What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-28 compared with 2022-01-21 · 69 added, 258 removed, 44 unchanged (88% of the section changed)

15 unchanged sentences

Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

Impacts of COVID-19 on our Business

current COVID-19 pandemic has impacted our business operations and the results of our operations in this fiscal year, primarily with

delays in expected orders by many customers and new product development, including newer versions of surveillance software since our

technical facility in Pune, India has been under lock down on multiple occasions.

Overall bookings level in the IS segment of our business

were down by more than 20%, however our AT segment has experienced relatively less slow down.

In addition, due to delays in certain supply

chain areas, the expected launch times of our new products and new versions has resulted in delays of several months.

broader implications of COVID-19 on our results from operations going forward remains uncertain.

The COVID-19 pandemic has the potential

to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions,

which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities.

However, on the other hand, opportunities in the video surveillance field have been growing for Vicon products.

extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments,

which cannot be reasonably estimated at this time.

Future developments include the duration, scope and severity of the pandemic, the

emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate its

impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of

treatments or vaccines, and the resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and

rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.

Accounting Policies and Estimates

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Statements in this 2022 Form 10-K.

of Financial Statements

February 23, 2021, Cemtrex’s Board of Directors determined that certain transactions between Cemtrex Inc.

and First Commercial,

a company owned by former Executive Director, former Controlling Shareholder and former CFO, Aron Govil, were incorrectly handled and

accounted for.

total amount of disputed transfers was approximately $7,100,000 and occurred in fiscal year 2017 in the amount of $5,600,000 and in fiscal

year 2018 in the amount of $1,500,000.

Cemtrex did not find any other such transfers during this period or thereafter, upon further review

of the Company’s records.

the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial

The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted

for, and subsequent years were affected by the roll forward effects of these entries.

The Company found unsupported advertising expenses

in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000

of intangible assets and $975,000 of research and development expenses, as translated at from Indian Rupee at the time, were recorded

on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated.

The total amount of unsubstantiated

transfers recorded by Cemtrex India, and the unsupported advertising expense recorded by Cemtrex, Inc.

sums to $7,100,000, corresponding

with the total amount in question regarding First Commercial transfers during fiscal years 2017 and 2018.

part of the restatement investigation, it was determined that the Company did not follow GAAP in the treatment of its Series 1 Preferred

The Company currently has a deficit in retained earnings and in accordance with guidance has reversed the accrual for dividends

payable and placed the amount of the accrual back into retained earnings.

response to the above discussed restatements, the Company revisited its fiscal year 2020 financial statements.

As a result, the following

items have been restated, (i) inventory valuation, recognition of discontinued operations, accrued expenses, and accounts payable of

the Company’s subsidiary Vicon Industries, Inc., (ii) fixed asset valuation and deferred revenue of the Company’s subsidiary

Advanced Industrial Services, Inc., some of these valuation error dates to prior to acquisition of each entity.

and Adjusting Entries

Company has determined that these transactions are not material in the years that they occurred and conclude that prior financial reports

can be relied upon.

The Company’s determination is based on the following:

The adjustments do not cause any changes to the previously

reported cash and debt balances as of the end of each of the periods in FY 2019 and 2020.

The adjustments also do not cause any changes

to revenues in any of the prior periods.

In addition, the Company expects to maintain compliance with its debt covenants based on a preliminary

review of the covenants for all the impacted periods.

The Company has also determined that the adjustments have little effect on the

trend of earnings over the last three fiscal years.

In 2017 the operations of the Company were vastly different with both the environmental

and circuit board manufacturing segments accounting for approximately 75% of revenues.

These businesses are now either sold or discontinued.

The current reported 2017 financial statements of the Company do not give an accurate representation of the Company today because only

16% of the $120M business operations are still a part of current operations.

table below represents the balances of the affected accounts on the Condensed Consolidated Balance Sheets as of September 30, 2020, the

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the year ended September 30, 2020, Condensed Consolidated

Statement of Stockholders’ Equity, and the Condensed Consolidated Statements of Cash Flows for the year ended September 30, 2020.

Consolidated Balance Sheets

Balance as reported on September 30, 2020

Adjustment of net value of intangible assets

Adjustment resulting from reaudit of Fiscal Year 2020 Financial Statements

Adjustment of net value of inventory

Adjustment of net value of fixed assets

Cumulative effect of restatement adjustments

Loss on amounts transferred to First Commercial

Restatement on Dividends

Cumulative effect of currency translation

Adjusted balance at September 30, 2020

Cash and equivalents

Prepaid expenses and other assets

Property and equipment, net

$ (2,597,185 )

Inventory –net of allowance for inventory obsolescence

$ (1,847,349 )

Accounts payable

Accrued expenses

Deferred revenue

Other long-term liabilities

Series 1 preferred stock dividends payable

$ (1,081,690 )

Additional paid-in capital

$ (3,091,570 )

Retained earnings (accumulated deficit)

$ (33,172,690 )

$ (7,100,000 )

Accumulated other comprehensive income

Consolidated Statements of Operations and Comprehensive Income/(Loss)

For the year ended

September 30, 2020

Previously reported

Net loss available to Cemtrex, Inc.

$ (13,105,005 )

$ (10,470,081 )

Cost of revenues

General and administrative

$ (1,206,938 )

Preferred dividends

$ (3,171,230 )

Loss Per Share-Basic

Loss Per Share-Diluted

Consolidated Statement of Stockholders’ Equity

For the year ended

September 30, 2020

Previously reported

Retained earnings (accumulated deficit) at September 30, 2019

$ (20,067,685 )

$ (3,562,301 )

$ (23,629,986 )

Dividends pad in series preferred shares

$ (2,089,540 )

Accrued dividends

$ (1,081,690 )

Net income/(loss)

$ (9,706,659 )

$ (10,470,081 )

Retained earnings (accumulated deficit) at September 30, 2020

$ (33,172,690 )

$ (34,100,067 )

Accumulated other comprehensive income/(loss)at September 30, 2019

Foreign currency translation gain

Income in noncontrolling interest

Accumulated other comprehensive income/(loss) at September 30, 2020

Additional paid-in capital at September 30, 2019

$ (1,002,030 )

Additional paid-in capital at September 30, 2020

$ (3,091,570 )

Non-controlling interst of Vicon at September 30, 2019

Income in noncontrolling interest

Non-controlling interst of Vicon at September 30, 2020

Consolidated Statements of Cash Flows

For the year ended

September 30, 2020

Previously reported

$ (9,706,659 )

$ (10,242,965 )

Depreciation and amortization

$ (1,586,651 )

Accrued expenses

Net cash used by operating activities - continuing operations

$ (3,786,202 )

$ (3,347,846 )

February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.

part of the Settlement Agreement, Mr.

Govil was required to pay the Company consideration with a total value of $7,100,000 (the “Settlement

Amount”) by entering into the Agreement.

The Settlement Amount was satisfied in a combination of Mr.

Govil forfeiting certain Preferred

Stock and outstanding options and executing a secured note in the amount of $1,533,280.

The Independent Board of Directors in coordination

with Management concluded the settlement represented fair value.

March 2021, Mr.

Govil returned to the Company 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock,

469,949 shares of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively,

the “Securities”).

For the purposes of accounting recognition, the Company determined the fair value of the Series A, Series

C, and Series 1 Preferred stock based on the closing trading value of the Series 1 Preferred Stock on the date of the agreement.

options surrendered were valued using the Black-Scholes option pricing model.

Company recognized the gain with respect to the surrendered Securities during this reporting period.

The gain of $3,674,165 is reported

as Settlement Agreement - Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

discussed above, Mr.

Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280.

The Note matures

and is due in full in two years and bears interest at 9% per annum and is secured by all of Mr.

Govil’s assets.

agreed to sign an affidavit confessing judgment in the event of a default on the Note.

While the Company believes the note is fully collectible,

in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain will not be recognized until the note is paid.

the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated

Statements of Operations and Comprehensive Income/(Loss).

of Operations - For the fiscal years ending September 30, 2022 and 2021

revenue for the years ended September 30, 2021, and 2020 was $43,130,934 and $43,518,384, respectively, a decrease of

$387,450, or 1%.

Net loss attributable to Cemtrex, Inc.

shareholders for the years ended September 30, 2021, and 2020 was

a $7,807,995 and $10,470,081 respectively, a decrease of the loss of $2,662,086 or 25%.

Total revenue for the fiscal

year decreased, as compared to total revenue in the same period last year, due to sales decreases in the Advanced Technology Segment

offset by increases in the Industrial Services Segment.

Net loss attributable to Cemtrex, Inc.

shareholders decreased due to onetime

other income items related to forgiveness and credits related to COVID-19 programs offset by the losses on discontinued operations.

Advanced Technologies segment revenues for the years ended September 30, 2021, and 2020 were $24,154,488 and $25,750,684,

respectively, a decrease of $1,596,196 or 6%.

This decrease represents a decrease in the video security solutions products offset

by an increase in SmartDesk and IoT products mostly as a result of the release of the SmartDesk Connect product and the addition of

the VDI product line.

revenue for the years ended September 30, 2022, and 2021 was $50,274,923 and $43,130,934, respectively, an increase of $7,143,989, or

Net loss for the years ended September 30, 2022, and 2021 was $13,292,242 and $7,886,269 respectively, an increase of the

loss of $5,405,973 or 69%.

Total revenue for the period increased, as compared to total revenue in the same period last year, due to

increased demand for the Company’s products and services.

Net loss increased due to an impairment of goodwill, write-off of related

party receivables, increased expenses related to personnel costs, depreciation and amortization, insurance, travel, and research and

development costs.

Advanced Technologies segment revenues for the years ended September 30, 2022, and 2021 were $29,068,907 and $24,154,488, respectively,

an increase of $4,914,419 or 20%.

This increase is due to an increased demand for security technology products under our Vicon brand.

Industrial Services segment revenues for the year ended September 30, 2022, increased by $2,229,570 or 12%, to $21,206,016 from $18,976,446

for the year ended September 30, 2021.

The increase was primarily due to the increase in demand for services as

the COVID-19 crisis receded during fiscal year 2021.

Profit for the year ended September 30, 2021, was $16,968,352 or 39% of revenues as compared to gross profit of

$17,621,203 or 40% of revenues for the year ended September 30, 2020.

The decrease in gross profit dollars and percentage

in the year ended September 30, 2020, as compared to the prior year, was a result of the sale of products and services with lower gross

profit margins.

This increase is mainly due to an increased demand for the segment’s products and services.

Profit for the year ended September 30, 2022, was $19,055,518 or 38% of revenues as compared to gross profit of $16,968,352 or 39% of

revenues for the year ended September 30, 2021.

The decrease in gross profit as a percentage of revenue for the year ended September

30, 2022, as compared to the prior year, was due to increased cost of revenues as a result of increased costs for goods, and increased

transportation costs for goods.

The Company’s gross profit margins vary from product to product and from customer to customer.

and Administrative Expenses

and Administrative Expenses for the year ended September 30, 2021, increased $2,174,768 or 11% to $22,538,496

from $20,363,728 for the year ended September 30, 2020.

The increases in General and Administrative Expenses in dollars is

the result of increases in personnel costs, audit and insurance, offset by savings measures enacted during the fiscal year.

General and Administrative Expenses

for the year ended September 30, 2022, increased $5,217,663 or 23% to $27,756,159 from $22,538,496 for the year ended September 30, 2021.

The increase in general and administrative expenses is the result of increased personnel, increased by approximately 21%, travel, increased

by approximately 96%, depreciation and amortization, increased by approximately 39%, legal, and professional accounting fees increased

by approximately 59%, and a one-time write off of related party receivables of $708,512.

and Development Expenses

and Development expenses for the year ended September 30, 2022, and 2021 were $4,851,720 and $3,171,676, respectively.

Research and Development expenses have increased with the increased capital resources of the Company and focus on new product development.

The increase in

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.

Income/(Expense)

income/(expense) of fiscal 2021 was $9,511,032 as compared to $(2,786,424) for fiscal 2020.

Other income/(expense) for the year

ended September 30, 2021, included the following one-time items (i) the settlement with Aron Govil, generated other income of $3,674,165,

(ii) employee retention credits of $733,426 (iii) other income resulting from the forgiveness of our PPP loans of $5,320,485.

Additionally,

the company had realized and unrealized gains on marketable securities of $2,612,632.

Income Tax Benefit/(Expense)

the fiscal year of 2021 we recorded an income tax expense of $375,434 compared to an expense of $2,073,835 for the fiscal year of 2020.

The decrease in the expense for income tax is mainly due to the adjustment in the valuation allowance in the Company’s deferred

taxes in fiscal year 2020.

Income/(Loss)

Company had a net loss attributable to Cemtrex, Inc.

shareholders of $7,807,995 or 18% of revenues, for the year ended

September 30, 2021, as compared to a net loss of $10,470,081 or 24% of revenues, for the year ended September 30,

Net loss attributable to Cemtrex, Inc.

shareholders in this period as compared to the previous period was lower due to the one-time

other income items discussed above business offset by the loss on discontinued operations.

For the year ended September 30, 2021, the

Company had a loss of $8,280,047 on discontinued operations and for the year ended September 30, 2020, the Company had a loss

of $812,895 on discontinued operations.

income/(expense) for the year ended September 30, 2022 was $3,367,574 as compared to $9,511,032 for the year ended 2021.

Other income/(expense)

for the year ended September 30, 2022, included the following one-time items (i) the settlement with Securities and Exchange Commission,

generated other expense of $2,200,000, (ii) other income resulting from the forgiveness of our PPP loans of $971,500.

Additionally, the

company had realized gains on marketable securities of $8,402,125.

Other income/(expense) for the year ended September 30, 2021, included

the following one-time items (i) the settlement with Aron Govil, generated other income of $3,674,165, (ii) employee retention credits

of $733,426 (iii) other income resulting from the forgiveness of our PPP loans of $5,320,485.

Additionally, the company had realized

and unrealized gains on marketable securities of $2,612,632.

Tax Benefit/(Expense)

the fiscal year of 2022 we recorded an income tax benefit of $208,545 compared to an expense of $375,434 for the fiscal year of 2021.

The decrease in the expense for income tax is mainly due to an increase in the net loss compared to the prior year.

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

1 unchanged sentence

and Capital Resources

capital was $15,088,892 at September 30, 2021, compared to $19,908,211 at September 30, 2020.

This includes cash

and cash equivalents and restricted cash of $17,186,323 at September 30, 2021, and $21,069,821 at September 30, 2020, respectively.

The decrease in working capital was primarily due to the decrease in the Company’s current assets of $1,456,511 and an increase

in the Company’s current liabilities of $3,362,808.

The primary reason for the decrease in current assets was the cash used

for operations during the fiscal year and the primary reason for the increase in current liabilities was the increase in the Company’s

current portion of log-term liabilities.

receivable increased by $1,124,099 or 17% to $7,810,896 at September 30, 2021, from $6,686,797 at September

The increase in accounts receivable is mainly due to offering some extended payment terms to maintain revenue levels.

Working capital was $4,754,493

at September 30, 2022, compared to $15,088,892 at September 30, 2021.

This includes cash and cash equivalents and restricted cash of $12,188,096

at September 30, 2022, and $17,186,323 at September 30, 2021, respectively.

The decrease in working capital was primarily due to the decrease

in the Company’s current assets of $4,262,796 and an increase in the Company’s current liabilities of $5,861,395.

primary reason for the decrease in current assets was the cash used for operations during the fiscal year and the decrease in trade receivables,

net, trade receivables – related party, the primary reason for the increase in current liabilities was the increase in the Company’s

current portion of long-term liabilities, due to the maturity of our Notes Payable.

activities for continuing operations used $16,093,504 for the year ended September 30, 2022, compared to using $10,051,165 of cash for

the year ended September 30, 2021.

receivables decreased by $1,850,210 or 24% to $5,960,686

at September 30, 2022, from $7,810,896 at September 30, 2021.

The decrease in trade receivables is mainly due to maintaining

collection efforts.

increased by $3,874,395 or 68% to $9,531,682 at September 30, 2022, from $5,657,287 at September 30, 2021.

The increase in inventories is attributable to the company’s purchase of inventory for its security business to maintain

sufficient stock on hand for sale.

activities for continuing operations used $10,051,165 for the year ended September 30, 2021, compared to using $3,347,846

of cash for the year ended September 30, 2020.

In fiscal 2020 discontinued operations used $438,356.

activities for continuing operations provided $840,901 of cash during the year ended September 30, 2021, compared to using

$2,432,500 during the year ended September 30, 2020.

activities for continuing operations provided $4,445,932 for the year ended September 30, 2021, as compared to providing $24,836,994

in inventories is attributable to the company’s purchase of inventory for the security business of its Advanced Technology segment

to maintain sufficient stock on hand for sale to overcome the recent supply chain delays.

activities for continuing operations provided $6,610,127 of cash during the year ended September 30, 2021, compared to $840,901 provided

in the year ended September 30, 2021.

In fiscal 2021 our financing activities were mainly comprised of the proceeds from notes payable

offset by payments on our debt.

In fiscal 2020 discontinued operations used $374,538.

believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations during

the 2022 fiscal year (ending September 30, 2022).

Any major increases in sales, particularly in new products, may require additional

capital investment.

Failure to obtain sufficient capital could materially adversely impact our growth potential.

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.

Investing activities for fiscal year 2022 were mainly driven by the purchase and sale of marketable

activities for continuing operations provided $5,022,537 for the year ended September 30, 2022, as compared to $4,445,932 provided in

the year ended September 30, 2021.

In fiscal 2022 our financing activities were mainly comprised of the proceeds from notes payable offset

by payments on our debt.

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 for the next twelve months.

We currently do not have adequate cash to meet our short or long-term needs.

consolidated financial statements do not include any adjustments relating to this uncertainty.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis