CEMTREX INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

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Except for historical information contained in this report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
When used in this report, words such as "anticipates", "believes", "could",
"estimates", "expects", "may", "plans", "potential" and "intends" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Among the factors
that could cause actual results to differ materially are the following: the
effect of business and economic conditions; the impact of competitive products
and their pricing; unexpected manufacturing or supplier problems; the Company's
ability to maintain sufficient credit arrangements; changes in governmental
standards by which our environmental control products are evaluated and the risk
factors reported from time to time in the Company's SEC reports, including this
report on Form 10-K. The Company undertakes no obligation to update
forward-looking statements as a result of future events or developments.



Potential impacts of COVID-19 on our business

The current COVID-19 pandemic has impacted our business operations and the
results of our operations in this fiscal year, primarily with delays in expected
orders by many customers and new product development, including newer versions
of surveillance software since our technical facility in Pune, India has been
under lock down on multiple occasions. Overall bookings level in the IS segment
of our business were down by more than 20%, however our AT segment has
experienced relatively less slow down. In addition, due to delays in certain
supply chain areas, the expected launch times of our new products and new
versions has resulted in delays of several months.



The broader implications of COVID-19 on our results from operations going
forward remains uncertain. The COVID-19 pandemic has the potential to cause
adverse effects to our customers, suppliers or business partners in locations
that have or will experience more pronounced disruptions, which could result in
a reduction to future revenue and manufacturing output as well as delays in our
new product development activities. However, on the other hand, opportunities in
the video surveillance field have been growing for Vicon products.



The extent of the pandemic's effect on our operational and financial performance
will depend in large part on future developments, which cannot be reasonably
estimated at this time. Future developments include the duration, scope and
severity of the pandemic, the emergence of new virus variants that are more
contagious or harmful than prior variants, the actions taken to contain or
mitigate its impact both within and outside the jurisdictions where we operate,
the impact on governmental programs and budgets, the development of treatments
or vaccines, and the resumption of widespread economic activity. Due to the
inherent uncertainty of the unprecedented and rapidly evolving situation, we are
unable to predict with any confidence the likely impact of the COVID-19 pandemic
on our future operations.


Significant Accounting Policies and Estimates



The following discussion and analysis is based upon our consolidated financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses, and assets and liabilities
during the periods reported. Estimates are used when accounting for certain
items such as revenues, allowances for returns, early payment discounts,
customer discounts, doubtful accounts, employee compensation programs,
depreciation and amortization periods, taxes, inventory values, and valuations
of investments, goodwill, other intangible assets and long-lived assets. We base
our estimates on historical experience, where applicable and other assumptions
that we believe are reasonable under the circumstances. Actual results may
differ from our estimates under different assumptions or conditions.



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Please see Note 2 for detailed information regarding our significant accounting
policies and estimates in the Notes to Consolidated Financial Statements in
this
2021 Form 10-K.


Restatement of financial statements


Background


At February 23, 2021, by Cemtrex The Board of Directors has determined that certain transactions between Cemtrex inc. and First Commercial, a company owned by the former chief executive, former majority shareholder and former chief financial officer, Aron Govil, were incorrectly processed and counted.



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 at from Indian Rupee at the time, were recorded on Cemtrex India's
financial statements in fiscal year 2018 and could not be substantiated. The
total amount of unsubstantiated transfers recorded by Cemtrex India, and the
unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000,
corresponding with the total amount in question regarding First Commercial
transfers during fiscal years 2017 and 2018.



As part of the restatement investigation, it was determined that the Company did
not follow GAAP in the treatment of its Series 1 Preferred dividends. The
Company currently has a deficit in retained earnings and in accordance with
guidance has reversed the accrual for dividends payable and placed the amount of
the accrual back into retained earnings.



In response to the above discussed restatements, the Company revisited its
fiscal year 2020 financial statements. As a result, the following items have
been restated, (i) inventory valuation, recognition of discontinued operations,
accrued expenses, and accounts payable of the Company's subsidiary Vicon
Industries, Inc., (ii) fixed asset valuation and deferred revenue of the
Company's subsidiary Advanced Industrial Services, Inc., some of these valuation
error dates to prior to acquisition of each entity.



Position and adjustment entries

The Company has determined that these transactions are not material in the years
that they occurred and conclude that prior financial reports can be relied upon.
The Company's determination is based on the following: The adjustments do not
cause any changes to the previously reported cash and debt balances as of the
end of each of the periods in FY 2019 and 2020. The adjustments also do not
cause any changes to revenues in any of the prior periods. In addition, the
Company expects to maintain compliance with its debt covenants based on a
preliminary review of the covenants for all the impacted periods. The Company
has also determined that the adjustments have little effect on the trend of
earnings over the last three fiscal years. In 2017 the operations of the Company
were vastly different with both the environmental and circuit board
manufacturing segments accounting for approximately 75% of revenues. These
businesses are now either sold or discontinued. The current reported 2017
financial statements of the Company do not give an accurate representation of
the Company today because only 16% of the $120M business operations are still a
part of current operations.



The table below represents the balances of the affected accounts on the
Condensed Consolidated Balance Sheets as of September 30, 2020, the Condensed
Consolidated Statements of Operations and Comprehensive Income/(Loss) for the
year ended September 30, 2020, Condensed Consolidated Statement of Stockholders'
Equity, and the Condensed Consolidated Statements of Cash Flows for the year
ended September 30, 2020.



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Condensed consolidated balance sheets


                                                                                             Adjustment
                                                                                              resulting
                                                                                            from reaudit
                                                                                              of Fiscal                                                                                                                                                Adjusted
                                                                    
Adjustment of net        Year 2020                            Adjustment of net      Cumulative effect       Loss on amounts                                                     balance at
                                            Balance as reported     value 

of intangible assets Financial Adjustment of the net value of fixed assets

from the restatement transferred to the first cumulative effect restatement of September

                                           on September 30, 2020           assets            Statements      value of inventory          assets              adjustments             Commercial            Dividends       

currency conversion 30, 2020

Cash and equivalents                       $     19,490,061                                 $    (3,038 )                                                                                                                                         $    19,487,023
Prepaid expenses and other assets          $      1,188,317                
                $   (12,542 )                                                                                                                                         $     1,175,775
Other Assets                               $        744,207                                 $  (362,307 )                                                                                                                                                $381,900
Property and equipment, net                $      9,558,936         $    (2,597,185 )                                              $    (987,901 )                                                                                                $     5,973,850
Inventory -net of allowance for
inventory obsolescence                     $      6,793,806                                                  $   (1,847,349 )                                                                                                                     $     4,946,457
Goodwill                                   $      4,370,894                                 $ 2,851,998                                                                                                                                           $     7,222,892
Accounts payable                           $      2,857,817                                 $ 1,953,400                                                                                                                                           $     4,811,217
Accrued expenses                           $      2,392,487                                 $  (285,460 )                                                                                                                                         $     2,107,027
Deferred revenue                           $      1,651,784                                 $  (153,958 )                                                                                                                                         $     1,497,826
Other long-term liabilities                $      1,063,733                                 $  (295,138 )                                                                                                                                         $       768,595
Series 1 preferred stock dividends
payable                                    $      1,081,690                                                                                                                                             $  (1,081,690 )                           $             -
Additional paid-in capital                 $     63,313,336                                                                                                                                             $  (3,091,570 )                           $    60,221,766
Retained earnings (accumulated deficit)    $    (33,172,690 )                                                                                            $    1,999,363         $    (7,100,000 )       $   4,173,260                             $  (34,100,067)
Accumulated other comprehensive income     $        853,643                
                                                                                                                                                $       958,814       $     1,812,457




Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)



                                                          For the year ended
                                                          September 30, 2020
                                      Previously reported       Adjustments          Adjusted

Net loss available to Cemtrex,
Inc. shareholders                    $        (13,105,005 )   $    2,634,924     $  (10,470,081 )
Cost of revenues                     $         24,153,937     $    1,743,244     $   25,897,181
General and administrative           $         21,570,666     $   (1,206,938 )   $   20,363,728
Preferred dividends                  $          3,171,230     $   (3,171,230 )   $           -
Loss Per Share-Basic                 $              (1.28 )   $         0.27     $        (1.01 )
Loss Per Share-Diluted               $              (1.28 )   $         0.27     $        (1.01 )



Condensed Consolidated Statement of Equity


                                                      For the year ended
                                                      September 30, 2020
                                       Previously
                                        reported          Adjustments          Adjusted

Retained earnings (accumulated
deficit) at September 30, 2019       $   (20,067,685 )   $   (3,562,301 )   $  (23,629,986 )
Dividends pad in series preferred
shares                               $    (2,089,540 )   $    2,089,540     $            -
Accrued dividends                    $    (1,081,690 )   $    1,081,690     $            -
Net income/(loss)                    $    (9,706,659 )   $     (763,422 )   $  (10,470,081 )
Retained earnings (accumulated
deficit) at September 30, 2020       $   (33,172,690 )   $     (927,377 )   $  (34,100,067 )
Accumulated other comprehensive
income/(loss)at September 30, 2019   $       796,004     $      958,814     $    1,754,818
Foreign currency translation gain    $        22,294     $       35,345     $       57,639
Income in noncontrolling interest    $        35,345     $      (35,345 )   $            -
Accumulated other comprehensive
income/(loss) at September 30,
2020                                 $       853,643     $      958,814     $    1,812,457
Additional paid-in capital at
September 30, 2019                   $    40,344,837     $   (1,002,030 )   $   39,342,807
Additional paid-in capital at
September 30, 2020                   $    63,313,336     $   (3,091,570 )   $   60,221,766
Non-controlling interst of Vicon
at September 30, 2019                $       885,874     $      (70,690 )   $      815,184
Income in noncontrolling interest    $       191,771     $       35,345     $      227,116
Non-controlling interst of Vicon
at September 30, 2020                $     1,077,645     $      (35,345 )   $    1,042,300



Condensed Consolidated Statements of Cash Flows


                                                       For the year ended
                                                       September 30, 2020
                                       Previously
                                        reported           Adjustments          Adjusted

Net loss                             $    (9,706,659 )   $      (536,306 )   $  (10,242,965 )
Depreciation and amortization        $     2,460,043     $      (594,317 )   $    1,865,726
Inventory                            $    (1,586,651 )   $     1,743,244     $      156,593
Accrued expenses                     $      (499,527 )   $      (174,265 )   $     (673,792 )
Net cash used by operating
activities - continuing operations   $    (3,786,202 )   $       438,356   
 $   (3,347,846 )



At February 26, 2021, the Company has entered into a settlement and release agreement with Aron Govil regarding these operations.



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.



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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 this reporting period. The gain of $3,674,165 is reported as Settlement
Agreement - Related Party on the Company's Condensed Consolidated Statements of
Operations and Comprehensive Income/(Loss).



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 Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of Operations
and Comprehensive Income/(Loss).



Results of Operations – For the Years Ending September 30, 2021 and 2020



Total revenue for the years ended September 30, 2021, and 2020 was $43,130,934
and $43,518,384, respectively, a decrease of $387,450, or 1%. Net loss
attributable to Cemtrex, Inc. shareholders for the years ended September 30,
2021, and 2020 was a $7,807,995 and $10,470,081 respectively, a decrease of the
loss of $2,662,086 or 25%. Total revenue for the fiscal year decreased, as
compared to total revenue in the same period last year, due to sales decreases
in the Advanced Technology Segment offset by increases in the Industrial
Services Segment. Net loss attributable to Cemtrex, Inc. shareholders decreased
due to onetime other income items related to forgiveness and credits related to
COVID-19 programs offset by the losses on discontinued operations.



Revenues



Our Advanced Technologies segment revenues for the years ended September 30,
2021, and 2020 were $24,154,488 and $25,750,684, respectively, a decrease of
$1,596,196 or 6%. This decrease represents a decrease in the video security
solutions products offset by an increase in SmartDesk and IoT products mostly as
a result of the release of the SmartDesk Connect product and the addition of the
VDI product line.


Revenues from our Industrial Services segment for the year ended September 30, 2021, increased by $1,208,746 or 7%, to $18,976,446 from $17,767,700 for the year ended September 30, 2020. The increase is primarily due to increased demand for services as the COVID-19 crisis subsided in fiscal year 2021.


Gross Profit


Gross Profit for the year ended September 30, 2021, was $16,968,352 or 39% of
revenues as compared to gross profit of $17,621,203 or 40% of revenues for the
year ended September 30, 2020. The decrease in gross profit dollars and
percentage in the year ended September 30, 2020, as compared to the prior year,
was a result of the sale of products and services with lower gross profit
margins.



General and administrative expenses

General and administrative expenses for the year ended September 30, 2021, increases $2,174,768 or 11% to $22,538,496 from $20,363,728 for the year ended
September 30, 2020. The increase in general and administrative expenses in dollars results from the increase in personnel, audit and insurance costs, compensated by the savings measures implemented during the year.

Research and development costs



Research and Development expenses for the year ended September 30, 2021, and
2020 were $3,171,676 and $1,827,286, respectively. Research and Development
expenses have increased with the increased capital resources of the Company and
focus on new product development.



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Other Income/(Expense)



Other income/(expense) of fiscal 2021 was $9,511,032 as compared to $(2,786,424)
for fiscal 2020. Other income/(expense) for the year ended September 30, 2021,
included the following one-time items (i) the settlement with Aron Govil,
generated other income of $3,674,165, (ii) employee retention credits of
$733,426 (iii) other income resulting from the forgiveness of our PPP loans of
$5,320,485. Additionally, the company had realized and unrealized gains on
marketable securities of $2,612,632.



Income Tax Benefit/(Expense)



During the fiscal year of 2021 we recorded an income tax expense of $375,434
compared to an expense of $2,073,835 for the fiscal year of 2020. The decrease
in the expense for income tax is mainly due to the adjustment in the valuation
allowance in the Company's deferred taxes in fiscal year 2020.



Net Income/(Loss)



The Company had a net loss attributable to Cemtrex, Inc. shareholders of
$7,807,995 or 18% of revenues, for the year ended September 30, 2021, as
compared to a net loss of $10,470,081 or 24% of revenues, for the year ended
September 30, 2020. Net loss attributable to Cemtrex, Inc. shareholders in this
period as compared to the previous period was lower due to the one-time other
income items discussed above business offset by the loss on discontinued
operations. For the year ended September 30, 2021, the Company had a loss of
$8,280,047 on discontinued operations and for the year ended September 30, 2020,
the Company had a loss of $812,895 on discontinued operations.



Effects of Inflation


The business and operations of the Company have not been materially affected by inflation during the periods for which the financial information is presented.

Cash and capital resources



Working capital was $15,088,892 at September 30, 2021, compared to $19,908,211
at September 30, 2020. This includes cash and cash equivalents and restricted
cash of $17,186,323 at September 30, 2021, and $21,069,821 at September 30,
2020, respectively. The decrease in working capital was primarily due to the
decrease in the Company's current assets of $1,456,511 and an increase in the
Company's current liabilities of $3,362,808. The primary reason for the decrease
in current assets was the cash used for operations during the fiscal year and
the primary reason for the increase in current liabilities was the increase in
the Company's current portion of log-term liabilities.



Accounts receivable increased by $1,124,099 or 17% to $7,810,896 at September
30, 2021, from $6,686,797 at September 30, 2020. The increase in accounts
receivable is mainly due to offering some extended payment terms to maintain
revenue levels.



Inventories increased by $710,830 or 14% to $5,657,287 at September 30, 2021,
from $4,946,457 at September 30, 2020. The increase in inventories is
attributable to the company's purchase of inventory for its security business to
maintain sufficient stock on hand for sale.



Operating activities from continuing operations used $10,051,165 for the year ended September 30, 2021, compared to the use $3,347,846 cash flow for the year ended September 30, 2020. In fiscal 2020, discontinued operations used $438,356.



Investing activities for continuing operations provided $840,901 of cash during
the year ended September 30, 2021, compared to using $2,432,500 during the
year
ended September 30, 2020.


Financing activities for continuing operations provided $4,445,932 for the year
ended September 30, 2021, as compared to providing $24,836,994 in the year ended
September 30, 2020. In fiscal 2021 our financing activities were mainly
comprised of the proceeds from notes payable offset by payments on our debt. In
fiscal 2020 discontinued operations used $374,538.



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We believe that our cash on hand and cash generated by operations is sufficient
to meet the capital demands of our current operations during the 2022 fiscal
year (ending September 30, 2022). Any major increases in sales, particularly in
new products, may require additional capital investment. Failure to obtain
sufficient capital could materially adversely impact our growth potential.

Overall, there can be no assurance that cash flows from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our expansion objectives and working capital requirements.

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