CEMTREX INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2022 due to the material weaknesses described below. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with GAAP. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its evaluation, our management concluded that as of September 30, 2022, that our internal control over financial reporting were not effective and there are material weaknesses in our internal control over financial reporting. The material weaknesses relate to the Company lacking sufficient, qualified, accounting personnel. The shortage of qualified accounting personnel resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. Additionally, the Company’s current processes and systems do not provide for necessary timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. These deficiencies are common in small companies, similar to us, with limited personnel. In order to mitigate the material weaknesses, the Company has implemented measures that they believe have mitigated these weaknesses but has not had sufficient time to fully test these measures. These measures include; (i) updating our accounting software to ensure tighter control over entries and providing improved data for timely reconciliation of certain accounts, and (ii) engaged a third-party accounting firm to provide review of period-end reporting processes, accounting policies and public disclosures 27 This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to Commission rules that permit the Company to provide only management’s report in this annual report. This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. Changes in Internal Control Over Financial Reporting During the year ended September 30, 2022, The Company engaged a third-party accounting firm to assist with entity level controls around the review of period-end reporting processes, accounting policies and public disclosures that is reasonably likely to materially affect our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers of the Registrant As of the date of this Annual Report, the members of our Board of Directors and Executive Officers are: Name and Address Age Positions and Offices Saagar Govil 36 Chairman of the Board of Directors,President, 276 Greenpoint Avenue, Suite 208 Chief Executive Officer, & Director Brooklyn, NY 11222 Paul J. Wyckoff 53 Interim Chief Financial Officer 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 Brian Kwon 36 Director 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 Manpreet Singh 39 Director 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 Metodi Filipov 59 Director 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 28 Principal Occupations and Business Experience of Directors and Executive Officers The following is a brief account of the business experience of the Company’s directors: Saagar Govil is the Company’s Chairman since June 2014, and the Chief Executive Officer and President since December 2011. He has been working at Cemtrex since 2008, initially as a field engineer, subsequently moving into sales, and management roles as Vice President of Operations. Saagar was recently recognized as a Forbes’ 30 Under 30 in 2016, Business Insiders #17 on Top 100 of Silicon Alley in 2015, and Top 40 Under 40 by Stony Brook University in 2014. Saagar Govil has a B.E. in Materials Engineering from Stony Brook University and completed the PLD program at Harvard Business School. Paul J. Wyckoff was appointed Cemtrex’s Interim Chief Financial Officer on January 28, 2021, where he is responsible for the Company’s financial planning, accounting, tax, and business process functions. Mr. Wyckoff has been with Cemtrex since March of 2014 when he joined as the Manager of Financial Reporting and since January of 2019 has served as the Company’s Corporate Controller. Prior to joining Cemtrex, Mr. Wyckoff was the Controller at Vaso Corporation (formerly Vasomedical, Inc.) a medical device distribution company based in Plainview, NY. Mr. Wyckoff has nearly 20 years of private accounting experience and holds a B.S. in Accounting from SUNY College at Old Westbury. Brian Kwon was appointed to the as a director on September 28, 2021 and is presently the President and Chief Procurement Officer of H Mart. Brian has extensive operations experience in purchasing, distribution, logistics, IT, HR, and e-commerce from his time at H-Mart. Brian has completed the Harvard Business School General Management Program. Manpreet Singh was appointed as a director on November 1, 2021 and is currently the founder and Chief Investment Officer of Singh Capital Partners (SCP), a multifamily office that directs investments into venture capital, real estate, and growth equity. SCP invests capital on behalf of Fortune 500 CXOs, Unicorn founders and operators and has executed investments in North America, Europe and Asia. He serves on the numerous non-profit and private company boards including AcquCo, US Inspect, Embrace Software, Snowball Industries, Shukr Investments, Suburban Hospital (John Hopkins Medicine) and Dingman Center at the Smith School of Business. He is a CFA charterholder and Manpreet received his MBA from the Wharton School of Business in Entrepreneurship, Finance, and Real Estate. He also holds a B.S. in Finance with a citation in Entrepreneurship from the University of Maryland, College Park. Mr. Singh’s extensive knowledge of finance allow him to make valuable contributions to the Board. Metodi Filipov was appointed to the Board on February 9, 2018 and is an entrepreneur and technology executive with over 25 years of experience creating, operating and driving growth for technology companies. He has a proven track record of identifying business opportunities and building compelling products. Metodi was formerly VP of Operations at Cemtrex from 2008 to 2010. After Cemtrex, Mr. Filipov served as Managing Director of Bianor, a mobile consulting company providing solutions for enterprise clients. There, he led the development and implementation of innovative mobile products in industries including aviation, pharmaceutical and entertainment. Metodi co-founded Flipps Media, an OTT video distribution platform positioned to be an alternative to traditional cable pay-per-view systems. Before Bianor, he served as product lead for Raritan, a data center technology organization, where he was an integral part of the transition team that led the company to becoming a global IT service management solutions provider. Prior to joining Raritan, Mr. Filipov served as VP of Operations at ISS, a security products company. There, he successfully managed product development and contract manufacturing across continents. Mr. Filipov has extensive experience delivering superior solutions with a focus on optimized efficiency and productivity. Each director of the Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by the Company’s shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified. 29 Meetings of the Board of Directors During the fiscal year ended September 30, 2022 (“Fiscal 2022”), the Board of Directors held four meetings. Involvement in Certain Legal Proceedings During the past 10 years, other than as set forth below, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K, including: 1. Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing; 2. Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities: i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; ii. Engaging in any type of business practice; or iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; 4. Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity; 5. Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; 6. Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; 7. Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: i. Any Federal or State securities or commodities law or regulation; or ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or 30 8. Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. See subsection titled “Settlement with the Securities and Exchange Commission” under Item 1. Business of this Annual Report on Form 10-K, which is incorporated herein by reference. Committees of the Board Our Board of Directors currently has one standing committee: The Audit Committee. Compensation Committee As a “Controlled Company” as such term is defined under NASDAQ Listing Rule 5615, the Company is not required to have a Compensation Committee. Audit Committee The Audit Committee, which has been established in accordance with requirements of Section 3(a)(58)(A) of the Exchange Act, is comprised of the following independent directors: Metodi Filipov (Chair), Brian Kwon, and Manpreet Singh. The Board of Directors has determined that each member of the Audit Committee: (i) is independent, (ii) meets the financial literacy requirements of the Nasdaq Rules, and (iii) meets the enhanced independence standards established by the SEC. In addition, the Board has determined that Mr. Filipov qualifies as an “audit committee financial expert” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Exchange Act by the SEC. The Audit Committee is primarily concerned with the integrity of our financial statements, the independence, qualifications and performance of our independent registered public accounting firm, and our compliance with legal requirements. The Audit Committee operates under a written charter approved by the Board of Directors and the Audit Committee that reflects standards and requirements adopted by the SEC and NASDAQ. As indicated in its charter, the Audit Committee’s duties include selecting and engaging our independent registered public accounting firm; reviewing the scope of the audit to be conducted by our independent registered public accounting firm; overseeing our independent registered public accounting firm and reviewing the results of its audit; reviewing our financial reporting processes, including the accounting principles and practices followed and the financial information provided to shareholders and others; overseeing our internal control over financial reporting and disclosure controls and procedures; and serving as our legal compliance committee. Nomination of Directors The Company does not currently have a standing nominating committee or a formal nominating committee charter. As a “Controlled Company” as such term is defined by NASDAQ Listing Rule 5615 the Company is not required to have a Nominating Committee. Currently, the independent members of the Board (Messrs. Kwon, Singh, Wagner, and Filipov), rather than a nominating committee, approve or recommend to the full Board those persons to be nominated. The Board believes that the current method of nominating directors is appropriate because it allows each independent board member input into the nomination process and does not unnecessarily restrict the input that might be provided from an independent director who could be excluded from a committee. Currently, three of the five Directors are independent. Furthermore, the Board has adopted by resolution a director nomination policy. The purpose of the policy is to describe the process by which candidates for inclusion in the Company’s recommended slate of director nominees are selected. The director nomination policy is administered by the Board. Many of the benefits that would otherwise come from a written committee charter are provided by this policy. 31 In the ordinary course, absent special circumstances or a change in the criteria for Board membership, the incumbent directors who continue to be qualified for Board service and are willing to continue as directors are re-nominated. If the Board thinks it is in the best interest of the Company to nominate a new individual for director in connection with an annual meeting of shareholders, or if a vacancy occurs between annual shareholder meetings, the Board will seek potential candidates for Board appointments who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. Director candidates will be selected based on input from members of the Board, senior management of the Company and, if deemed appropriate, a third-party search firm. Candidates for Board membership must possess the background, skills and expertise to make significant contributions to the Board, to the Company and its shareholders. Desired qualities to be considered include substantial experience in business or administrative activities; breadth of knowledge about issues affecting the Company; and ability and willingness to contribute special competencies to Board activities. The Board of Directors intends to review the director nomination policy from time to time to consider whether modifications to the policy may be advisable as the Company’s needs and circumstances evolve, and as applicable legal or listing standards change. The Board may amend the director nomination policy at any time. The Board will consider director candidates recommended by shareholders and will evaluate such director candidates in the same manner in which it evaluates candidates recommended by other sources, as described above. Recommendations must be in writing and mailed to Cemtrex, Inc., 276 Greenpoint Avenue, Suite 208, Brooklyn, NY 11222, Attention: Corporate Secretary, and include all information regarding the candidate as would be required to be included in a proxy statement filed pursuant to the proxy rules promulgated by the SEC if the candidate were nominated by the Board of Directors (including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). The shareholder giving notice must provide (i) his or her name and address, as they appear on the Company’s books, and (ii) the number of shares of the Company which are beneficially owned by such shareholder. The Company may require any proposed nominee to furnish such other information it may require to be set forth in a shareholder’s notice of nomination which pertains to the nominee. Director Compensation The members of the Board receive quarterly compensation of $5,000 and stock options. Additionally, we reimburse our directors for expenses incurred in connection with attending board meetings. Insider Trading Policy We recognize that the Company’s executive officers and directors may sell shares from time to time in the open market to realize value to meet financial needs and diversify their holdings, particularly in connection with exercises of stock options. All such transactions are required to comply with the Company’s insider trading policy. Section 16 (a) Beneficial Ownership Reporting Compliance of the Securities Exchange Act Section 16(a) of the Exchange Act requires directors, executive officers and persons who beneficially own more than 10% of our common stock (collectively, “Reporting Persons”) to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on our review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, we believe that during the year ended September 30, 2021 all Reporting Persons timely complied with all applicable filing requirements. Communications with Directors Shareholders, associates of the Company and other interested parties may communicate directly with the Board of Directors, with the non-management Directors or with a specific Board member, by writing to the Board (or the non-management Directors or a specific Board member) and delivering the communication in person or mailing it to: Board of Directors, Privileged & Confidential, c/o Saagar Govil, CEO, Cemtrex, Inc., 276 Greenpoint Avenue, Suite 208, Brooklyn, NY 11222. Correspondence will be discussed at the next scheduled meeting of the Board of Directors, or as indicated by the urgency of the matter. From time to time, the Board of Directors may change the process by which shareholders may communicate with the Board of Directors or its members. Any changes in this process will be posted on the Company’s website or otherwise publicly disclosed. 32 Corporate Governance The Company has an ongoing commitment to good governance and business practices. In furtherance of this commitment, we regularly monitor, and are briefed by outside counsel on, developments in the area of corporate governance and securities law and review our policies and procedures in light of such developments. We comply with the rules and regulations promulgated by the SEC and implement other corporate governance practices we believe are in the best interests of the Company and the shareholders. Code of Ethics We have adopted a code of ethics as of June 28, 2016, that applies to our principal executive officer, principal financial officer, as well as our employees. Our standards are in writing and are posted on our website. The following is a summation of the key points of the Code of Ethics we adopted: Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships; Full, fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by our Company; Full compliance with applicable government laws, rules and regulations; The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and Accountability for adherence to the code. Board Leadership and Structure Saagar Govil, our Chief Executive Officer, also serves as Chairman of the Board of Directors. The Board believes that the Company and its shareholders are best served by having the Chief Executive Officer also serve as Chairman of the Board. The Board also believes that this structure is appropriate in light of the size of our Company and corresponding size of our Board and the complexity of our business. We believe that Mr. Govil is best positioned to develop agendas that ensure that our Board’s time and attention are focused on the matters that are most critical to us. ITEM 11. EXECUTIVE COMPENSATION The compensation discussion addresses all compensation awarded to, earned by, or paid to the Company’s named executive officers (“NEO”), which currently consists of Saagar Govil, the Chairman, Chief Executive Officer, President and Secretary, and Paul J. Wyckoff, Interim CFO. As of December 23, 2022, Saagar Govil and Paul J. Wyckoff are currently earning compensation from the Company. Paul J. Wyckoff was named Interim CFO on January 28, 2022. Set forth below is the aggregate compensation for services rendered in all capacities to us during our fiscal years ended September 30, 2021, and 2022 by our executive officers. 33 OPTION YEAR SALARY BONUS AWARDS OTHER TOTAL PRINCIPAL AND POSITION ($) ($) ($) ($) ($) Saagar Govil 2022 600,000 - - 37,534 637,534 Chairman od the Board 2021 600,000 300,000 - 31,830 931,830 Chief Executive Officer, and President Paul J. Wyckoff 2022 97,615 - - 4,557 102,172 Interim Chief Financial Officer Christopher C. Moore 2022 86,250 - - 4,848 91,098 Former Chief Financial Officer 2021 137,250 - 185,803 (1) 7,528 330,581 Aron Govil 2021 9,423 9,423 FormerExecutive Director and Chief Financial Officer Priscilla Popov 2021 46,500 - - - 46,500 Former Chief Financial Officer (1) The Option Awards Column in the table above reflects the aggregate grant date fair value of the award granted in the year noted. Please see Options/SAR Grants in the Last Fiscal Year below for more information relating to this option grant. NARRATIVE TO SUMMARY COMPENSATION TABLE At this time, we do not have an employment agreement with Saagar Govil or Paul J. Wyckoff, though the Company may enter into such an agreement with them on terms and conditions usual and customary for the industry. All amounts paid to our officers in fiscal year end 2022 were approved by the Company’s board of directors. The Company does not currently have “key man” life insurance on Mr. Govil or Mr. Wyckoff. OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR On April 28, 2022, the Company granted Brian Kwon, Manpreet Singh, Chris Wagner, and Metodi Filipov, all Directors of the Company, stock options for 102,565 shares each, 410,260 in the aggregate. These options have an exercise price of $0.39 per share, which vest over one year, and expire after five years. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES None. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table presents information regarding our NEOs’ unexercised options to purchase Common Stock as of September 30, 2022: Option Awards Name Number of Securities Underlying Unexercised Options Exercisable Option Exercise Price Option Expiration Date Saagar Govil 400,000 $ 1.90 02-25-2026 Saagar Govil 100,000 $ 1.92 02-25-2026 Saagar Govil 100,000 $ 2.30 02-25-2026 Saagar Govil 100,000 $ 2.76 02-25-2026 34 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of December 23, 2022, by: all persons who are beneficial owners of five percent (5%) or more of our common stock; each of our directors; each of our executive officers; and all current directors and executive officers as a group. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them. As of December 23, 2022, 27,778,856 shares of Common Stock were issued and outstanding. In addition, there were 50,000 shares of Series C Preferred Stock outstanding which are entitled to vote 278,066,349 shares in the aggregate, all of which is held by Saagar Govil and 2,119,363 shares of Series 1 Preferred Stock outstanding which are entitled to vote 4,238,726 shares in the aggregate. Accordingly, a total of 310,083,931 shares may be voted at the Annual Meeting. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of December 23, 2022, are deemed outstanding. Such shares, however, are not deemed as of December 23, 2022, outstanding for the purpose of computing the percentage ownership of any other person. 35 Percentage of Name and Address Issued Common Percentage of Title of Class of Beneficial Owner Title Amount Owned Stock (1) voting stock (2) Common Stock Saagar Govil Chairman of the Board, 703,555 3 % * 276 Greenpoint Avenue, Suite 208 Chief Executive Officer, Brooklyn, NY 11222 and President Preferred Stock Saagar Govil Chairman of the Board, 8,750 -- * (Series 1) 276 Greenpoint Avenue, Suite 208 Chief Executive Officer, Brooklyn, NY 11222 and President Preferred Stock Saagar Govil Chairman of the Board, 50,000 (3) -- 89.7 % (Series C) 276 Greenpoint Avenue, Suite 208 Chief Executive Officer, Brooklyn, NY 11222 and President Paul J. Wyckoff Interim Chief Financial -- -- * 276 Greenpoint Avenue, Suite 208 Officer Brooklyn, NY 11222 Brian Kwon Director -- -- * 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 Manpreet Singh Director -- -- * 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 Metodi Filipov Director -- -- * 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 All directors and executive officers as a group (3 persons) 762,305 (4) 3 % 85.3 % * Less than one percent of outstanding shares. (1) Except as otherwise noted herein, the percentage is determined on the basis of 27,778,856 shares of our Common Stock outstanding plus securities deemed outstanding pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under Rule 13d-3, a person is deemed to be a beneficial owner of any security owned by certain family members and any security of which that person has the right to acquire beneficial ownership within 60 days, including, without limitation, shares of our common stock subject to currently exercisable options. (2) This percentage is based on the 27,778,856 shares of our Common Stock outstanding, the 278,066,349 votes that the Series C Preferred Stock is entitled to vote, and the 4,238,726 votes that the Series 1 Preferred Stock is entitled to vote based on 2 votes per share. (3) Pursuant to the Certificate of Designation of the Series C Preferred Stock, each issued and outstanding share of Series C Preferred Stock are entitled to the number of votes per share equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors. (4) Consists of actual amount of Common Stock, Series C, and Series 1 Preferred Stock owned. As described above each share of Series C is entitled to 5,561.33 votes. Series 1 Preferred Stock is entitled to 2 votes per share. 36 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Aside from the following, there have been no transactions since October 1, 2020 to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual Report on Form 10-K. 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 $550,000. As of September 30, 2022, and September 30, 2021, there was $19,133 payable due to Ducon Technologies, Inc. and $1,487,155 in receivables due from Ducon Technologies, Inc., respectively. The Company has negotiated a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. totaling $761,585. This agreement is in the form of a secured promissory note earning interest at a rate of 5% per annum and matures on July 31, 2024. Receivables due as of September 30, 2022, of $708,512 represents the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India has been written off to bad debt and appears on the Company’s consolidated statements of operations and comprehensive income/(loss) under general and administrative expenses. On 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. The 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. Upon the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial statements. 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 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 On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions. As 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. In 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. The options surrendered were valued using the Black-Scholes option pricing model. The Company recognized the gain with respect to the surrendered Securities during the second quarter of fiscal year 2021. The gain of $3,674,165 is reported as Settlement Agreement – Related Party on the Company’s Consolidated Statements of Operations and Comprehensive Income/(Loss). 37 As 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. Mr. Govil also 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. Accordingly, the note and associated gain is not presented on the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income/(Loss). ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees billed to the Company for the years ended September 30, 2022 and 2021 by Grassi Co. Certified Public Accountants the Company’s independent auditor: 2022 2021 Audit Fees $ 270,000 $ 477,313 Audit-Related Fees 2,500 233,357 Tax Fees - - Other Fees 14,777 - Totals $ 287,277 $ 710,670 38 PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENTS (a) Financial Statements and Notes to the Consolidated Financial Statements See Index to Consolidated Financial Statements on page F-1 at beginning of attached financial statements. (b) Exhibits Exhibit No. Description 2.2 Stock Purchase Agreement regarding the stock of Advanced Industrial Services, Inc., AIS Leasing Company, AIS Graphic Services, Inc., and AIS Energy Services, LLC, Dated December 15, 2015. (8) 2.3 Asset Purchase agreement between Periscope GmbH and ROB Centrex Assets UG, ROB Cemtrex Automotive GmbH, and ROB Cemtrex Logistics GmbH. (7) 3.1 Certificate of Incorporation of the Company.(1) 3.2 By Laws of the Company.(1) 3.3 Certificate of Amendment of Certificate of Incorporation, dated September 29, 2006.(1) 3.4 Certificate of Amendment of Certificate of Incorporation, dated March 30, 2007.(1) 3.5 Certificate of Amendment of Certificate of Incorporation, dated May 16, 2007.(1) 3.6 Certificate of Amendment of Certificate of Incorporation, dated August 21, 2007.(1) 3.7 Certificate of Amendment of Certificate of Incorporation, dated April 3, 2015.(3) 3.8 Certificate of Designation of the Series A Preferred Shares, dated September 8, 2009.(2) 3.9 Certificate of Designation of the Series 1 Preferred Stock.(11) 3.10 Certificate of Amendment of Certificate of Incorporation, dated September 7, 2017 (12) 3.11 Certificate of Correction to the Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of Cemtrex, Inc (6) 3.12 Amended Certificate of Designation of the Series 1 Preferred Shares, dated March 30, 2020.(16) 3.13 Certificate of Amendment of Certificate of Incorporation, dated July 29, 2020 (20) 3.14 Certificate of Correction of Certificate of Incorporation, dated July 29, 2021, filed October 7, 2020 (9) 4.1 Form of Subscription Rights Certificate. (10) 4.2 Form of Series 1 Preferred Stock Certificate. (10) 4.3 Form of Series 1 Warrant. (10) 4.4 Form of Common Stock Purchase Warrant, dated March 22, 2019. (14) 10.1 Amendment of the Term Loan Agreement between Vicon and NIL Funding, dated March 4, 2020.(17) 10.2 Consulting Agreement, dated April 22, 2020 between Centrex, Inc. and Adtron, Inc. (5) 10.3 Securities Purchase Agreement dated June 1, 2020 (18) 10.4 Securities Purchase Agreement dated June 9, 2020 (19) 10.5 Settlement Agreement and Release between Cemtrex, Inc. and Aron Govil dated February 26, 2021 (13) 10.6 Securities Purchase Agreement dated February 22, 2022 (15) 10.7 Amendment of the Term Loan Agreement between Vicon and NIL Funding, dated March 30, 2022. (15) 14.1 Corporate Code of Business Ethics.(4) 21.1* Subsidiaries of the Registrant 23.1* Consent of Grassi & Co, CPAs, P.C., Independent Registered Public Accounting Firm 31.1* Certification of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Interim Chief Financial Officer and Principal Financial Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002. 32.2* Certification of Interim Chief Financial Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002. 99.1 Order pursuant to Section 8A of the Securities Act – dated September 30, 2022. (21) 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith 1 Incorporated by reference from Form 10-12G filed on May 22, 2008. 2 Incorporated by reference from Form 8-K filed on September 10, 2009. 3 Incorporated by reference from Form 8-K filed on August 22, 2016. 4 Incorporated by reference from Form 8-K filed on July 1, 2016. 5 Incorporated by reference from Form S-8 filed on May 1, 2020 6 Incorporated by reference from Form 8-K filed on June 12, 2019. 7 Incorporated by reference from Form 8-K/A filed on November 24, 2017. 8 Incorporated by reference from Form 8-K/A filed on September 26, 2016. 9 Incorporated by reference from Form 10-Q filed on May 28, 2021. 10 Incorporated by reference from Form S-1 filed on August 29, 2016 and as amended on November 4, 2016, November 23, 2016, and December 7, 2016. 11 Incorporated by reference from Form 8-K filed on January 24, 2017. 12 Incorporated by reference from Form 8-K filed on September 8, 2017. 13 Incorporated by reference from Form 8-K filed on February 26, 2021. 14 Incorporated by reference from Form 8-K filed on March 22, 2019. 15 Incorporated by reference from Form 10-Q filed on May 16, 2022. 16 Incorporated by reference from Form 8-K filed on April 1, 2020. 17 Incorporated by reference from Form 8-K filed on March 9, 2020. 18 Incorporated by reference from Form 8-K filed on June 4, 2020. 19 Incorporated by reference from Form 8-K filed on June 12, 2020. 20 Incorporated by reference from Form 10-K filed on January 5, 2021. 21 Incorporated by reference from Form 8-K filed on October 4, 2022. ITEM 16. FORM 10-K SUMMARY None. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CEMTREX, INC. December 28, 2022 By: /s/ Saagar Govil . Saagar Govil, Chairman of the Board, CEO, President & Secretary (Principal Executive Officer) December 28, 2022 By: /s/ Paul J. Wyckoff . Paul J. Wyckoff, Interim CFO (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. December 28, 2022 By: /s/ Saagar Govil . Saagar Govil, Chairman of the Board, CEO, President & Secretary (Principal Executive Officer) December 28, 2022 By: /s/ Paul J. Wyckoff . Paul J. Wyckoff, Interim CFO (Principal Financial and Accounting Officer) December 28, 2022 By: /s/ Brian Kwon Brian Kwon, Director December 28, 2022 By: /s/ Manpreet Singh Manpreet Singh, Director December 28, 2022 By: /s/ Metodi Filipov Metodi Filipov, Director 40 Index to the Consolidated Financial Statements Contents Page(s) Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at September 30, 2022 and 2021 F-5 Consolidated Statements of Operations and Comprehensive Income for the Fiscal Years Ended September 30, 2022 and 2021 F- 6 Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 30, 2022 and 2021 F-7 Consolidated Statement of Cash Flows for Fiscal Years Ended September 30, 2022 and 2021 F-9 Notes to the Consolidated Financial Statements F-11 F- 1 Cemtrex Inc. and Subsidiaries REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Cemtrex, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cemtrex, Inc. and Subsidiaries (the Company) as of September 30, 2022 and 2021, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has sustained net losses and has significant short-term debt obligations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 2 Valuation of Goodwill Description of the matter At September 30, 2022, the Company had approximately $4.5 million of goodwill. As discussed in Note 1 to the consolidated financial statements, goodwill is tested annually for impairment at the reporting unit level, or more frequently if impairment indicators arise. In accordance with the FASB revised guidance on “Testing of Goodwill for Impairment,” a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is more-likely-than- not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a two-step goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Auditing the Company’s goodwill impairment analyses was complex and highly judgmental due to the nature of qualitive assessment and, where necessary, the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimate was sensitive to significant assumptions, such as future operating results, cash flows and the weighted average cost of capital. These significant assumptions are forward looking and could be materially affected by future market or economic conditions. How we addressed the matter We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment evaluation process, including controls over management’s review of the significant assumptions described above. Our audit procedures to test the Company’s goodwill impairment analyses included evaluating the reasonableness of management’s qualitative assessments and in certain instances the estimated fair value of the Company’s reporting units. In evaluating estimated fair value of reporting units we, among others, evaluated management’s significant assumptions described above and used within the fair value method, and tested the completeness and accuracy of the underlying data. We engaged our valuation specialists to assist in assessing fair valuation methodologies utilized in the Company’s goodwill impairment analyses. We compared certain significant assumptions to existing market information and, where relevant, to the plans of the Company, including management’s expectations with regard to the Company’s business model, customer base, product mix and other relevant factors. We assessed the historical accuracy of management’s projected cash flows, where applicable, and performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We involved our valuation specialists to assist in evaluating the discount rates, which included comparison of the selected discount rates to the Company’s weighted average cost of capital and the risk associated with projected cash flows. Finally, we assessed the adequacy of the disclosures in the consolidated financial statements . F- 3 Valuation of Inventory Description of the matter As of September 30, 2022, the Company has approximately $9.5M of inventory. As discussed in note 1, inventory is valued at the lower of cost or market. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability. We determined valuation of inventory to be a critical audit matter based on the high degree of management judgment necessary is assessing allowances for obsolesce. How we addressed the matter We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s inventory valuation process, including controls over management’s review of the significant assumptions described above. Our audit procedures included, physical observation of inventory in the Company’s warehouse locations, examined the company’s analysis on a sample basis of parts of inventory in the context of the company’s valuation assertion, validating cost assertions by review source documentation of inventory purchases, reviewing slow-moving reports provided by management, reviewing subsequent sales data, retrospective review of prior year estimates, and analytical procedures including margin analyses. Finally, we evaluated the Company’s disclosures related to the matters described above. Grassi & Co, CPAs, P.C. We have served as the Company’s auditor since 2021. Jericho, New York December 28, 2022, Auditor PCAOB ID Number 606 F- 4 Cemtrex Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, September 30, 2022 2021 Assets Current assets Cash and equivalents $ 10,610,181 $ 15,426,976 Restricted cash 1,577,915 1,759,347 Short-term investments 13,721 14,981 Trade receivables, net 5,960,686 7,810,896 Trade receivables - related party - 1,487,155 Inventory –net of allowance for inventory obsolescence 9,531,682 5,657,287 Prepaid expenses and other assets 2,575,105 2,585,652 Total current assets 30,269,290 34,742,294 Property and equipment, net 6,106,292 6,738,944 Right-of-use assets 2,641,198 2,940,127 Note receivable - related party 761,585 - Goodwill 4,505,283 7,821,283 Other 1,473,980 697,240 Total Assets $ 45,757,628 $ 52,939,888 Liabilities & Stockholders’ Equity (Deficit) Current liabilities Accounts payable $ 3,256,559 $ 4,235,002 Accounts payable - related party 19,133 - Short-term liabilities 16,894,743 9,977,972 Lease liabilities - short-term 818,730 830,791 Deposits from customers 198,178 536,220 Accrued expenses 2,281,324 1,621,053 Deferred revenue 1,951,282 2,004,170 Accrued income taxes 94,848 448,194 Total current liabilities 25,514,797 19,653,402 Long-term liabilities Loans payable to bank 110,331 767,279 Long-term lease liabilities 1,822,468 2,017,408 Notes payable - 2,350,000 Mortgage payable 2,160,169 2,257,785 Other long-term liabilities 807,898 839,171 Paycheck Protection Program Loans 97,120 1,032,200 Deferred Revenue - long-term 607,309 467,967 Total long-term liabilities 5,605,295 9,731,810 Total liabilities 31,120,092 29,385,212 Commitments and contingencies - - Shareholders’ equity Preferred stock , $ 0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,079,122 shares issued and 2,015,022 shares outstanding as of September 30, 2022 and 1,885,151 shares issued and 1,821,051 shares outstanding as of September 30, 2021 (liquidation value of $ 10 per share) 2,079 1,885 Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at September 30, 2022 and September 30, 2021 50 50 Preferred stock, value 50 50 Common stock, $ 0.001 par value, 50,000,000 shares authorized, 26,413,296 shares issued and outstanding at September 30, 2022 and 20,782,194 shares issued and outstanding at September 30, 2021 26,413 20,782 Additional paid-in capital 66,616,038 61,727,834 Retained earnings (accumulated deficit) ( 54,929,020 ) ( 41,908,062 ) Treasury stock, 64,100 shares of Series 1 Preferred Stock at September 30, 2022 and 2021 ( 148,291 ) ( 148,291 ) Accumulated other comprehensive income (loss) 2,377,525 2,896,452 Total Cemtrex stockholders’ equity 13,944,794 22,590,650 Non-controlling interest 692,742 964,026 Total liabilities and shareholders’ equity $ 45,757,628 $ 52,939,888 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Cemtrex Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the year ended September 30, 2022 September 30, 2021 Revenues $ 50,274,923 $ 43,130,934 Cost of revenues 31,219,405 26,162,582 Gross profit 19,055,518 16,968,352 Operating expenses General and administrative 27,756,159 22,538,496 Research and development 4,851,720 3,171,676 Goodwill impairment 3,316,000 - Total operating expenses 35,923,879 25,710,172 Operating loss ( 16,868,361 ) ( 8,741,820 ) Other income/(expense) Other income 7,265,293 8,758,212 Settlement Agreement - Related Party - 3,674,165 Interest Expense ( 3,897,719 ) ( 2,921,345 ) Total other income/(expense), net 3,367,574 9,511,032 Net (loss)/income before income taxes ( 13,500,787 ) 769,212 Income tax benefit/(expense) 208,545 ( 375,434 ) (Loss)/Income from Continuing operations ( 13,292,242 ) 393,778 Loss from discontinued operations, net of tax - ( 8,280,047 ) Net loss ( 13,292,242 ) ( 7,886,269 ) Less loss in noncontrolling interest ( 271,284 ) ( 78,274 ) Net loss attributable to Cemtrex, Inc. shareholders $ ( 13,020,958 ) $ ( 7,807,995 ) Other comprehensive income/(loss) Net loss $ ( 13,292,242 ) $ ( 7,886,269 ) Foreign currency translation (loss)/income ( 518,927 ) 996,100 Defined benefit plan actuarial gain - 87,895 Comprehensive loss ( 13,811,169 ) ( 6,802,274 ) Less comprehensive loss attributable to noncontrolling interest ( 271,284 ) ( 78,274 ) Comprehensive loss attributable to Cemtrex, Inc. shareholders $ ( 13,539,885 ) $ ( 6,724,000 ) Income/(loss) Per Share-Basic Continuing Operations $ ( 0.52 ) $ 0.02 Discontinued Operations $ - $ ( 0.44 ) Income/(loss) Per Share-Diluted Continuing Operations $ ( 0.52 ) $ 0.02 Discontinued Operations $ - $ ( 0.44 ) Weighted Average Number of Shares-Basic 24,832,056 18,911,746 Weighted Average Number of Shares-Diluted 24,832,056 18,911,746 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Cemtrex Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Treasury Stock, Preferred Stock Series 1 Preferred Stock Series C Common Stock Par Retained 64,100 shares of Accumulated Par Value $0.001 Par Value $0.001 Value $0.01 Additional Earnings Series 1 other Cemtrex Non- Number of Number of Number of Paid-in (Accumulated Preferred Comprehensive Stockholders’ controlling Shares Amount Shares Amount Shares Amount Capital Deficit) Stock Income(loss) Equity interest Balance at September 30, 2021 1,885,151 $ 1,885 - 50,000 $ 50 20,782,194 $ 20,782 $ 61,727,834 $ ( 41,908,062 ) $ ( 148,291 ) $ 2,896,452 $ 22,590,650 $ 964,026 Foreign currency translation gain/(loss) ( 518,927 ) ( 518,927 ) Share-based compensation 155,505 155,505 Shares issued to pay notes payable 4,481,102 4,481 3,988,643 3,993,124 Shares issued with note payable 1,000,000 1,000 694,400 695,400 Dividends paid in Series 1 preferred shares 193,971 194 ( 194 ) - Income/(loss) attributable to noncontrolling interest - ( 271,284 ) Shares issued to pay for services 150,000 150 49,850 50,000 Net loss - - ( 13,020,958 ) - ( 13,020,958 ) Balance at September 30, 2022 2,079,122 2,079 - 50,000 50 26,413,296 26,413 66,616,038 ( 54,929,020 ) ( 148,291 ) 2,377,525 13,944,794 692,742 The accompanying notes are an integral part of these consolidated financial statements. F- 7 Cemtrex Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Treasury Stock, Preferred Stock Series 1 Preferred Stock Series A Preferred Stock Series C Common Stock Par Retained 64,100 shares of Accumulated Par Value $0.001 Par Value $0.001 Par Value $0.001 Value $0.01 Additional Earnings Series 1 other Cemtrex Non- Number of Number of Number of Number of Paid-in (Accumulated Preferred Comprehensive Stockholders’ controlling Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit) Stock Income(loss) Equity interest Balance at September 30, 2020, as restated 2,156,784 $ 2,157 1,000,000 $ 1,000 100,000 $ 100 17,622,539 $ 17,623 $ 60,221,766 $ ( 34,100,067 ) $ ( 148,291 ) $ 1,812,457 $ 27,806,745 $ 1,042,300 Beginning balance, value 2,156,784 $ 2,157 1,000,000 $ 1,000 100,000 $ 100 17,622,539 $ 17,623 $ 60,221,766 $ ( 34,100,067 ) $ ( 148,291 ) $ 1,812,457 $ 27,806,745 $ 1,042,300 Foreign currency translation gain/(loss) 996,100 996,100 Defined benefit plan actuarial gain/(loss) 87,895 87,895 Share-based compensation 156,419 156,419 Shares issued to pay notes payable 3,159,655 3,159 5,022,492 5,025,651 Dividends paid in Series 1 preferred shares 198,316 198 ( 198 ) - Income/(loss) attributable to noncontrolling interest - ( 78,274 ) Shares and options surrendered in settelment agreement ( 469,949 ) ( 470 ) ( 1,000,000.00 ) ( 1,000 ) ( 50,000 ) ( 50 ) ( 3,672,645 ) ( 3,674,165 ) Net loss ( 7,807,995 ) - ( 7,807,995 ) Balance at September 30, 2021 1,885,151 $ 1,885 - $ - 50,000 $ 50 20,782,194 $ 20,782 $ 61,727,834 $ ( 41,908,062 ) $ ( 148,291 ) $ 2,896,452 $ 22,590,650 $ 964,026 Ending balance, value 1,885,151 $ 1,885 - $ - 50,000 $ 50 20,782,194 $ 20,782 $ 61,727,834 $ ( 41,908,062 ) $ ( 148,291 ) $ 2,896,452 $ 22,590,650 $ 964,026 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Cemtrex Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the twelve months ended September 30, 2022 2021 Cash Flows from Operating Activities Net loss $ ( 13,292,242 ) $ ( 7,886,269 ) Net loss from discontinued operations - ( 8,280,047 ) Net loss from continuing operations ( 13,292,242 ) 393,778 Adjustments to reconcile net income/(loss) to net cash used by operating activities Depreciation and amortization 1,862,690 1,335,189 Loss on disposal of property and equipment 78,707 48,981 Noncash lease expense 616,116 870,860 Goodwill Impairment 3,316,000 - Change in allowance for doubtful accounts 73,696 ( 161,856 ) Loss on write off of related party receivables 708,512 - Share-based compensation 155,505 156,418 Income tax expense/ (benefit) ( 208,545 ) 375,434 Interest expense paid in equity shares 926,646 1,291,596 Accounts payable paid in equity shares 50,000 - Accrued interest on notes payable 1,043,346 398,321 Amortization of original issue discounts on notes payable 1,544,622 675,000 Gain on marketable securities ( 8,399,152 ) ( 2,612,847 ) Discharge of Paycheck Protection Program Loans ( 971,500 ) ( 5,320,485 ) Settlement Agreement - Related Party - ( 3,674,165 ) Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: Trade receivables 1,776,514 ( 962,243 ) Trade receivables - related party - ( 59,960 ) Inventory ( 3,874,395 ) ( 670,838 ) Prepaid expenses and other current assets 48,308 ( 1,411,653 ) Other assets ( 276,740 ) 110,534 Other liabilities ( 31,273 ) 70,576 Accounts payable ( 978,443 ) ( 512,138 ) Accounts payable - related party 36,191 - Operating lease liabilities ( 524,188 ) ( 962,790 ) Deposits from customers ( 338,042 ) 33,310 Accrued expenses 660,271 47,389 Deferred revenue 86,454 506,982 Income taxes payable ( 182,562 ) ( 16,558 ) Net cash used by operating activities ( 16,093,504 ) ( 10,051,165 ) Cash Flows from Investing Activities Purchase of property and equipment ( 1,844,620 ) ( 1,069,283 ) Proceeds from sale of property and equipment 554,335 - Investment in MasterpieceVR ( 500,000 ) ( 500,000 ) Investment in Virtual Driver Interactive - ( 1,075,428 ) Proceeds from sale of marketable securities 28,302,309 11,477,321 Purchase of marketable securities ( 19,901,897 ) ( 7,991,709 ) Net cash provided by investing activities 6,610,127 840,901 Cash Flows from Financing Activities Proceeds from notes payable 8,000,000 5,005,000 Payments on notes payable ( 1,751,763 ) ( 2,220,257 ) Payments on capital lease liabilities - ( 20,061 ) Payments on bank loans ( 1,225,700 ) ( 1,261,035 ) Proceeds from Paycheck Protection Program Loans - 2,942,285 Net cash provided by financing activities 5,022,537 4,445,932 Effect of currency translation ( 537,387 ) 880,834 Net decrease in cash, cash equivalents, and restricted cash ( 4,460,840 ) ( 4,764,332 ) Cash, cash equivalents, and restricted cash at beginning of period 17,186,323 21,069,821 Cash, cash equivalents, and restricted cash at end of period $ 12,188,096 $ 17,186,323 Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash Cash and equivalents $ 10,610,181 $ 15,426,976 Restricted cash 1,577,915 1,759,347 Total cash, cash equivalents, and restricted cash $ 12,188,096 $ 17,186,323 The accompanying notes are an integral part of these consolidated financial statements. F- 9 Cemtrex Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 383,105 $ 556,428 Cash paid during the period for income taxes $ 353,346 $ ( 358,876 ) Supplemental Schedule of Non-Cash Investing and Financing Activities Investment in Virtual Driver Interactive $ - $ 439,774 Shares issued to pay for services $ 50,000 $ - Shares issued to pay notes payable $ 3,993,124 $ 5,025,652 Shares issued in connection with note payable $ 700,400 $ - Investment in right of use asset $ 317,187 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION 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. Potential Impacts of COVID-19 on our Business The COVID-19 pandemic impacted our business operations and the results of our operations during fiscal years 2020 and 2021, primarily with delays in orders by many customers and new product development, including newer versions of surveillance software since our technical facility in Pune, India had been under lock down on multiple occasions. Bookings and revenue have recovered in this calendar year compared to last year. However, due to ongoing delays in certain supply chain areas, the expected launch times of our new products and new versions has resulted in delays of several months. These supply chain issues have also affected the Company’s ability to obtain inventory for our current bookings, and the Company has implemented a buildup of inventory levels to remain competitive and keep backlog orders at a minimum. Additionally, increased costs and the need to increase wages to retain talent may cause our gross margin percentages to shrink and our operational costs to rise. In response to these increased costs, the Company has implemented an ongoing review of our pricing to cover these additional costs while remaining competitive. The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic and the resulting supply chain issues and inflation 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, opportunities in the video surveillance field have been growing for Vicon products. The extent of the pandemics 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 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. Going Concern Considerations The accompanying 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, that 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. F- 11 The Company has incurred substantial losses of $ 13,020,958 and $ 7,807,995 for fiscal years 2022 and 2021, respectively, and has debt obligations over the next fiscal year of $ 18,200,521 and working capital of $ 4,687,881 , that raise substantial doubt with respect to the Company’s ability to continue as a going concern. While our working capital and current debt indicate 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. Additionally, the Company has recently sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products, and is working to effect a reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability to raise capital through equity offerings and reduce the number of shares the Company may use to satisfy debt. 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 are sufficient to meet the capital demands of our current operations for at least the next twelve months, the 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. 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. Settlement with the Securities and Exchange Commission On September 30, 2022, acting pursuant to an offer of settlement submitted by the Company, the U.S. Securities and Exchange Commission (“SEC”) issued an order pursuant to Section 8A of the Securities Act, directing the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder (the “SEC Order”). The SEC Order also directed Mr. Saagar Govil to cease and desist from committing or causing any violations and any future violations of Section 17(a)(3) of the Securities Act. The SEC found that, as a result of its conduct, which was neither admitted nor denied, the Company violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities. The SEC also found that, as a result of his conduct, which was neither admitted nor denied, Mr. Govil violated Section 17(a)(3) of the Securities Act, which makes it illegal to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. In addition to the above cease and desists, the Company undertook to not publicly announce that it has partnered with another company or that another company has become a customer of the Company without providing prior written notice, including a copy of the announcement text, to the businessperson at the other company responsible for that company’s relationship with the Company. Also, the Company received a civil monetary penalty of two million two hundred thousand dollars ($ 2,200,000 ) in the aggregate that must be paid to the SEC. Mr. Govil also received a civil monetary penalty of three hundred and fifty thousand dollars ($ 350,000 ) in the aggregate that must be paid to the SEC. The company and Mr. Govil have remitted the payments as of September 30, 2022. The SEC Order can be accessed at www.sec.gov. NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles. Basis of Presentation The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Fiscal Year-End The Company elected September 30 as its fiscal year-end date. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful trade receivables, net realizable value of inventory, warranty obligations, income tax accruals, deferred tax valuation and assessments of the recoverability of the Company’s long-lived assets. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Advanced Technologies Inc., Cemtrex XR Inc., Cemtrex Technologies Pvt. Ltd., and Advanced Industrial Services, Inc. and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation. Carrying Value, Recoverability and Impairment of Long-Lived Assets The Company’s long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. F- 12 The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The impairment charges, if any, is included in operating expenses in the accompanying statements of operations. Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Trade Receivables and Allowance for Doubtful Accounts Trade receivables are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due or delinquent based on how recently payments have been received. The Company reserved for $ 252,688 and $ 178,992 within its allowance for doubtful accounts at September 30, 2022, and 2021, respectively. The Company does no t have any off-balance-sheet credit exposure to its customers at September 30, 2022, or 2021. Inventory and Cost of Goods Sold The Company values inventory, consisting of finished goods, at the lower of cost or market. Cost is determined on the average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, and (iii) competitive pricing pressures. The Company classifies inventory markdowns in the income statement as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. There was $ 1,088,377 and $ 1,921,001 in inventory obsolescence reserve at September 30, 2022, and 2021, respectively. The decrease in inventory obsolescence is due to the sale and/or disposal of out-of-date products. F- 13 Property and Equipment Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method over the estimated useful lives of the respective assets, shown in the table below; SCHEDULE OF PROPERTY PLANT AND EQUIPMENT Estimated Useful Life (Years) Building 30 Furniture and office equipment 3 - 5 Computer software 7 Machinery and equipment 7 Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations. Goodwill Goodwill is tested for impairment annually as of September 30. If circumstances change during interim periods between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company will test goodwill for impairment. Factors that would necessitate an interim goodwill impairment assessment include prolonged negative industry or economic trends, or significant under-performance relative to expected, historical or projected future operating results. Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement for its goodwill impairment testing. The Company’s fair value measurement approach combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparable, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions. As permitted, if the reporting unit fails the impairment test, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) removing step two from the goodwill impairment test. If a reporting unit fails the quantitative impairment test, impairment expense is immediately recorded as the difference between the reporting unit’s fair value and carrying value. The Company adopted this standard effective October 1, 2020. For the year ended September 30, 2022, an impairment of the Company’s goodwill of $ 3,316,000 was recorded and for the year ended September 30,2021, there was no impairment of the Company’s goodwill. Strategic Investment On November 13, 2020, Cemtrex made a $ 500,000 investment and on January 19, 2022, made an additional $ 500,000 investment via a simple agreement for future equity (“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the period ended June 30, 2022. Leases On October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors may use the effective date method and elected certain practical expedients allowing the Company not to reassess: ● whether expired or existing contracts contain leases under the new definition of a lease; ● lease classification for expired or existing leases; and ● whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less. F- 14 Related Parties The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved b. description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. Commitment and Contingencies The Company follows topic Accounting Standards Codification (“ASC”) Topic 450-20, Contingencies , to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. Revenue Recognition On October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method. Management determined that there was no cumulative effect adjustment to the consolidated financial statements and the adoption of the standard did not require any adjustments to the consolidated financial statements for prior periods. Under the guidance of the standard, revenue represents the amount received or receivable for goods and services supplied by the Company to its customers. Company recognizes revenue at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Most of the Company’s sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods or repair of equipment and generally provide for transfer of control at the time of shipment to the customer. The Company generally permits returns of product or repaired equipment due to defects; however, returns are historically insignificant. Billing terms vary by customer and product but generally do not exceed 90 days. In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue from cost reimbursable contracts based on the services provided, typically represented by man-hours worked, and is measured by reference to agreed charge-out rates or to the estimated total contract revenue. Revenue from long-term fixed price contracts is recognized using the percentage-of-completion method, measured by reference to physical completion or the ratio of costs incurred to total estimated contract costs. If the outcome of a contract cannot be estimated reliably, as may be the case in the initial stages of completion of the contract, revenue is recognized only to the extent of the costs incurred that are expected to be recoverable. If a contract is expected to be loss-making, the expected amount of the loss is recognized immediately in the income statement. Revenue from short-term contracts is recognized when delivery has occurred, and collection of the resulting receivable is deemed probable. Timing of revenue recognition may differ from the timing of invoicing to customers. F- 15 The Company records a liability when receiving cash in advance of delivering goods or services to the customer. This liability is reversed against the receivable recognized when those goods or services are delivered. The amounts were $ 2,558,591 , and $ 2,472,137 , for the years ended September 30, 2022, 2021 respectively, recorded at Deferred revenue. Additionally, the company recorded Deposits from customers of $ 198,178 , and $ 536,220 , for the years ended September 30, 2022, and 2021 respectively. Warranties The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required. Income Tax Provision The Company accounts for income taxes under ASC 740-10, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Income in the period that includes the enactment date. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carrybacks and carryforwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions including the United States, India, and The United Kingdom, and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. Uncertain Tax Positions For the years ended September 30, 2022, and 2021, the Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits. The Company will record any interest and/or penalties arising from uncertain tax provisions when they are likely to occur and reasonably estimable. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. The Company will accrue interest and penalties on income taxes when there is a likelihood that they will occur and can be reasonably estimated. F- 16 Accounting for Share-Based Compensation The Company follows ASC 718 (“Share-Based Payment”), which requires that all share-based payments to employees, including stock options, stock appreciation rights (SARs) and common stock share awards, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period. The fair value for options granted was determined at the date of grant using a Black-Scholes valuation model and the straight-line attribution approach using the following weighted average assumptions: The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. Other than a one-time dividend paid in fiscal year 2017, the Company never declared or paid any cash dividends and does not currently expect to do so in the future. Expected volatility is based on the annualized daily historical volatility of the Company’s stock over a representative period. The weighted-average expected life represents the period over which stock-based awards are expected to be outstanding and was determined based on a number of factors, including historical weighted average and projected holding periods for the remaining unexercised shares, the contractual terms of the Company’s stock-based awards, vesting schedules and expectations of future employee behavior. Net Income (Loss) per Common Share 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. As of September 30, 2022, and 2021, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive: SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER COMMON SHARE AS ANTI-DILUTIVE EFFECT For the twelve months ended September 30, 2022 2021 Warrants to purchase shares - 433,965 Options 1,210,260 950,000 Foreign Currency Translation Gain and Comprehensive Income (Loss) In countries in which the Company operates, and the functional currency is other than the U.S. dollar, assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date. Revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the accompanying consolidated balance sheet. For the years ending September 30, 2022, and September 30, 2021, comprehensive loss includes a loss of $ 518,927 and a gain of $ 996,100 , respectively, which were entirely from foreign currency translation. F- 17 As of and for the year ended September 30, 2022, and 2021 the Company used the following exchange rates. SCHEDULE OF FOREIGN CURRENCY EXCHANGE RATE Approximate weighted Approximate weighted average exchange rate average exchange rate Exchange rate at For the year ended Exchange rate at For the year ended Currency September 30, 2021 September 30, 2021 September 30, 2022 September 30, 2022 Indian Rupee 0.013 0.014 0.012 0.013 Great Britain Pound 1.346 1.358 1.113 1.281 Reclassifications Certain reclassifications have been made to prior period amounts to conform to the current period presentation. This had no effect on the Company’s statement of operations or retained earnings. Cash Flows Reporting The Company uses the indirect or reconciliation method (“Indirect method”) as to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period. Recently Issued Accounting Pronouncements Not Yet Effective In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact of this ASU on our financial statements. 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 8202 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. We are currently evaluating the impact of this ASU on our 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 consolidated financial statements. F- 18 NOTE 3 – SEGMENT AND GEOGRAPHIC INFORMATION 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. 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. F- 19 The following tables summarize the Company’s segment information: SCHEDULE OF SEGMENT INFORMATION 2022 2021 For the years ended September 30, 2022 2021 Revenues from external customers Advanced Technologies $ 29,068,907 $ 24,154,488 Industrial Services 21,206,016 18,976,446 Total revenues $ 50,274,923 $ 43,130,934 Gross profit Advanced Technologies $ 12,713,294 $ 10,591,956 Industrial Services 6,342,224 6,376,396 Total gross profit $ 19,055,518 $ 16,968,352 Operating income/(loss) Advanced Technologies $ ( 13,535,275 ) $ ( 9,793,851 ) Industrial Services ( 3,333,086 ) 1,052,031 Total operating loss $ ( 16,868,361 ) $ ( 8,741,820 ) Other income/(expense) Advanced Technologies $ 3,548,734 $ 4,891,984 Industrial Services ( 181,160 ) 4,619,048 Total other expense $ 3,367,574 $ 9,511,032 Depreciation and Amortization Advanced Technologies $ 1,158,444 $ 515,465 Industrial Services 704,246 819,724 Total depreciation and amortization $ 1,862,690 $ 1,335,189 September 30, September 30, 2022 2021 Identifiable Assets Advanced Technologies $ 29,098,644 $ 33,850,496 Industrial Services 16,658,984 19,089,392 Total Assets $ 45,757,628 $ 52,939,888 F- 20 The Company generates revenue from product sales and services from its subsidiaries located in the United States, The United Kingdom, and India. Revenue and long-lived asset information for the Company is as follows: SCHEDULE OF REVENUE FROM PRODUCT SALES AND SERVICES FROM ITS SUBSIDIARIES For the year ended September 30, September 30, Revenues 2022 2021 United States $ 48,190,274 $ 39,081,703 United Kingdom 2,049,239 3,989,223 India 35,410 60,008 $ 50,274,923 $ 43,130,934 September 30, September 30, Long-lived Assets 2022 2021 United States $ 12,663,822 $ 16,790,785 United Kingdom 346,948 397,968 India 242,003 311,601 $ 13,252,773 $ 17,500,354 NOTE 4 – 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). 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, goodwill, intangible assets, and property, plant and equipment, which are measured at fair value using a discounted cash flow approach when they are impaired. 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. F- 21 The Company’s fair value assets for the years ended September 30, 2022, and 2021, are as follows; SCHEDULE OF FAIR VALUE OF ASSETS 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) 2022 Assets Investment in marketable securities (included in short-term investments) $ 13,721 $ - $ - $ 13,721 $ 13,721 $ - $ - $ 13,721 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) 2021 Assets Investment in marketable securities (included in short-term investments) $ 14,981 $ - $ - $ 14,981 $ 14,981 $ - $ - $ 14,981 NOTE 5 – 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 $ 1,577,915 and $ 1,601,932 as of September 30, 2022 and 2021, respectively. Additionally, the Company had a standby letter of credit for deposit on a building lease and payable against a money market account. The amount of the standby letter of credit was $ 517,415 as of September 30, 2021. NOTE 6 – TRADE RECEIVABLES, NET Trade receivables, net consists of the following: SCHEDULE OF TRADE RECEIVABLES, NET September 30, September 30, 2022 2021 Trade receivables $ 6,213,374 $ 7,989,888 Allowance for doubtful accounts ( 252,688 ) ( 178,992 ) Accounts receivables, net, total $ 5,960,686 $ 7,810,896 Trade receivables include amounts due for shipped products and services rendered. Allowance for doubtful accounts includes estimated losses resulting from the inability of our customers to make required payments. F- 22 NOTE 7 – PREPAID AND OTHER CURRENT ASSETS On September 30, 2022, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $ 414,997 , costs and estimated earnings in excess of billings on uncompleted contracts of $ 781,819 , accrued income taxes refunds on foreign operations of $ 37,761 , and prepaid expenses and other current assets of $ 1,340,528 . On September 30, 2021, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $ 298,707 , costs and estimated earnings in excess of billings on uncompleted contracts of $ 1,148,243 , and other current assets of $ 1,138,702 . NOTE 8 – INVENTORY, NET Inventory, net of reserves, consist of the following: SCHEDULE OF INVENTORY, NET September 30, September 30, 2022 2021 Raw materials $ 2,389,232 $ 1,957,410 Work in progress 145,810 429,871 Finished goods 8,085,017 5,191,007 Inventory, gross 10,620,059 7,578,288 Less: Allowance for inventory obsolescence ( 1,088,377 ) ( 1,921,001 ) Inventory –net of allowance for inventory obsolescence $ 9,531,682 $ 5,657,287 NOTE 9 – PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: SUMMARY OF PROPERTY AND EQUIPMENT September 30, September 30, 2022 2021 Land $ 790,373 $ 790,373 Building and leasehold improvements 2,906,953 2,892,900 Furniture and office equipment 546,548 501,885 Computers and software 1,313,816 1,105,681 Machinery and equipment 11,708,928 12,984,959 Property and equipment, gross 17,266,618 18,275,798 Less: Accumulated depreciation ( 11,160,326 ) ( 11,536,854 ) Property and equipment, net $ 6,106,292 $ 6,738,944 The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment substantially exceeded their carrying values at September 30, 2022. Depreciation and amortization of property and equipment totaled approximately $ 1,862,690 and $ 1,335,189 for fiscal years ended September 30, 2022, and 2021, respectively recorded as general and administrative expenses on the Company’s consolidated statement of operations and comprehensive income/(loss). NOTE 10 - OTHER ASSETS As of September 30, 2022, the Company had other assets of $ 1,473,980 which was comprised of rent security deposits of $ 204,388 , Investment in Masterpiece VR valued at $ 1,000,000 (see below), and other assets of $ 269,592 . As of September 30, 2021, the Company had other assets of rent security deposits of $ 84,362 , Investment in Masterpiece VR valued at $ 500,000 (see below), and other assets of $ 112,878 . On November 13, 2020, Cemtrex made a $ 500,000 investment and on January 19, 2022, made an additional $ 500,000 investment via a simple agreement for future equity (“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the year ended September 30, 2022. NOTE 11 – LEASES The Company enters into operating leases for its facilities in New York, United Kingdom, and India, as well as for vehicles for use in our Industrial Services segment. The operating lease terms range from 2 to 7 years. The Company excluded the renewal option on its applicable facility leases from the calculation of its right-of-use assets and lease liabilities. Finance and operating lease liabilities consist of the following: SUMMARY OF FINANCE AND OPERATING LEASE LIABILITIES September 30, September 30, 2022 2021 Lease liabilities - current Finance leases $ - $ - Operating leases 818,730 830,791 818,730 830,791 Lease liabilities - net of current portion Finance leases $ - $ - Operating leases 1,822,468 2,017,408 $ 1,822,468 $ 2,017,408 F- 23 A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the Consolidated Balance Sheet at September 30, 2022, is set forth below: SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO FINANCE AND OPERATING LEASE LIABILITIES Years ending September 30, Operating Leases Total 2023 853,544 853,544 2024 672,828 672,828 2025 650,494 650,494 2026 520,048 520,048 2027 & Thereafter 187,961 187,961 Undiscounted lease payments 2,884,875 2,884,875 Amount representing interest ( 243,677 ) ( 243,677 ) Discounted lease payments $ 2,641,198 $ 2,641,198 Additional disclosures of lease data are set forth below: SCHEDULE OF LEASE COSTS For the years ended September 30, 2022 2021 Lease costs: Finance lease costs: Depreciation of finance lease assets $ - $ 17,184 Interest on lease liabilities - 88 Operating lease costs: Operating lease expense $ 686,124 $ 980,062 Other information: Cash paid for amounts included in the measurement of lease liabilities: Operating leases $ 978,443 $ 962,790 Finance leases - 20,061 $ 978,443 $ 982,851 Weighted-average remaining lease term - finance leases (months) 0 0 Weighted-average remaining lease term - operating leases (months) 33 55 Weighted-average discount rate - finance leases N/A 3.63 % Weighted-average discount rate - operating leases 5.66 % 6.85 % The Company used the rate implicit in the lease, where known, or its incremental borrowing rate as the rate used to discount the future lease payments. F- 24 NOTE 12 – LINES OF CREDIT AND LONG-TERM LIABILITIES Lines of credit The Company currently has a line of credit with Fulton Bank for $ 3,500,000 . The line carried interest of LIBOR plus 2.00 % per annum ( 2.075 % as of September 30, 2021). On June 10, 2022, the Company and Fulton Bank agreed to an amendment of the line of credit to carry interest at the Secured Overnight Financing Rate (“SOFR”) plus 2.37 % per annum ( 5.35 % as of September 30, 2022). At September 30, 2022 and September 30, 2021, there was no outstanding balance on this line of credit. The terms of this line of credit are subject to the bank’s review annually on February 1. Loans payable to bank On December 15, 2015, the Company acquired a loan from Fulton Bank in the amount of $ 5,250,000 in order to fund the purchase of Advanced Industrial Services, Inc. $ 5,000,000 of the proceeds went to the direct purchase of AIS. This loan carried interest of LIBOR plus 2.25 % per annum ( 2.325 % as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the loan to carry interest at SOFR plus 2.37 % per annum ( 5.35 % as of September 30, 2022). This loan is payable on December 15, 2022. This loan carries loan covenants which the Company was in compliance with as of September 30, 2022. The outstanding balance on this loan was $ 247,284 and $ 1,218,680 , on September 30, 2022, and September 30, 2021, respectively. This loan is secured by certain assets of the Company. On May 1, 2018, the Company acquired a loan from Fulton Bank in the amount of $ 400,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carried interest of LIBOR plus 2.00 % per annum ( 2.075 % as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the loan to carry interest at SOFR plus 2.37 % per annum ( 5.35 % as of September 30, 2022). This loan is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of September 30, 2022. The outstanding balance on this loan was $ 63,281 and $ 149,914 , on September 30, 2022, and September 30, 2021, respectively. This loan is secured by certain assets of the Company On January 28, 2020, the Company acquired a loan from Fulton Bank in the amount of $ 360,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carried interest of LIBOR plus 2.25 % per annum ( 2.325 % as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the loan to carry interest at SOFR plus 2.37 % per annum ( 5.35 % as of September 30, 2022). This loan is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of September 30, 2022. The outstanding balance on this loan was $ 183,839 and $ 258,060 , on September 30, 2022, and September 30, 2021, respectively. This loan is secured by certain assets of the Company. Notes payable On September 30, 2020, the Company issued a note payable to an independent private lender in the amount of $ 4,605,000 . This note carried interest of 8 % and matured on March 30, 2022 . After deduction of an original issue discount of $ 600,000 and legal fees of $ 5,000 , the Company received $ 4,000,000 in cash. As of September 30, 2022, and September 30, 2021, this note had a balance of $ 0 and $ 2,256,448 , respectively. As of September 30, 2022, and September 31, 2021, this note had unamortized original issue discount balance of $ 0 and $ 200,000 , respectively On October 26, 2020, the Company issued a Note payable in the amount of $ 439,774 for the purchase of VDI. This note carried interest of 5 % and was payable in two installments on October 26, 2021, and October 26, 2022. As of September 30, 2022, and September 30, 2021, this note had a balance of $ 219,370 and $ 460,377 , respectively. As of the date of this report, all principal and accrued interest on this note have been paid. F- 25 On September 30, 2021, the Company issued a note payable to an independent private lender in the amount of $ 5,755,000 . This note carries interest of 8 % and matures on March 30, 2023 . After deduction of an original issue discount of $ 750,000 and legal fees of $ 5,000 , the Company received $ 5,000,000 in cash. As of September 30, 2022, and September 30, 2021, this note had a balance of $ 4,943,929 and $ 5,005,000 , respectively. As of September 30, 2022, and September 31, 2021, this note had unamortized original issue discount balance of $ 250,000 and $ 750,000 , respectively. On February 22, 2022, the Company issued a note payable to an independent private lender in the amount of $ 9,205,000 . This note carries interest of 8 % and matures on August 22, 2023 . After deduction of an original issue discount of $ 1,200,000 and legal fees of $ 5,000 , the Company received $ 8,000,000 in cash. Additionally, the Company issued 1,000,000 shares of its common stock to the lender. The fair market value of the stock of $ 700,400 was recognized as an additional original issue discount and will be amortized over the life of the loan. As of September 30, 2022, this note had a balance of $ 9,738,632 . As of September 30, 2022, this note had unamortized original issue discount balance of $ 1,064,778 . On March 30, 2022, Vicon, a subsidiary of the Company, amended the $ 5,600,000 Term Loan Agreement with NIL Funding Corporation (“NIL”). Upon closing, $ 500,000 of outstanding borrowings were repaid to NIL. The Agreement requires monthly payments of accrued interest that began on October 1, 2018. This note carries interest of 8.85 % and matures on March 30, 2023 . This note carries loan covenants which the Company is in compliance with as of September 30, 2022. As of September 30, 2022, and September 30, 2021, this note had a balance of $ 2,804,743 and $ 3,604,743 , respectively. Mortgage Payable On January 28, 2020, the Company’s subsidiary, Advanced Industrial Services, Inc., completed the purchase of two buildings for a total purchase price of $ 3,381,433 . The Company paid $ 905,433 in cash and acquired a mortgage from Fulton Bank in the amount of $ 2,476,000 . This mortgage carried interest of LIBOR plus 2.50 % per annum ( 2.575 % as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the mortgage to carry interest at SOFR plus 2.62 % per annum ( 5.6 % as of September 30, 2022). This mortgage is payable on January 28, 2040 . This loan carries loan covenants similar to covenants on the Company’s other loans from Fulton Bank. As of September 30, 2022, the Company was in compliance with these covenants. As of September 30, 2022, and September 30, 2021, this mortgage had a balance of $ 2,245,664 and $ 2,339,114 , respectively. Paycheck Protection Program Loans In April and May of 2020, and January and April of 2021, the Company and its subsidiaries applied for and were granted $ 6,413,385 in Paycheck Protection Program loans under the CARES Act. These loans bear interest of 2 % and mature in two years. The Company has applied for and received loan forgiveness under the provisions of the CARES Act for $ 6,291,985 , recorded as other income on the Company’s consolidated statement of operations and comprehensive income/(loss). The remaining loan of $ 121,400 has been modified with a maturity date of May 5, 2025 and payments starting in June of 2022 and is recorded under Paycheck Protection Program Loans on our Consolidated Balance Sheet as of September 30, 2022, net of the short-term portion of $ 24,280 . The issuing bank determined that this loan qualifies for loan forgiveness; however the Company is awaiting final approval from the Small Business Administration. Estimated maturities of our long-term debt over the next 5 years are as follows: SCHEDULE OF ESTIMATED MATURITIES OF LONG TERM DEBT 2023 2024 2025 2026 2027 Thereafter Total Fulton Bank - $ 5,250,000 247,284 - - - - - $ 247,284 Fulton Bank - $ 400,000 63,281 - - - - - $ 63,281 Fulton Bank - $ 360,000 73,508 72,243 38,088 - - - $ 183,839 Fulton Bank - Mortgage payable 85,495 89,482 93,993 98,730 103,706 1,774,258 $ 2,245,664 NIL Funding 2,804,743 - - - - - $ 2,804,743 PPP Loans 24,280 24,280 24,280 24,280 24,280 - $ 121,400 Notes Payable 14,901,930 - - - - - $ 14,901,930 TOTAL $ 18,200,521 $ 186,005 $ 156,361 $ 123,010 $ 127,986 $ 1,774,258 $ 20,568,141 F- 26 NOTE 13 – RELATED PARTY TRANSACTIONS On July 31, 2022 the Company negotiated a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. from Aron Govil, the Company’s Founder and former Director totaling $761,585 . This agreement is in the form of a secured promissory note earning interest at a rate of 5 % per annum and matures on July 31, 2024 . See Item 13 of Part III of this report for more information regarding transactions related to Aron Govil. NOTE 14 – SHAREHOLDERS’ EQUITY On July 27, 2020, the Company amended the Company’s Certificate of Incorporation (the “Amended Certificate of Incorporation”) which was duly approved by the Company’s Board of Directors and duly adopted by the Company’s shareholders increasing the number of authorized shares of all classes of stock from 30,000,000 shares to 60,000,000 shares with 50,000,000 designated as Common Stock and 10,000,000 designated as Preferred Stock. Preferred Stock The Company is authorized to issue 10,000,000 shares of Preferred Stock, $ 0.001 par value. As of September 30, 2022, and September 30, 2021, there were 2,129,122 and 1,935,151 shares issued and 2,065,022 and 1,871,051 shares outstanding, respectively. Series A Preferred stock Each issued and outstanding Series A Preferred Share shall be entitled to the number of votes per share equal to the result of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01; divided by (ii) the total number of Series A Preferred Shares issued and outstanding at the time of such vote, at each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration, including the election of directors. Holders of Series A Preferred Shares shall vote together with the holders of Common Shares as a single class. The Series A Preferred Stock has no liquidation value or preference. The Series A Preferred Stock has no redemption rights. During the twelve-month period ended September 30, 2021, the Company retired 1,000,000 shares of Series A Preferred Stock surrendered by Aron Govil as part of the settlement agreement. See Item 13 of Part III of this report for more details. As of September 30, 2022, and September 30, 2021, there were no shares of Series A Preferred Stock issued and outstanding. Series C Preferred Stock On October 3, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up to one hundred thousand ( 100,000 ) shares, par value $ 0.001 . Under the Certificate of Designation, holders of Series C Preferred Stock are entitled to the number of votes per share equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors . The Series C Preferred Stock has no liquidation value or preference. The Series C Preferred Stock has no redemption rights. For the year ended September 30, 2020, 100,000 shares of Series C Preferred Stock were issued to Aron Govil, Executive former Director and CFO of the Company as part of his employment agreement. In order to determine the fair market value of these shares (estimated to be $ 0.95 per share), the Company used the closing price of its Series 1 preferred stock of $ 0.95 on October 3, 2019. On July 10, 2020, Aron Govil transferred 50,000 shares of the Series C Preferred Stock to Saagar Govil. F- 27 During the year ended September 30, 2021, the Company retired 50,000 shares of Series C Preferred Stock surrendered by Aron Govil as part of the settlement agreement. See Item 13 of Part III of this report for more details. As of September 30, 2022, and September 30, 2021, there were 50,000 shares of Series C Preferred Stock issued and outstanding. Series 1 Preferred Stock Dividends Holders of the Series 1 Preferred will be entitled to receive cumulative cash dividends at the rate of 10% of the purchase price per year, payable semiannually on the last day of March and September in each year. Dividends may also be paid, at our option, in additional shares of Series 1 Preferred, valued at their liquidation preference. The Series 1 Preferred rank senior to the common stock with respect to dividends. Dividends will be entitled to be paid prior to any dividend to the holders of our common stock. Liquidation Preference The Series 1 Preferred has a liquidation preference of $ 10 per share, equal to its purchase price. In the event of any liquidation, dissolution or winding up of our company, any amounts remaining available for distribution to stockholders after payment of all liabilities of our company will be distributed first to the holders of Series 1 Preferred, and then pari passu to the holders of the Series A preferred stock and our common stock. The holders of Series 1 Preferred have preference over the holders of our common stock on any liquidation, dissolution or winding up of our company. The holders of Series 1 Preferred also have preference over the holders of our Series A preferred stock. Voting Rights Except as otherwise provided in the certificate of designation, preferences and rights or as required by law, the Series 1 Preferred will vote together with the shares of our common stock (and not as a separate class) at any annual or special meeting of stockholders. Except as required by law, each holder of shares of Series 1 Preferred will be entitled to two votes for each share of Series 1 Preferred held on the record date as though each share of Series 1 Preferred were 2 shares of our common stock. Holders of the Series 1 Preferred will vote as a class on any amendment altering or changing the powers, preferences or special rights of the Series 1 Preferred so as to affect them adversely. No Conversion The Series 1 Preferred will not be convertible into or exchangeable for shares of our common stock or any other security. Rank The Series 1 Preferred will rank with respect to distribution rights upon our liquidation, winding-up or dissolution and dividend rights, as applicable: ● senior to our Series A preferred stock, common stock and any other class of capital stock we issue in the future unless the terms of that stock provide that it ranks senior to any or all of the Series 1 Preferred; ● on a parity with any class of capital stock we issue in the future the terms of which provide that it will rank on a parity with any or all of the Series 1 Preferred; ● junior to each class of capital stock issued in the future the terms of which expressly provide that such capital stock will rank senior to the Series 1 Preferred and the common stock; and ● junior to all of our existing and future indebtedness. Redemption Shares of Series 1 Preferred may be redeemed, in whole or in part, at the option of the Corporation, by the Corporation by giving notice of such redemption at any time. Notice of redemption may be given either by mailing notice to the holders of record or by public announcement, by press release or otherwise. If notice is given by public announcement, by press release or otherwise, such notice shall be effective as of the date of such announcement, regardless of whether notice is also mailed or otherwise given to holders of record. The redemption price for any shares of Series 1 Preferred to be redeemed (the “Redemption Price”) shall be payable in cash, out of funds legally available therefor, and shall be equal to the Preference Amount, plus any accrued but unpaid dividends. If fewer than all of the outstanding shares of Series 1 Preferred are to be redeemed at any time, the Corporation may choose to redeem shares proportionally from all holders, or may choose the shares to be redeemed by lot or by any other equitable method. F- 28 On March 30, 2020, the Company amended the Certificate of Designation (the “Amended Certificate of Designation”) for our Series 1 Preferred Stock (the “Series 1 Stock”). The Amended Certificate of Designation increased the number of authorized preferred shares under the designation for our Series 1 Preferred Stock from 3,000,000 shares to 4,000,000 shares. During the year ended September 30, 2022 and 2021, 193,971 and 198,316 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. respectively. During the year ended September 30, 2021, the Company retired 469,949 shares of Series 1 Preferred Stock surrendered by Aron Govil as part of the settlement agreement. See Item 13 of Part III of this report for more details. As of September 30, 2022, and September 30, 2021, there were 2,079,122 and 1,885,151 shares of Series 1 Preferred Stock issued and 2,015,022 and 1,821,051 shares outstanding, respectively. The Company currently holds 64,100 shares of Series 1 Stock in Treasury stock. Common Stock The Company is authorized to issue 50,000,000 shares of common stock, $ 0.001 par value. As of September 30, 2022, there were 26,413,296 shares issued and outstanding and at September 30, 2021, there were 20,782,194 shares issued and outstanding. During the fiscal year ended September 30, 2022, we issued 5,481,102 shares of common stock to satisfy $ 4,688,524 of notes payable and accumulated interest. During the fiscal year ended September 30, 2021, we issued 3,159,655 shares of common stock to satisfy $ 5,025,651 of notes payable and accumulated interest. During fiscal year 2022, the Company issued 150,000 shares in exchange for $ 50,000 worth of services. Series 1 Warrants On January 31, 2022, warrants to purchase 433,965 shares of our common stock (issuable upon the exercise of our publicly traded Series 1 warrants), at an exercise price of $ 50.48 per share expired. During the years ended September 30, 2022, and 2021, no outstanding Series 1 Warrants were exercised. NOTE 15 – SHARE-BASED COMPENSATION On September 25, 2019, the Company cancelled all outstanding options granted to Saagar Govil, the Company’s Chairman and CEO and granted a stock option for 400,000 shares. These options have an exercise price of $ 1.90 per share, which vested upon grant and they expire after seven years. Additionally, Mr. Govil was granted additional future options; (i) 100,000 shares of the Corporation’s common stock, CETX at an exercise price of $ 1.92 per share on September 25, 2021 ; (ii) 100,000 shares of the Corporation’s common stock, CETX at an exercise price of $ 2.30 per share on September 25, 2023 ; and (iii) 100,000 shares of the Corporation’s common stock, CETX at an exercise price of $ 2.76 per share on September 25, 2025 . On September 25, 2019, the Company granted to Aron Govil, the Company’s former Executive Director and CFO, a stock option for 200,000 shares. These options have an exercise price of $ 1.90 per share, which vested upon grant and they expire after seven years . F- 29 (i) 25,000 shares of the Corporation’s common stock, CETX at an exercise price of $ 1.92 per share on September 25, 2021 ; (ii) 12,500 shares of the Corporation’s common stock, CETX at an exercise price of $ 2.30 per share on September 25, 2023 ; and (iii) 8,333 shares of the Corporation’s common stock, CETX at an exercise price of $ 2.76 per share on September 25, 2025 . As part of the settlement agreement with Mr. Govil, all his options were cancelled. On January 6, 2021, the Company granted Christopher C. Moore, the Company’s CFO, a stock option for 150,000 shares. These options have an exercise price of $ 1.58 per share, which vest over five years , and they expire after five years. These options were cancelled upon Mr. Moore’s departure from the Company. On April 28, 2022, the Company granted Brian Kwon, Manpreet Singh, Chris Wagner, and Metodi Filipov, all Directors of the Company, stock options for 102,565 shares each, 410,260 in the aggregate. These options have an exercise price of $ 0.39 per share, which vest over one year , and expire after five years. The following weighted-average assumptions were used to estimate the fair value of the common stock option liability for the options granted to Brian Kwon, Manpreet Singh, Chris Wagner, and Metodi Filipov; SCHEDULE OF FAIR VALUE STOCK OPTION WEIGHTED AVERAGE ASSUMPTIONS April 28, 2022 Expected term 5 Years Risk-free interest rate 2.92 % Expected volatility 110.56 % Expected dividend yield 0 % During the years ended September 30, 2022, and 2021 the Company recognized $ 155,505 and $ 156,419 of share-based compensation expense on its outstanding options, respectively. As of September 30, 2022, there was $ 221,380 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.25 years. SCHEDULE OF STOCK OPTIONS ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at September 30, 2021 950,000 $ 1.74 2.5 $ - Options granted 410,260 $ 0.39 0.57 $ - Options exercised Options forfeited Options cancelled ( 150,000 ) $ 1.34 4.00 $ - Outstanding at September 30, 2022 1,210,260 $ 1.34 3.25 $ - Vested and exercisable at September 30, 2022 650,000 $ 1.80 3.25 $ - NOTE 16 – COMMITMENTS AND CONTINGENCIES The Company has its corporate headquarters in New York City with a 12-month lease of 2,500 square feet of office space at a rate of $ 10,000 per month expiring on February 28, 2023. The Company’s IS segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-year lease at a monthly rent of $ 5,099 expiring on August 31, 2025 . F- 30 The Company’s AT segment leases (i) approximately 6,700 square feet of office and warehouse space in Pune, India from a third party in an five year lease at a monthly rent of $ 5,810 (INR 456,972 ) expiring on February 28, 2024 , (ii) approximately 30,000 square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of $ 28,719 expiring on March 31, 2027 , (iii) approximately 4,570 square feet of office space in El Dorado Hills, California in a 63 month lease assumed by the company upon the acquisition of VDI at a monthly rent of $ 7,077 expiring on November 30, 2022 , and (iv) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-year lease with at a monthly rent of $ 9,821 (£ 7,669 ) which expires on March 24, 2031 and contains provisions to terminate in 2026 . NOTE 17 – INCOME TAXES The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the maximum U.S. federal corporate tax rate from 35 % to 21 % , allows net operating losses incurred in 2018 and beyond to be carried forward indefinitely, allows alternative minimum tax carryforwards to be partially refunded, beginning in 2018, and fully refunded by 2021, and creates new taxes on certain foreign sourced earnings. At September 30, 2022, the Company had approximately $ 70,061,515 of federal and $ 34,312,917 of state net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2036 for federal purposes and in 2036 for state purposes . The company is currently reviewing net operating losses for Section 382 limitation purposes and will make any required adjustments to the net operating losses at the completion of the study. The following is a geographical breakdown of loss before the provision for income taxes: SCHEDULE OF (LOSS) INCOME BEFORE PROVISION FOR TAX Year ended September 30, 2022 2021 Domestic $ ( 12,103,393 ) $ 30,957 Foreign ( 1,397,394 ) 738,255 Loss before provision for income taxes $ ( 13,500,787 ) $ 769,212 The provision for income taxes consisted of the following: SCHEDULE OF PROVISION FOR INCOME TAXES September 30, 2022 September 30, 2021 Current (benefit)/provision Federal $ - $ - State ( 208,545 ) 375,434 Foreign - - Total current (benefit)/provision ( 208,545 ) 375,434 Deferred provision Federal - - State - - Foreign - - Total deferred provision $ - $ - Total (benefit)/provision for income taxes $ ( 208,545 ) $ 375,434 Effective Income tax rate 1.54 % 48.81 % F- 31 The following is a reconciliation of the effective income tax rate to the federal and state statutory rates: SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION For the Fiscal Year For the Fiscal Year Ended Ended September 30, 2022 September 30, 2021 U.S. statutory rate 21.00 % 21.00 % State taxes, net of federal 1.22 % 6.50 % Foreign tax rate differential - 1.04 % 0.00 % Change in valuation allowance - 13.73 % 0.00 % Return to provision 1.33 % 0.00 % Goodwill impairment - 5.16 % 0.00 % SEC settlement payment - 3.42 % 0.00 % PPP loan forgiveness 1.51 % 0.00 % Permanent differences - 0.17 % 21.31 % Effective rate 1.54 % 48.81 % The components of our deferred tax assets and liabilities are summarized as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES September 30, 2022 September 30, 2021 Deferred Tax Assets: Net operating loss carryforwards $ 18,563,887 $ 8,702,738 Inventory 1,330,547 1,405,057 Allowance for bad debt 8,304 35,345 Warrants (interest expense) 2,975,593 1,155,642 Accruals 289,426 280,447 Warranty Reserve 27,764 28,002 Other 5,847 4,358 Total gross deferred taxes 23,201,368 11,611,589 Valuation allowance ( 20,895,094 ) ( 9,491,650 ) Net deferred tax assets 2,306,274 2,119,939 Deferred Tax Liabilities: Inventory and other Reserves ( 490,967 ) ( 638,230 ) Prepaid expenses ( 124,399 ) ( 87,934 ) Goodwill amortization ( 525,898 ) ( 557,074 ) Depreciation ( 1,165,010 ) ( 836,701 ) Other - - Total deferred tax liabilities ( 2,306,274 ) ( 2,119,939 ) Total deferred tax assets (liabilities) $ - $ - F- 32 NOTE 18– SUBSEQUENT EVENTS Cemtrex has evaluated subsequent events up to the date the consolidated financial statements were issued. Centrex concluded that the following subsequent events have occurred and require recognition or disclosure in the consolidated financial statements. Preferred shares issued for dividend On October 7, 2022, the Company issued 104,341 shares of its Series 1 Preferred Stock to for dividends. The dividend was paid to shareholders of record as of September 30, 2022 . Sale of subsidiaries to related party 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, which are consolidated into the Company’s Consolidated Balance Sheet in this report. On November 22, 2022, the Company completed the above disposition for the following consideration. ● Cemtrex XR, Inc. ○ $ 895,000 comprised of: ■ $ 75,000 in cash payable at Closing; and ■ 5 % royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next three years; and should the total sum of royalties due be less than $ 820,000 at the end of the three-year period, Purchaser shall be obligated to pay the difference between $ 820,000 and the royalties paid . ● Cemtrex Advanced Technologies, Inc. ○ $ 10,000 in cash payable at Closing ○ 5 % royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next 5 years ; and ○ $ 1,600,000 in SAFE (common equity) at any subsequent fundraising or exit above $5M with a $10M cap . The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements. Common shares issued subsequent to financial statements date On December 16, 2022, 1,365,560 shares of common stock were issued to satisfy $ 200,000 of notes payable and accumulated interest. Reverse stock split On December 13, 2022, the Company’s Board of Directors approved, and stockholders holding at least a majority of the issued and outstanding shares of our classes of voting stock have approved, by written consent in lieu of a special meeting: an amendment to our Certificate of Incorporation to authorize a reverse split of the Company’s outstanding shares of common stock, par value $ 0.001 per share, with a split ratio of between 1 for 10 and 1 for 100 , which will be determined by the Board of Directors at any time or times for a period of 12 months after the date of the written consent. F- 33