Except for historical information contained in this report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
When used in this report, words such as "anticipates", "believes", "could",
"estimates", "expects", "may", "plans", "potential" and "intends" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Among the factors
that could cause actual results to differ materially are the following: the
effect of business and economic conditions; the impact of competitive products
and their pricing; unexpected manufacturing or supplier problems; the Company's
ability to maintain sufficient credit arrangements; changes in governmental
standards by which our environmental control products are evaluated and the risk
factors reported from time to time in the Company's SEC reports, including this
report on Form 10-K. The Company undertakes no obligation to update
forward-looking statements as a result of future events or developments.
14
Overview
Cemtrex was incorporated in 1998, in the state of Delaware and has evolved
through strategic acquisitions and internal growth from a small environmental
monitoring instruments company into a world leading multi-industry technology
company. The Company drives innovation in a wide range of sectors, including
smart technology, virtual and augmented realities, advanced electronic systems,
industrial solutions, and intelligent security systems. Unless the context
requires otherwise, all references to "we", "our", "us", "Company",
"registrant", "Cemtrex" or "management" refer to Cemtrex, Inc. and its
subsidiaries.
The Company continuously assesses the composition of its portfolio businesses to
ensure it is aligned with its strategic objectives and positioned to maximize
growth and return in the coming years. During fiscal 2019, the Company made a
strategic decision to exit its Electronics Manufacturing group by selling all
companies in that business segment on August 15, 2019. Accordingly, the Company
has reported the results of the Electronics Manufacturing business as
discontinued operations in the Consolidated Statements of Income and in the
Consolidated Balance Sheets. These changes have been applied for all periods
presented. During fiscal 2019, the Company also reached a strategic decision to
exit the environmental products business which was part of Industrial Services
group. Accordingly, the Company has reported the results of the environmental
control products business as discontinued operations in the Consolidated
Statements of Income and in the Consolidated Balance Sheets.
Currently, the Company has two business segments, consisting of (i) Advanced
Technologies (AT) and (ii) Industrial Services (IS)
Advanced Technologies (AT)
Cemtrex's Advanced Technologies segment delivers cutting-edge technologies in
the IoT, Wearables and Smart Devices, such as the SmartDesk. Through the
Company's advanced engineering and product design, they deliver progressive
design and development solutions to create impactful experiences for mobile,
web, virtual and augmented reality, wearables and television as well as
providing cutting edge, mission critical security and video surveillance.
Through its Cemtrex VR division, the Company is developing a wide variety of
applications for virtual and augmented reality markets.
The AT business segment also includes the Company's subsidiary Vicon Industries,
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 facial 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.
Industrial Services (IS)
Cemtrex's IS segment, offers single-source expertise and services for rigging,
millwrighting, in plant maintenance, equipment erection, relocation, and
disassembly to diversified customers. We install high precision equipment in a
wide variety of industrial markets like automotive, printing & graphics,
industrial automation, packaging, and chemicals among others. We are a leading
provider of reliability-driven maintenance and contracting solutions for the
machinery, packaging, printing, chemical, and other manufacturing markets. The
focus is on customers seeking to achieve greater asset utilization and
reliability to cut costs and increase production from existing assets, including
small projects, sustaining capital, turnarounds, maintenance, specialty welding
services, and high-quality scaffolding.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis is based upon our consolidated financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses, and assets and liabilities
during the periods reported. Estimates are used when accounting for certain
items such as revenues, allowances for returns, early payment discounts,
customer discounts, doubtful accounts, employee compensation programs,
depreciation and amortization periods, taxes, inventory values, and valuations
of investments, goodwill, other intangible assets and long-lived assets. We base
our estimates on historical experience, where applicable and other assumptions
that we believe are reasonable under the circumstances. Actual results may
differ from our estimates under different assumptions or conditions.
15
Please see Note 2 for detailed information regarding our significant accounting
policies and estimates in the Notes to Consolidated Financial Statements in this
2019 Form 10-K.
Results of Operations - For the fiscal years ending September 30, 2019 and 2018
Total revenue for the years ended September 30, 2019 and 2018 was $39,265,041
and $22,641,417, respectively, an increase of $16,623,624, or 73%. Comprehensive
net loss for the years ended September 30, 2019 and 2018 was a $23,051,140 and
$10,476,294, respectively, an increase of $12,574,846 or 120%. Total revenue for
the fiscal year increased, as compared to total revenue in the same period last
year, due to the consolidation of Vicon Industries, Inc., sales and other
increases in the Advanced Technology Segment. Net loss increased due to losses
recorded on the sale of discontinued operations of the Electronics Manufacturing
Segment and our Environmental Products lines. For the year ended September 30,
2019 the Company had a loss of $10,559,963 on discontinued operations and for
the year ended September 30, 2018, the Company had a gain of $1,786,737 on
discontinued operations.
Revenues
Our Advanced Technologies segment revenues for the years ended September 30,
2019 and 2018 were $19,268,687 and $1,765,106, respectively, an increase of
$17,503,581 or 992%. This increase represents mainly the Consolidation of Vicon
Industries, Inc.
Our Industrial Services segment revenues for the year ended September 30, 2019
decreased by $879,957 or 4%, to $19,996,354 from $20,876,311 for the year ended
September 30, 2018. The decrease was primarily due to the timing and recognition
of revenue.
Gross Profit
Gross Profit for the year ended September 30, 2019 was $15,562,674 or 40% of
revenues as compared to gross profit of $8,215,954 or 36% of revenues for the
year ended September 30, 2018. The increase in gross profit percentage in the
year ended September 30, 2018, as compared to the prior year, was a direct
result of the sale of products and services with higher profit margins.
General and Administrative Expenses
General and Administrative Expenses for the year ended September 30, 2019
increased $6,320,565 or 41% to $21,528,145 from $15,207,580 for the year ended
September 30, 2018. The increases in General and Administrative Expenses in
dollars is the result of the Consolidation of Vicon Industries, Inc.
Research and Development Expenses
Research and Development expenses for the year ended September 30, 2019 and 2018
were $1,481,879 and $5,558,682, respectively. Research and Development expenses
have decreased due to the limited capital resources of the Company.
Other Income/(Expense)
Interest and other income/(expense) for fiscal 2019 was $(5,190,987) as compared
to $(1,338,510) for fiscal 2018. For fiscal year 2019 other income/(expense) was
due was primarily due to interest on notes payable.
Provision for Income Taxes
During the fiscal year of 2019 we recorded an income tax benefit of $1,335,584
compared to $2,861,672 for the fiscal year of 2018. The provision for income tax
is based upon the projected income tax from the Company's various domestic and
international subsidiaries that are subject to income taxes.
16
Net Income/(Loss)
The Company had a net loss of $21,862,716 or 56% of revenues, for the year ended
September 30, 2019 as compared to a net loss of $9,240,409 or 41% of revenues,
for the year ended September 30, 2018. Net loss in this period as compared to
the previous period was higher due to the discontinued operations of the
Environmental Products business and its Electronics Manufacturing Segment. For
the year ended September 30, 2019 the Company had a loss of $10,559,963 on
discontinued operations and for the year ended September 30, 2018, the Company
had a gain of $1,786,737 on discontinued operations.
Effects of Inflation
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
Liquidity and Capital Resources
Working capital was $3,240,348 at September 30, 2019 compared to $10,011,896 at
September 30, 2018. This includes cash and cash equivalents and restricted cash
of $2,858,085 at September 30, 2019 and $2,315,935 at September 30, 2018,
respectively. The decrease in working capital was primarily due to the decrease
in the Company's current assets of $13,036,655 offset by a decrease in the
Company's current liabilities of $6,265,107 .
Accounts receivable decreased by $7,486,671 or 54% to $6,458,984 at September
30, 2019 from $13,945,655 at September 30, 2018. The decrease in accounts
receivable is mainly due to the company's exit from the Environmental Products
business and the elimination of its Electronics Manufacturing Segment.
Inventories decreased by $6,147,303 or 54% to $5,207,155 at September 30, 2019
from $11,354,458 at September 30, 2018. The decrease in inventories is
attributable to the company's exit from the Environmental Products business and
Electronics Manufacturing Segment.
Operating activities for continuing operations used $3,751,616 for the year
ended September 30, 2019 compared to using $13,005,012 of cash for the year
ended September 30, 2018. Operating activities for discontinued operations
provided $7,507,090, and $10,523,481 of cash for the year ended September 30,
2019 and 2018, respectively.
Investing activities for continuing operations used $2,043,771 of cash during
the year ended September 30, 2019 compared to using $12,207,320 during the year
ended September 30, 2018. In fiscal 2019 discontinued operations provided
$8,883,541 of cash.
Financing activities for continuing operations used $2,391,839 for the year
ended September 30, 2019 as compared to providing $3,624,091 in the year ended
September 30, 2018. In fiscal 2019 our financing activities were mainly
comprised of the proceeds from subscription rights offering and notes payable
offset by payments on our debt. In fiscal 2019 discontinued operations used
$9,465,505, compared to providing $1,726,748 of cash in fiscal 2018.
We believe that our cash on hand and cash generated by operations is sufficient
to meet the capital demands of our current operations during the 2020 fiscal
year (ending September 30, 2020). Any major increases in sales, particularly in
new products, may require additional capital investment. Failure to obtain
sufficient capital could materially adversely impact our growth potential.
Overall, there is no guarantee that cash flow from our existing or future
operations and any external capital that we may be able to raise will be
sufficient to meet our expansion goals and working capital needs.
17
Outlook
We are a diversified company that predominantly operates in the United States.
We believe our diversity of business segments, and the breadth of our product
and services portfolios, have helped mitigate the economic impact of any one
particular industry sector or any single region on our consolidated operating
results and we expect the same in the future. We believe growth for our products
and services is driven by the increasing demand for newer technology products
and overall industrial economic growth. These trends stimulate investment in new
consumer and industrial products with related infrastructure, and in upgrades of
existing facilities. We continue to focus on revenue growth, market expansion
and increasing profitability by expanding our presence in emerging technologies.
Our outlook is to continue expanding our scope of technology, products, and
services horizontally through selective acquisitions and the formation of new
business units by leveraging our technical and financial resources.
This Outlook section, and other portions of this document, include certain
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, including, among others, those statements preceded by, following or
including the words "believe," "expect," "intend," "anticipate" or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of assumptions, risks and
uncertainties. Our actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include those discussed in Item 1A. Risk Factors as
well as:
? changes in external competitive market factors or in our internal budgeting
process which might impact trends in our results of operations;
? Company has incurred a large net loss during fiscal 2018 and thus reduced its
working capital and available cash;
? changes in our business strategy or an inability to execute our strategy due
to unanticipated changes in the market;
? product obsolescence due to the development of new technologies; and
? Various competitive factors that may prevent us from competing successfully in
the marketplace.
? In light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this Form
10-K will in fact occur.© Edgar Online, source Glimpses
CEMTREX, INC. 
