UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For
the quarterly period ended
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
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Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
| March 31, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term investments | ||||||||
| Trade receivables, net | ||||||||
| Trade receivables, net - related party | ||||||||
| Inventory, net | ||||||||
| Contract assets, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use operating lease assets | ||||||||
| Royalties receivable, net - related party | ||||||||
| Note receivable, net - related party | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities & Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Sales tax payable | ||||||||
| Revolving line of credit | ||||||||
| Current maturities of long-term liabilities | ||||||||
| Operating lease liabilities - short-term | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Deferred revenue | ||||||||
| Accrued income taxes | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term debt | ||||||||
| Long-term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Deferred Revenue - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock , $ par value, shares
authorized, Series 1, shares authorized, shares issued and shares outstanding as of March 31, 2024 and
shares issued and shares outstanding as of September 30, 2023 (liquidation value of $ | ||||||||
| Series C, shares authorized, shares issued and outstanding at March 31, 2024 and September 30, 2023 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2024 and shares issued and outstanding at September 30, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, 136,051 shares of Series 1 Preferred Stock at March 31, 2024 and 64,100 shares of Series 1 Preferred Stock at September 30, 2023 | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Cemtrex stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 3 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | March 31, 2024 | March 31, 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss)/income | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (expense)/income | ||||||||||||||||
| Other income/(expense), net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (expense)/income, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Loss from Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income/(loss) from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less (loss)/income in noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to Cemtrex, Inc. stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (Loss)/income per share - Basic & Diluted | ||||||||||||||||
| Continuing Operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Discontinued Operations | $ | $ | $ | $ | ) | |||||||||||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||||||||||
| 4 |
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | March 31, 2024 | March 31, 2023 | |||||||||||||
| Other comprehensive loss | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less comprehensive income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive loss attributable to Cemtrex, Inc. stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
| Preferred
Stock Series 1 | Preferred
Stock Series C | Common Stock Par | ||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Treasury | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Additional | Stock, | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
| of | of | of | Paid-in | Accumulated | 136,051 shares of | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Series 1 Preferred Stock | Income | Equity | interest | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Loss attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay for services | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Loss attributable to noncontrolling interest | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay for services | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
| Preferred
Stock Series 1 | Preferred
Stock Series C | Common Stock Par | ||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Treasury | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Additional | Stock, | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
| of | of | of | Paid-in | Accumulated | 64,100 shares of | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Series 1 Preferred Stock | Income | Equity | interest | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | ||||||||||||||||||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Loss attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Additional rounding shares issued for reverse stock split | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income attributable to noncontrolling interest | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay for services | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the six months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of property and equipment | ||||||||
| Noncash lease expense | ||||||||
| Bad debt expense | ( | ) | ||||||
| Share-based compensation | ||||||||
| Income tax expense | ( | ) | ||||||
| Interest expense paid in equity shares | ||||||||
| Accounts payable paid in equity shares | ||||||||
| Accrued interest on notes payable | ||||||||
| Non-cash royalty income | ( | ) | ||||||
| Gain/(loss) on marketable securities | ( | ) | ||||||
| Amortization of original issue discounts on notes payable | ||||||||
| Amortization of loan origination costs | ||||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Trade receivables | ( | ) | ( | ) | ||||
| Trade receivables - related party | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Contract assets | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accounts payable - related party | ( | ) | ||||||
| Sales tax payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deposits from customers | ||||||||
| Accrued expenses | ( | ) | ||||||
| Contract liabilities | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Net cash used by operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities - discontinued operations | ||||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Investment in MasterpieceVR | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds on revolving line of credit | ||||||||
| Payments on revolving line of credit | ( | ) | ||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Payments on Paycheck Protection Program Loans | ( | ) | ( | ) | ||||
| Proceeds on bank loans | ||||||||
| Payments on bank loans | ( | ) | ( | ) | ||||
| Purchases of treasury stock | ( | ) | ||||||
| Net cash provided by/(used by) financing activities | ( | ) | ||||||
| Effect of currency translation | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes, net of refunds | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued to pay notes payable | $ | $ | ||||||
| Financing of fixed asset purchase | $ | $ | ||||||
| Investment in right of use asset | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 9 |
Cemtrex, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS
Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal 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.
The Company’s reporting segments consist of Security and Industrial Services. Additionally, the Company’s operational structure also reports unallocated corporate expenses.
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.
Acquisition of Heisey Mechanical
On
July 1, 2023, the Company under AIS, completed the acquisition of a leading service contractor and steel fabricator that specializes
in industrial and water treatment markets, Heisey Mechanical, Ltd. (“Heisey”) based in Columbia, Pennsylvania for $
Heisey
provides the water treatment industry with a variety of fabricated vessels and equipment including ASME pressure vessels, heat exchangers,
mix tanks, reactors, and other specialized fabricated equipment. Additionally, the contracting team assists with installation and service
of fabricated items. The company has over
The purchase price allocation presented below is still preliminary but has been developed based on an estimate of fair values of Heisey’s identifiable tangible and intangible assets acquired and liabilities assumed as of July 1, 2023. The final allocation of the purchase price will be determined within one year from the closing date of the Heisey acquisition.
| 10 |
The consideration transferred and preliminary allocation of Heisey’s tangible and intangible assets and liabilities, are as follows:
| Consideration Transferred: | ||||
| Cash | $ | |||
| Seller’s note | ||||
| Financed amount | ||||
| Total consideration transferred | $ | |||
| Purchase Price Allocation: | ||||
| Inventory | ||||
| Contract assets | ||||
| Machinery and equipment | ||||
| Contract liabilities | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Goodwill | ||||
| Total consideration transferred | $ | |||
The
pro forma summary below presents the results of operations as if the Heisey acquisition occurred on October 1, 2022. Proforma adjustments
for the three months ended March 31, 2023, includes $
| Unaudited | ||||||||
| for
the three months ended | for
the six months ended | |||||||
| March 31, 2023 | March 31, 2023 | |||||||
| Revenues | $ | $ | ||||||
| Net gain/(loss) | ( | ) | ||||||
On
August 30, 2023, the Company acquired a mortgage in the amount of $
Nasdaq Notices for Listing Deficiencies
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 $ 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 $ 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. On September 8, 2023, the Company received a letter from the Nasdaq Hearings Panel (“Panel”) informing the Company that the Panel has granted the Company a temporary exception to regain compliance with The Nasdaq Stock Market LLC’s (“Nasdaq” or the “Exchange”) Listing Rule 5555(a)(1) (the “Bid Price Rule”) by no later than January 19, 2024. The Company has announced a special meeting of Series 1 Preferred Stock shareholders was scheduled for December 26, 2023, to approve the reverse stock split. On December 26, 2023, the meeting was adjourned to December 29, 2023, due to insufficient votes represented by proxy or virtually in person to constitute a quorum for the transaction of business at the Special Meeting. On December 29, 2023, there were still insufficient votes represented by proxy or virtually in person to constitute a quorum thus the resolution did not pass.
| 11 |
On January 5, 2024 and January 12, 2024, the Company bought back an aggregate of shares for $ under the Share Repurchase Program approved on August 22, 2023, that allows the Company to repurchase shares of the Series 1 Preferred Stock through various means, including through privately negotiated transactions and through an open market program. Subsequent to the balance sheet date, these shares were cancelled. The Company’s Series 1 Preferred Stock was delisted from the NASDAQ Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP”. Nasdaq filed a Form 25 on March 21, 2024. The deregistration of the Company’s Series 1 Preferred Stock under Section 12(b) of the Exchange Act will be effective for 90 days, or such shorter period as the SEC may determine, after filing of the Form 25.
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 $
While
current debt indicates 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. The Company has $
| 12 |
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 if successful, would be sufficient to meet the capital demands of our current operations for at least the next twelve months, there 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. As of March 31, 2024, the Company did not have adequate cash or available liquidity/available capacity on our lines of credit to meet our short or long-term needs. With the subsequent public offering, the Company has the ability to meet its debt obligations for the next twelve months.
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, 2023, of Cemtrex, Inc.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“U.S. 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.
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, 2023, includes a summary of the significant accounting policies used in the preparation of the condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
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. On October 1, 2023, the Company implemented this standard and there has been no material change to the condensed consolidated financial statements.
The following table illustrates the effect of implementation of Update 2016-13 on the condensed consolidated balance sheet:
| Assets: | October 1, 2023 As reported under ASC 326 | September 30, 2023 Pre-ASC 326 Adoption | Impact of ASC 326 Adoption | |||||||||
| Trade receivables, net | $ | $ | $ | |||||||||
| Contract assets, net | $ | $ | $ | |||||||||
| Royalties receivable, net - related party | $ | $ | $ | |||||||||
| Note receivable, net - related party | $ | $ | $ | |||||||||
The Company estimates credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
| 13 |
The Company will utilize the Probability-of-default method for financing receivables and loans. Expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default). The Company considers sources of repayment associated with a financial asset when determining its credit losses, including collection against the collateral and certain embedded credit enhancements, such as guarantees or insurance. The allowance for credit losses was immaterial as of March 31, 2024.
The following table illustrates the current expected credit losses activity for the six months ended March 31, 2024:
As of October 1, 2023 | For the six months ended March 31, 2024 | As of March 31, 2024 | ||||||||||
| Assets: | ||||||||||||
| Trade receivables, net | $ | $ | ( | ) | $ | |||||||
| Trade receivables, net - related party | $ | $ | $ | |||||||||
| Contract assets, net | $ | $ | $ | |||||||||
| Royalties receivable, net - related party | $ | $ | $ | |||||||||
| Note receivable, net - related party | $ | $ | $ | |||||||||
Recently Issued Accounting Pronouncements Not Yet Effective
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 the condensed consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting for fiscal 2025 and for interim period reporting beginning in fiscal 2026 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of ASU 2023-07 on the condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2026 for the annual reporting period ending September 30, 2026. The Company is currently in the process of evaluating the impact of adoption on the condensed consolidated 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 $
Based
on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $
| 14 |
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:
| Purchase Price | $ | |||
| Less cash and cash equivalents transferred | ( | ) | ||
| Less liabilities assumed | ( | ) | ||
| Net purchase price | $ | |||
| Assets Sold | ||||
| Accounts receivable, net | $ | |||
| Inventory, net | ||||
| Prepaid expenses and other assets | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Liabilities Transferred | ||||
| Accounts payable | ||||
| Short-term liabilities | ||||
| Long-term liabilities | ||||
| Net assets sold | $ | |||
| Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies | $ | ( | ) |
As of March 31, 2024, and September 30, 2023, there were no assets or liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets.
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 $
| 15 |
Income/(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, 2024 and 2023, are as follows:
| Three months ended March 31, | Six months ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Operating, selling, general and administrative expenses | ||||||||||||||||
| Other (income)/expenses | ||||||||||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of discounted royalties | ||||||||||||||||
| Loss on sale of discontinued operations | ( | ) | ||||||||||||||
| Adjustment of benefit obligation | ||||||||||||||||
| Income tax provision | ||||||||||||||||
| Discontinued operations, net of tax | $ | $ | $ | $ | ( | ) | ||||||||||
NOTE 4 – REVENUE
The following table illustrates the approximate disaggregation of the Company’s revenue based off timing of revenue recognition for the three and six months ended March 31, 2024 and 2023:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | March 31, 2024 | March 31, 2023 | |||||||||||||
| Over time | % | % | % | % | ||||||||||||
| Point-in-time | % | % | % | % | ||||||||||||
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, 2024, and 2023, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:
| For the six months ended | For the three months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Options | ||||||||||||||||
| For the three months | For the six months | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Loss from Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less (loss)/gain in noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Preferred stock dividends | ||||||||||||||||
| Net loss applicable to common shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||||||||||
| Loss per share - Basic & Diluted - Continuing Operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| 16 |
NOTE 6 – SEGMENT INFORMATION
The
Company reports and evaluates financial information for
The following tables summarize the Company’s reportable segment information and unallocated corporate expenses:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||
| Reportable Segments | Reportable Segments | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Sales, general, and administrative | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Operating income/(loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Other income/(expense) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||
| Six months ended March 31, 2024 | Six months ended March 31, 2023 | |||||||||||||||||||||||||||||||
| Reportable Segments | Reportable Segments | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| General, and administrative | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Operating (loss)/income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Other income/(expense) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||
Unallocated corporate expenses mainly relate to payroll and benefits for corporate officers, investor relation expenses, accounting expenses related audit and taxes, legal expenses related to corporate matters, and interest expense on notes payable.
NOTE 7 – 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 $
NOTE 8 – 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).
| 17 |
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, 2024, and September 30, 2023, are as follows.
| 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) | 2024 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 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) | 2023 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
NOTE 9 – TRADE RECEIVABLES, NET
Trade receivables, net consist of the following:
| March 31, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Trade receivables | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Trade receivables include amounts due for shipped products and services rendered.
| 18 |
Allowance for credit losses include estimated losses resulting from the inability of our customers to make the required payments.
NOTE 10 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| March 31, 2024 | September 30, 2023 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid inventory | ||||||||
| Deferred costs | ||||||||
| Loan origination costs | ||||||||
| Prepaid income taxes | ||||||||
| VAT and GST tax receivable | ||||||||
| Prepaid expenses and other current assets total | $ | $ | ||||||
NOTE 11 – INVENTORY, NET
Inventory, net consisted of the following:
| March 31, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Inventory, net | ||||||||
The
Company maintained an allowance for obsolete inventories of $
NOTE 12 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| March 31, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Land | $ | $ | ||||||
| Building and leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Computers and software | ||||||||
| Machinery and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and six months ended March 31, 2024 and 2023, was $
| 19 |
NOTE 13 – GOODWILL
Changes in the carrying amount of goodwill, by segment, are as follows:
| Security | Industrial Services | Consolidated | ||||||||||
| Balance at September 30, 2023 | $ | $ | $ | |||||||||
| Balance at March 31, 2024 | $ | $ | $ | |||||||||
As
of March 31, 2024, and September 30, 2023, accumulated impairment losses of $
NOTE 14 – OTHER ASSETS
On
November 13, 2020, Cemtrex made a $
Other assets consisted of the following:
| March 31, 2024 | September 30, 2023 | |||||||
| Rental deposits | $ | $ | ||||||
| Investment in Masterpiece VR | ||||||||
| Other deposits | ||||||||
| Demonstration equipment supplied to resellers | ||||||||
| Other assets total | $ | $ | ||||||
NOTE 15 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
| March 31, 2024 | September 30, 2023 | |||||||
| Accrued expenses | $ | $ | ||||||
| Accrued payable on inventory in transit | ||||||||
| Accrued payroll | ||||||||
| Accrued warranty | ||||||||
| Accrued expenses total | $ | $ | ||||||
NOTE 16 – DEFERRED REVENUE
The Company’s deferred revenue as of and for the three and six months ended March 31, 2024, and 2023, were as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | March 31, 2024 | March 31, 2023 | |||||||||||||
| Deferred revenue at beginning of period | $ | $ | $ | $ | ||||||||||||
| Net additions: | ||||||||||||||||
| Deferred software revenues | ||||||||||||||||
| Recognized as revenue: | ||||||||||||||||
| Deferred software revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred revenue at end of period | ||||||||||||||||
| Less: current portion | ||||||||||||||||
| Long-term deferred revenue at end of period | $ | $ | $ | $ | ||||||||||||
For
the three and six months ended March 31, 2024 and 2023, the Company recognized revenue of $
| 20 |
NOTE 17 – CONTRACT ASSETS AND LIABILITIES
Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of the Company’s performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statements of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in the condensed consolidated balance sheets under the caption “Contract assets.” Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in the condensed consolidated balance sheets under the caption “Contract liabilities.” Conditional retainage represents the portion of the contract price withheld until the work is substantially complete for assurance of the Company’s obligations to complete the job.
The following is a summary of the Company’s uncompleted contracts:
| March 31, 2024 | September 30, 2023 | |||||||
| Costs incurred on uncompleted contracts | $ | $ | ||||||
| Estimated gross profit | ||||||||
| Applicable billings to date | ( | ) | ( | ) | ||||
| Net billings in excess of costs, Ending balance | $ | $ | ||||||
For
the three and six months ended March 31, 2024 and 2023, the Company recognized revenue of $
NOTE 18 – 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 $
As
of March 31, 2024, and September 30, 2023, there was $
As
of March 31, 2024, and September 30, 2023, there was $
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. Cemtrex XR, Inc. was purchased for $
| 21 |
During
the three and six months ended March 31, 2024, the Company wrote off $
As
of March 31, 2024, there was $
As
of March 31, 2024, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $
NOTE 19 – 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
The Company has elected not to recognize lease assets and liabilities for leases with a term of 12 months or less.
The
Company’s corporate segment leases approximately
The
Company’s security segment leases approximately
| 22 |
A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2024, is set forth below:
| Years ending September 30, | Operating Leases | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Undiscounted lease payments | ||||
| Amount representing interest | ( | ) | ||
| Discounted lease payments | $ | |||
Lease costs for the three and six months ended March 31, 2024, and 2023 are set forth below:
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease costs | ||||||||||||||||
| Short-term lease costs | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
NOTE 20 – LINES OF CREDIT AND LONG-TERM LIABILITIES
Revolving line of credit
On
October 5, 2023, the Company obtained a revolving line of credit in the amount of $
Standstill Agreement
On
August 31, 2023, the Company and Streeterville Capital, LLC entered into a standstill agreement for the two notes held by Streeterville
Capital, LLC. The terms of this agreement are the earlier of (a) the date that is ninety (90) days from the Effective Date, and (b) the
date that the Company completes an equity offering on either Form S-1 or Form S-3 (the “Standstill Period”), Streeterville
Capital, LLC will not seek to redeem any portion of the Notes, and (c) the Company agrees to prepay to Lender fifty percent (
| 23 |
The following table outlines the Company’s secured liabilities:
| March 31, | September 30, | |||||||||||
| Interest Rate | Maturity | 2024 | 2023 | |||||||||
| Fulton Bank - $ | SOFR plus | |||||||||||
| Fulton Bank mortgage $ | SOFR plus | |||||||||||
| Fulton Bank (HEISEY) - $ | SOFR plus | |||||||||||
| Fulton Bank (HEISEY) - $ | SOFR plus | |||||||||||
| Note payable - $ | ||||||||||||
| Note payable - $ | ||||||||||||
| Note Payable - $ | ||||||||||||
| Term Loan Agreement with NIL Funding Corporation (“NIL”) - $ | ||||||||||||
| Paycheck Protection Program loan - $ | ||||||||||||
| Software License Agreement - $ | N/A | |||||||||||
| HDFC Bank Auto Loan - $ | ||||||||||||
| Total debt | $ | $ | ||||||||||
| Less: Current maturities | ( | ) | ( | ) | ||||||||
| Long-term debt | $ | $ | ||||||||||
NOTE 21 – STOCKHOLDERS’ EQUITY
Series 1 Preferred Stock
The Company’s Series 1 Preferred Stock was suspended from the Nasdaq Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP.”
Nasdaq informed the Company that Nasdaq will complete the delisting by filing a Form 25 Notification of Delisting with the SEC following the lapse of applicable appeal periods. The Company does not intend to appeal the Panel’s decision. The Form 25 was filed on March 21, 2024. The deregistration of the Company’s Series 1 Preferred Stock under Section 12(b) of the Exchange Act will be effective for 90 days, or such shorter period as the SEC may determine, after filing of the Form 25.
| 24 |
During the six months ended March 31, 2024, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
During
the six months ended March 31, 2024, the Company has bought back shares into treasury for $
As of March 31, 2024, and September 30, 2023, there were and shares of Series 1 Preferred Stock issued and and shares of Series 1 Preferred Stock outstanding, respectively.
Common Stock
During
the six months ended March 31, 2024, shares of the Company’s common stock have been issued in exchange for services valued
at $
For the three and six months ended March 31, 2024, and 2023, the Company recognized $ and $ and $ and $ of share-based compensation expense on its outstanding options, respectively. As of March 31, 2024, $ of unrecognized share-based compensation expense is expected to be recognized over a period of two years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the six months ended March 31, 2024, no options were granted, cancelled, or forfeited.
NOTE 23 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. The Company continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, the Corporation does not expect that such legal proceedings will have a material adverse impact on its condensed consolidated financial statements.
NOTE 24 – SUBSEQUENT EVENTS
On
April 5, 2024, 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
On
April 8, 2024, the Company issued an aggregate of shares of common stock in exchange for services valued at $
On April 8, 2024, the Company cancelled shares of Series 1 Preferred Stock that were in Treasury Stock.
On April 13, 2024, the Company and CXR, Inc. agreed to structured payments on the first-year royalties with full payment being made by December 31, 2024.
Standstill Agreement
On
April 30, 2024, the Company entered into a Standstill Agreement (the “Agreement”) with Streeterville Capital, LLC (“Streeterville”).
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Underwriting agreement and public offering
On
May 1, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp. (the
“Underwriter”), in connection with a firm commitment underwritten public offering (the “Offering”) of
In
addition, the Company granted the Underwriter a 45-day option to purchase additional shares of common stock and/or Pre-Funded
Warrants, representing up to
The
Offering closed on May 3, 2024. An aggregate of Units (which includes shares of common stock) and Pre-Funded
Units (which includes Pre-Funded Warrants) were sold in the Offering. On May 3, 2024, the Underwriter partially exercised
its over-allotment option with respect to
Under
the terms of the Underwriting Agreement,
Right of First Refusal
Subject to certain conditions, the Company has granted the Underwriter the right of first refusal with respect to certain transactions and for the duration described below.
If, for the period beginning on the closing of the Offering and ending fifteen (15) months after the commencement of sales in the offering, the Company or any of its subsidiaries (a) decides to finance or refinance any indebtedness, the Underwriter (or any affiliate designated by the Underwriter) shall have the right to act as sole book-runner, sole manager, sole placement agent or sole agent with respect to such financing or refinancing; or (b) decides to raise funds by means of a public offering (including at-the-market facility) or a private placement or any other capital raising financing of equity, equity-linked or debt securities, the Underwriter (or any affiliate designated by the Underwriter) shall have the right to act as sole book-running manager, sole underwriter or sole placement agent for such financing. If the Underwriter or one of its affiliates decides to accept any such engagement, the agreement governing such engagement will contain, among other things, provisions for customary fees and terms for transactions of similar size and nature, including indemnification, which are appropriate to such a transaction.
Notwithstanding the foregoing, the decision to accept the engagement shall be made by the Underwriter or one of its affiliates, by a written notice to the Company, within ten (10) days of the receipt of the Company’s notification of financing needs, including a detailed term sheet. The Underwriter’s determination of whether in any case to exercise its right of first refusal will be strictly limited to the terms on such term sheet, and any waiver of such right of first refusal shall apply only to such specific terms. If the Underwriter waives its right of first refusal, any deviation from such terms shall void the waiver and require the Company to seek a new waiver from the right of first refusal.
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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. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. 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 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.
The Company’s reporting segments consist of Security and Industrial Services. Additionally, the Company’s operational structure also reports unallocated corporate expenses.
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.
Significant 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 “significant”, 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 significant 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, 2023.
Results of Operations – For the three months ended March 31, 2024, and 2023
Revenues
Our Security segment revenues for the three months ended March 31, 2024, decreased by $1,828,966 or 18% to $8,084,932 from $9,913,898 for the three months ended March 31, 2023. This decrease is due to the delay of multiple projects for the Security segment’s products and services.
Our Industrial Services segment revenues for the three months ended March 31, 2024, increased by $2,915,164 or 47%, to $9,074,663 from $6,159,499, for the three months ended March 31, 2023. This increase is mainly due to increased demand for the segment’s services and the additional business from the Heisey acquisition completed during the fourth quarter of fiscal year 2023.
Gross Profit
Gross Profit for the three months ended March 31, 2024, was $6,939,416 or 40% of revenues as compared to gross profit of $7,338,481 or 46% of revenues for the three months ended March 31, 2023.
Gross profit in our Security segment was $4,112,969 or 51% of the segment’s revenues for the three months ended March 31, 2024, as compared to gross profit of $5,120,081 or 52% of the segment’s revenues for the period ended March 31, 2023. Gross profit was down due to decreased revenues in the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Gross profit in our Industrial Services segment was $2,826,447 or 31% of the segment’s revenues for the three months ended March 31, 2024, as compared to gross profit of $2,216,191 or 36% of the segment’s revenues for the period ended March 31, 2023. Gross profit as a percentage of revenues decreased due to lower margins related to Heisey acquisition related projects in the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2024, increased $1,701,890 or 32% to $7,020,157 from $5,318,267 for the three months ended March 31, 2023. The increase in general and administrative expenses is mainly related to increased sales and marketing activities including payroll, fringe benefits, legal expenses, insurance, travel as well as an increase in insurance, and repairs and maintenance expenses. Legal expenses for the three months ended March 31, 2024, include non-recurring expenses of $360,000.
Research and Development Expenses
Research and Development expenses for the three months ended March 31, 2024, were $951,400 compared to $1,615,341 for the three months ended March 31, 2023, a decrease of $663,941 or 41%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Income/Expense
Other expense for the three months ended March 31, 2024, was $448,039, as compared to $958,634 for the three months ended March 31, 2023. Other expense for the three months ended March 31, 2024, and 2023, was mainly driven by interest on the Company’s debt. Decreases in interest expense relate to $451,422 in deferral charges and $441,733 of amortization of original issue discounts in the three months ended March 31, 2023, that did not occur in the current period.
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Provision for Income Taxes
During the three months ended March 31, 2024 and 2023, the Company had income tax expense from continuing operations of $100,004 and $0, respectively. The provision for income tax is based upon the current income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s current ability to utilize net loss carryforwards.
Income/(loss) from Discontinued Operations
For the three months ended March 31, 2024 and 2023, the Company had income on discontinued operations, net of tax of $10,463, and $14,232, respectively. This income is mainly related to the recognition of the royalties due from CXR, Inc.
Results of Operations – For the six months ended March 31, 2024, and 2023
Revenues
Our Security segment revenues for the six months ended March 31, 2024, increased by $334,091 or 2% to $17,252,733 from $16,918,642 for the six months ended March 31, 2023. This increase is due to an increased demand for the Security segment’s products and services.
Our Industrial Services segment revenues for the six months ended March 31, 2024, increased by $5,660,031 or 51%, to $16,785,028 from $11,124,997 for the six months ended March 31, 2023. This increase is mainly due to increased demand for the segment’s services and the additional business from the Heisey acquisition completed during the fourth quarter of fiscal year 2023.
Gross Profit
Gross Profit for the six months ended March 31, 2024, was $14,021,815 or 41% of revenues as compared to gross profit of $12,831,096 or 44% of revenues for the six months ended March 31, 2023.
Gross profit in our Security segment was $8,629,916 or 50% of the segment’s revenues for the six months ended March 31, 2024, as compared to gross profit of $8,523,771 or 50% of the segment’s revenues for the six-month period ended March 31, 2023. Gross profit as a percentage of revenues remained constant in the six months ended March 31, 2024, compared to the six months ended March 31, 2023.
Gross profit in our Industrial Services segment was $5,391,899 or 32% of the segment’s revenues for the six months ended March 31, 2024, as compared to gross profit of $3,855,116 or 35% of the segment’s revenues for the six-month period ended March 31, 2023. Gross profit as a percentage of revenues decreased due to lower margins related to Heisey acquisition related projects in the six months ended March 31, 2024, compared to the six months ended March 31, 2023.
General and Administrative Expenses
General and administrative expenses for the six months ended March 31, 2024, increased $3,509,518 or 33% to $13,992,123 from $10,482,605 for the six months ended March 31, 2023. The increase in general and administrative expenses is mainly related to increased payroll, fringe benefits, insurance, professional fees and travel. Increases in payroll include approximately $680,000 in severance and bonus payments. Legal expenses for the six months ended March 31, 2024, include non-recurring expenses of $360,000.
Research and Development Expenses
Research and Development expenses for the six months ended March 31, 2024, were $1,800,205 compared to $3,445,054 for the six months ended March 31, 2023, a decrease of $1,644,849 or 48%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
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Other Income/Expense
Other expense for the six months ended March 31, 2024, was $953,311, as compared to $2,103,951 for the six months ended March 31, 2023. Other expense for the six months ended March 31, 2024, and 2023, was mainly driven by interest on the Company’s debt. Decreases in interest expense relate to $673,253 in deferral charges and $841,800 of amortization of original issue discounts in the six months ended March 31, 2023, that did not occur in the current period.
Provision for Income Taxes
During the six months ended March 31, 2024 and 2023, the Company had income tax expense from continuing operations of $170,755 and $0. The provision for income tax is based upon the current income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s current ability to utilize net loss carryforwards.
Income/(loss) from Discontinued Operations
For the six months ended March 31, 2024, the Company had income on discontinued operations, net of tax of $20,955. This income is mainly related to the recognition of the royalties due from CXR, Inc. Losses on discontinued operations for the six months ended March 31, 2023, were $3,225,389 attributable to the operations and sale of the Cemtrex brands discussed in Note 3 to the financial statements included herein.
Effects of Inflation
The Company’s business and operations have been affected by inflation during the periods for which financial information is presented. In response, the Company has instituted price increases and initiated cost-saving measures to mitigate the effects of inflation on operations.
Liquidity and Capital Resources
Working capital was $10,300,384 at March 31, 2024, compared to working capital of $1,948,923 at September 30, 2023. This includes cash and equivalents and restricted cash of $4,088,536 at March 31, 2024, and $6,349,562 at September 30, 2023. The increase in working capital was primarily due to the Company’s entry into a standstill agreement on two notes extending the maturity date and holding redemptions for a period of one year.
Cash used by operating activities for continuing operations for the six months ended March 31, 2024, and 2023 was $2,752,236 and $5,383,060, respectively. Cash provided by operating activities for discontinued operations for the six months ended March 31, 2023, was $2,488,144. Our negative operating cash flow was mainly the result of our net loss combined with operating changes in trade receivables.
Trade receivables increased by $2,326,185 or 25% to $11,535,880 at March 31, 2024, from $9,209,695 at September 30, 2023. The increase in trade receivables is attributable to increased sales in the Industrial Services segment.
Cash used by investing activities for continuing operations for the six months ended March 31, 2024, was $455,308 compared to $252,706 used for the six months ended March 31, 2023. Investing activities for the six months ended March 31, 2024, were driven by the Company’s purchase of property and equipment and investment in Masterpiece VR. Investing activities for the six months ended March 31, 2023, were driven by the Company’s purchase of property and equipment.
Cash provided by financing activities for the six months ended March 31, 2024, was $1,250,540 compared to using cash of $920,127 for the six months ended March 31, 2023. Financing activities were primarily driven by proceeds and payments on the Company’s revolving line of credit and payments on its secured debt. Financing activities for the six months ended March 31, 2023, were primarily driven by payments on the Company’s debt.
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While current debt indicates 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. The Company has $2,916,120 in cash and cash equivalents as of March 31, 2024. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of March 31, 2024, has available capacity of $980,766, (ii) continually reevaluated its pricing model on our Vicon brand to improve margins on those products, (iii) entered into an underwriting agreement in connection with underwritten public offering, the aggregate gross proceeds to the Company were approximately $10,035,000, before deducting underwriting discounts and other estimated expenses payable by the Company, and (iv) entered into a Standstill Agreement with Streeterville Capital, LLC (“Streeterville”) in which Streeterville agreed not to seek to redeem any portion of its two outstanding notes with the Company for a period of one year expiring on April 30, 2025, in exchange, the Company agreed to pay to Streeterville the greater of $4,000,000 or fifty percent (50%) of the net proceeds the Company receives from the sale of any of its common stock or preferred stock during the Standstill Period.
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 if successful, would be sufficient to meet the capital demands of our current operations for at least the next twelve months, there 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 or available liquidity/available capacity on our lines of credit to meet our short or long-term needs. Absent an ability to raise additional outside capital and restructure or refinance all or a portion of our debt, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date.
Each segment of the Company’s operations has positioned itself for growth and the Company’s long-term objectives include, increasing marketing and sales for the Company’s products and services in each segment, increasing the Company’s presence through collaboration partnerships in each segment and through strategic acquisitions of complementary businesses for each segment. These long-term objectives will require sufficient cash to complete, and the Company expects to fund these objectives with cash on hand, issuance of debt, and from proceeds from the sale of the Company’s securities, which may not be sufficient to fully implement our growth initiatives.
The condensed consolidated financial statements do not include any adjustments relating to this uncertainty.
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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 Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based on their evaluation, our management has concluded that as of March 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the six months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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Part II Other Information
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
See Risk Factors included in our Annual Report on Form 10-K filed with the SEC on December 28, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended March 31, 2024, 9,853 shares of the Company’s common stock have been issued in exchange for services valued at $40,000.
Subsequent to the reporting period, on April 8, 2024, the Company issued an aggregate of 1,946 shares of common stock in exchange for services valued at $9,000.
Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None.
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Item 6. Exhibits
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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: May 14, 2024 | By: | /s/ Saagar Govil . |
| Saagar Govil | ||
| Chief Executive Officer | ||
| Dated: May 14, 2024 | /s/ Paul J. Wyckoff . | |
| Paul J. Wyckoff | ||
Interim Chief Financial Officer and Principal Financial Officer | ||
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