Share-based compensation                                                                     24,104                               24,104          
Shares sold in Securities Purchase Agreements, net of offering costs                                                     847,000       847       1,160,253                               1,161,100          
Stock issued to pay notes payable                                                     2,518,045       2,519       3,499,747                               3,502,266          
Accrued dividends                                                                             (1,026,900 )                     (1,026,900 )        
Shares issued for services                                                     150,000       150       170,850                               171,000          
Purchase of treasury stock                                                                                     (190,483 )             (190,483 )        
Noncontrolling interest                                                                                             8,745       8,745       (16,593 )
Net loss                                                                             (1,869,304 )                     (1,869,304 )        
Balance at March 31, 2020     2,216,683     $ 2,217       1,000,000     $ 1,000       100,000     $ 100       7,939,628     $ 7,940     $ 46,895,718     $ (24,357,704 )   $ (190,483 )   $ 638,627     $ 22,997,415     $ 1,045,763  
Comprehensive income                                                                                             305,282       305,282          
Share-based compensation                                                                     24,104                               24,104          
Shares sold in Securities Purchase Agreements, net of offering costs                                                     5,458,479       5,459       10,095,311                               10,100,770          
Stock issued to pay notes payable                                                     2,595,608       2,595       3,298,811                               3,301,406          
Shares issued for services                                                     270,000       270       229,730                               230,000          
Noncontrolling interest                                                                                             5,515       5,515       (41,266 )
Net loss                                                                             (4,454,617 )                     (4,454,617 )        
Balance at June 30, 2020     2,216,683     $ 2,217       1,000,000     $ 1,000       100,000     $ 100       16,263,715     $ 16,264     $ 60,543,674     $ (28,812,321 )   $ (190,483 )   $ 949,424     $ 32,509,875     $ 1,004,497  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Continued)

(Unaudited)

 

   

Preferred Stock
Series 1

Par Value $0.001

   

Preferred Stock
Series A

Par Value $0.001

   

Common Stock

Value $0.01

    Additional     Retained Earnings     Accumulated other     Total     Non-controlling  
    Number of           Number of           Number of           Paid-in     (Accumulated     Comprehensive     Stockholders’     interest of  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit)     Income(loss)     Equity     Vicon  
Balance at September 30, 2018     1,914,168     $ 1,914       1,000,000     $ 1,000       1,621,719     $ 1,622     $ 31,496,671     $ 4,262,756     $ (483,297 )   $ 35,280,666     $ -  
Foreign currency translations                                                     -               (857,552 )     (857,552 )        
Share-based compensation                                                     36,108                       36,108          
Stock issued in Subscription Rights Offering                                     25,126       25       138,669                       138,694          
Stock issued to pay notes payable                                     26,342       26       224,974                       225,000          
Dividends paid in Series 1 preferred shares     95,778       96                                       957,684       (957,780 )             -          
Net loss                                                     -       (2,176,298 )             (2,176,298 )        
Balance at December 31, 2018     2,009,946     $ 2,010       1,000,000     $ 1,000       1,673,187     $ 1,673     $ 32,854,106     $ 1,128,678     $ (1,340,849 )   $ 32,646,618     $ -  
Foreign currency translations                                                     -               (171,208 )     (171,208 )        
Share-based compensation                                                     36,108                       36,108          
Stock issued to pay notes payable                                     117,774       118       713,772                       713,890          
Shares issued in trust for ATM Offering                                     27,953       27       (27 )                     -          
Shares sold in ATM Offering                                     34,547       35       203,644                       203,679          
Shares sold in Securities Purchase Agreement                                     2,500       3       129,508                       129,511          
Net loss                                                             (1,983,867 )             (1,983,867 )        
Non-controlling interest of Vicon                                                             -               -       781,871  
Balance at March 31, 2019     2,009,946     $ 2,010       1,000,000     $ 1,000       1,855,961     $ 1,856     $ 33,937,111     $ (855,189 )   $ (1,512,057 )   $ 31,574,731     $ 781,871  
Foreign currency translations                                                                     (169,928 )     (169,928 )        
Stock issued to pay notes payable                                     559,378       559       1,715,015                       1,715,574          
Share-based compensation                                                     36,108                       36,108          
Series B Conversion                                     175,562       176       356,270                       356,446          
Reverse split rounding shares                                     3,338       3                               3          
Discount on Series B (deemed dividend)                                                     (154,511 )                     (154,511 )        
Dividends paid in Series 1 preferred shares     100,772       101                                       1,007,618       (1,007,719 )             -          
QTR Results                                                             (1,925,618             (1,925,618        
Non-controlling interest of Vicon                                                                             -       (323,337 )
Balance at June 30, 2019     2,110,718     $ 2,111       1,000,000     $ 1,000       2,594,239     $ 2,594     $ 36,897,611       (3,788,526 )   $ (1,681,985 )     31,432,805     $ 458,534  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    For the nine months ended  
    June 30,  
    2020     2019  
Cash Flows from Operating Activities                
Net loss   $ (6,506,774 )   $ (6,405,280 )
Net loss from discontinued operations     -       (767,026 )
Net loss from continuing operations     (6,506,774 )     (5,638,254 )
                 
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:                
Depreciation and amortization     2,158,938       3,208,933  
Gain/(loss) on disposal of property & equipment     457       465,029  
Amortization of right-of-use assets     352,691       -  
Change in allowance for inventory obsolescence     726,824       25,469  
Change in allowance for doubtful accounts     126       236,113  
Share-based compensation     167,312       108,324  
Interest expense paid in equity shares     2,505,924       1,253,516  
Changes in operating assets and liabilities net of effects from acquisition of subsidiaries:                
Accounts receivable     1,654,383       1,283,756  
Accounts receivable - related party     5,510       (50,904 )
Inventory     (2,111,277 )     (175,159 )
Prepaid expenses and other curent asstets     242,698       (719,271 )
Other assets     (1,017,337 )     (1,135,190 )
Other liabilities     (117,667 )     354,332  
Accounts payable     (1,205,851 )     19,660  
Accounts payable - related party     -       155,600  
Deposits from customers     2,003       9,390  
Accrued expenses     938,132       2,367,665  
Deferred revenue     (99,354 )     109,493  
Income taxes payable     75,724       (153,734 )
Net cash provided by operating activities - continuing operations     (2,227,538 )     1,724,768  
Net cash provided by operating activities - discontinued operations     -       1,636,714  
Net cash provided/(used) by operating activities     (2,227,538 )     3,361,482  
                 
Cash Flows from Investing Activities                
Net change in self-insured benefit deposits     (246,154 )     (468,870 )
Purchase of property and equipment     (4,541,537 )     (1,525,998 )
Purchase of marketable securities     (1,366,009 )     -  
Investment in related party     (500,000 )     -  
Net cash used by investing activities - continuing operations     (6,653,700 )     (1,994,868 )
Net cash used by investing activities - discontinued operations     -       (119,482 )
Net cash used by investing activities     (6,653,700 )     (2,114,350 )
                 
Cash Flows from Financing Activities                
Proceeds from notes payable     4,485,000       1,100,000  
Payments on notes payable     (726,640 )     (264,560 )
Proceeds on bank loans     5,947,101       -  
Payments on bank loans     (224,196 )     (1,453,506 )
Proceeds from securities purchase agreements     12,462,648       -  
Expenses on securities purchase agreements     (840,728 )     -  
Proceeds from at-the-market offerings     -       490,237  
Expenses on at-the-market offerings     -       (18,323 )
Proceeds from the issuance of Series B Preferred Stock     -       500,000  
Expenses from the issuance of Series B Preferred Stock     -       (25,000 )
Settlement of Series B Preferred Stock in cash             (273,092 )
Revolving line of credit     (425,812 )     122,918  
Purchases of treasury stock     (190,483 )     -  
Payments on lease liabilities     (310,730 )     (18,812 )
Net cash provided by financing activities - continuing operations     20,176,160       159,862  
Net cash used by financing activities - discontinued operations     -       (78,123 )
Net cash provided by financing activities     20,176,160       81,739  
                 
Effect of currency translation     120,731       (1,198,688 )
Net increase in cash, cash equivalents, and restricted cash     11,294,922       1,328,871  
Cash, cash equivalents, and restricted cash at beginning of period     2,858,085       2,315,935  
Cash, cash equivalents, and restricted cash at end of period   $ 14,273,738     $ 2,446,118  
                 
Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash                
Cash and equivalents   $ 12,939,493     $ 1,572,825  
Restricted cash     1,334,245       873,293  
Total cash, cash equivalents, and restricted cash   $ 14,273,738     $ 2,446,118  
                 
Supplemental Disclosure of Cash Flow Information:                
Cash paid during the period for interest   $ 342,268     $ 715,722  
                 
Cash paid during the period for income taxes   $ 75,724     $ 162,871  
                 
Supplemental Schedule of Non-Cash Investing and Financing Activities                
Stock issued to pay for products and/or services   $ 428,538     $ -  
Stock issued to pay notes payable   $ 6,933,924     $ 1,790,469  
Dividends paid in equity shares   $ 1,059,650     $ 1,965,500  
Amortization of original issue discounts on notes payable   $ 757,278     $ 11,889  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

7

 

 

Cemtrex Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS

 

Cemtrex was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal 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.

 

8

 

 

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.

 

9

 

 

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.

 

10

 

 

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  

 

11

 

 

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