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 research & development from a small
environmental monitoring instruments company into a world leading multi-industry
technology company. The Company now specializes in the development of Internet
of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR) enabled
technologies that drive innovation in a wide range of sectors, including
consumer products, industrial manufacturing, digital applications, and
intelligent security & surveillance 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. During fiscal 2019, the
Company also reached a strategic decision to exit its original environmental
products business and sold those operations.
Now 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 Internet of Things (IoT), Wearables and Smart Devices, such as the
SmartDesk. Through the Company's advanced engineering and product design,
Company delivers Virtual Reality (VR) and Augmented Reality (AR) products that
provide higher productivity, progressive design and impactful experiences for
consumer products, digital applications and industrial manufacturing.
The AT business segment also includes the Company's majority owned 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. Vicon provides cutting edge, mission critical security and video
surveillance solutions utilizing Artificial Intelligence (AI).
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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
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, 2019.
Results of Operations - For the three months ending June 30, 2020 and 2019
Total revenue for the three months ended June 30, 2020 and 2019 was $8,440,867
and $10,928,933, respectively, a decrease of $2,488,066, or 23%. Loss from
continuing operations for the three months ended June 30, 2020 and 2019 was
$4,490,368 and $1,667,033, respectively, an increase of $2,823,335, or 169%.
Total revenue for the quarter decreased, as compared to total revenue in the
same period last year, due to shutdowns and limited operations of businesses due
to the COVID-19 crisis. Loss from continuing operations increased due to
decreased sales during the COVID-19 crisis.
Revenues
Our Advanced Technologies segment revenues for the three months ended June 30,
2020, decreased by $1,551,062 or 24% to $4,977,424 from $6,520,486 for the three
months ended June 30, 2019. This decrease is mainly due to the impact of the
COVID-19 crisis.
Our Industrial Services segment revenues for the three months ended June 30,
2020, decreased by $937,004 or 21%, to $3,463,443 from $4,440,447 for the three
months ended June 30, 2019. This decrease is mainly due to the impact of the
COVID-19 crisis.
Gross Profit
Gross Profit for the three months ended June 30, 2020 was $3,279,852 or 39% of
revenues as compared to gross profit of $4,058,013 or 38% of revenues for the
three months ended June 30, 2019. Gross profit decreased in the three months
ended June 30, 2020, compared to the three months ended June 30, 2019 due to
lower sales, however the percentage increase is due to a shift by management in
the last fiscal year to focus on products with higher gross margins. The
Company's gross profit margins vary from product to product and from customer to
customer.
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General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2020
increased $1,549,578 or 38% to $5,606,659 from $4,057,081 for the three months
ended June 30, 2019. General and administrative expenses as a percentage of
revenue was 66% and 37% of revenues for the three-month periods ended June 30,
2020 and 2019. The increase in General and Administrative Expenses both as a
percentage of revenue is the reduction in sales from the same quarter last year
and on a dollar per dollar basis is the result of increased salaries expense.
Research and Development Expenses
Research and Development expenses for the three months ended June 30, 2020 was
$331,936 compared to $285,583 for the three months ended June 30, 2019. Research
and Development expenses are primarily related to the Advanced Technologies
Segment's development of proprietary technology and further developments of the
SmartDesk and Artificial Intelligence (AI) connected with security and
surveillance systems software.
Other Income/(Expense)
Other income/(expense) for the third quarter of fiscal 2020 was $(1,823,967) as
compared to $(2,162,854) for the third quarter of fiscal 2019. Other
income/(Expense) for the three months ended June 30, 2020 was primarily due to
interest expense.
Provision for Income Taxes
During the third quarter of fiscal 2020 the Company recorded an income tax
expense of $7,658 compared to a benefit of $780,742 for the third quarter of
fiscal 2019. 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.
Comprehensive loss
The Company had a comprehensive loss of $4,149,335 or 49% of revenues, for the
three-month period ended June 30, 2020 as compared to a comprehensive loss of
$3,103,266 or 28% of revenues, for the three months ended June 30, 2019.
Comprehensive loss increased in the third quarter as compared to comprehensive
loss in the same period last year, as a result of the reduction in sales due to
the COVID-19 crisis.
Results of Operations - For the nine months ending June 30, 2020 and 2019
Total revenue for the nine months ended June 30, 2020 and 2019 was $32,774,797
and $28,371,927, respectively, an increase of $4,402,870, or 16%. Loss from
continuing operations for the nine months ended June 30, 2020 and 2019 was
$6,506,774 and $5,638,254, respectively, an increase of $868,520, or 15%. Total
revenue for the first three quarters increased, as compared to total revenue in
the same period last year, due to sales increases in the Advanced Technologies
Segment. Loss from continuing operations increased due to the loss of sales in
the third quarter due to the COVID-19 crisis.
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Revenues
Our Advanced Technologies segment revenues for the nine months ended June 30,
2020, increased by $4,464,960 or 32% to $18,389,057 from $13,924,097 for the
nine months ended June 30, 2019. This increase represents mainly the
consolidation of Vicon Industries, Inc starting in the second quarter of fiscal
year 2019.
Our Industrial Services segment revenues for the nine months ended June 30,
2020, decreased by $62,090 or 0.4%, to $14,385,740 from $14,447,830 for the nine
months ended June 30, 2019. The decrease was primarily due to the timing and
recognition of revenue.
Gross Profit
Gross Profit for the nine months ended June 30, 2020 was $13,974,442 or 43% of
revenues as compared to gross profit of $11,052,395 or 39% of revenues for the
nine months ended June 30, 2019. Gross profit increased in the nine months ended
June 30, 2020, compared to the nine months ended June 30, 2019 due to a shift by
management in the last fiscal year to focus on products with higher gross
margins. The Company's gross profit margins vary from product to product and
from customer to customer.
General and Administrative Expenses
General and administrative expenses for the nine months ended June 30, 2020
increased $1,822,183 or 13% to $16,187,890 from $14,365,707 for the nine months
ended June 30, 2019. General and administrative expenses as a percentage of
revenue was 49% and 51% of revenues for the nine-month periods ended June 30,
2020 and 2019. The decrease in General and Administrative Expenses as a
percentage of revenue is the result of reduction in overhead expenses. This
increase on a dollar per dollar basis represents mainly the consolidation of
Vicon Industries, Inc starting in the second quarter of fiscal year 2019.
Research and Development Expenses
Research and Development expenses for the nine months ended June 30, 2020 was
$1,113,455 compared to $1,136,981 for the nine months ended June 30, 2019.
Research and Development expenses are primarily related to the Advanced
Technologies Segment's development of proprietary technology and further
developments of the SmartDesk and Artificial Intelligence (AI) connected with
security and surveillance systems software.
Other Income/(Expense)
Other income/(expense) for the first three quarters of fiscal 2020 was
$(2,982,670) as compared to $(3,142,212) for the first three quarters of fiscal
2019. Other income/(Expense) for the nine months ended June 30, 2020 was
primarily due to interest expense.
Provision for Income Taxes
During the first three quarters of fiscal 2020 the Company recorded an income
tax expense of $197,201 compared to a benefit of $1,954,251 for the first three
quarters of fiscal 2019. 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.
Comprehensive loss
The Company had a comprehensive loss of $8,623,905 or 26% of revenues, for the
nine-month period ended June 30, 2020 as compared to a comprehensive loss of
$9,249,975 or 33% of revenues, for the nine months ended June 30, 2019.
Comprehensive loss decreased in the first three quarters as compared to
comprehensive loss in the same period last year, as a result of the increased
sales and foreign currency translation gain.
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.
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Liquidity and Capital Resources
Working capital was $17,165,395 at June 30, 2020 compared to $3,240,348 at
September 30, 2019. This includes cash and equivalents and restricted cash of
$14,273,738 at June 30, 2020 and $2,858,085 at September 30, 2019, respectively.
The increase in working capital was primarily due to the Company's raising of
capital through equity offerings in June 2020.
Accounts receivable decreased $1,654,509 or 26% to $4,804,475 at June 30, 2020
from $6,458,984 at September 30, 2019. The decrease in accounts receivable is
attributable to lower sales in the third quarter of fiscal year 2020 due to the
COVID-19 crisis.
Inventories increased $1,384,453 or 27% to $6,591,608 at June 30, 2020 from
$5,207,155 at September 30, 2019. The increase inventories is attributable to
the purchase of inventories to fulfill sales bookings not shipped in the third
quarter.
Operating activities used $2,227,538 of cash for the nine months ended June 30,
2020 compared to providing $3,361,482 of cash for the nine months ended June 30,
2019. The decrease in operating cash flows was primarily due to the increase in
operating assets, as compared to the same period a year ago. Discontinued
operations for the nine months ended June 30, 2019 provided cash of $1,636,714.
Investment activities used $6,653,700 of cash for the nine months ended June 30,
2020 compared to using cash of $2,114,350 during the nine-month period ended
June 30, 2019. Investing activities for the first three quarters of fiscal year
2020 were driven by the Company's investment in fixed assets and marketable
securities. Discontinued operations for the nine months ended June 30, 2019 used
cash of $119,482.
Financing activities provided $20,176,160 of cash in the nine-month period ended
June 30, 2020 as compared to providing cash of $81,739 in the nine-month period
ended June 30, 2019. Financing activities were primarily driven by proceeds from
notes payable, proceeds from bank loans, and proceeds from securities purchase
agreements offset by payments on bank loans, notes payable, expenses of notes
payable and equity offerings, and use of the Company's revolving credit lines.
Discontinued operations for the nine months ended June 30, 2019 used cash of
$78,123.
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 substantial 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.
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