CEMTREX INC 10-Q

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 technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual and augmented realities, industrial solutions, and intelligent security systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries. The Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS). Advanced Technologies (AT) Cemtrex’s Advanced Technologies segment operates several brands that deliver cutting-edge software and hardware technologies: - Vicon Industries – Vicon Industries, a majority owned subsidiary, provides end-to-end video 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 cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms. - SmartDesk – SmartDesk is focused on reinventing the workspace through developing state-of-the-art, modern, fully integrated, workplace solutions. - Cemtrex XR (“CXR”) – CXR is focused on realizing the potential of the metaverse. CXR delivers Virtual Reality (VR) and Augmented Reality (AR) solutions that provide higher productivity, progressive design and impactful experiences for consumer products, and various commercial and industrial applications. The Company is in the process of developing virtual reality applications for commercialization in the metaverse over the next couple years. CXR also invests in emerging startups focused on building best in class solutions for the metaverse. - Virtual Driver Interactive (“VDI”) – VDI provides innovative driver training simulation solutions for effective and engaging learning for all ages and skills. - Bravo Strong – Bravo Strong is a gaming and content studio working to building games and experiences for the metaverse. - good tech (formerly Cemtrex Labs) – good tech provides mobile, web, and enterprise software application development services for startups to large enterprises. 22 Industrial Services (IS) Cemtrex’s IS segment operates through a brand, Advanced Industrial Services (“AIS”), that offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding. 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. 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, 2021. Results of Operations – For the three months ending December 31, 2021, and 2020 Total revenue for the three months ended December 31, 2021, and 2020 was $10,672,489 and $8,836,076, respectively, an increase of $1,863,413, or 21%. Loss from operations for the three months ended December 31, 2021, was $4,054,523 compared to $2,045,951 for the three months ended December 31, 2020, an increase on the loss of $2,008,572, or 98%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to shutdowns and limited operations of businesses due to the COVID-19 crisis during the same period last year. Loss from operations increased due to increased expenses related to personnel costs, travel, and research and development costs. Revenues Our Advanced Technologies segment revenues for the three months ended December 31, 2021, increased by $945,648 or 20% to $5,618,517 from $4,672,869 for the three months ended December 31, 2020. This increase is mainly due to an improvement in economic climate from the impact of the COVID-19 crisis during the same period last year. Our Industrial Services segment revenues for the three months ended December 31, 2021, increased by $890,765 or 21%, to $5,053,972 from $4,163,207 for the three months ended December 31, 2020. This increase is mainly due to an improvement in economic climate from the impact of the COVID-19 crisis during the same period last year. Gross Profit Gross Profit for the three months ended December 31, 2021, was $3,869,194 or 36% of revenues as compared to gross profit of $4,005,470 or 45% of revenues for the three months ended December 31, 2020. Gross profit decreased in the three months ended December 31, 2021, compared to the three months ended December 31, 2020, due to increased cost of revenues. The Company’s gross profit margins vary from product to product and from customer to customer. 23 General and Administrative Expenses General and administrative expenses for the three months ended December 31, 2021, increased $1,194,808 or 22% to $6,612,004 from $5,417,196 for the three months ended December 31, 2020. General and administrative expenses as a percentage of revenues was 62% and 61% of revenues for the three-month periods ended December 31, 2021, and 2020, respectively. The increase in general and administrative expenses is the result of increased personnel, travel, marketing and sales expenses. Research and Development Expenses Research and Development expenses for the three months ended December 31, 2021, was $1,311,713 compared to $634,225 for the three months ended December 31, 2020. Research and Development expenses are primarily related to the Advanced Technologies Segment’s development of proprietary technology and further developments of the SmartDesk and Artificial Intelligence (AI) and next generation solutions associated with security and surveillance systems software. Other Income/(Expense) Other income/(expense) for the first quarter of fiscal 2022, was $(475,300) as compared to $342,047 for the first quarter of fiscal 2021. Other income/(expense) for the three months ended December 31, 2021, included the gain on the forgiveness of our PPP loans of $971,500. Provision for Income Taxes During the first quarter of fiscal 2022, the Company did not record an income tax provision compared to $28,954 for the first quarter of fiscal 2021. 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 their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards. Net income/(loss) attributable to Cemtrex, Inc. shareholders The Company had a net loss attributable to Cemtrex, Inc. shareholders of $4,477,951, or 42% of revenues, for the three month period ended December 31, 2021, as compared to a net loss attributable to Cemtrex, Inc. shareholders of $1,692,611 or 19% of revenues, for the three months ended December 31, 2020. Net loss attributable to Cemtrex, Inc. shareholders increased in the first quarter as compared to the same period last year was primarily due to costs of revenues and operating expenses mentioned above. 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 $12,801,113 at December 31, 2021, compared to $15,088,892 at September 30, 2021. This includes cash and equivalents and restricted cash of $11,972,430 at December 31, 2021, and $17,186,323 at September 30, 2021. The decrease in working capital was primarily due to the Company’s use of cash to build inventory and pay down liabilities during the first quarter of fiscal year 2022. Accounts receivable decreased $2,263,147 or 29% to $5,547,749 at December 31, 2021, from $7,810,896 at September 30, 2021. The decrease in accounts receivable is attributable to collections of receivables from the last quarter of fiscal year 2021 and lower revenues in this quarter and compared to the fourth quarter of fiscal year 2021. Inventories increased $1,428,411 or 25% to $7,085698 at December 31, 2021, from $5,657,287 at September 30, 2021. The increase in inventories is attributable to the purchase of inventories for new products the Company plans to ship in the future. Cash used by operating activities for the three months ended December 31, 2021 and 2021 was $4,352,702 and $1,078,052 respectively. The decrease in operating cash flows was primarily due to purchases on inventory and payment of accounts payable and accrued expenses. Cash used by investment activities for the three months ended December 31, 2021 and 2020 was $291,666 and $675,487, respectively. Investing activities for the first quarter of fiscal year 2022 were driven by the Company’s purchase of fixed assets. Cash used by financing activities for the three months ended December 31, 2021 and 2020 was $632,753 and $1,629,708, respectively. Financing activities were primarily driven by payments on bank loans and notes. We believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations for fiscal year 2022 (ending September 30, 2022). 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. 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 expansion goals and working capital needs. 24