Cemtrex Inc 10-Q for FY2023 Q2
Cemtrex Inc (CETX)
About this 10-Q
Cemtrex Inc filed this 10-Q on May 11, 2023, covering the quarter ended March 31, 2023 (FY2023 Q2).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $16.07M
- up 36.8% from $11.75M a year earlier
- Net loss
- $594.79K
- compared with a net loss of $4.72M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from ___________to ____________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| ☒ | ☐ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| ☒ | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| ☐ | Yes | ☒ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of May 8, 2023, the issuer had shares of common stock issued and outstanding.
Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term investments | ||||||||
| Trade receivables, net | ||||||||
| Trade receivables - related party | ||||||||
| Trade receivables, net | ||||||||
| Inventory –net of allowance for inventory obsolescence | ||||||||
| Prepaid expenses and other assets | ||||||||
| Assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Royalties receivable - related party | ||||||||
| Note receivable - related party | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities & Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Accounts payable | ||||||||
| Short-term liabilities | ||||||||
| Lease liabilities - short-term | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Accrued income taxes | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Loans payable to bank | ||||||||
| Long-term lease liabilities | ||||||||
| Notes payable | ||||||||
| Mortgage payable | ||||||||
| Other long-term liabilities | ||||||||
| Paycheck Protection Program Loans | ||||||||
| Deferred Revenue - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock , $ par value, shares authorized, Series 1, shares authorized, shares issued and shares outstanding as of March 31, 2023 and shares issued and shares outstanding as of September 30, 2022 (liquidation value of $ | ||||||||
| Series C, shares authorized, shares issued and outstanding at March 31 31, 2023 and September 30, 2022 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2023 and shares issued and outstanding at September 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, shares of Series 1 Preferred Stock at March 31, 2023 and September 30, 2022 | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Cemtrex stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income/(loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income/(expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit/(expense) | ||||||||||||||||
| Loss from Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income/(loss) from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less income/(loss) in noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to Cemtrex, Inc. shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) per share - Basic & Diluted | ||||||||||||||||
| Continuing Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued Operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||||||||||
| Weighted Average Number of Shares-Diluted | ||||||||||||||||
| 4 |
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less comprehensive (loss) income attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive loss attributable to Cemtrex, Inc. shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
| Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Treasury Stock, 64,100 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | 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, 2022 | | $ | | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Additional rounding shares issued for reverse stock split | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay for services | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Ending balance value | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
| Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Treasury Stock, 64,100 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | 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 | | $ | | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued with note payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the six months ended | ||||||||
| March 31, | ||||||||
| Cash Flows from Operating Activities | 2023 | 2022 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Noncash lease expense | ||||||||
| Bad debt expense | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Interest expense paid in equity shares | ||||||||
| Accounts payable paid in equity shares | ||||||||
| Accrued interest on notes payable | ||||||||
| Amortization of original issue discounts on notes payable | ||||||||
| Gain/(loss) on marketable securities | ( | ) | ||||||
| Discharge of Paycheck Protection Program Loans | ( | ) | ||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Trade receivables | ( | ) | ||||||
| Trade receivables - related party | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accounts payable - related party | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deposits from customers | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ||||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Net cash used by operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities - discontinued operations | ||||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Investment in MasterpieceVR | ( | ) | ||||||
| Proceeds from sale of marketable securities | ||||||||
| Purchase of marketable securities | ( | ) | ||||||
| Net cash used by investing activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities - discontinued operations | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Payments on Paycheck Protection Program Loans | ( | ) | ||||||
| Payments on bank loans | ( | ) | ( | ) | ||||
| Net cash (used)/provided by financing activities | ( | ) | ||||||
| Effect of currency translation | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes, net of refunds | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued to pay notes payable | $ | $ | ||||||
| Shares issued in connection with note payable | $ | $ | ||||||
| Investment in right of use asset | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 9 |
Cemtrex, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS
Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.
Security
Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which, provides end-to-end 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 innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for 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.
Cemtrex Corporate
Cemtrex’s Corporate segment is the holding company of our other two segments.
Sale of former Cemtrex Brands
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, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil.
On November 22, 2022, the Company completed the above disposition for the following consideration.
| ● | Cemtrex XR, Inc. |
| ○ | $ |
| ■ | $ | |
| ■ |
| 10 |
| ● | Cemtrex Advanced Technologies, Inc. |
| ○ | $ | |
| ○ | ||
| ○ | $ |
The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements.
Common Stock Reverse Stock Split
On
January 25, 2023, the company completed a
Extension of cure period and Subsequent Compliance
Series 1 Preferred Stock
On July 29, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s Series 1 preferred stock listed on Nasdaq was below $ for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $ per share (the “Minimum Bid Price Requirement”).
On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
The Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and July 24, 2023 and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.
Common Stock
On January 24, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $ for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $ per share (the “Minimum Bid Price Requirement”).
On July 26, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC Nasdaq notifying the Company that, it had been granted an additional 180 days or until January 23, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has not regained compliance with Listing Rule 5550(a)(2) and accordingly would be delisted from the Capital Market. The Company then requested and had been granted a hearing to occur on March 16, 2023, appealing this determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.
| 11 |
On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market.
Going Concern Considerations
The accompanying condensed 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, which 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.
The
Company has incurred substantial losses of $
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 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 has effected a
NOTE 2 – INTERIM STATEMENT PRESENTATION
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2022, of Cemtrex, Inc.
| 12 |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Technologies Pvt. Ltd., Advanced Industrial Services, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Accounting Pronouncements
Significant Accounting Policies
Note 2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30, 2022, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Update 2016-13”). Update 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2022, including interim periods within that reporting period. The Company is currently evaluating the impact of this ASU on our financial statements.
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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. The Company is 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 820 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. The Company is currently evaluating the impact of this ASU on our financial statements.
| 13 |
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 condensed consolidated financial statements.
NOTE 3 – DISCONTINUED OPERATIONS
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, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil
Due
to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated
with the SmartDesk sale at $
Based
on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $
The following table summarizes the loss on the sale recorded during the three months ended December 31, 2022, included in Income/(loss) from discontinued operations, net of tax in the accompanying condensed consolidated statement of Operations:
SUMMARY OF LOSS ON SALE
| Purchase Price | $ | |||
| Less cash and cash equivalents transferred | ( | ) | ||
| Less Liabilities assumed | ( | ) | ||
| Net purchase price | $ | |||
| Assets Sold | ||||
| Accounts receivable, net | $ | |||
| Inventory, net | ||||
| Prepaid expenses and other assets | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Total Assets Sold | ||||
| Liabilities Transferred | ||||
| Accounts payable | ||||
| Short-term liabilities | ||||
| Long-term liabilities | ||||
| Total Liabilities Transferred | ||||
| Net assets sold | $ | |||
| Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies | $ | ( | ) |
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Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at March 31, 2023 and September 30, 2022 are as follows;
SCHEDULE OF ASSETS AND LIABILITIES INCLUDED WITHIN DISCONTINUED OPERATIONS
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Trade receivables, net | ||||||||
| Inventory –net of allowance for inventory obsolescence | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Short-term liabilities | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Deferred revenue | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
During
the first quarter of fiscal 2023, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in Israel.
The Company received funds related to benefit obligations of $
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Gain/(loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies, Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations, net of tax in the Company’s Condensed Consolidated Statements of Operations for the three and six month periods ended March 31, 2023 and 2022, are as follows:
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Operating, selling, general and administrative expenses | ||||||||||||||||
| Other (income)/expenses | ( | ) | ( | ) | ||||||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of discounted royalties | ||||||||||||||||
| Loss on sale of discontinued operations | ( | ) | ||||||||||||||
| Adjustment of benefit obligation | ||||||||||||||||
| Income tax provision | ||||||||||||||||
| Discontinued operations, net of tax | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
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. For the three and six months ended March 31, 2023, and 2022, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Options | ||||||||||||||||
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NOTE 5 – SEGMENT INFORMATION
During the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure. The Company reports and evaluates financial information for three current segments: the Security segment, Industrial Services segment and the Corporate segment.
The following tables summarize the Company’s segment information:
SCHEDULE OF SEGMENT INFORMATION
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
Three months ended March 31, 2023 | Six months ended March 31, 2023 | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Sales, general, and administrative | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Operating income/(loss) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Other income/(expense) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
Three months ended March 31, 2022 | Six months ended March 31, 2022 | |||||||||||||||||||||||||||||||
| Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Sales, general, and administrative | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Operating (loss)/income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||
| Other income/(expense) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||
| 2023 | 2022 | |||||||
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Identifiable Assets | ||||||||
| Security | $ | $ | ||||||
| Industrial Services | ||||||||
| Corporate | ||||||||
| Discontinued operations | ||||||||
| Total Assets | $ | $ | ||||||
NOTE 6 – 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 $
NOTE 7 – 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.
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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. 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.
The Company’s fair value assets at March 31, 2023 and September 30, 2022, 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 | March 31, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| Fair value 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) | $ | $ | $ | $ | ||||||||||||
| Fair value assets | $ | $ | $ | $ | ||||||||||||
NOTE 8 – TRADE RECEIVABLES, NET
Trade receivables, net consist of the following:
SCHEDULE OF TRADE RECEIVABLES, NET
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Trade receivables | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivables, net, total | $ | $ | ||||||
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 the required payments.
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NOTE 9 – INVENTORY, NET
Inventory, net, consist of the following:
SCHEDULE OF INVENTORY, NET
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Inventory, gross | ||||||||
| Less: Allowance for inventory obsolescence | ( | ) | ( | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | $ | ||||||
NOTE 10 – PREPAID AND OTHER CURRENT ASSETS
On
March 31, 2023, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $
NOTE 11 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
SUMMARY OF PROPERTY AND EQUIPMENT
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Land | $ | $ | ||||||
| Building and leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Computers and software | ||||||||
| Machinery and equipment | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2023, and 2022 were $
NOTE 12 – OTHER ASSETS
As
of March 31, 2023, the Company had other assets of $
On
November 13, 2020, Cemtrex made a $
| 19 |
NOTE 13 – RELATED PARTY TRANSACTIONS
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 $
As of March 31, 2023, and September 30, 2022, there was $ and $ payable due to Ducon Technologies, Pvt Ltd., respectively.
Receivables of $ that represented the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India were written off to bad debt in fiscal year 2022.
On
February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding transactions Cemtrex’s
Board of Directors determined were incorrectly handled and accounted for. Mr. Govil executed a secured promissory note (the “Note”)
in the amount of $
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 (see NOTE 1).
As
of March 31, 2023, there was $ in trade receivables due from these companies. Of these receivables $
As
of March 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $
NOTE 14 – LEASES
The
Company is party to contracts where we lease property from others under contracts classified as operating leases. The Company primarily
leases office and operating facilities, vehicles, and office equipment. The weighted average remaining term of our operating leases was
approximately
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.
| 20 |
A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2023, is set forth below:
SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO OPERATING LEASE LIABILITIES
| Years ending September 30, | Operating Leases | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 & Thereafter | ||||
| Undiscounted lease payments | ||||
| Amount representing interest | ( | ) | ||
| Discounted lease payments | $ | |||
Lease costs for the three and six months ended March 31, 2023 and 2022 are set forth below.:
SCHEDULE OF LEASE COSTS
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Lease costs: | ||||||||||||||||
| Finance lease costs | $ | $ | $ | $ | ||||||||||||
| Operating lease costs | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
NOTE 15 – LINES OF CREDIT AND LONG-TERM LIABILITIES
On
January 12, 2023, the Company entered into a standstill agreement with Streeterville Capital, LLC. The lender has agreed to refrain and
forbear temporarily from making redemptions under the notes for a period ending on April 12, 2023. In addition, the company has agreed
to an increase of the outstanding balance of the note issued on September 30, 2021 for the original amount of $
On February 15, 2023, the Company and Fulton Bank agreed to an amendment to the Master Agreement Regarding Financial Covenants and Financial Deliverables dated September 22, 2020.
On
March 3, 2023, the Company and NIL Funding agreed at an amendment to the term loan agreement dated September 18, 2018. This agreement
amends the maturity date to
On
May 3, 2023, the Company and Streeterville Capital, LLC. agreed to an amendment to the note issued on September 30, 2021 for the original
amount of $
| 21 |
The following table outlines the Company’s lines of credit and secured liabilities.
SCHEDULE OF LINES OF CREDIT AND LIABILITIES
| March 31, | September 30, | |||||||||||||
| Interest Rate | Maturity | 2023 | 2022 | |||||||||||
| Fulton Bank line of credit $ | Secured Overnight Financing Rate (“SOFR”) plus | N/A | $ | $ | ||||||||||
| Fulton Bank loan $ | SOFR plus | |||||||||||||
| Fulton Bank loan $ | SOFR plus | |||||||||||||
| Fulton Bank - $ | SOFR plus | |||||||||||||
| Fulton Bank mortgage $ | SOFR plus | |||||||||||||
| Note payable - $ | % | |||||||||||||
| Note payable - $ | % | |||||||||||||
| Note payable - $ | % | |||||||||||||
| Term Loan Agreement with NIL Funding Corporation (“NIL”) - $ | % | |||||||||||||
| Paycheck Protection Program loan - $ | % | |||||||||||||
| Total lines of credit and secured liabilities | $ | $ | ||||||||||||
| Less: Current maturities | ( | ) | ( | ) | ||||||||||
| Less: Unamortized original issue discount | ( | ) | ( | ) | ||||||||||
| Lines of credit and secured liabilities, Long Term | $ | $ | ||||||||||||
NOTE 16 – SHAREHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of Preferred Stock, $ par value. As of March 31, 2023, and September 30, 2022, there were and shares issued and and shares outstanding, respectively.
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Series 1 Preferred Stock
During the six months ended March 31, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
As of March 31, 2023, and September 30, 2022, there were and shares of Series 1 Preferred Stock issued and and shares of Series 1 Preferred Stock outstanding, respectively.
Series C Preferred Stock
As of March 31, 2023, and September 30, 2022, there were shares of Series C Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue shares of common stock, $ par value. As of March 31, 2023, there were shares issued and outstanding and at September 30, 2022, there were shares issued and outstanding.
On
January 25, 2023, the Company completed a
During
the six months ended March 31, 2023, shares of the Company’s common stock have been issued to satisfy $
During
the three and six months ended March 31, 2023, shares of the Company’s common stock have been issued in exchange for services
valued at $
For the six months ended March 31, 2023, and 2022, the Company recognized $ and $ of share-based compensation expense on its outstanding options, respectively. As of March 31, 2023, $ of unrecognized share-based compensation expense is expected to be recognized over a period of two years and six months. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the six months ended March 31, 2023, options to purchase shares of the Company’s common stock at an exercise price of $ per share and options to purchase shares of the Company’s common stock at an exercise price of $ per share were cancelled.
NOTE 18 – COMMITMENTS AND CONTINGENCIES
The
Company’s corporate segment leases approximately
The
Company’s Industrial Services segment owns approximately
The
Company’s Security segment leases (i) approximately
NOTE 19 – SUBSEQUENT EVENTS
On
April 6, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The holders
of the Series 1 Preferred Stock are entitled to receive dividends at the rate of
On
April 13, 2023, the Company issued an aggregate of shares of common stock to settle $
On
May 4, 2023, the Company issued an aggregate of shares of common stock to settle $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the impact of competitive products and their pricing; unexpected manufacturing or supplier problems; the Company’s ability to maintain sufficient credit arrangements; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the Company’s SEC reports, including its recent report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.
General Overview
Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
During the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure, consisting of (i) Security, (ii) Industrial Services, and (iii) Cemtrex Corporate.
Security
Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which provides end-to-end 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 innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for 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.
Cemtrex Corporate
Cemtrex’s Corporate segment is the holding company of our other two segments.
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Significant Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.
Certain of our accounting policies are deemed “significant”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our significant accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2022.
Results of Operations – For the three months ending March 31, 2023, and 2022
Total revenue for the three months ended March 31, 2023, and 2022 was $16,073,789 and $11,746,017, respectively, an increase of $4,327,380, or 37%. Loss from continuing operations for the three months ended March 31, 2023, was $553,761 compared to $4,116,783 for the three months ended March 31, 2022, a decrease on the loss of $3,563,022, or 87%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues as compared to the same period in the prior year.
Revenues
Our Security segment revenues for the three months ended March 31, 2023, increased by $3,173,789 or 47% to $9,913,898 from $6,740,109 for the three months ended March 31, 2022. This increase is due to an increased demand for the Security segment’s products and services.
Our Industrial Services segment revenues for the three months ended March 31, 2023, increased by $1,153,591 or 23%, to $6,159,499 from $5,005,908 for the three months ended March 31, 2022. This increase is mainly due to increased demand for the segment’s products and services.
Gross Profit
Gross Profit for the three months ended March 31, 2023, was $7,338,481 or 46% of revenues as compared to gross profit of $3,769,781 or 32% of revenues for the three months ended March 31, 2022.
Gross profit in our Security segment was $5,122,290 or 52% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $2,303,763 or 34% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due to price increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
Gross profit in our Industrial Services segment was $2,216,191 or 36% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $1,466,018or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2023, decreased $106,402 or 2% to $5,318,267 from $5,424,669 for the three months ended March 31, 2022. General and administrative expenses as a percentage of revenues were 33% and 46% of revenues for the three-month periods ended March 31, 2023, and 2022, respectively. The reduction in general and administrative expenses is mainly related to reduced employee costs and legal expenses.
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Research and Development Expenses
Research and Development expenses for the three months ended March 31, 2023, were $1,615,341 compared to $1,239,334 for the three months ended March 31, 2022, an increase of $376,007 or 30%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Expense
Other expense for the three months ended March 31, 2023, was $958,634, as compared to other expense of $1,222,561 for the three months ended March 31, 2022. Other expense for the three months ended March 31, 2023, was mainly driven by interest on the Company’s debt, offset by a one-time income related to employee retention credits of $416,502.
Provision for Income Taxes
During the three months ended March 31, 2023, and 2022, the Company took no provision on income taxes. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Income/(loss) from Discontinued Operations
The Company had income on discontinued operations of $14,232. This income is mainly related to the recognition of the royalties due from CXR, Inc. Losses on discontinued operations for the three months ended March 31, 2022 were $685,140 attributable to the operations of the Cemtrex brands discussed in Note 3.
Results of Operations – For the six months ending March 31, 2023, and 2022
Total revenue for the six months ended March 31, 2023, and 2022 was $28,043,639 and $21,159,412, respectively, an increase of $6,884,227, or 33%. Loss from continuing operations for the six months ended March 31, 2023, was $3,650,514 compared to $7,887,648 for the six months ended March 31, 2022, a decrease on the loss of $4,237,134, or 54%. Total revenue for the period increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues and improved gross profit margins as compared to the same period in the prior year.
Revenues
Our Security segment revenues for the six months ended March 31, 2023, increased by $5,819,110 or 52% to $16,918,642 from $11,099,532 for the six months ended March 31, 2022. This increase is due to an increased demand for the Security segment’s products and services.
Our Industrial Services segment revenues for the six months ended March 31, 2023, increased by $1,065,117 or 11%, to $11,124,997 from $10,059,880 for the six months ended March 31, 2022. This increase is mainly due to increased demand for the segment’s products and services.
Gross Profit
Gross Profit for the six months ended March 31, 2023, was $12,381,096 or 44% of revenues as compared to gross profit of $6,992,031 or 33% of revenues for the six months ended March 31, 2022.
Gross profit in our Security segment was $8,525,980 or 50% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $4,095,828 or 37% of the segment’s revenues for the six-month period ended March 31, 2022. Gross profit as a percentage of revenues increased in the six months ended March 31, 2023, compared to the six months ended March 31, 2022, due to price increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
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Gross profit in our Industrial Services segment was $3,855,116 or 35% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $2,896,203 or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the six months ended March 31, 2023, compared to the six months ended March 31, 2022, was primarily due to lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the six months ended March 31, 2023, decreased $231,239 or 2% to $10,482,605 from $10,713,844 for the six months ended March 31, 2022. General and administrative expenses as a percentage of revenues were 37% and 51% of revenues for the six-month periods ended March 31, 2023, and 2022, respectively. The reduction in general and administrative expenses is mainly related to reduced employee costs and legal expenses.
Research and Development Expenses
Research and Development expenses for the six months ended March 31, 2023, were $3,445,054 compared to $2,471,008 for the six months ended March 31, 2022, an increase of $974,046 or 39%. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Expense
Other expense for the six months ended March 31, 2023, was $2,103,951 as compared to an expense of $1,694,827 for the six months ended March 31, 2022. Other expense for the six months ended March 31, 2023, was mainly driven by interest on the Company’s debt, offset by a one-time income related to employee retention credits of $416,502. Other expense for the six months ended March 31, 2022, included the gain on the forgiveness of our PPP loans of $971,500.
Provision for Income Taxes
During the six months ended March 31, 2023, and 2022, the Company took no provision on income taxes. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Loss from Discontinued Operations
The Company had losses on discontinued operations of $3,225,389. The losses are comprised of the $2,455,341 loss on the sale of Cemtrex Advanced Technologies, and Cemtrex XR, Inc. The net loss of $878,284 for the six months ended March 31, 2023, the recognition of discounted royalties of $19,151, and the net gain on the recovery of cash from Vicon Industries Ltd. of $89,085. Losses on discontinued operations for the six months ended March 31, 2022 were $1,444,098 attributable to the operations of the Cemtrex brands discussed in Note 3.
Effects of Inflation
The Company’s business and operations have been affected by inflation during the periods for which financial information is presented. In response, the Company has instituted price increases and initiated cost-saving measures to mitigate the effects of inflation on operations.
Liquidity and Capital Resources
Working capital was $383,939 at March 31, 2023, compared to working capital of $6,252,972 at September 30, 2022. This includes cash and equivalents and restricted cash of $7,279,334 at March 31, 2023, and $11,473,676 at September 30, 2022. The decrease in working capital was primarily due to the Company’s sale of assets and liabilities of discontinued operations and an increase in accounts payable, accrued expenses, and deferred revenue during the six months ended March 31, 2023.
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Cash used by operating activities for continuing operations for the six months ended March 31, 2023 and 2022 was $5,383,060 and $6,152,012, respectively. Cash provided by operating activities for discontinued operations for the six months ended March 31, 2023 was $2,488,144, compared to using cash of $1,310,586 for the six months ended March 31, 2022.
Trade receivables increased by $1,872,272 or 35% to $7,271,488 at March 31, 2023, from $5,399,216 at September 30, 2022. The increase in trade receivables is attributable to increased sales in the Security segment.
Cash used by investment activities for continuing operations for the six months ended March 31, 2023 was $252,706 compared to $5,425,408 for the six months ended March 31, 2022. Cash used by investing activities for discontinued operations for the six months ended March 31, 2022 was $2,349. Investing activities for the six months ended March 31, 2023 were driven by the Company’s purchase of property and equipment.
Cash used by financing activities for the six months ended March 31, 2023, was $920,127 compared to providing cash of $6,484,337 for the six months ended March 31, 2022. Financing activities were primarily driven by payments on the Company’s debt. Financing activities for the six months ended March 31, 2022 were primarily driven by proceeds from the note payable issued in February of 2022.
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 has effected a reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improved our ability to potentially raise capital through equity offerings that we 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.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based on their evaluation, our management has concluded that as of March 31, 2023, our disclosure controls and procedures were not effective and there is a material weakness in our internal control over financial reporting. The material weakness relates to the Company lacking sufficient accounting personnel. The shortage of 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. This deficiency is common in small companies, similar to ours, with limited personnel.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of March 31, 2023, were not effective, and notwithstanding the material weakness in our internal control over financial reporting described below, management believes that the unaudited condensed financial statements and related financial information included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.
In order to mitigate the material weaknesses, the Company has implemented measures that it believes have mitigated these weaknesses but has not had sufficient time to fully evaluate 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 consulting firm to provide review of period-end reporting processes, accounting policies and public disclosures. The Company believes that given more time these new measures will be sufficient in remediating the material weakness in internal controls.
Changes in Internal Control Over Financial Reporting
While there was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, the Company is continuing to improve its internal controls through the actions mentioned above.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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Part II Other Information
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
See Risk Factors included in our Annual Report on Form 10-K filed with the SEC on December 28, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended March 31, 2023, 39,016 shares of the Company’s common stock have been issued to satisfy $31,331 of notes payable, $168,669 in accrued interest, and $32,145 of excess value of shares issued recorded as interest expense.
During the three and six months ended March 31, 2023, 15,529 shares of the Company’s common stock have been issued in exchange for services valued at $102,500.
Subsequent to the reporting period, the Company issued an aggregate of 56,966 shares of common stock to settle $425,000 of notes payable and accrued interest, and $140,325 of excess value of shares issued recorded as interest expense.
Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None.
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Item 6. Exhibits
| * | 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 | Intentionally left blank | |
| 6 | Incorporated by reference from Form 8-K filed on June 12, 2019. | |
| 7 | Incorporated by reference from Form 8-K filed on January 20, 2023. | |
| 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. | |
| 22 | Incorporated by reference from Form 8-K filed on November 29, 2022. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Cemtrex, Inc. | ||
| Dated: May 11, 2023 | By: | /s/Saagar Govil |
| Saagar Govil | ||
| Chief Executive Officer | ||
| Dated: May 11, 2023 | /s/Paul J. Wyckoff | |
| Paul J. Wyckoff | ||
| Interim Chief Financial Officer | ||
| and Principal Financial Officer |
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EXHIBIT 10.1
THIS FOURTH AMENDMENT TO TERM LOAN AGREEMENT AND RELATED LOAN DOCUMENTS WITH CONSENT OF GUARANTORS IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND/OR §15-48-10 OF THE SOUTH CAROLINA CODE OF LAWS {1976), AS AMENDED.
FOURTH AMENDMENT TO TERM LOAN AGREEMENT AND RELATED LOAN DOCUMENTS WITH CONSENT OF GUARANTORS
THIS FOURTH AMENDMENT TO TERM LOAN AGREEMENT AND RELATED LOAN DOCUMENTS WITH CONSENT OF GUARANTORS (the “Amendment”) effective as of March 3, 2023, by and among Vicon Industries, Inc., (the “Borrower”), NIL Funding Corporation (the “Lender”), IQinVision, Inc., (“IQin”), TeleSite U.S.A., Inc., (“TeleSite”), Vicon Industries Limited (“Vicon Industries”), and Vicon Systems Ltd., (“Vicon Systems” and collectively with IQin, TeleSite, and Vicon Industries, the “Guarantors”).
WITNESSETH:
WHEREAS, Borrower and Lender executed that certain Term Loan Agreement, dated as of September 21, 2018 (as amended, the “Loan Agreement”) pursuant to which Lender agreed to loan to Borrower Five Million Six Hundred Thousand and No/100 Dollars ($5,600,000.00) in accordance with the terms set forth therein (the “Loan”);
WHEREAS, the Borrower executed that certain Promissory Note [Facility A], dated as of September 21, 2018, in the original principal amount of One Million Seven Hundred Ninety Six Thousand and No/100 Dollars ($1,796,000.00) in favor of Lender (as amended, the “Facility A Note”);
WHEREAS, the Borrower executed that certain Promissory Note [Facility BJ, dated as of September 21, 2018, in the original principal amount of Three Million Eight Hundred Four Thousand and No/100 Dollars ($3,804,000.00) in favor of Lender (as amended, the “Facility B Note”);
WHEREAS, the Guarantors each executed a Continuing Guaranty, dated as of September 21, 2018 (collectively, the “Guaranty Agreements”), pursuant to which the Guarantors jointly and severally guaranteed all obligations of the Borrower to the Lender;
WHEREAS, the Borrower, Lender, and Citibank, N.A. executed those three (3) certain Deposit Account Control Agreements, dated as September 28, 2018 (collectively, the “Citibank DACAs”);
WHEREAS, pursuant to that certain Termination of Deposit Account Control Agreement dated September 28, 2021, the Citibank DACAs were terminated.
WHEREAS, the Borrower, Lender, and TD Bank, N.A., executed that certain Deposit Account Control Agreement, dated as of November 9, 2021 (the “TD Bank DACA”).
WHEREAS, the Borrower and Guarantors each executed a Security Agreement, dated as of September 21, 2018 (collectively, the “Security Agreements,” and collectively with the Loan Agreement, Facility A Note, Facility B Note, Guaranty Agreements, the Citibank DACAs, and all other documents executed in connection with the foregoing, including, but not limited to, that certain First Amendment to Term Loan Agreement and the Related Loan Documents with Consent of Guarantors, dated as of March 4, 2020, that certain Second Amendment to Term Loan Agreement and Related Loan Documents with Consent of Guarantors, dated as of March 30, 2020, and that certain Third Amendment to Term Loan Agreement and Related Loan Documents with Consent of Guarantors, dated as of March 30, 2022, the “Loan Documents”), pursuant to which the Borrower and Guarantors each granted security interests in the collateral more particularly described therein to Lender; and
WHEREAS, Borrower, Lender, and Guarantors now desire to modify and amend certain terms of the Loan Documents as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined shall have the meaning ascribed to them in the Loan Documents.
2. The Loan Documents are hereby amended as follows:
| a. | The Maturity Date of the Facility A Note is extended to December 31, 2024 (the “Facility A Note Maturity Date”). | |
| b. | The outstanding principal balance of the Facility A Note shall bear interest (computed on the basis of a 360-day year) before default at 11.5% per annum. | |
| c. | Commencing on April 1, 2023, equal principal payments of Fifty Thousand and No/100 Dollars ($50,000.00) plus interest accrued on the Facility A Note shall be payable on the first day of each calendar month, until the Facility A Note Maturity Date, at which point the full outstanding balance of the loan evidenced thereby, together with all accrued and unpaid interest thereon as well as fees related thereto, shall be due and payable. | |
| d. | The Maturity Date of the Facility B Note is extended to December 31, 2024(the “Facility B Note Maturity Date”). | |
| e. | The outstanding principal balance of the Facility B Note shall bear interest (computed on the basis of a 360-day year) before default at 11.5% per annum. | |
| f. | Commencing on April 1, 2023, equal principal payments of Fifty Thousand and No/100 Dollars ($50,000.00) plus interest accrued on the Facility B Note shall be payable on the first day of each calendar month, until the Facility B Note Maturity Date, at which point the full outstanding balance of the loan evidenced thereby, together with all accrued and unpaid interest thereon as well as fees related thereto, shall be due and payable. | |
| g. | On or before March 31, 2023, Borrower shall pay to Lender an additional One Hundred Thousand and No/100 Dollars ($100,000.00) principal payment (the “First Additional Principal Payment”). Failure to make the First Additional Principal Payment by March 31, 2023, shall be an automatic Event of Default. | |
| h. | On or before March 29, 2024, Borrower shall pay to Lender an additional One Hundred Thousand and Noll 00 Dollars ($100,000.00) principal payment (the “Second Additional Principal Payment”). Failure to make the Second Additional Principal Payment by March 29, 2024, shall be an automatic Event of Default. |
3. Each of the existing Loan Documents is hereby further amended to provide that each reference to any one or more of the Loan Documents is deemed to refer to such documents as modified by this Amendment. In addition, this Amendment shall be deemed to be included as a “Loan Document” in any and all references to the “Loan Documents” contained in any of the Loan Documents existing as of the date hereof or which are executed following the date hereof.
4. Except as specifically amended herein, all terms and conditions of the Loan Documents shall remain in full force and effect, without waiver or modification.
5. Borrower and Guarantors each hereby remake all of their respective representations and warranties contained in the Loan Documents and reaffirm all respective covenants set forth therein. Borrower and Guarantors each further certify that as of the date of this Amendment there exists no Event of Default as defined in the Loan Documents, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. As a further inducement to the Lender to enter into this Amendment, Borrower and each Guarantor further represents, warrants, covenants and acknowledges (as applicable) as follows (it being acknowledged by all parties that each such representation, warranty, covenant and acknowledgment relates to material matters upon which Lender has relied):
(a) There are no defenses, offsets or counterclaims or other claims, legal or equitable, available to Borrower, any Guarantor, or any other person or entity with respect to this Amendment, the Loan Documents, or any other instrument, document and/or agreement described herein or therein, as modified and amended hereby, or with respect to the obligation of Borrower to repay the Loan, as the case may be.
(b) The Borrower and Guarantors each has the right and power and has obtained all authorizations necessary to execute and deliver this Amendment and all documents required to be delivered in connection herewith and to perform its respective obligations hereunder and under the Loan Documents in accordance with their respective terms. This Amendment and all documents required to be delivered in connection herewith has been duly executed and delivered by duly authorized officers, managers, partners, trustee(s), or directors (as applicable) of the Borrower and Guarantors and is a legal, valid and binding obligation of the Borrower and/or Guarantors (as applicable), enforceable against each party thereto in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations contained herein or therein may be limited by equitable principles generally.
(c) There is no action, suit, investigation or proceeding, pending or threatened, in any court or before any arbitrator or governmental authority, that has a reasonable probability of materially adversely affecting Borrower or Guarantors or any transaction contemplated hereby or by the Loan Documents, or the ability of Borrower or Guarantors to perform their respective obligations under this Amendment or the other Loan Documents as modified and amended hereby.
(d) Each of the Borrower and Guarantors is duly organized and validly existing in its state of organization. The undersigned persons are duly authorized to execute and deliver, on behalf of the Borrower and Guarantor, as applicable, this Amendment and all documents required to be delivered in connection herewith.
(e) The amendments to the Loan Documents set forth in this Amendment are not intended as and do not constitute novations of any of the obligations reflected in the Loan Documents.
6. The effectiveness of this Amendment is subject to receipt by the Lender of each of the following, each in form and substance satisfactory to the Lender:
(a) a counterpart of this Amendment duly executed by the Borrower and Guarantors;
(b) payment by Borrower of Ten Thousand and No/100 Dollars ($10,000.00) to reimburse Lender for fees incurred in connection with this Amendment;
(c) payment by Borrower of the First Additional Principal Payment, which amount shall be credited towards the outstanding principal balance of the Loan;
(d) original counterparts of resolutions from the Borrower and Guarantors authorizing the execution and delivery of this Amendment; and
(e) such other documents, instruments and agreements as the Lender may reasonably request.
7. The failure of the Borrower or Guarantors to perform any of their respective obligations under this Amendment or the falsity of any representation or warranty made herein shall, at the option of the Lender, constitute an Event of Default the Loan Documents.
8. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF SOUTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. In the event no party makes demand for arbitration pursuant to Section 7.11 of the Loan Agreement, any legal suit, action or proceeding arising out of or relating to this Amendment, the Loan Agreement, any of the Loan Documents, the transactions contemplated hereby or thereby shall be instituted in the Federal Courts of the United States of America or the State Courts of the State of South Carolina and County of Charleston, and the Borrower and Guarantors irrevocably submit to the exclusive jurisdiction of such courts in any such suit, action, or proceeding. The Borrower and Guarantors irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
9. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. No party shall transfer or assign any of their respective rights or obligations hereunder without the prior written consent of the Lender.
10. Except as expressly herein amended, the terms and conditions of the Loan Documents remain in full force and effect. The amendments and modifications contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein. If any provision of any of this Amendment or of any Loan Document, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. The Borrower and Guarantors will execute such additional documents as are reasonably requested by the Lender to reflect the terms and conditions of this Amendment., and will cause to be delivered such additional certificates, legal opinions and other documents as are reasonably required by the Lender.
11. The Borrower hereby agrees that all fees, expenses and costs incurred by the Lender (including, without limitation, fees, expenses and costs of Lender’s counsel) in negotiating, preparing, reviewing and granting the amendment set forth herein shall, to the extent not paid or invoiced as of the date hereof, be paid by it upon demand as fees, costs and expenses incurred in connection with the Loan Agreement.
12. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Amendment shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
13. In consideration of the modifications set forth in this Amendment, Borrower and Guarantors each releases and holds harmless the Lender and its officers, employees, agents, affiliates, parent companies, and subsidiaries from and against any claim, action, suit, demand, cost expense or liability of any kind relating to the transactions contemplated by the Loan Documents, the administration thereof or any business communications and dealings among Borrower, and/or Guarantors and the Lender concerning the Loan through the date of execution hereof.
14. The Guarantors, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, each hereby consent to and join in this Amendment and hereby declare to and agree with the Lender that: (a) the Guaranty Agreements and Security Agreements entered into by the Guarantors, are and shall continue in full force and effect for the benefit of Lender with respect to the obligations guaranteed and secured thereby, as amended by this Agreement, (b) there are no offsets, claims, counterclaims, cross-claims or defenses of the Guarantors with respect to such Guaranty Agreements or Security Agreements nor, with respect to the obligations guaranteed and secured thereby, (c) that the Guaranty Agreements and Security Agreements are not released, diminished or impaired in any way by this Amendment or the transactions contemplated hereby, and (d) such Guaranty Agreements and Security Agreements, as amended by this Agreement, are hereby ratified and confirmed in all respects. Guarantors each acknowledge that without this consent and reaffirmation, the Lender would not execute this Agreement or otherwise consent to its terms.
15. This Amendment shall, upon satisfaction of the items set forth in Section 6 above, be effective as of the date set forth above. Thereafter, this Amendment shall be binding upon and inure to the benefit of the Borrower, the Lender, each of the other parties to the Loan Documents and each of their respective successors and assigns.
(SIGNATURE PAGE(S) ATTACHED)
IN WITNESS WHEREOF, Borrower and Lender have set their respective hands and seals as of March 3, 2023.
| BORROWER: | ||
| Vicon Industries, Inc. | ||
| By: | /s/ Sagar Govil | |
| Name: | Saagar Govil | |
| Title: | CEO | |
| GUARANTORS: | ||
| IQin Vision, Inc. | ||
| By: | /s/ Sagar Govil | |
| Name: | Saagar Govil | |
| Title: | CEO | |
| TeleSite U.S.A., Inc. | ||
| By: | /s/ Sagar Govil | |
| Name: | Saagar Govil | |
| Title: | CEO | |
| Vicon Industries Limited | ||
| By: | /s/ Sagar Govil | |
| Name: | Saagar Govil | |
| Title: | CEO | |
| Vicon Systems Ltd. | ||
| By: | /s/ Sagar Govil | |
| Name: | Saagar Govil | |
| Title: | CEO | |
| LENDER: | ||
| NIL Funding Corporation | ||
| By: | /s/ Michael Bender | |
| Name: | Michael Bender | |
| Title: | Secretary | |
EXHIBIT 10.2
2023 AMENDMENT TO LOAN DOCUMENTS
TIDS 2023 AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is made as of February 15, 2023, by and between FULTON BANK, N.A., a national banking association (the “Bank”), with a mailing address at 30 South George Street, York, Pennsylvania 1740 I, and ADVANCED INDUSTRIAL SERVICES, INC., a Pennsylvania corporation, and AIS LEASING COMPANY, a Pennsylvania corporation, both maintaining an address at 3250 Susquehanna Trail, P.O. Box 1463, York, Pennsylvania 17405 (individually and collectively, the “Borrower”).
BACKGROUND
A. The Borrower has executed and delivered to the Bank one or more promissory notes, letter agreements, loan agreements, security agreements, mortgages, pledge agreements, collateral assignments, and other agreements, instruments, certificates and documents, some or all of which are more fully described on attached Exhibit A, which is made a part of this Amendment (collectively, as amended from time to time, the “Loan Documents”) which evidence or secure some or all of the Borrower’s obligations to the Bank for one or more loans or other extensions of credit (the “Obligations”).
B. The Borrower and the Bank desire to amend the Loan Documents as provided for in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain of the Loan Documents are amended as set forth in Exhibit A. Any and all references to any Loan Document in any other Loan Document shall be deemed to refer to such Loan Document as amended by this Amendment. This Amendment is deemed incorporated into each of the Loan Documents. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Loan Documents. To the extent that any term or provision of this Amendment is or may be inconsistent with any term or provision in any Loan Document, the terms and provisions of this Amendment shall control.
2. The Borrower hereby certifies that: (a) all of its representations and warranties in the Loan Documents, as amended by this Amendment, are, except as may otherwise be stated in this Amendment: (i) true and correct as of the date of this Amendment, (ii) ratified and confirmed without condition as if made anew, and (iii) incorporated into this Amendment by reference, (b) no Event of Default or event which, with the passage of time or the giving of notice or both, would constitute an Event of Default, exists under any Loan Document which will not be cured by the execution and effectiveness of this Amendment, (c) no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained, and (d) this Amendment has been duly authorized, executed and delivered so that it constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment. \
3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Bank, as modified by this Amendment.
4. As a condition precedent to the effectiveness of this Amendment, the Borrower shall comply with the terms and conditions (if any) specified in Exhibit A.
5. To induce the Bank to enter into this Amendment, the Borrower and the Guarantor (hereinafter defined) each waive and release and forever discharge the Bank and its officers, directors, attorneys, agents, and employees from any liability, damage, claim, loss or expense of any kind that it may have against the Bank or any of them arising out of or relating to the Obligations. The Borrower and the Guarantor each further agree to indemnify and hold the Bank and its officers, directors, attorneys, agents and employees harmless from any loss, damage, judgment, liability or expense (including attorneys’ fees) suffered by or rendered against the Bank or any of them on account of any claims arising out of or relating to the Obligations. The Borrower and the Guarantor each further state that it has carefully read the foregoing release and indemnity, knows the contents thereof and grants the same as its own free act and deed.
6. This Amendment may be signed in any number of counterpart copies and by the parties to this Amendment on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Amendment by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.
7. This Amendment will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, successors and assigns.
8. This Amendment has been delivered to and accepted by the Bank and will be deemed to be made in the State where the Bank’s office indicated in the Loan Documents is located. This Amendment will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State where the Bank’s office indicated in the Loan Documents is located, excluding its conflict of laws rules.
9. Except as amended hereby, the terms and provisions of the Loan Documents remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified and confirmed. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default under any Loan Document, or a waiver or release of any of the Bank’s rights and remedies (all of which are hereby reserved). The Borrower expressly ratifies and confirms the power of attorney, confession of judgment and waiver of jury trial provisions contained in the Loan Documents. The Borrower acknowledges and agrees that (a) the power of attorney and confession of judgment provisions set forth in the Loan Documents are made in connection with a commercial transaction, (b) the Bank’s exercise of the authority granted in such power of attorney and confession of judgment provisions would be in accordance with the Borrower’s reasonable expectations, and (c) the Bank does not and, in regards to this Amendment, the Loan Documents and the Obligations, shall not have any of the duties to the Borrower set forth in 20 Pa.C.S.A. §5601.3(b).
WITNESS the due execution of this Amendment as a document under seal as of the date first written above.
| WITNESS: | FULTON BANK, N.A. | ||
| By: | /s/ Tammy L. Snyder | ||
| Tammy L. Snyder, Senior Vice President | |||
| BORROWER: | |||
| ADVANCED INDUSTRIAL SERVICES, INC. | |||
| By: | /s/ Saagar Govil | ||
| Saagar Govil, Chief Executive Officer | |||
| AIS LEASING COMPANY | |||
| By: | /s/ Saagar Govil | ||
| Saagar Govil, Chief Executive Officer | |||
| Commonwealth of Pennsylvania | |
| ss. | |
| County of York |
On this, the 24th day of February, 2023, before me, a Notary Public in and for the Commonwealth and County aforesaid, the undersigned officer, personally appeared Tammy L. Snyder, who acknowledged herself to be the Senior Vice President of Fulton Bank, N.A., a national banking association, and that she as such officer being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the bank by herself as such officer.
In witness whereof, I hereunto set my hand and official seal.
| /s/Donna J. Diehl | ||
| Notary Public | Commonwealth of Pennsylvania - Notary Seal | |
| State of New York | Donna J. Diehl Notary Public York County | |
| County of, Suffolk | My commission expires February 21, 2025 | |
| ss. | Commission, number 1039673 | |
| Member, Pennsylvania Association of Notaries | ||
On this, 15th day of February, 2023, before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared, Saagar Govil, who acknowledged himself to be the Chief Executive Officer of Advanced Industrial Services, Inc., a corporation, and that as such Officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the company by himself as such Officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
| /s/Cindy B. Atkins | ||
| Notary Public | CINDY B. ATKINS | |
| State of New York | NOTARY PUBLIC, STATE OF NEW YORK | |
| Registration No. 01AT6127837 | ||
| County of, Suffolk | ss. | Qualified in Suffolk County - Commission Expires May 31, 2025 |
On this, the 15th day of February,2023, before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared, Saagar Govil, who acknowledged himself to be the Chief Executive Officer of AIS Leasing Company, a corporation, and that as such Officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the company by himself as such Officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
| /s/Cindy B. Atkins | ||
| Notary Public | CINDY B. ATKINS | |
| NOTARY PUBLIC, STATE OF NEW YORK | ||
| Registration No. 01AT6127837 | ||
| ss. | Qualified in Suffolk County - Commission Expires May 31, 2025 | |
EXHIBIT A TO AMENDMENT TO LOAN DOCUMENTS
| A. | The “Loan Documents” that are the subject of this Amendment include the following (as any of the foregoing have previously been amended, modified or otherwise supplemented): |
| 1. | Loan Agreement dated December 15, 2015 (the “Loan Agreement”); | |
| 2. | Revolving Line of Credit Note dated December 15, 2015, issued by the Borrower in the original principal amount of $3,500,000; | |
| 3. | Equipment Line of Credit Note dated December 15, 2015, issued by the Borrower in the original principal amount of $800,000; | |
| 4. | Equipment Term Loan Note dated December 15, 2015, issued by the Borrower in the original principal amount of $620,000; | |
| 5. | Security Agreement dated December 15, 2015, between the Borrower and the Bank; | |
| 6. | Guaranty and Suretyship Agreement dated December 15, 2015, between Cemtrex, Inc., as Guarantor, the Borrower and the Bank; | |
| 7. | Support Agreement dated December 15, 2015, Cemtrex, Inc., as Parent, the Borrower and the Bank; | |
| 8. | Intercreditor and Subordination Agreement dated December 15, 2015; and | |
| 9. | All other documents, instruments, agreements, guaranties, and certificates executed and delivered in connection with the Loan Documents listed in this Section A. |
| B. | The applicable sections of the Loan Agreement are hereby amended as follows: |
1. Notwithstanding anything to the contrary contained in the Loan Documents, the Borrower shall not declare or pay any dividends or make any other distribution (whether in cash or in property) on account of any class of stock or any other securities (or rights, options or warrants to purchase such securities) unless the Borrower shall remain in compliance with all other covenants, conditions, terms or provisions of this Agreement after the payment of the dividend or distribution.
2. Borrower may make payments of principal, interest and other amounts due with respect to the Junior Liabilities (as defined in the Subordination Agreement) so long as (i) no Event of Default then exists under the Loan Documents or (ii) will exist under the Loan Documents after such payment.
| C. | Conditions to Effectiveness of Amendment: The Bank’s willingness to agree to the amendments set forth in this Amendment is subject (i) to the execution by all parties and delivery to the Bank of this Amendment and all related loan documents, which documents shall be in form and substance satisfactory to the Bank, and (ii) payment of all reasonable expenses incurred by the Bank in connection with this Amendment and the related loan documents. |
AMENDMENT NUMBER ONE TO MASTER AGREEMENT REGARDING FINANCIAL COVENANTS AND FINANCIAL DELIVERABLES
This Amendment is made this 15 day of February, 2023 (“Amendment”) to a Master Agreement Regarding Financial Covenants and Financial Deliverables dated September 22, 2020, as amended to date (the “Agreement”) by and among Fulton Bank, N.A. (“Lender”), Advanced Industrial Services, Inc. and AIS Leasing Company (collectively, the “Borrower”) and those persons or entities identified as a guarantor on the signature page(s) of this Agreement, if any (each, a “Guarantor” and collectively with Borrower, the “Loan Parties”).
Background
A. Lender has made available, or is making available, one or more credit facilities to Borrower (as the same may be further modified, increased, decreased, supplemented, renewed or restated from time to time, collectively, the “Loans”).
B. Lender and the Loan Parties have entered into certain loan documents, guaranty agreements (if any), and related instruments and agreements with respect to the Loans (each as may be amended, restated, supplemented or otherwise modified from time to time, and together with all other documents, instruments and agreements executed by any Loan Party or any other person in connection with or relating to the Loans, collectively, the “Loan Documents”).
C. Lender and the Borrower entered into the Agreement in order to modify certain provisions of the Loan Documents.
D. Lender and the Loan Parties desire to enter into this Amendment to modify certain financial covenants and deliverables set forth in the Agreement.
E. Capitalized terms used herein without definition and which are defined in the Agreement shall have the meanings set forth in the Agreement.
NOW THEREFORE, incorporating the foregoing recitals contained in the Background section of this Amendment, all of which Lender has relied upon as a material inducement to enter into this Amendment and in consideration of the mutual promises and covenants contained in this Amendment and for other good and valuable consideration, the receipt and legal sufficiency of which are acknowledged, Lender and Loan Parties intending to be legally bound agree as follows:
1. Amendments to Agreement.
(a) Effective as the date of this Amendment, Paragraph 2.2 of the Agreement is hereby amended and restated in its entirety as follows:
“Debt to Tangible Net Worth Ratio. The Borrower’s Debt to Tangible Net Worth Ratio shall not exceed 1.50 to 1 on September 30, 2023 and each September 30 thereafter. “Debt to Tangible Net Worth Ratio” shall mean, for the applicable period, on a consolidated basis, the ratio of all Indebtedness of Borrower to Borrower’s Tangible Net Worth, as determined by the Bank in its sole and absolute discretion. “Tangible Net Worth” shall mean the amount by which the assets of the Borrower (exclusive of all asset accounts in respect of goodwill, patents, copyrights, licenses, franchises, capitalized start- up costs, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses and similar intangibles, and monies due from Affiliates, officers, employees or shareholders of the Borrower) exceed its liabilities (including, but not limited to, accrued and deferred income taxes).”
(b) Effective as the date of this Amendment, Paragraph 2.3 of the Agreement is hereby deleted in its entirety.
2. Conditions Precedent. On or before the date of the execution and delivery of this Amendment, Loan Parties shall deliver or cause to be delivered to Lender the following:
(a) This Amendment; and
(b) Loan Parties shall pay to Lender all reasonable expenses incurred by Lender as a result of the transactions contemplated and evidenced by this Amendment, including but not limited to, Lender’s counsel fees and any other fees and costs reasonably incurred by Lender.
3. Non-waiver or Extinguishment of Liens and Security Interests. Borrower agrees that the liens and all security for the Loans as renewed and modified pursuant to this Amendment shall remain in full force and effect until the Loans have been paid in full. Borrower agrees that the liens and security interests created as evidenced by the Loans, the Loan Documents, this Amendment or any of the Loan Documents are not in any manner waived or extinguished.
4. Miscellaneous.
(a) Incorporation of Representations, Covenants, Conditions, Terms and Provisions of the Note. The representations, covenants, conditions, terms and provisions of the Agreement and the Loan Documents not inconsistent with this Amendment are ratified and confirmed by Lender and Loan Parties and deemed to be incorporated into this Amendment as though such representations, covenants, conditions, terms and provisions were set forth specifically herein. Loan Parties now represent, warrant and agree that no representation, covenant, condition, term or provision of the Agreement, this Amendment or the Loan Documents is untrue or misleading. The continuing validity in all respects of the representations, covenants, conditions, terms and provisions of the Agreement and the Loan Documents is a condition precedent to Lender’s obligations and agreements under this Amendment.
(b) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(c) Governing Law. This Amendment shall be governed by the laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflicts of laws.
[signature page follows]
IN WITNESS WHEREOF and intending to legally bind themselves, their successors and assigns, Lender and Loan Parties have entered into this Amendment the day and year first above written.
| BORROWER: | |||
| ADVANCED INDUSTRIAL SERVICES, INC. | |||
| By: | /s/ Saagar Govil | ||
| Saagar Govil, Chief Executive Officer | |||
| AIS LEASING COMPANY | |||
| By: | /s/ Saagar Govil | ||
| Saagar Govil, Chief Executive Officer | |||
| LENDER: | |||
| By: | /s/ Tammy L. Snyder | ||
| Tammy L. Snyder, Senior Vice President | |||
STATE OF NEW YORK
COUNTY OF SUFFOLK:
On the 15th day of February, 2023, before me a Notary Public for said State and County, the undersigned officer, personally appeared Saagar Govil, who represented that he is the Chief Executive Officer of Advanced Industrial Services Inc. and AIS Leasing Company and that he executed the foregoing instrument for the purposes therein contained by signing therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
| /s/Cindy B. Atkins | ||
| Notary Public | CINDY B. ATKINS | |
| NOTARY PUBLIC, STATE OF NEW YORK | ||
| Registration No. 01AT6127837 | ||
| ss. | Qualified in Suffolk County - Commission Expires May 31, 2025 | |
EXHIBIT 10.3
AMENDMENT TO PROMISSORY NOTE
This Amendment to Promissory Note (this “Amendment”) is entered into as of May 3, 2023, by and between STREETERVILLE CAPITAL, LLC, a Utah limited liability company (“Lender”), and CEMTREX, INC., a Delaware corporation (“Borrower”). Capitalized terms used in this Amendment without definition shall have the meanings given to them in the Note (as defined below).
A. Borrower previously issued to Lender a Promissory Note dated September 30, 2021 in the principal amount of $5,755,000.00 (the “Note”).
B. Borrower has requested that Lender extend the Maturity Date of the Note (the “Extension”).
C. Lender has agreed, subject to the terms, amendments, conditions and understandings expressed in this Amendment, to grant the Extension.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Recitals. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Amendment are true and accurate and are hereby incorporated into and made a part of this Amendment.
2. Extension. The Maturity Date for the Note is hereby extended until June 30, 2024.
3. Extension Fee. In consideration of Lender’s grant of the Extension, its fees incurred in preparing this Amendment and other accommodations set forth herein, Borrower agrees to pay to Lender an extension fee equal to five percent (5%) of the outstanding balance of the Note (the “Extension Fee”). The Extension Fee is hereby added to the outstanding balance as of the date of this Amendment. Lender and Borrower further agree that the Extension Fee is deemed to be fully earned as of the date hereof, is nonrefundable under any circumstance, and that the Extension Fee tacks back to the date of the Note for Rule 144 purposes. Borrower represents and warrants that as of the date hereof the outstanding balance of the Note, following the application of the Extension Fee, is $5,311,572.53.
4. Representations and Warranties. In order to induce Lender to enter into this Amendment, Borrower, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:
(a) Borrower has full power and authority to enter into this Amendment and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Amendment or the performance of any of the obligations of Borrower hereunder.
(b) There is no fact known to Borrower or which should be known to Borrower which Borrower has not disclosed to Lender on or prior to the date of this Amendment which would or could materially and adversely affect the understanding of Lender expressed in this Amendment or any representation, warranty, or recital contained in this Amendment.
(c) Except as expressly set forth in this Amendment, Borrower acknowledges and agrees that neither the execution and delivery of this Amendment nor any of the terms, provisions, covenants, or agreements contained in this Amendment shall in any manner release, impair, lessen, modify, waive, or otherwise affect the liability and obligations of Borrower under the terms of the Transaction Documents.
(d) Borrower has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against Lender, directly or indirectly, arising out of, based upon, or in any manner connected with, the transactions contemplated hereby, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Amendment and occurred, existed, was taken, permitted or begun in accordance with, pursuant to, or by virtue of any of the terms or conditions of the Transaction Documents. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Borrower hereby acknowledges and agrees that the execution of this Amendment by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.
(e) Borrower represents and warrants that as of the date hereof no Events of Default or other material breaches exist under the Transaction Documents or have occurred prior to the date hereof.
5. Certain Acknowledgments. Each of the parties acknowledges and agrees that no property or cash consideration of any kind whatsoever has been or shall be given by Lender to Borrower in connection with the Extension or any other amendment to the Note granted herein.
6. Other Terms Unchanged. The Note, as amended by this Amendment, remains and continues in full force and effect, constitutes legal, valid, and binding obligations of each of the parties, and is in all respects agreed to, ratified, and confirmed. Any reference to the Note after the date of this Amendment is deemed to be a reference to the Note as amended by this Amendment. If there is a conflict between the terms of this Amendment and the Note, the terms of this Amendment shall control. No forbearance or waiver may be implied by this Amendment. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment to, any right, power, or remedy of Lender under the Note, as in effect prior to the date hereof. For the avoidance of doubt, this Amendment shall be subject to the governing law, venue, and Arbitration Provisions, as set forth in the Note.
7. No Reliance. Borrower acknowledges and agrees that neither Lender nor any of its officers, directors, members, managers, equity holders, representatives or agents has made any representations or warranties to Borrower or any of its agents, representatives, officers, directors, or employees except as expressly set forth in this Amendment and the Transaction Documents and, in making its decision to enter into the transactions contemplated by this Amendment, Borrower is not relying on any representation, warranty, covenant or promise of Lender or its officers, directors, members, managers, equity holders, agents or representatives other than as set forth in this Amendment.
8. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties hereto confirm that any electronic copy of another party’s executed counterpart of this Amendment (or such party’s signature page thereof) will be deemed to be an executed original thereof.
9. Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Amendment and the consummation of the transactions contemplated hereby.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date set forth above.
| LENDER: | ||
| Streeterville Capital, LLC | ||
| By: |  | |
| John M. Fife, President | ||
| BORROWER: | ||
| Cemtrex, Inc. | ||
| By: |  | |
| Name: | Saagar Govil | |
| Title: | CEO | |
EXHIBIT 21.1
| Name of consolidated | State or other jurisdiction of | Date of incorporation or formation | Attributable | |||||
| subsidiary or entity | incorporation or organization | (date of acquisition, if applicable) | interest | |||||
| Advanced Industrial Services, Inc. | Pennsylvania | July 20, 1984 (December 15, 2015) | 100 | % | ||||
| Advanced Industrial Leasing, Inc. | Pennsylvania | July 20, 1984 (December 15, 2015) | 100 | % | ||||
| Cemtrex Technologies Pvt Ltd. | India | December 21, 2017 | 100 | % | ||||
| Vicon Industries, Inc. | New York | March 23, 2018 | 93 | % | ||||
| Vicon Industries Limited | United Kingdom | March 23, 2018 | 93 | % | ||||
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Saagar Govil, certify that:
| 1. | I have reviewed this report on Form 10-Q of Cemtrex, Inc. and subsidiaries (the “registrant); | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/Saagar Govil | |
| Saagar Govil | |
| Chief Executive Officer | |
| Dated: May 11, 2023 |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul J. Wyckoff, certify that:
| 1. | I have reviewed this report on Form 10-Q of Cemtrex, Inc. and subsidiaries (the “registrant); | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/Paul J. Wyckoff | |
| Paul J. Wyckoff | |
| Interim Chief Financial Officer | |
| and Principal Financial Officer | |
| Dated: May 11, 2023 |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cemtrex, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Saagar Govil, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Saagar Govil | |
| Saagar Govil | |
| Chief Executive Officer | |
| Dated: May 11, 2023 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cemtrex, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul J. Wyckoff, Interim Chief Financial Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Paul J. Wyckoff | |
| Paul J. Wyckoff | |
| Interim Chief Financial Officer | |
| and Principal Financial Officer | |
| Dated: May 11, 2023 |