10-Q 1 v401077_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

FORM 10-Q

 

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES ACT OF 1934

 

For the quarterly period ended December 31, 2014

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 000-53238

 

 

CEMTREX, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware 30-0399914

(State or other jurisdiction of incorporation or 

organization)

(I.R.S. Employer Identification No.)

 

19 Engineers Lane 

Farmingdale, New York 11735

(Address, including zip code, of principal executive offices)

 

631-756-9116

  (Issuer’s telephone number)

 

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company   x

 

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 February 9, 2015 the issuer had 40,674,129 shares of common stock issued and outstanding. 

 

 
 

 

Table of Contents

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

  Page
   
PART I.  FINANCIAL INFORMATION  
   
Item 1.     Consolidated Financial Statements  
   
Consolidated Balance Sheets as of December 31, 2014 (Unaudited) and September 30, 2014 3
   
Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months Ended December 31, 2014 and December 31, 2013 (Unaudited) 4
   
Consolidated Statements of Cash Flow the three months Ended December 31, 2014 and December 31, 2013 (Unaudited) 5
   
Notes to Unaudited Consolidated Financial Statements 6
   
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
   
Item 4.     Controls and Procedures 15
   
PART II. OTHER INFORMATION  
   
Item 6.     Exhibits 16
   
SIGNATURES 17

 

2
 

 

Part I. Financial Information 

 

Item 1.   Financial Statements  

Cemtrex, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

   December 31,   September 30, 
  2014   2014 
Assets        
Current assets          
Cash and equivalents  $1,118,590   $146,095 
Short-term investments   312,382    559,815 
Trade receivables, net   3,038,576    4,038,340 
Inventory –net of allowance for inventory obsolescence   6,378,381    6,270,327 
Prepaid expenses and other assets   888,629    531,262 
Total current assets   11,736,558    11,545,839 
           
Property and equipment, net   7,407,959    7,399,096 
Goodwill   845,000    845,000 
Other   38,259    52,428 
Total Assets  $20,027,776   $19,842,363 
           
Liabilities & Stockholders' Equity (Deficit)          
Current liabilities          
Accounts payable  $2,982,949   $2,721,705 
Accrued expenses   573,788    440,436 
Accrued income taxes   60,514    62,032 
Convertible notes payable   358,000    - 
Current portion of long-term liabilities   686,963    689,769 
Total current liabilities   4,662,214    3,913,942 
           
Long-term liabilities          
Loans payable to bank   5,115,568    5,508,199 
Mortgage payable   4,602,555    4,906,922 
Notes payable - related party   1,678,001    1,869,791 
Total liabilities   16,058,338    16,198,854 
           
Commitments and contingencies   -    - 
           
Stockholders' equity (deficit)          
Preferred stock series A, $0.001 par value, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding, respectively   1,000    1,000 
Common stock, $0.001 par value, 60,000,000 shares authorized, 40,649,129 shares issued and outstanding at December 31, 2014 and 40,599,129 shares issued and outstanding at September 30, 2014   40,649    40,599 
Additional paid-in capital   180,680    165,730 
Retained earnings (accumulated deficit)   3,989,611    3,592,739 
Accumulated other comprehensive income (loss)   (242,502)   (156,559)
Total stockholders' equity (deficit)   3,969,438    3,643,509 
Total liabilities and stockholders' equity (deficit)  $20,027,776   $19,842,363 

 

The accompanying notes are an integral part of these financial statements

 

3
 

  

Cemtrex, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income/(Loss)

(Unaudited)

 

   For the three months ended 
   December 31, 
   2014   2013 
         
Revenues  $13,842,789   $8,964,380 
           
Cost of revenues   9,819,732    6,139,642 
           
Gross profit   4,023,057    2,824,738 
           
Operating expenses          
General and administrative   3,621,822    2,367,061 
Total operating expenses   3,621,822    2,367,061 
Operating income (loss)   401,235    457,677 
           
Other income (expense)          
Other Income (expense)   57,549    18,509 
Interest Expense   (140,612)   (54,358)
Total other income (expense)   (83,063)   (35,849)
           
Net income (loss) before income taxes   318,172    421,828 
Provision for income taxes   (78,700)   5,276 
Net income (loss)   396,872    416,552 
           
Other comprehensive income/(loss)          
Foreign currency translation gain/(loss)   (85,943)   - 
Comprehensive income/(loss)  $310,929   $416,552 
           
Income (Loss) Per Share-Basic  $0.01   $0.01 
Income (Loss) Per Share-Diluted  $0.01   $0.01 
           
Weighted Average Number of Shares-Basic   40,630,997    40,599,129 
Weighted Average Number of Shares-Diluted   40,704,044    40,599,129 

 

The accompanying notes are an integral part of these financial statements

 

4
 

 

Cemtrex, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the three months ended 
   December 31, 
   2014   2013 
         
Cash Flows from Operating Activities          
Net income (loss)  $396,872   $416,552 
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   141,174    (664,225)
Share-based compensation   15,000    - 
Changes in operating assets and liabilities:          
Trade receivables   999,764    (2,117,383)
Inventory   (108,054)   (5,134,954)
Prepaid expenses and other assets   (357,367)   (1,243,281)
Others   14,169    - 
Accounts payable   261,244    1,214,702 
Accrued expenses   133,352    199,197 
Income taxes payable   (1,518)   3,445 
Net cash provided by (used by) operating activities   1,494,636    (7,325,947)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (150,037)   - 
Redemtion of short-term investments   247,433    - 
Purchase of investments   -    (4,229,233)
Net cash used in investing activities   97,396    (4,229,233)
           
Cash Flows from Financing Activities          
Proceeds from affiliated Loan   -    7,052,837 
Payments on affiliated loan   (191,790)   - 
Proceeds from bank loans   -    5,068,614 
Payments on bank loans   (785,747)   - 
Proceeds from convertible notes   358,000    - 
Net cash provided by (used by) financing activities   (619,537)   12,121,451 
           
Net increase (decrease) in cash   972,495    566,271 
Cash beginning of period   146,095    66,963 
Cash end of period  $1,118,590   $633,234 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the period for interest  $96,737   $- 
           
Cash paid during the period for income taxes  $1,518   $- 

 

The accompanying notes are an integral part of these financial statements

 

5
 

 

Cemtrex Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS

 

Cemtrex Inc. ("Cemtrex" or the "Company") is a diversified international company offering a range of products, systems, and solutions in a wide variety of industries around the world to meet today’s technological challenges. Cemtrex, through its wholly owned subsidiaries provides electronic manufacturing services of custom engineered printed circuit board assemblies, emission monitors & instruments for industrial processes, and environmental control & air filtration systems for industries & utilities.

 

Cemtrex, through its Electronics Manufacturing Services (EMS) group, provides end to end electronic manufacturing services, which includes product design and sustaining engineering services, printed circuit board assembly and production, cabling and wire harnessing, systems integration, comprehensive testing services and completely assembled electronic products. Cemtrex, through its Environmental Products and Systems group, sells a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide. The Company through its Monitoring Instruments and Products (MIP) group manufactures sells, and services monitoring instruments, software and systems for measurement of emissions of Greenhouse gases, hazardous gases, particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes. The Company also markets monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process applications.

 

Cemtrex, Inc. was incorporated as Diversified American Holding, Inc. on April 27, 1998. On December 16, 2004, the Company changed its name to Cemtrex, Inc.

 

On October 31, 2013, the Company completed the acquisition of the privately held ROB Group, a leader in electronics manufacturing solutions located in Neulingen, Germany. The ROB Group, founded in 1989, consisted of 4 distinct operating companies, forming a complete electronics design, manufacturing, assembly, and cabling solutions provider that serves the electronics and cabling needs of some of the largest companies in the world in the Medical, Automation, Industrial, and Renewable Energy industries. ROB Group also has a manufacturing facility in Sibiu, Romania. ROB Cemtrex GmbH now operates as a subsidiary of Cemtrex, Inc. (see NOTE 10).

 

NOTE 2 – BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

 

Basis of Presentation and Use of Estimates

 

The accompanying unaudited 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, 2014 (“2014 Annual Report”) of Cemtrex Inc. (“Cemtrex” or the “Company”). A summary of the Company’s significant accounting policies is identified in Note 1 of the notes to the consolidated financial statements included in the Company’s 2014 Annual Report. There have been no changes in the Company’s significant accounting policies subsequent to September 30, 2014.

 

The accompanying unaudited 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.

 

6
 

 

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 consolidated financial statements, the disclosure of contingent assets and liabilities in the 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 consolidated financial statements of the Company include the accounts of its 100% owned subsidiaries, Griffin Filters LLC, Cemtrex Ltd., and ROB Cemtrex GmbH. All significant intercompany balances and transactions have been eliminated.

 

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, 2014, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

 

Reclassifications

 

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

 

NOTE 3 – FAIR VALUE MEASUREMENTS

 

The Company complies with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”).  Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

The following tables present information about the Company’s assets measured at fair value as of December 31, 2014 and December 31, 2013:

 

   Quoted Prices   Significant         
   in Active   Other   Significant   Balance 
   Markets for   Observable   Unobservable   as of 
   Identical Assets   Inputs   Inputs   December 31, 
   (Level 1)   (Level 2)   (Level 3)   2014 
Assets                    
Investment in certificates of deposit
(included in short-term investments)
  $312,382   $-   $-   $312,382 
                     
   $312,382   $-   $-   $312,382 

 

   Quoted Prices   Significant         
   in Active   Other   Significant   Balance 
   Markets for   Observable   Observable   as of 
   Identical Assets   Inputs   Inputs   December 31, 
   (Level 1)   (Level 2)   (Level 3)   2013 
Assets                    
Investment in certificates of deposit
(included in short-term investments)
  $780,005   $-   $-   $780,005 
                     
   $780,005   $-   $-   $780,005 

 

7
 

  

NOTE 4 – TRADE RECEIVABLES, NET

 

Trade receivables, net consist of the following:

 

   December 31,   September 30, 
   2014   2014 
Trade receivables  $3,105,503   $4,106,441 
Allownce for doubful accounts   (66,927)   (68,101)
   $3,038,576   $4,038,340 

 

Trade receivables include amounts due for shipped products and services rendered.

 

Allowance for doubtful accounts include estimated losses resulting from the inability of our customers to make required payments.

 

NOTE 5 – INVENTORY, NET

 

Inventory, net of reserves, consist of the following:

 

   December 31,   September 30, 
   2014   2014 
Raw materials  $3,276,941   $3,449,501 
Work in progress   1,354,602    1,254,013 
Finished goods   1,895,805    1,715,780 
    6,527,348    6,419,294 
           
Less: Allowance for inventory obsolencence   (148,967)  $(148,967)
Inventory –net of allowance for inventory obsolescence  $6,378,381   $6,270,327 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

   December 31,   September 30, 
   2014   2014 
Land   1,291,367   $1,065,500 
Building   4,267,427    4,387,880 
Furniture and office equipment   458,889    316,715 
Computer software   86,491    46,619 
Machinery and equipment   2,289,872    2,234,423 
    8,394,046    8,051,137 
           
Less: Acumulated depreciation   (986,087)   (652,041)
Property and equipment, net   7,407,959   $7,399,096 

 

NOTE 7 – PREPAID AND OTHER CURRENT ASSETS

 

On December 31, 2014 the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $805,929, the current year income tax benefit of $78,700 and travel advances of $4,000. On December 31, 2013 the company had prepaid and other current assets consisting of prepayments on inventory purchases of $1,101,156.

 

8
 

  

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

The Company issued convertible notes to KBM Worldwide Inc., an unrelated third party, in the amounts of $204,000 and $154,000 on October 31, 2014 and December 19, 2014 respectively. Each convertible note matures in nine (9) months with an interest rate of 8% per annum, and can be converted into Company’s common stock at a conversion price equaling 65% of the market price only after six months from the date of issuance at the holder’s option.

 

NOTE 9 – LONG-TERM LIABILITIES

 

Loans payable to bank

 

On October 31, 2013, the company acquired a loan from Sparkasse Bank of Germany in the amount of €3,000,000 ($4,006,500, based upon exchange rate on October 31, 2013) in order to fund the purchase of ROB Cemtrex GmbH. $2,799,411 of the proceeds went to direct purchase of ROB Cemtrex GmbH and $1,207,089 funded beginning operations. This loan carries interest of 4.95% per annum and is payable on October 30, 2021.

 

On October 31, 2013, the company acquired a loan from Sparkasse Bank of Germany in the amount of €1,000,000 ($1,335,500, based upon exchange rate on October 31, 2013) in order to further fund the operations of ROB Cemtrex GmbH. This loan carries interest of 4.00% per annum and is payable on October 30, 2015. In February of 2014 and in May of 2014 the Company increased this credit line by €500,000 at each instance to a total of €2,000,000.

 

On May 28, 2014 the Company financed an upgrade of the information technology infrastructure for ROB Cemtrex GmbH. The purchase was fully financed through Sparkasse Bank of Germany for €200,000 ($272,840 based upon the exchange rate on May 28, 2014). This loan carries interest of 4.50% and is payable over 4 years.

 

Mortgage payable

 

On March 1, 2014 the Company completed the purchase of the building that ROB Cemtrex GmbH occupies in Neulingen, Germany. The purchase was fully financed through Sparkasse Bank of Germany for €4,000,000 ($5,500,400 based upon the exchange rate on March 1, 2014). This mortgage carries interest of 3.00% and is payable over 17 years.

  

Notes payable - related party

 

Please see Note 11 – Related Party Transactions for details on notes payable to Ducon Technologies, Inc..

 

NOTE 10 – BUSINESS COMBINATION

 

On October 31, 2013, the Company completed the acquisition of the privately held ROB Group, a leader in electronics manufacturing solutions located in Neulingen, Germany. The ROB Group, founded in 1989, consisted of 4 distinct operating companies, forming a complete electronics design, manufacturing, assembly, and cabling solutions provider that serves the electronics and cabling needs of some of the largest companies in the world in the Medical, Automation, Industrial, and Renewable Energy industries. ROB Group also has a manufacturing facility in Sibiu, Romania. ROB Cemtrex GmbH now operates as a subsidiary of Cemtrex, Inc..

 

9
 

  

The acquisition date fair value of the total consideration transferred was $5.936 million, which consisted of the following:

 

Loan from bank   3,133,286 
Loan from related party   2,803,012 
Total Purchase Price  $5,936,298 

 

In accordance with Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805"), the total purchase consideration is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of October 31, 2013 (the acquisition date). The purchase price was allocated based on the information currently available, and may be adjusted after obtaining more information regarding, among other things, asset valuations, liabilities assumed, and revisions of preliminary estimates.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

 

Inventories  $4,941,350 
Property and Equipment   981,593 
Other long-term assets   13,355 
Net assets acquired  $5,936,298 

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

The Company had sales to Ducon Technologies, Inc., a related party, totaling $0 and $319,053 for the three months ended December 31, 2014 and 2013, respectively. The accounts receivable from Ducon Technologies, Inc. totaled $0 at December 31, 2014 and $1,175,425 at December 31, 2013.

 

The Company has prepaid expenses Ducon Technologies, Inc. a related party in the amount of $0 and $1,101,516 for supplies at December 31, 2014 and December 31, 2013.

 

The Company has Notes payable to Ducon Technologies Inc., totaling $1,678,001 and $1,226,505 at December 31, 2014 and December 31, 2013, respectively. These notes are unsecured and carry 5% interest per annum.

 

On September 8th, 2009, the Company issued 1,000,000 Series A Preferred Shares and 2,500,000 common shares to Aron Govil, the former Chairman of the Company, in conjunction with the termination of a convertible note in the amount of $1,300,000 that was convertible into 30,000,000 non-assessable shares of common stock of the Company at $0.001 (par value) per share.

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

Series A Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of Series A Preferred Stock, $0.001 par value. As of June 30, 2014 and September 30, 2013, there were 1,000,000 shares issued and outstanding, respectively.

 

Each issued and outstanding Series A Preferred Share shall be entitled to the number of votes equal to the result of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01; divided by (ii) the total number of Series A Preferred Shares issued and outstanding at the time of such vote, at each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration, including the election of directors. Holders of Series A Preferred Shares shall vote together with the holders of Common Shares as a single class.

 

During the three month period ending December 310, 2014 and 2013, the Company did not issue any Series A Preferred Stock.

 

10
 

  

Common Stock

 

The Company is authorized to issue 60,000,000 shares of common stock, $0.001 par value. As of December 31, 2013 there were 40,649,129 shares issued and outstanding and at September 30, 2013, there were 40,599,129 shares issued and outstanding.

 

During the three month period ended December 31, 2014 the Company issued 50,000 shares of common stock related to the stock options discussed below. During the three month period ended December 31, 2013, the Company did not issue any common stock.

 

During the fiscal year ended September 30, 2014 the company granted stock options for 600,000 shares to employees of the Company. These options have a call price of $0.30 per share, vest over four years, and expire after six years. As of December 31, 2014, 50,000 shares have been exercised and none have expired or have been cancelled.

 

NOTE 13 – COMMITMENTS AND CONTIGENCIES

 

The Company leases its principal office at Farmingdale, New York, 4,000 square feet of office and warehouse/shop space in a single story commercial structure on a month to month lease from Ducon Technologies Inc., at a monthly rental of $4,000.

   

The Company’s subsidiary Griffin Filters LLC leases approx. 5,000 sq. ft. of office and warehouse space in Liverpool, New York from a third party in a five year lease at a monthly rent of $2,200 expiring on March 31, 2018.

 

The Company’s subsidiary ROB Cemtrex GmbH owns and has a 17 year 3.00% interest mortgage on their 100,000 sq. ft. building in Neulingen, Germany. Monthly mortgage payments are €25,000 through March 2031.

 

The Company’s subsidiary Cemtrex Ltd. leases approximately 600 square feet of office on a month to month rental from a third party in Hong Kong at a monthly rental of $4,133.00.

 

NOTE 14 – RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

NOTE 15 - SUBSEQUENT EVENTS

 

The Company issued a convertible note to Tangiers Investment Group Inc., an unrelated third party, in the amount of $150,000 on February 6, 2015. The twelve (12) month maturity note carries an interest rate of 8% per annum, and can be converted into Company’s common stock at a conversion price equaling 65% of the market price only after six months from the date of issuance at the holder’s option.

 

11
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the impact of competitive products and their pricing; unexpected manufacturing or supplier problems; the Company’s ability to maintain sufficient credit arrangements; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the Company’s SEC reports, including its recent report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

   

General Overview

 

Cemtrex Inc. ("Cemtrex" or the "Company") is a diversified international company offering a range of products, systems, and solutions in a wide variety of industries around the world to meet today’s technological challenges. Cemtrex, through its wholly owned subsidiaries provides electronic manufacturing services of custom engineered printed circuit board assemblies, emission monitors & instruments for industrial processes, and environmental control & air filtration systems for industries & utilities.

 

Cemtrex, through its Electronics Manufacturing Services (EMS) group, provides end to end electronic manufacturing services, which includes product design and sustaining engineering services, printed circuit board assembly and production, cabling and wire harnessing, systems integration, comprehensive testing services and completely assembled electronic products. Cemtrex, through its Environmental Products and Systems group, sells a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide. The Company through its Monitoring Instruments and Products (MIP) group manufactures sells, and services monitoring instruments, software and systems for measurement of emissions of Greenhouse gases, hazardous gases, particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes. The Company also markets monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process applications.

 

Cemtrex, Inc. was incorporated as Diversified American Holding, Inc. on April 27, 1998. On December 16, 2004, the Company changed its name to Cemtrex, Inc.

 

On October 31, 2013, the Company completed the acquisition of the privately held ROB Group, a leader in electronics manufacturing solutions located in Neulingen, Germany. The ROB Group, founded in 1989, consisted of 4 distinct operating companies, forming a complete electronics design, manufacturing, assembly, and cabling solutions provider that serves the electronics and cabling needs of some of the largest companies in the world in the Medical, Automation, Industrial, and Renewable Energy industries. ROB Group also has a manufacturing facility in Sibiu, Romania. ROB Cemtrex GmbH now operates as a subsidiary of Cemtrex, Inc. (see NOTE 10).

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.

 

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Certain of our accounting policies are deemed “critical”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2014. 

 

Results of Operations - For the three Months ending December 31, 2014 and 2013 

 

Total revenue for the three months ended December 31, 2014 and 2013 was $13,842,789 and $8,964,380, respectively, an increase of $4,878,409, or 54%. Net income for the three months ended December 31, 2014 and 2013 was $396,872 and $416,552, respectively, a decrease of $19,680, or 5%. Net income in the first quarter decreased, as compared to net income in the same period last year, due to lower sales of Electronics manufacturing services group resulting from the timing of shipments of in-house orders.

 

Revenues

 

Environmental products and systems revenues for three months ended December 31, 2014 increased by $4,984,464 or 212%, to $7,339,639 from $2,355,175 for the three months ended December 31, 2013. The increase was primarily due to an increased demand for environmental products and services.

 

Electronics manufacturing services revenues for three months ended December 31, 2014 decreased by 106,055 or 2% to $6,503,150 from $6,609,205 for the three months ended December 31, 2013. The primary reason for decreased sales was due to the decline in exchange rate of Euro vs US Dollar. Additionally, the sales were lower due to the timing of shipments of in-house orders during this quarter as compared to the similar quarter a year ago.

 

Gross Profit 

 

Gross Profit for the three months ended December 31, 2014 was $4,023,057 or 29% of revenues as compared to gross profit of $2,824,738 or 32% of revenues for the three months ended December 31, 2013. The increase in gross profit percentage in the three months ended December 31, 2014 was a direct result of high profit margin jobs shipped during this period as compared to the same quarter in the prior year.

 

Operating Expenses

 

 Operating expenses for the three months ended December 31, 2014 increased $1,273,761 or 54% to $3,640,822 from $2,367,061 for the three months ended December 31, 2013. Operating expenses as a percentage of revenue remained the same at 26% for the three month periods ended December 31, 2014 and December 31, 2013. The increase in operating expenses were primarily due to the acquisition of ROB Cemtrex GmbH.

 

Other Income/(Expense)

 

Interest and other income/(expense) for the first quarter of fiscal 2015 was $(83,063) as compared to $(35,849) for the first quarter of fiscal 2014. The increase was due primarily to interest expense recognition on loans used to acquire ROB Cemtrex GmbH and the mortgage on the building in Neulingen, Germany.

 

Provision for Income Taxes

 

During the first quarter of fiscal 2015 we recorded an income tax benefit of $78,700 compared to an income tax provision accrual of $5,276 for the first quarter of fiscal 2014. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to income taxes.

 

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Net Income/Loss

 

The Company had net income of $396,872 or 3% of revenues, for the three month period ended December 31, 2014 as compared to a net income of $416,552 or 5% of revenues, for the three months ended December 31, 2013. Net income in the first quarter decreased, as compared to net income in the same period last year, due to lower sales of Electronics manufacturing services group resulting from the timing of shipments of in-house orders.

 

Effects of Inflation

 

The Company’s business and operations have not been materially affected by inflation during the periods for which financial information is presented.

 

Liquidity and Capital Resources

 

  Working capital was $7,074,334 at December 31, 2014 compared to $$7,631,897 at September 30, 2014. This includes cash and cash equivalents of $1,118,590 at December 31, 2014 and $146,095 at September 30, 2014, respectively. The decrease in working capital was primarily due to decreases in short-term investments, trade receivables, accrued income taxes, and current portion of long-term liabilities offset by increases in cash and equivalents, inventory, prepaid expenses and other current assets, accounts payable, and accrued expenses.

 

Trade receivables decreased $999,764 or 25% to $3,038,576 at December 31, 2014 from $4,038,340 at September 30, 2014. The decrease in trade receivables is attributable to the timing of shipments of in-house orders and collection of trade receivables.

 

Inventories increased $108,054 or 2% to $6,378,381 at December 31, 2014 from $6,270,327 at September 30, 2014. The increase in inventories was due to timing of shipments of in-house orders.

 

Operating activities provided $1,494,636 for the three months ended December 31, 2014 compared to using $7,325,947 of cash for the three months ended December 31, 2013. The increase in operating cash flows was primarily due to the collection of trade receivables during the quarter.

 

Investment activities provided $97,396 of cash compared to using $4,229,233 during the three month period ended December 31, 2014. Investing activities were primarily driven by the redemption of short-term investments offset by the purchase of property and equipment.

 

Financing activities used $619,537 for the three month period ended December 31, 2014 as compared to providing $12,121,451 in the three month period ended December 31, 2013. Financing activities were primarily driven by payments on bank loans offset by proceeds from convertible notes payable.

  

We believe that our cash on hand, cash generated by operations, is sufficient to meet the capital demands of our current operations during the 2015 fiscal year (ending September 30, 2015). Any major increases in sales, particularly in new products, may require substantial capital investment. Failure to obtain sufficient capital could materially adversely impact our growth potential.

 

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Item 4. Controls and Procedures 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Vice President of Finance (“VPF”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our CEO and our VPF have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014 and have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II Other Information

 

Item 6. Exhibits

 

31.1 Certification of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Vice President of Finance and Principal Financial Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002.
   
32.2 Certification of Vice President of Finance and Principal Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002.

 

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Cemtrex, Inc.
     
Dated: February 11, 2015 By: /s/Saagar Govil  .
  Saagar Govil
  Chief Executive Officer
     
Dated: February 11, 2015 /s/Renato Dela Rama  .
  Renato Dela Rama
  Vice President of Finance
  and Principal Financial Officer

 

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