CEMTREX INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the impact of competitive products and their pricing; unexpected manufacturing or supplier problems; the Company’s ability to maintain sufficient credit arrangements; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the Company’s SEC reports, including this report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments. Significant Accounting Policies and Estimates The following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses, and assets and liabilities during the periods reported. Estimates are used when accounting for certain items such as revenues, allowances for returns, early payment discounts, customer discounts, doubtful accounts, employee compensation programs, depreciation and amortization periods, taxes, inventory values, and valuations of investments, goodwill, other intangible assets and long-lived assets. We base our estimates on historical experience, where applicable and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Please see Note 2 for detailed information regarding our significant accounting policies and estimates in the Notes to Consolidated Financial Statements in this 2022 Form 10-K. 24 Results of Operations - For the fiscal years ending September 30, 2022 and 2021 Total 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 17%. 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. Revenues Our 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. Our 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. This increase is mainly due to an increased demand for the segment’s products and services. Gross Profit Gross 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. General and Administrative Expenses 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. Research and Development Expenses Research and Development expenses for the year ended September 30, 2022, and 2021 were $4,851,720 and $3,171,676, respectively. 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. Other Income/(Expense) Other 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. 25 Income Tax Benefit/(Expense) During 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. 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 $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. The 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. Operating 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. Trade 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. Inventories 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 the security business of its Advanced Technology segment to maintain sufficient stock on hand for sale to overcome the recent supply chain delays. Investing 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. Investing activities for fiscal year 2022 were mainly driven by the purchase and sale of marketable securities. Financing 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. The consolidated financial statements do not include any adjustments relating to this uncertainty. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required under Regulation S-K for “smaller reporting companies”. 26