10-Q 1 v417007_10q.htm 10-Q

 

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, 2015

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 o Accelerated filer o
Non-accelerated filer   o 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 August 4, 2015 the issuer had 6,964,461 shares of common stock issued and outstanding.

  

 
 

  

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

      Page
       
PART I.  FINANCIAL INFORMATION  
       
Item 1. Consolidated Financial Statements  
       
    Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and September 30, 2014 3
       
    Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months Ended June 30, 2015 and June 30, 2014 (Unaudited) 4
       
    Consolidated Statements of Cash Flow the nine months Ended June 30, 2015 and June 30, 2014 (Unaudited) 5
       
    Notes to Unaudited Consolidated Financial Statements 6
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
       
Item 4. Controls and Procedures 17
       
PART II. OTHER INFORMATION  
       
Item 6. Exhibits 18
       
SIGNATURES 19

 

2
 

 

Part I. Financial Information 

 

Item 1.   Financial Statements  

Cemtrex, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

   June 30,   September 30, 
Assets  2015   2014 
Current assets        
Cash and equivalents  $872,795   $146,095 
Short-term investments   -    559,815 
Trade receivables, net   6,742,915    4,038,340 
Inventory –net of allowance for inventory obsolescence   6,277,316    6,270,327 
Prepaid expenses and other assets   1,809,896    531,262 
Total current assets   15,702,922    11,545,839 
           
Property and equipment, net   7,886,997    7,399,096 
Goodwill   845,000    845,000 
Other   42,691    52,428 
Total Assets  $24,477,610   $19,842,363 
           
           
Liabilities & Stockholders' Equity (Deficit)          
Current liabilities          
Accounts payable  $6,563,119   $2,721,705 
Accrued expenses   540,441    440,436 
Accrued income taxes   62,032    62,032 
Convertible notes payable   1,528,000    - 
Current portion of long-term liabilities   633,915    689,769 
Total current liabilities   9,327,507    3,913,942 
           
Long-term liabilities          
Loans payable to bank   4,635,253    5,508,199 
Mortgage payable   4,057,612    4,906,922 
Notes payable - related party   507,855    1,869,791 
Total liabilities   18,528,227    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, 20,000,000 shares authorized, 6,884,941          
shares issued and outstanding at June 30, 2015 and 6,766,587          
shares issued and outstanding at September 30, 2014   6,885    6,767 
Additional paid-in capital   466,717    199,562 
Retained earnings (accumulated deficit)   6,013,689    3,592,739 
Accumulated other comprehensive income (loss)   (538,908)   (156,559)
Total stockholders' equity (deficit)   5,949,383    3,643,509 
Total liabilities and stockholders' equity (deficit)  $24,477,610   $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    For the nine months ended  
   June 30,   June 30, 
   2015   2014   2015   2014 
                 
Revenues  $14,665,748   $13,453,734   $42,839,477   $33,966,686 
                     
Cost of revenues   10,413,546    9,253,772    30,319,710    22,896,860 
                     
Gross profit   4,252,202    4,199,962    12,519,767    11,069,826 
                     
Operating expenses                    
General and administrative   3,571,136    3,364,778    10,639,893    8,944,826 
Total operating expenses   3,571,136    3,364,778    10,639,893    8,944,826 
Operating income (loss)   681,066    835,184    1,879,874    2,125,000 
                     
Other income (expense)                    
Other Income (expense)   383,693    45,601    893,302    102,424 
Interest Expense   (137,154)   (148,261)   (467,226)   (291,457)
Total other income (expense)   246,539    (102,660)   426,076    (189,033)
                     
Net income (loss) before income taxes   927,605    732,524    2,305,950    1,935,967 
Provision for income taxes   (14,900)   16,424    (115,000)   33,700 
Net income (loss)   942,505    716,100    2,420,950    1,902,267 
                     
Other comprehensive income/(loss)                    
Foreign currency translation gain/(loss)   (113,747)   123,228    (382,349)   249,311 
Comprehensive income/(loss)  $828,758   $839,328   $2,038,601   $2,151,578 
                     
Income (Loss) Per Share-Basic  $0.14   $0.11   $0.36   $0.28 
Income (Loss) Per Share-Diluted  $0.14   $0.11   $0.35   $0.28 
                     
Weighted Average Number of Shares-Basic   6,835,623    6,766,587    6,794,225    6,766,587 
Weighted Average Number of Shares-Diluted   6,882,870    6,766,587    6,924,603    6,766,587 

 

The accompanying notes are an integral part of these financial statements

 

4
 

 

Cemtrex, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the nine months ended  
   June 30, 
Cash Flows from Operating Activities  2015   2014 
         
Net income (loss)  $2,420,950   $1,902,267 
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   458,306    194,759 
Share-based compensation   267,273    - 
Changes in operating assets and liabilities:          
Trade receivables   (2,704,575)   (2,756,515)
Due from related party   -    (81,842)
Inventory   (6,989)   (2,481,705)
Prepaid expenses and other assets   (1,278,634)   (1,020,072)
Others   9,737    (359,415)
Accounts payable   3,841,414    2,806,153 
Accrued expenses   100,005    422,563 
Income taxes payable   -    37,145 
Net cash provided by (used by) operating activities   3,107,487    (1,336,662)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (946,207)   (7,164,219)
Purchase of short-term investment   -    - 
Redemption of short-term investments   559,815    - 
Investment in subsidiary   -    (6,270,173)
Net cash provided by (used by) investing activities   (386,392)   (13,434,392)
           
Cash Flows from Financing Activities          
Proceeds from affiliated Loan   -    3,864,101 
Payments on affiliated loan   (1,361,936)   - 
Proceeds from bank loans   -    12,150,228 
Payments on bank loans   (2,160,459)   - 
Proceeds from convertible notes   1,528,000    - 
Net cash provided by (used by) financing activities   (1,994,395)   16,014,329 
           
Net increase (decrease) in cash   726,700    1,243,275 
Cash beginning of period   146,095    66,963 
Cash end of period  $872,795   $1,310,238 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the period for interest  $244,525   $- 
           
Cash paid during the period for income taxes  $5,032   $- 

  

The accompanying notes are an integral part of these financial statement

 

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 world leading diversified industrial manufacturing company offering a wide array of solutions around the world to meet today’s technological challenges. Cemtrex, through its wholly owned subsidiaries provides manufacturing services of advanced custom engineered electronic 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 group also 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 June 30, 2015 and June 30, 2014:

 

   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)   2015 
Assets                    
Investment in certificates of deposit (included in short-term investments)  $-   $-   $-   $- 
   $-   $-   $-   $- 

 

   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)   2014 
Assets                    
Investment in certificates of deposit (included in short-term investments)  $661,425   $-   $-   $661,425 
   $661,425   $-   $-   $661,425 

 

7
 

 

NOTE 4 – TRADE RECEIVABLES, NET

 

Trade receivables, net consist of the following:

 

   June 30,   September 30, 
   2015   2014 
Trade receivables  $6,807,257   $4,106,441 
Allownce for doubtful accounts   (64,342)   (68,101)
   $6,742,915   $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:

 

   June 30,   September 30, 
   2015   2014 
Raw materials  $3,454,959   $3,449,501 
Work in progress   1,351,225    1,254,013 
Finished goods   1,620,099    1,715,780 
    6,426,283    6,419,294 
           
Less: Allowance for inventory obsolensence   (148,967)  $(148,967)
Inventory –net of allowance for inventory obsolescence  $6,277,316   $6,270,327 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

   June 30,   September 30, 
   2015   2014 
Land   1,167,640   $1,065,500 
Building   3,857,772    4,387,880 
Furniture and office equipment   534,358    316,715 
Computer software   236,801    46,619 
Machinery and equipment   3,364,048    2,234,423 
    9,160,619    8,051,137 
           
Less: Accumulated depreciation   (1,273,622)   (652,041)
Property and equipment, net   7,886,997   $7,399,096 

 

8
 

 

NOTE 7 – PREPAID AND OTHER CURRENT ASSETS

 

On June 30, 2015 the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $936,388, the current year income tax benefit of $115,000 and other current assets of $758,508. On June 30, 2014 the company had prepaid and other current assets consisting of prepayments on inventory purchases of $1,447,828 and other current assets of $4,225.

 

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

On June 30, 2015 the Company has the following unsecured convertible notes, issued on the dates listed, to various unrelated third parties outstanding.

 

·December 30, 2014 for $154,000
·February 6, 2015 for $150,000
·March 24, 2015 for $150,000
·May 7, 2015 for $200,000
·May 12, 2015 for $174,000
·June 25, 2015 for $300,000

 

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.

 

Additionally, the Company issued unsecured convertible notes to an unrelated third party, in the amount of $200,000 on March 26, 2015 and an additional $200,000 on June 8, 2015. The twelve (12) month maturity notes carry an interest rate of 10% per annum, and can be converted into Company’s common stock at a conversion price equaling 70% of the market price only after six months from the date of issuance at the holder’s option.

 

The use of the proceeds from the notes issued is for growth capital and planned acquisitions. As per the terms of these convertible notes the Company has reserved 1,500,000 shares (post reverse split basis) representing approximately six times the actual shares that would be issued upon conversion of all the notes.

 

As of June 30, 2015, 97,923 shares of the Company’s common stock have been issued to satisfy $204,000 of convertible notes payable.

 

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.

 

9
 

 

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..

 

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 has Notes payable to Ducon Technologies Inc., totaling $507,855 and $1,869,791 at June 30, 2015 and September 30, 2014, respectively. These notes are unsecured and carry 5% interest per annum.

 

10
 

 

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, 2015 and September 30, 2014, 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 and nine month periods ending June 30, 2015 and 2014, the Company did not issue any Series A Preferred Stock.

 

Reverse Stock Split

 

On April 3, 2015, our Board of Directors approved a reverse split of our common stock, par value $0.001, at a ratio of one-for-six. This reverse stock split became effective on April 15, 2015 and, unless otherwise indicated, all share amounts. Per share data, share prices, exercise prices and conversion rates set forth in this Report and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

 

Listing on NASDAQ Capital Markets

 

On June 25, 2015 the Company’s common stock commenced trading on the NASDAQ Capital Markets under the symbol “CETX”.

 

Common Stock

 

The Company is authorized to issue 20,000,000 shares of common stock, $0.001 par value. As of June 30, 2015 there were 6,884,941 shares issued and outstanding and at September 30, 2014, there were 6,766,587 shares issued and outstanding.

 

During the three and nine month periods ended June 31, 2015 the Company issued 7,930 and 16,264 shares of common stock, respectively, related to the stock options discussed below. During the three and nine month periods ended June 30, 2014, the Company did not issue any common stock.

 

During the fiscal year ended September 30, 2014 the company granted stock options for 100,000 shares to employees of the Company. These options have a call price of $1.80 per share, vest over four years, and expire after six years. As of June 30, 2015, 16,264 shares have been exercised and none have expired or have been cancelled.

 

During the three and nine month period ending June 30, 2015 the company issued 97,323 shares of common stock to satisfy $204,000 of convertible notes payable (see NOTE 8).

 

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 70,000 sq. ft. building in Neulingen, Germany. Monthly mortgage payments are €25,000 through March 2031.

 

11
 

 

The Company’s subsidiary ROB Cemtrex GmbH rents a 10,000 sq. ft. manufacturing facility in Sibiu, Romania from a third party in a ten year lease at a monthly rent of €8,000 expiring on May 31, 2019.

 

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

 

On various dates in July 2015, 79,326 shares of the Company’s common stock were issued to satisfy $154,000 of convertible notes payable (see NOTE 8).

 

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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 world leading diversified industrial manufacturing company offering a wide array of solutions around the world to meet today’s technological challenges. Cemtrex, through its wholly owned subsidiaries provides manufacturing services of advanced custom engineered electronic 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 group also 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 June 30, 2015 and 2014 

 

Total revenue for the three months ended June 30, 2015 and 2014 was $14,665,748 and $13,453,734, respectively, an increase of $1,212,014, or 9%. Net income for the three months ended June 30, 2015 and 2014 was $942,505 and $716,100, respectively, an increase of $226,405, or 32%. Net income in the third quarter increased, as compared to net income in the same period last year, due to higher sales in the Environmental products and systems group.

 

Revenues

 

Environmental products and systems revenues for three months ended June 30, 2015 increased by $3,827,962 or 69%, to $9,341,099 from $5,513,137 for the three months ended June 30, 2014. The increase was primarily due to an increased demand for environmental products and services in foreign Asian markets.

 

Electronics manufacturing services revenues for three months ended June 30, 2015 decreased by 2,615,948 or 33% to $5,324,649 from $7,940,597 for the three months ended June 30, 2014. The primary reason for decreased sales was due to the decline in exchange rate of the 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 same quarter a year ago.

 

Gross Profit 

 

Gross Profit for the three months ended June 30, 2015 was $4,252,202 or 29% of revenues as compared to gross profit of $4,199,962 or 31% of revenues for the three months ended June 30, 2014. The decrease in gross profit percentage in the three months ended June 30, 2015 was a direct result of lower 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 June 30, 2015 increased $206,358 or 6% to $3,571,136 from $3,364,778 for the three months ended June 30, 2014. Operating expenses as a percentage of revenue decreased to 24% for the three month periods ended June 30, 2015 compared to 25% for the three month period ended June 30, 2014. The increases in operating expenses were primarily due to increases in salaries and fringe benefits, depreciation expense related to the ROB building and additional legal and accounting expenses.

 

Other Income/(Expense)

 

Interest and other income/(expense) for the third quarter of fiscal 2015 was $246,539 as compared to $(102,660) for the third quarter of fiscal 2014. The income was due primarily to forgiveness of some debt in the Electronics manufacturing group.

 

Provision for Income Taxes

 

During the third quarter of fiscal 2015 we recorded an income tax benefit of $14,900 compared to an income tax provision accrual of $16,424 for the third 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 $898,827 or 6% of revenues, for the three month period ended June 30, 2015 as compared to a net income of $716,100 or 5% of revenues, for the three months ended June 30, 2014. Net income in the third quarter increased, as compared to net income in the same period last year, due largely to higher sales in the Environmental products and systems group and the forgiveness of debt in the Electronic manufacturing group.

 

Results of Operations - For the nine months ending June 30, 2015 and 2014 

 

Total revenue for the nine months ended June 30, 2015 and 2014 was $42,839,477 and $33,966,686, respectively, an increase of $8,872,791, or 26%. Net income for the nine months ended June 30, 2015 and 2014 was $2,420,950 and $1,902,267, respectively, an increase of $518,683, or 27%. Net income in the first nine months of fiscal 2015 increased, as compared to net income in the same period last year, due to higher sales in the Environmental products and systems group.

 

Revenues

 

Environmental products and systems revenues for the nine months ended June 30, 2015 increased by $11,792,853 or 98%, to $23,825,982 from $12,033,129 for the nine months ended June 30, 2014. The increase was primarily due to an increased demand for environmental products and services in foreign Asian markets.

 

Electronics manufacturing services revenues for nine months ended June 30, 2015 decreased by $2,920,062 or 13% to $19,013,495 from $21,933,557 for the nine months ended June 30, 2014. The primary reason for decreased sales was due to the decline in exchange rate of the 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 nine months ended June 30, 2015 was $12,519,767 or 29% of revenues as compared to gross profit of $11,069,826 or 33% of revenues for the nine months ended June 30, 2014. The increase in gross profit dollars was due to higher sales in the Environmental products and systems group. The decrease percentage in the nine months ended June 30, 2015 was a direct result of lower profit margin jobs shipped during this period as compared to the same period in the prior year.

 

Operating Expenses

 

Operating expenses for the nine months ended June 30, 2015 increased $1,695,067 or 25% to $10,639,893 from $8,944,826 for the nine months ended June 30, 2014. Operating expenses as a percentage of revenue decreased to 25% for the nine month period ended June 30, 2015 as compared to 26% for the nine months ended June 30, 2014. The increases in operating expenses were primarily due to increases in salaries and fringe benefits, depreciation expense related to the ROB building and additional legal and accounting expenses.

 

Other Income/(Expense)

 

Interest and other income/(expense) for the first three quarters of fiscal 2015 was $426,076 as compared to $(189,033) for the first three quarters of fiscal 2014. The income was due primarily to forgiveness of some debt in the Electronics manufacturing group.

 

Provision for Income Taxes

 

During the first three quarters of fiscal 2015 we recorded an income tax benefit of $115,000 compared to an income tax provision accrual of $33,700 for the first three quarters 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 $2,420,950 or 6% of revenues, for the nine month period ended June 30, 2015 as compared to a net income of $1,902,267 or 6% of revenues, for the nine months ended June 30, 2014. Net income in the first three quarters increased, as compared to net income in the same period last year, due largely to higher sales in the Environmental products and systems group and the forgiveness of debt in the Electronic manufacturing group.

 

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 $6,375,415 at June 30, 2015 compared to $7,631,897 at September 30, 2014. This includes cash and cash equivalents of $872,795 at June 30, 2015 and $146,095 at September 30, 2014, respectively. The decrease in working capital was primarily due to increases in trade receivables, inventory, prepaid expenses and other current assets, purchases of property and equipment, payments on affiliated loans, and payments on bank loans, offset by a decrease in other assets, increases in accounts payable and accrued expenses, redemption of short-term investments, and proceeds from convertible notes.

 

Trade receivables increased $2,704,575 or 67% to $6,742,915 at June 30, 2015 from $4,038,340 at September 30, 2014. The increase in trade receivables is attributable to the timing of shipments of in-house orders not delivered in the prior quarter and collection of trade receivables.

 

Inventories increased $6,989 or less than 1% to $6,277,316 at June 30, 2015 from $6,270,327 at September 30, 2014. The increase in inventories was due to timing management of purchases for in-house orders.

 

Operating activities provided $3,107,487 of cash for the nine months ended June 30, 2015 compared to using cash of $1,336,662 of cash for the nine months ended June 30, 2014. The increase in operating cash flows was primarily due to the increase of trade payables during the nine months ended June 30, 2015.

 

Investment activities used $386,392 of cash for the nine months ended June 30, 2015 compared to using cash of $13,434,392 during the nine month period ended June 30, 2014. Investing activities were primarily driven by the purchase of property and equipment offset by the redemption of short-term investments.

 

Financing activities used $1,994,395 of cash for the nine month period ended June 30, 2015 as compared to providing cash of $16,014,329 in the nine month period ended June 30, 2014. Financing activities were primarily driven by payments on bank and affiliated 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 June 30, 2015 and have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2015.

 

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.
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF XBRL Taxonomy Extension Definition Linkbase
   
101.LAB XBRL Taxonomy Extension Label Linkbase
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase
   

 

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

 

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