NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND PLAN OF OPERATIONS
Cemtrex
was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry
company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”,
“registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
During
the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure consisting
of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.
Security
Cemtrex’s
Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which, provides
end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products
include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems
for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools,
and federal and state government offices. Vicon provides innovative, mission critical security and video surveillance solutions utilizing
Artificial Intelligence (AI) based data algorithms.
Industrial
Services
Cemtrex’s
Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise
and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers.
AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation,
packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for machinery,
packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization
and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds,
maintenance, specialty welding services, and high-quality scaffolding.
Cemtrex
Corporate
Cemtrex’s
Corporate segment is the holding company of our other two segments.
Sale
of former Cemtrex Brands
On
November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”)
with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include
the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech
(formerly Cemtrex Labs), to Mr. Govil.
On
November 22, 2022, the Company completed the above disposition for the following consideration.
|
■ |
$75,000
in cash payable at Closing; and |
|
■ |
5%
royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next three years; and should
the total sum of royalties due be less than $820,000 at the end of the three-year period, Purchaser shall be obligated to pay the
difference between $820,000 and the royalties paid. |
|
● |
Cemtrex
Advanced Technologies, Inc. |
|
○ |
$10,000
in cash payable at Closing; and |
|
○ |
5%
royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next 5 years; and |
|
○ |
$1,600,000
in SAFE (common equity) at any subsequent fundraising or exit above $5M with a $10M cap. |
The
Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions
and agreements.
Common
Stock Reverse Stock Split
On
January 25, 2023, the company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively
adjusted for this reverse split.
Extension
of cure period and Subsequent Compliance
Series
1 Preferred Stock
On
July 29, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”)
notifying the Company that, because the closing bid price for the Company’s Series 1 preferred stock listed on Nasdaq was below
$1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq
Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price
Requirement”).
On
January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company
that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement
based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements
for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of
its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
The
Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and July 24, 2023 and will
consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.
Common
Stock
On
January 24, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company
that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading
days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace
Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).
On
July 26, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC Nasdaq
notifying the Company that, it had been granted an additional 180 days or until January 23, 2023, to regain compliance with the Minimum
Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all
other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s
written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On
January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company
that it has not regained compliance with Listing Rule 5550(a)(2) and accordingly would be delisted from the Capital Market. The Company
then requested and had been granted a hearing to occur on March 16, 2023, appealing this determination to a Hearings Panel (the “Panel”),
pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.
On
February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company
that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s
common stock will continue to be listed and traded on The Nasdaq Stock Market.
Going
Concern Considerations
The
accompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going
concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation
assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to
realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the
ASC 205, management must evaluate whether there are conditions or events, considered in the aggregate, which raise substantial doubt
about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.
This
evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented
or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this
methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s
ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it
is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and
(2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The
Company has incurred substantial losses of $13,020,958 and $7,807,995 for fiscal years 2022 and 2021, respectively, and has losses on
continuing operations for the first half of fiscal year 2023 of $6,872,005 and has debt obligations over the next year of $16,441,488
and working capital of $108,939, that raise substantial doubt with respect to the Company’s ability to continue as a going concern.
While
our working capital and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going concern,
the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through the issuance
of common stock, thus reducing our cash requirement to meet our operating needs. Additionally, the Company has sold unprofitable brands,
reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products,
and has effected a 35:1 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability
to potentially raise capital through equity offerings that we may use to satisfy debt. In the event additional capital is raised through
equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on our existing stockholders. While the Company
believes these plans are sufficient to meet the capital demands of our current operations for at least the next twelve months, the is
no guarantee that we will succeed. Overall, there is no guarantee that cash flow from our existing or future operations and any external
capital that we may be able to raise will be sufficient to meet our working capital needs. The Company currently does not have adequate
cash to meet our short or long-term needs. The condensed consolidated financial statements do not include any adjustments relating to
this uncertainty.
NOTE
2 – INTERIM STATEMENT PRESENTATION
Basis
of Presentation and Use of Estimates
The
accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2022, 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 Technologies
Pvt. Ltd., Advanced Industrial Services, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary,
Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation.
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, 2022,
includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (“Update 2016-13”). Update 2016-13 replaced the incurred loss model with an expected
loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the
measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. For public
business entities, the new standard became effective for annual reporting periods beginning after December 15, 2022, including interim
periods within that reporting period. The Company is currently evaluating the impact of this ASU
on our financial statements.
In
October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08,
“Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU
No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to
recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are
acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed
in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair
value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the
same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for
fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this
ASU on our financial statements.
On
June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 820 on the fair value measurement
of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity
security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should
be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations
of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some
entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount
to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial
information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning
after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements.
The
Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying condensed consolidated financial statements.
NOTE
3 – DISCONTINUED OPERATIONS
On
November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”)
with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include
the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech
(formerly Cemtrex Labs), to Mr. Govil
Due
to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated
with the SmartDesk sale at $0 and considers such consideration to be a gain contingency.
Based
on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $820,000
royalties due and has not accounted for any additional royalties at this time. In accordance with ASC 310 – Receivables, the
Company has discounted the royalties due and during the six-month ended March 31, 2023, has recognized $678,330 of royalties due and
will amortize the remaining amount over the period the royalties are due.
The
following table summarizes the loss on the sale recorded during the three months ended December 31, 2022, included in Income/(loss) from
discontinued operations, net of tax in the accompanying condensed consolidated statement of Operations:
SUMMARY OF LOSS ON SALE
| |
| | |
Purchase Price | |
$ | 745,621 | |
Less cash and cash equivalents transferred | |
| (699,423 | ) |
Less Liabilities assumed | |
| (10,924 | ) |
Net purchase price | |
$ | 35,274 | |
| |
| | |
Assets Sold | |
| | |
Accounts receivable, net | |
$ | 625,638 | |
Inventory, net | |
| 980,730 | |
Prepaid expenses and other assets | |
| 502,577 | |
Property and equipment, net | |
| 837,808 | |
Goodwill | |
| 598,392 | |
Total Assets Sold | |
| 3,545,145 | |
Liabilities Transferred | |
| | |
Accounts payable | |
| 370,774 | |
Short-term liabilities | |
| 364,775 | |
Long-term liabilities | |
| 318,981 | |
Total Liabilities Transferred | |
| 1,054,530 | |
Net assets sold | |
$ | 2,490,615 | |
| |
| | |
Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies | |
$ | (2,455,341 | ) |
Assets
and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at March 31, 2023
and September 30, 2022 are as follows;
SCHEDULE OF ASSETS AND LIABILITIES INCLUDED WITHIN DISCONTINUED OPERATIONS
| |
March 31, | | |
September 30, | |
| |
2023 | | |
2022 | |
Assets | |
| | |
| |
Current assets | |
| | | |
| | |
Cash and equivalents | |
$ | - | | |
$ | 714,420 | |
Trade receivables, net | |
| - | | |
| 561,470 | |
Inventory –net of allowance for inventory obsolescence | |
| - | | |
| 1,043,865 | |
Prepaid expenses and other assets | |
| - | | |
| 153,461 | |
Total current assets | |
| - | | |
| 2,473,216 | |
| |
| | | |
| | |
Property and equipment, net | |
| - | | |
| 825,850 | |
Other | |
| - | | |
| 672,627 | |
Total Assets | |
$ | - | | |
$ | 3,971,693 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | - | | |
$ | 205,622 | |
Short-term liabilities | |
| - | | |
| 464,429 | |
Deposits from customers | |
| - | | |
| 125,032 | |
Accrued expenses | |
| - | | |
| 10,136 | |
Total current liabilities | |
| - | | |
| 805,219 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
Deferred revenue | |
| | | |
| 6,273 | |
Total long-term liabilities | |
| - | | |
| 6,273 | |
Total liabilities | |
$ | - | | |
$ | 811,492 | |
During
the first quarter of fiscal 2023, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in Israel.
The Company received funds related to benefit obligations of $96,095, which at the time of operational closure were not guaranteed to
be retrievable. The company paid $7,010 in consulting fees for assistance in retrieving these funds. The net amount of $89,085 is recognized
on the Company’s Condensed Consolidated Income Statement as part of the Loss on Discontinued Operations.
Gain/(loss)
from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies,
Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations,
net of tax in the Company’s Condensed Consolidated Statements of Operations for the three and six month periods ended March 31,
2023 and 2022, are as follows:
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three months ended
March 31, | | |
Six months ended
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Total net sales | |
$ | - | | |
$ | 982,198 | | |
$ | 649,061 | | |
$ | 2,241,292 | |
Cost of sales | |
| - | | |
| 699,368 | | |
| 228,086 | | |
| 1,311,518 | |
Operating, selling, general and administrative expenses | |
| 492 | | |
| 1,207,945 | | |
| 1,296,064 | | |
| 2,610,813 | |
Other (income)/expenses | |
| - | | |
| (239,975 | ) | |
| 3,195 | | |
| (236,941 | ) |
Income (loss) from discontinued operations | |
| (492 | ) | |
| (685,140 | ) | |
| (878,284 | ) | |
| (1,444,098 | ) |
Amortization of discounted royalties | |
| 14,724 | | |
| - | | |
| 19,151 | | |
| - | |
Loss on sale of discontinued operations | |
| - | | |
| - | | |
| (2,455,341 | ) | |
| - | |
Adjustment of benefit obligation | |
| - | | |
| - | | |
| 89,085 | | |
| - | |
Income tax provision | |
| - | | |
| - | | |
| - | | |
| - | |
Discontinued operations, net of tax | |
$ | 14,232 | | |
$ | (685,140 | ) | |
$ | (3,225,389 | ) | |
$ | (1,444,098 | ) |
NOTE
4 – 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 and six
months ended March 31, 2023, and 2022, the following items were excluded from the computation of diluted net loss per common share as
their effect is anti-dilutive:
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER COMMON SHARE AS ANTI-DILUTIVE EFFECT
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For the three months ended | | |
For the six months ended | |
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Options | |
| 28,796 | | |
| 22,858 | | |
| 28,796 | | |
| 22,858 | |
NOTE
5 – SEGMENT INFORMATION
During
the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure. The Company
reports and evaluates financial information for three current segments: the Security segment, Industrial Services segment and the Corporate
segment.
The
following tables summarize the Company’s segment information:
SCHEDULE OF SEGMENT INFORMATION
| |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | | |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | |
| |
Three months ended March 31, 2023 | | |
Six
months ended March 31, 2023 | |
| |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | | |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | |
Revenues | |
$ | 9,913,898 | | |
$ | 6,159,499 | | |
$ | - | | |
$ | 16,073,397 | | |
$ | 16,918,642 | | |
$ | 11,124,997 | | |
$ | - | | |
$ | 28,043,639 | |
Cost of revenues | |
| 4,791,608 | | |
| 3,943,308 | | |
| - | | |
| 8,734,916 | | |
| 8,392,662 | | |
| 7,269,881 | | |
| - | | |
| 15,662,543 | |
Gross profit | |
$ | 5,122,290 | | |
$ | 2,216,191 | | |
$ | - | | |
$ | 7,338,481 | | |
$ | 8,525,980 | | |
$ | 3,855,116 | | |
$ | - | | |
$ | 12,381,096 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sales, general, and administrative | |
| 2,965,659 | | |
| 1,336,313 | | |
| 807,242 | | |
| 5,109,214 | | |
| 5,715,088 | | |
| 2,525,178 | | |
| 1,793,951 | | |
| 10,034,217 | |
Depreciation and amortization | |
| 31,543 | | |
| 157,385 | | |
| 20,125 | | |
| 209,053 | | |
| 71,203 | | |
| 324,906 | | |
| 52,279 | | |
| 448,388 | |
Research and development | |
| 1,615,341 | | |
| - | | |
| - | | |
| 1,615,341 | | |
| 3,445,054 | | |
| - | | |
| - | | |
| 3,445,054 | |
Operating income/(loss) | |
$ | 509,747 | | |
$ | 722,493 | | |
$ | (827,367 | ) | |
$ | 404,873 | | |
$ | (705,365 | ) | |
$ | 1,005,032 | | |
$ | (1,846,230 | ) | |
$ | (1,546,563 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other income/(expense) | |
$ | 337,191 | | |
$ | (29,866 | ) | |
$ | (1,265,959 | ) | |
$ | (958,634 | ) | |
$ | 224,792 | | |
$ | (61,426 | ) | |
$ | (2,267,317 | ) | |
$ | (2,103,951 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Three months ended March 31, 2022 | | |
Six
months ended March 31, 2022 | |
| |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | | |
Security | | |
Industrial Services | | |
Corporate | | |
Consolidated | |
Revenues | |
$ | 6,740,109 | | |
$ | 5,005,908 | | |
$ | - | | |
$ | 11,746,017 | | |
$ | 11,099,532 | | |
| 10,059,880 | | |
$ | - | | |
$ | 21,159,412 | |
Cost of revenues | |
| 4,436,346 | | |
| 3,539,890 | | |
| - | | |
| 7,976,236 | | |
| 7,003,704 | | |
| 7,163,677 | | |
| - | | |
| 14,167,381 | |
Gross profit | |
$ | 2,303,763 | | |
$ | 1,466,018 | | |
$ | - | | |
$ | 3,769,781 | | |
$ | 4,095,828 | | |
$ | 2,896,203 | | |
$ | - | | |
$ | 6,992,031 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sales, general, and administrative | |
| 2,438,851 | | |
| 1,213,788 | | |
| 1,123,329 | | |
| 4,775,968 | | |
| 5,298,815 | | |
| 2,624,649 | | |
| 2,052,752 | | |
| 9,976,216 | |
Depreciation and amortization | |
| 366,929 | | |
| 176,490 | | |
| 36,702 | | |
| 580,121 | | |
| 398,707 | | |
| 355,713 | | |
| 73,404 | | |
| 827,824 | |
Research and development | |
| 1,306,862 | | |
| - | | |
| 1,052 | | |
| 1,307,914 | | |
| 2,379,760 | | |
| - | | |
| 1,052 | | |
| 2,380,812 | |
Operating (loss)/income | |
$ | (1,808,879 | ) | |
$ | 75,740 | | |
$ | (1,161,083 | ) | |
$ | (2,894,222 | ) | |
$ | (3,981,454 | ) | |
$ | (84,159 | ) | |
$ | (2,127,208 | ) | |
$ | (6,192,821 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other income/(expense) | |
$ | (37,015 | ) | |
$ | (25,741 | ) | |
$ | (1,159,805 | ) | |
$ | (1,222,561 | ) | |
$ | 824,685 | | |
$ | (76,789 | ) | |
$ | (2,442,723 | ) | |
$ | (1,694,827 | ) |
| |
2023 | | |
2022 | |
| |
March 31, | | |
September 30, | |
| |
2023 | | |
2022 | |
Identifiable Assets | |
| | | |
| | |
Security | |
$ | 17,951,806 | | |
$ | 15,257,235 | |
Industrial Services | |
| 17,667,808 | | |
| 16,658,984 | |
Corporate | |
| 4,784,566 | | |
| 9,869,716 | |
Discontinued operations | |
| - | | |
| 3,971,693 | |
Total Assets | |
$ | 40,404,180 | | |
$ | 45,757,628 | |
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 $645,297 at March 31, 2023 and $1,577,915
at September 30, 2022.
NOTE
7 – FAIR VALUE MEASUREMENTS
Fair
value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The
three levels of the fair value hierarchy under the guidance for fair value measurements are described below:
Level
1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date. Our Level 1 assets include cash equivalents, banker’s acceptances, trading securities
investments and investment funds. The Company measures trading securities investments and investment funds at quoted market prices as
they are traded in an active market with sufficient volume and frequency of transactions.
Level
2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. If the asset or liability has a specified contractual term, a Level 2 input must be observable for substantially
the full term of the asset or liability.
Level
3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the
asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments. Quantitative information
for Level 3 assets and liabilities reviewed at each reporting period includes indicators of significant deterioration in the earnings
performance, credit rating, asset quality, business prospects of the investee, and financial indicators of the investee’s ability
to continue as a going concern.
The
Company’s fair value assets at March 31, 2023 and September 30, 2022, are as follows.
SCHEDULE OF FAIR VALUE OF ASSETS
| |
Quoted Prices | | |
Significant | | |
| | |
| |
| |
in Active | | |
Other | | |
Significant | | |
Balance | |
| |
Markets for | | |
Observable | | |
Unobservable | | |
as of | |
| |
Identical Assets | | |
Inputs | | |
Inputs | | |
March 31, | |
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
2023 | |
Assets | |
| | | |
| | | |
| | | |
| | |
Investment in marketable securities | |
| | | |
| | | |
| | | |
| | |
(included in short-term investments) | |
$ | 13,663 | | |
$ | - | | |
$ | - | | |
$ | 13,663 | |
| |
| | | |
| | | |
| | | |
| | |
Fair value assets | |
$ | 13,663 | | |
$ | - | | |
$ | - | | |
$ | 13,663 | |
| |
Quoted Prices | | |
Significant | | |
| | |
| |
| |
in Active | | |
Other | | |
Significant | | |
Balance | |
| |
Markets for | | |
Observable | | |
Unobservable | | |
as of | |
| |
Identical Assets | | |
Inputs | | |
Inputs | | |
September 30, | |
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
2022 | |
Assets | |
| | | |
| | | |
| | | |
| | |
Investment in marketable securities | |
| | | |
| | | |
| | | |
| | |
(included in short-term investments) | |
$ | 13,721 | | |
$ | - | | |
$ | - | | |
$ | 13,721 | |
| |
| | | |
| | | |
| | | |
| | |
Fair value assets | |
$ | 13,721 | | |
$ | - | | |
$ | - | | |
$ | 13,721 | |
NOTE
8 – TRADE RECEIVABLES, NET
Trade
receivables, net consist of the following:
SCHEDULE
OF TRADE RECEIVABLES, NET
| |
March 31, | | |
September 30, | |
| |
2023 | | |
2022 | |
Trade receivables | |
$ | 7,519,384 | | |
$ | 5,648,655 | |
Allowance for doubtful accounts | |
| (247,896 | ) | |
| (249,439 | ) |
Accounts receivables, net, total | |
$ | 7,271,488 | | |
$ | 5,399,216 | |
Trade
receivables include amounts due for shipped products and services rendered.
Allowance
for doubtful accounts includes estimated losses resulting from the inability of our customers to make the required payments.
NOTE
9 – INVENTORY, NET
Inventory,
net, consist of the following:
SCHEDULE OF INVENTORY, NET
| |
March 31, | | |
September 30, | |
| |
2023 | | |
2022 | |
Raw materials | |
$ | 1,560,503 | | |
$ | 1,375,933 | |
Work in progress | |
| 216,724 | | |
| 120,026 | |
Finished goods | |
| 7,809,788 | | |
| 8,080,235 | |
Inventory, gross | |
| 9,587,015 | | |
| 9,576,194 | |
Less: Allowance for inventory obsolescence | |
| (1,025,989 | ) | |
| (1,088,377 | ) |
Inventory –net of allowance for inventory obsolescence | |
$ | 8,561,026 | | |
$ | 8,487,817 | |
NOTE
10 – PREPAID AND OTHER CURRENT ASSETS
On
March 31, 2023, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $665,525, costs
and estimated earnings in excess of billings on uncompleted contracts of $794,416, and other current assets of $1,128,459. On September
30, 2022, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $414,997, costs and estimated
earnings in excess of billings on uncompleted contracts of $781,819, accrued income taxes refunds on foreign operations of $37,761, and
prepaid expenses and other current assets of $1,187,067.
NOTE
11 – PROPERTY AND EQUIPMENT
Property
and equipment are summarized as follows:
SUMMARY OF PROPERTY AND EQUIPMENT
| |
March 31, | | |
September 30, | |
| |
2023 | | |
2022 | |
Land | |
$ | 790,373 | | |
$ | 790,373 | |
Building and leasehold improvements | |
| 2,914,854 | | |
| 2,906,953 | |
Furniture and office equipment | |
| 561,183 | | |
| 546,548 | |
Computers and software | |
| 208,135 | | |
| 365,892 | |
Machinery and equipment | |
| 10,747,542 | | |
| 11,242,709 | |
Property and equipment, gross | |
| 15,222,087 | | |
| 15,852,475 | |
Less: Accumulated depreciation | |
| (10,169,291 | ) | |
| (10,572,033 | ) |
Property and equipment, net | |
$ | 5,052,796 | | |
$ | 5,280,442 | |
Depreciation
expense for the three months ended March 31, 2023, and 2022 were $209,053
and $347,494,
respectively. Depreciation expense for the six months ended March 31, 2023, were $448,388,
and $610,327,
respectively.
NOTE
12 – OTHER ASSETS
As
of March 31, 2023, the Company had other assets of $1,584,910 which was comprised of rent security of $199,088, a strategic investment
in MasterpieceVR of $1,000,000 (see below), and other assets of $385,822. As of September 30, 2022, the Company had other assets of $1,399,745
which was comprised of rent security deposits of $204,388, Investment in Masterpiece VR valued at $1,000,000, and other assets of $195,357.
On
November 13, 2020, Cemtrex made a $500,000 investment and on January 19, 2022, made an additional $500,000 investment via a simple agreement
for future equity (“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the
entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that
is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance
sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the three and six months
ended March 31, 2023.
NOTE
13 – RELATED PARTY TRANSACTIONS
On
August 31, 2019, the Company entered into an Asset Purchase Agreement for the sale of Griffin Filters, LLC to Ducon Technologies, Inc.,
which Aron Govil, the Company’s Founder and former CFO, for total consideration of $550,000. On July 31, 2022, the Company negotiated
a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. totaling $761,585. This agreement
is in the form of a secured promissory note earning interest at a rate of 5% per annum and matures on July 31, 2024.
As
of March 31, 2023, and September 30, 2022, there was $3,368 and $19,133 payable due to Ducon Technologies, Pvt Ltd., respectively.
Receivables
of $708,512 that represented the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India
were written off to bad debt in fiscal year 2022.
On
February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding transactions Cemtrex’s
Board of Directors determined were incorrectly handled and accounted for. Mr. Govil executed a secured promissory note (the “Note”)
in the amount of $1,533,280. The Note matured and was due in full on February 26, 2023, and bore interest at 9% per annum and was secured
by all of Mr. Govil’s assets. On April 27, 2023, the Company and Mr. Govil signed an amendment to the note, extending the maturity
date one year to February 28, 2024. Mr. Govil also signed an affidavit confessing judgment in the event of a default on the Note. While
the Company believes the note to be fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the
gain was not to be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s
Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
On
November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”)
with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, and Cemtrex XR,
Inc., which include the brands SmartDesk, Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs),
to Mr. Govil (see NOTE 1).
As
of March 31, 2023, there was $408,464 in trade receivables due from these companies. Of these receivables $123,812 are related to costs
paid by Cemtrex related to payroll during the transition of employees to the new company. The remaining $284,652 are related to services
provided by Cemtrex Technologies Pvt. Ltd. in the normal course of business.
As
of March 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $678,330.
NOTE
14 – LEASES
The
Company is party to contracts where we lease property from others under contracts classified as operating leases. The Company primarily
leases office and operating facilities, vehicles, and office equipment. The weighted average remaining term of our operating leases was
approximately 3.3 years at March 31, 2023 and 3.0 years at March 31, 2022. Lease liabilities were $2,297,293 with $732,680 classified
as short-term at March 31, 2023, and $2,576,963 with $754,495, classified as short-term at September 30, 2022. The weighted average discount
rate used to measure lease liabilities was approximately 5.66% at March 31, 2023 and March 31, 2022. 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.
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.
A
reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March
31, 2023, is set forth below:
SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO OPERATING LEASE LIABILITIES
Years ending September 30, | |
Operating Leases | |
2023 | |
| 431,540 | |
2024 | |
| 755,686 | |
2025 | |
| 733,327 | |
2026 | |
| 539,279 | |
2027 & Thereafter | |
| 205,358 | |
Undiscounted lease payments | |
| 2,665,190 | |
Amount representing interest | |
| (367,897 | ) |
Discounted lease payments | |
$ | 2,297,293 | |
Lease
costs for the three and six months ended March 31, 2023 and 2022 are set forth below.:
SCHEDULE OF LEASE COSTS
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For the three months ended | | |
For the six months ended | |
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Lease costs: | |
| | | |
| | | |
| | | |
| | |
Finance lease costs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Operating lease costs | |
| 223,213 | | |
| 130,511 | | |
| 484,646 | | |
| 369,363 | |
Total lease cost | |
$ | 223,213 | | |
$ | 130,511 | | |
$ | 484,646 | | |
$ | 369,363 | |
NOTE
15 – LINES OF CREDIT AND LONG-TERM LIABILITIES
On
January 12, 2023, the Company entered into a standstill agreement with Streeterville Capital, LLC. The lender has agreed to refrain and
forbear temporarily from making redemptions under the notes for a period ending on April 12, 2023. In addition, the company has agreed
to an increase of the outstanding balance of the note issued on September 30, 2021 for the original amount of $5,755,000 by $148,000,
and the outstanding balance of the note issued on February 22, 2022 for the original amount of $9,205,000 by $303,422. The aggregate
amount of $451,422 has been recorded as interest expense on the Company’s Consolidated Condensed Statement of Operations and Condensed
Consolidated Statements of Cash Flow.
On
February 15, 2023, the Company and Fulton Bank agreed to an amendment to the Master Agreement Regarding Financial Covenants and Financial
Deliverables dated September 22, 2020.
On
March 3, 2023, the Company and NIL Funding agreed at an amendment to the term loan agreement dated September 18, 2018. This agreement
amends the maturity date to December 31, 2024 and amends the interest rate to 11.5%. Additionally, the Company paid $10,000 in fees and
made an additional principal payment of $100,000 on March 29, 2023 and is required to make another additional principal payment of $100,000
on or before March 29, 2024. The Company has accounted for this amendment as a debt modification.
On
May 3, 2023, the Company and Streeterville Capital, LLC. agreed to an amendment to the note issued on September 30, 2021 for the original
amount of $5,755,000. The agreement extends the maturity date to June 30, 2024, in exchange for a fee of 5% of the outstanding balance
or approximately $252,912 added to the outstanding balance of the note. The Company has accounted for this amendment as a debt modification.
The
following table outlines the Company’s lines of credit and secured liabilities.
SCHEDULE
OF LINES OF CREDIT AND LIABILITIES
| |
| | |
| |
March 31, | | |
September 30, | |
| |
Interest Rate | | |
Maturity | |
2023 | | |
2022 | |
Fulton Bank line of credit $3,500,000 - The terms of this line of credit are subject to the bank’s review annually on February 1. | |
| Secured Overnight Financing Rate (“SOFR”) plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | | |
N/A | |
$ | - | | |
$ | - | |
| |
| | | |
| |
| | | |
| | |
Fulton Bank loan $5,250,000 for the purchase of AIS $5,000,000 of the proceeds went to the direct purchase of AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | |
| SOFR plus 2.37%(7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | | |
12/15/2022 | |
| - | | |
| 247,284 | |
| |
| | | |
| |
| | | |
| | |
Fulton Bank loan $400,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | |
| SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | | |
5/1/2023 | |
| 16,070 | | |
| 63,280 | |
| |
| | | |
| |
| | | |
| | |
Fulton Bank - $360,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | |
| SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022). | | |
5/1/2023 | |
| 146,915 | | |
| 183,839 | |
| |
| | | |
| |
| | | |
| | |
Fulton Bank mortgage $2,476,000. The Company was in compliance with loan covenants as of March 31, 2023. | |
| SOFR plus 2.62% (7.49% as of March 31, 2023 and 5.6% as of September 30, 2022). | | |
1/28/2040 | |
| 2,211,359 | | |
| 2,245,664 | |
| |
| | | |
| |
| | | |
| | |
Note payable - $439,774. For the purchase of VDI. Payable in two installments on October 26, 2021, and October 26, 2022. | |
| 5 | % | |
10/26/2022 | |
| - | | |
| 219,370 | |
| |
| | | |
| |
| | | |
| | |
Note payable - $5,755,000 - Less original issue discount $750,000 and legal fees $5,000, net cash received $5,000,000 Unamortized original issue discount balance of $0 and $250,000, as of March 31, 2023 and September 30, 2022 respectively. | |
| 8 | % | |
6/30/2024 | |
| 5,171,271 | | |
| 4,943,929 | |
| |
| | | |
| |
| | | |
| | |
Note payable - $9,205,000. Less original issue discount $1,200,000 and legal fees $5,000,net cash received $8,000,000. 28,572 shares of common stock valued at $700,400 recognized as additional original issue discount. Unamortized original issue discount balance of $422,311 and $1,064,778 as of March 31, 2023 and September 30, 2022 respectivly. | |
| 8 | % | |
8/23/2023 | |
| 10,601,904 | | |
| 9,738,632 | |
| |
| | | |
| |
| | | |
| | |
Term Loan Agreement with NIL Funding Corporation (“NIL”) - $5,600,000 The Company was in compliance with loan covenants as of March 31, 2023. | |
| 11.50 | % | |
12/31/2024 | |
| 2,479,743 | | |
| 2,804,743 | |
| |
| | | |
| |
| | | |
| | |
Paycheck Protection Program loan - $121,400 - The issuing bank determined that this loan qualifies for loan forgiveness; however the Company is awaiting final approval from the Small Business Administration. | |
| 1 | % | |
5/5/2025 | |
| 111,367 | | |
| 121,400 | |
Total lines of credit and secured liabilities | |
| | | |
| |
$ | 20,738,629 | | |
$ | 20,568,141 | |
Less: Current maturities | |
| | | |
| |
| (16,441,488 | ) | |
| (16,894,743 | ) |
Less: Unamortized original issue discount | |
| | | |
| |
| (422,311 | ) | |
| (1,305,778 | ) |
Lines of credit and secured liabilities, Long Term | |
| | | |
| |
$ | 3,874,830 | | |
$ | 2,367,620 | |
NOTE
16 – SHAREHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of Preferred Stock, $0.001 par value. As of March 31, 2023, and September 30, 2022,
there were 2,233,463 and 2,129,122 shares issued and 2,169,363 and 2,065,022 shares outstanding, respectively.
Series
1 Preferred Stock
During
the six months ended March 31, 2023, 104,341 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred
Stock.
As
of March 31, 2023, and September 30, 2022, there were 2,183,463 and 2,079,122 shares of Series 1 Preferred Stock issued and 2,119,363
and 2,015,022 shares of Series 1 Preferred Stock outstanding, respectively.
Series
C Preferred Stock
As
of March 31, 2023, and September 30, 2022, there were 50,000 shares of Series C Preferred Stock issued and outstanding.
Common
Stock
The
Company is authorized to issue 50,000,000 shares of common stock, $0.001 par value. As of March 31, 2023, there were 828,570 shares issued
and outstanding and at September 30, 2022, there were 754,711 shares issued and outstanding.
On
January 25, 2023, the Company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively
adjusted for this reverse split. On February 2, 2023, 19,314 shares were issued for rounding shares of the reverse stock split.
During
the six months ended March 31, 2023, 39,016 shares of the Company’s common stock have been issued to satisfy $31,331 of notes payable,
$168,669 in accrued interest, and $32,145 of excess value of shares issued recorded as interest expense.
During
the three and six months ended March 31, 2023, 15,529 shares of the Company’s common stock have been issued in exchange for services
valued at $102,500.
NOTE
17 – SHARE-BASED COMPENSATION
For
the six months ended March 31, 2023, and 2022, the Company recognized $66,577 and $72,417 of share-based compensation expense on its
outstanding options, respectively. As of March 31, 2023, $103,557 of unrecognized share-based compensation expense is expected to be
recognized over a period of two years and six months. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During
the six months ended March 31, 2023, options to purchase 2,931 shares of the Company’s common stock at an exercise price of $13.65
per share and options to purchase 2,858 shares of the Company’s common stock at an exercise price of $40.95 per share were cancelled.
NOTE
18 – COMMITMENTS AND CONTINGENCIES
The
Company’s corporate segment leases approximately 100
square feet of office space in Brooklyn, NY on a month-to-month lease at a rent of $600
per month.
The
Company’s Industrial Services 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, 2025.
The
Company’s Security 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 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 2026, and (iv)
approximately 280 square feet of office space in Clovis, CA on a month-to-month lease at a monthly rent of $1,504.
NOTE
19 – SUBSEQUENT EVENTS
On
April 6, 2023, 109,553 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The holders
of the Series 1 Preferred Stock are entitled to receive dividends at the rate of 10% annually, based on the $10.00 per share Preference
Amount, payable semiannually.
On
April 13, 2023, the Company issued an aggregate of 20,226 shares of common stock to settle $150,000 of notes payable and accrued interest,
and $53,069 of excess value of shares issued to be recorded as interest expense.
On
May 4, 2023, the Company issued an aggregate of 36,740 shares of common stock to settle $275,000 of notes payable and accrued interest,
and $87,256 of excess value of shares issued to be recorded as interest expense.