UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the quarterly period ended December 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from ___________to ____________

Commission File Number 001-37464

CEMTREX, INC.

(Exact name of registrant as specified in its charter)

Delaware

30-0399914

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

276 Greenpoint Ave, Suite 208, Brooklyn, NY		11222
(Address of principal executive offices)		(Zip Code)

631-756-9116

(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
Common Stock	CETX	Nasdaq Capital Market
Series 1 Preferred Stock	CETXP	Nasdaq Capital Market

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.

☒

Yes

☐

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).

☒

Yes

☐

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 ☐
	Non-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 February 10, 2023, the issuer had 824,568 shares of common stock issued and outstanding.

Table of Contents

CEMTREX, INC. AND SUBSIDIARIES

INDEX

		Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2022 (Unaudited) and September 30, 2022	3

	Condensed Consolidated Statements of Operations for the three months ended December 31, 2022 and December 31, 2021 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income/(Loss) for the three months ended December 31, 2022 and December 31, 2021 (Unaudited)	5

	Condensed Consolidated Statement of Stockholders’ Equity for the three months ended December 31, 2022 (Unaudited)	6

	Condensed Consolidated Statement of Stockholders’ Equity for the three months ended December 31, 2021 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flow for the three months ended December 31, 2022 and December 31, 2021 (Unaudited)	8

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 4. Controls and Procedures		28

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		29

Item 1A Risk Factors		29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 6. Exhibits		30

SIGNATURES		31

Part I. Financial Information

Item 1. Financial Statements

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	(Unaudited)
	December 31,			September 30,
	2022			2022
Assets
Current assets
Cash and equivalents	$	5,768,610		$	9,895,761
Restricted cash		1,601,723			1,577,915
Short-term investments		13,721			13,721
Trade receivables, net		6,936,077			5,399,216
Trade receivables - related party		383,710			-
Inventory –net of allowance for inventory obsolescence		8,604,759			8,487,817
Prepaid expenses and other assets		3,092,618			2,421,644
Assets of discontinued operations		-			3,971,693
Total current assets		26,401,218			31,767,767

Property and equipment, net		5,108,267			5,280,442
Right-of-use assets		2,520,506			2,641,198
Royalties receivable - related party		665,048			-
Note receivable - related party		761,585			761,585
Goodwill		3,906,891			3,906,891
Other		1,546,101			1,399,745
Total Assets	$	40,909,616		$	45,757,628

Liabilities & Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	2,722,992		$	3,050,937
Accounts payable - related party		19,034			19,133
Short-term liabilities		17,099,485			16,894,743
Lease liabilities - short-term		787,561			754,495
Deposits from customers		489,669			73,146
Accrued expenses		3,246,129			2,271,188
Deferred revenue		2,505,618			1,551,088
Accrued income taxes		-			94,848
Liabilities of discontinued operations		-			805,219
Total current liabilities		26,870,488			25,514,797
Long-term liabilities
Loans payable to bank		92,010			110,331
Long-term lease liabilities		1,732,945			1,822,468
Mortgage payable		2,142,662			2,160,169
Other long-term liabilities		582,392			807,898
Paycheck Protection Program Loans		97,120			97,120
Deferred Revenue - long-term		595,281			607,309
Total long-term liabilities		5,242,410			5,605,295
Total liabilities		32,112,898			31,120,092

Commitments and contingencies		-			-

Shareholders’ equity
Preferred stock , $0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,183,463 shares issued and 2,119,363 shares outstanding as of December 31, 2022 and 2,079,122 shares issued and 2,015,022 shares outstanding as of September 30, 2022 (liquidation value of $10 per share)		2,183			2,079
Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at December 31, 2022 and September 30, 2022		50			50
Preferred stock, value		-			-
Common stock, $0.001 par value, 50,000,000 shares authorized, 793,727 shares issued and outstanding at December 31, 2022 and 754,711 shares issued and outstanding at September 30, 2022		794			755
Additional paid-in capital		66,913,540			66,641,696
Retained earnings (accumulated deficit)		(61,206,231	)		(54,929,020	)
Treasury stock, 64,100 shares of Series 1 Preferred Stock at December 31, 2022 and September 30, 2022		(148,291	)		(148,291	)
Accumulated other comprehensive income (loss)		2,601,094			2,377,525
Total Cemtrex stockholders’ equity		8,163,139			13,944,794
Non-controlling interest		633,579			692,742
Total liabilities and shareholders’ equity	$	40,909,616		$	45,757,628

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	December 31, 2022			December 31, 2021
	For the three months ended
	December 31, 2022			December 31, 2021

Revenues	$	11,970,242		$	9,413,395
Cost of revenues		6,927,627			6,191,145
Gross profit		5,042,615			3,222,250
Operating expenses
General and administrative		5,455,833			5,447,951
Research and development		1,538,218			1,072,898
Total operating expenses		6,994,051			6,520,849
Operating loss		(1,951,436	)		(3,298,599	)
Other income/(expense)
Other income		(17,083	)		930,138
Interest Expense		(1,128,234	)		(1,402,404	)
Total other income/(expense), net		(1,145,317	)		(472,266	)
Net loss before income taxes		(3,096,753	)		(3,770,865	)
Income tax benefit/(expense)		-			-
Loss from Continuing operations		(3,096,753	)		(3,770,865	)
Loss from discontinued operations, net of tax		(3,239,621	)		(758,958	)
Net loss		(6,336,374	)		(4,529,823	)
Less loss in noncontrolling interest		(59,163	)		(51,872	)
Net loss attributable to Cemtrex, Inc. shareholders	$	(6,277,211	)	$	(4,477,951	)
Loss Per Share-Basic & Diluted
Continuing Operations	$	(3.99	)	$	(5.64	)
Discontinued Operations	$	(4.25	)	$	(1.15	)
Weighted Average Number of Shares-Basic & Diluted		761,571			659,919

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Condensed Consolidated Statements Comprehensive Income/(Loss)

(Unaudited)

	December 31, 2022			December 31, 2021
	For the three months ended
	December 31, 2022			December 31, 2021
Other comprehensive income/(loss)
Net loss	$	(6,336,374	)	$	(4,529,823	)
Foreign currency translation (loss)/income		223,569			59,492
Comprehensive loss		(6,112,805	)		(4,470,331	)
Less comprehensive loss attributable to noncontrolling interest		(59,163	)		(51,872	)
Comprehensive loss attributable to Cemtrex, Inc. shareholders	$	(6,053,642	)	$	(4,418,459	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)


																			Treasury
																			Stock,
	Preferred Stock Series 1				Preferred Stock Series C				Common Stock Par							Retained			64,100 shares of			Accumulated
	Par Value $0.001				Par Value $0.001				Value $0.001				Additional			Earnings			Series 1			other		Cemtrex			Non-
	Number of				Number of				Number of				Paid-in			(Accumulated			Preferred			Comprehensive		Stockholders’			controlling
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit)			Stock			Income(loss)		Equity			interest
Balance at September 30, 2022		2,079,122	$	2,079		50,000	$	50		754,711	$	755	$	66,641,696		$	(54,929,020	)	$	(148,291	)	$	2,377,525	$	13,944,794		$	692,742
Foreign currency translation gain/(loss)						-		-												-			223,569		223,569
Share-based compensation						-		-						39,842						-					39,842
Shares issued to pay notes payable						-		-		39,016		39		232,106						-					232,145
Dividends paid in Series 1 preferred shares		104,341		104		-		-						(104	)					-					-
Income/(loss) attributable to noncontrolling interest						-		-												-					-			(59,163	)
Net loss						-		-									(6,277,211	)		-					(6,277,211	)
Balance at December 31, 2022		2,183,463	$	2,183		50,000	$	50		793,727	$	794	$	66,913,540		$	(61,206,231	)	$	(148,291	)	$	2,601,094	$	8,163,139		$	633,579

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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
																			Treasury
																			Stock,
	Preferred Stock Series 1				Preferred Stock Series C				Common Stock Par							Retained			64,100 shares of			Accumulated
	Par Value $0.001				Par Value $0.001				Value $0.001				Additional			Earnings			Series 1			other		Cemtrex			Non-
	Number of				Number of				Number of				Paid-in			(Accumulated			Preferred			Comprehensive		Stockholders’			controlling
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit)			Stock			Income(loss)		Equity			interest
Balance at September 30, 2021		1,885,151	$	1,885		50,000	$	50		593,777	$	594	$	61,748,022		$	(41,908,062	)	$	(148,291	)	$	2,896,452	$	22,590,650		$	964,026
Beginning balance, value		1,885,151	$	1,885		50,000	$	50		593,777	$	594	$	61,748,022		$	(41,908,062	)	$	(148,291	)	$	2,896,452	$	22,590,650		$	964,026
Foreign currency translation gain/(loss)						-		-												-			59,492		59,492
Share-based compensation						-		-						45,371						-					45,371
Shares issued to pay notes payable						-		-		82,600		83		3,287,988						-					3,288,071
Dividends paid in Series 1 preferred shares		94,602		95		-		-						(95	)					-					-
Income/(loss) attributable to noncontrolling interest						-		-												-					-			(51,872	)
Net loss						-		-									(4,477,951	)		-					(4,477,951	)
Balance at December 31, 2021		1,979,753	$	1,980		50,000	$	50		676,377	$	677	$	65,081,286		$	(46,386,013	)	$	(148,291	)	$	2,955,944	$	21,505,633		$	912,154
Ending balance, value		1,979,753	$	1,980		50,000	$	50		676,377	$	677	$	65,081,286		$	(46,386,013	)	$	(148,291	)	$	2,955,944	$	21,505,633		$	912,154

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	2022			2021
	For the three months ended
	December 31,
	2022			2021
Cash Flows from Operating Activities

Net loss	$	(6,336,374	)	$	(4,529,823	)

Adjustments to reconcile net income/(loss) to net cash used by operating activities
Depreciation and amortization		530,830			247,704
(Gain)/loss on disposal of property and equipment		(3,547	)		27,170
Noncash lease expense		197,198			196,572
Change in allowance for doubtful accounts		4,510			94,588
Share-based compensation		39,842			45,371
Interest expense paid in equity shares		32,145			821,592
Accrued interest on notes payable		528,100			132,162
Amortization of original issue discounts on notes payable		441,734			325,000
Gain on marketable securities		-			21
Discharge of Paycheck Protection Program Loans		-			(971,500	)

Changes in operating assets and liabilities net of effects from acquisition of subsidiaries:
Trade receivables		(1,541,371	)		2,094,282
Trade receivables - related party		(383,710	)		(5,166	)
Inventory		(116,942	)		(1,458,595	)
Prepaid expenses and other current assets		(670,974	)		(144,745	)
Other assets		(146,356	)		(384	)
Other liabilities		(225,506	)		(88,266	)
Accounts payable		(327,945	)		(726,226	)
Accounts payable - related party		(99	)		-
Operating lease liabilities		(132,963	)		(104,644	)
Deposits from customers		416,523			205,855
Accrued expenses		974,941			(142,307	)
Deferred revenue		942,502			(286,261	)
Income taxes payable		(94,848	)		(124,823	)
Net cash used by operating activities - continuing operations		(5,872,310	)		(3,633,465	)
Net cash provided/(used) by operating activities - discontinued operations		2,501,426			(719,237	)
Net cash used by operating activities		(3,370,884	)		(4,352,702	)

Cash Flows from Investing Activities
Purchase of property and equipment		(571,658	)		(301,327	)
Proceeds from sale of property and equipment		3,547			9,661
Net cash used by investing activities - continuing operations		(568,111	)		(291,666	)
Net cash provided by investing activities - discontinued operations		207,329			-
Net cash provided/(used) by investing activities		(360,782	)		(291,666	)

Cash Flows from Financing Activities
Payments on notes payable		(294,370	)		(326,763	)
Payments on bank loans		(306,550	)		(305,990	)
Net cash used by financing activities		(600,920	)		(632,753	)

Effect of currency translation		229,243			63,228
Net decrease in cash, cash equivalents, and restricted cash		(4,332,586	)		(5,277,121	)
Cash, cash equivalents, and restricted cash at beginning of period		11,473,676			17,186,323
Cash, cash equivalents, and restricted cash at end of period	$	7,370,333		$	11,972,430

Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash
Cash and equivalents	$	5,768,610		$	10,338,978
Restricted cash		1,601,723			1,633,452
Total cash, cash equivalents, and restricted cash	$	7,370,333		$	11,972,430

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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	$	126,255	$	126,715

Cash paid during the period for income taxes	$	94,848	$	124,823

Supplemental Schedule of Non-Cash Investing and Financing Activities
Shares issued to pay notes payable	$	232,145	$	3,288,071
Investment in right of use asset	$	76,506	$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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. The Company currently operates in two areas: industrial services, 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.

During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure. The Company now has three business segments, consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.

Security

Cemtrex’s Security segment operates under the Vicon Industries brand. Vicon Industries, Inc. (“Vicon”), a majority owned subsidiary, 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”), that offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We are a leading provider of reliability-driven maintenance and contracting solutions for 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.

○

$895,000 comprised of:

	▪	$75,000 in cash payable at Closing; and
	▪	5% royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next three years; and should the total sum of royalties due be less than $820,000 at the end of the three-year period, Purchaser shall be obligated to pay the difference between $820,000 and the royalties paid.

●

Cemtrex Advanced Technologies, Inc.

	○	$10,000 in cash payable at Closing; and
	○	5% royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next 5 years; and
	○	$1,600,000 in SAFE (common equity) at any subsequent fundraising or exit above $5M with a $10M cap.

The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements.

Reverse Stock Split

On January 25, 2023, the company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split.

Extension of cure period

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 on its Series 1 Preferred stock.

Listing Rule Compliance

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. The hearing scheduled for March 16, 2023 before the Hearings Panel has been cancelled.

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 $13,020,958 and $7,807,995 for fiscal years 2022 and 2021, respectively, and has losses on continuing operations for the first quarter of fiscal year 2023 of $3,096,753 and has debt obligations over the next year of $17,099,485 and working capital deficit of $469,270, that raise substantial doubt with respect to the Company’s ability to continue as a going concern.

While our working capital deficit 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 35:1 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve 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 condensed consolidated financial statements do not include any adjustments relating to this uncertainty.

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.

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 October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact of this ASU on our financial statements.

On June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 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. We are currently evaluating the impact of this ASU on our financial statements.

The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE 3 – DISCONTINUED OPERATIONS

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 $0 and considers such consideration to be a gain contingency.

Based on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $820,000 royalties due and has not accounted for any additional royalties at this time. In accordance with ASC 310 – Receivables, the Company has discounted the royalties due and has recognized $660,621 of royalties due and will amortize the remaining amount over the period the royalties are due.

The following table summarizes the loss on the sale:

SUMMARY OF LOSS ON SALE


Purchase Price	$	745,621
Less cash and cash equivalents transferred		(699,423	)
Less Liabilities assumed		(10,924	)
Net purchase price	$	35,274

Assets Sold
Accounts receivable, net	$	625,638
Inventory, net		980,730
Prepaid expenses and other assets		502,577
Property and equipment, net		837,808
Goodwill		598,392
Total Assets Sold		3,545,145
Liabilities Transferred
Accounts payable		370,774
Short-term liabilities		364,775
Long-term liabilities		318,981
Total Liabilities Transferred		1,054,530
Net assets sold	$	2,490,615

Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies	$	(2,455,341	)

Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at December 31, 2022 and September 30, 2022 are as follows;

	December 31,		September 30,
	2022		2022
Assets
Current assets
Cash and equivalents	$	-	$	714,420
Trade receivables, net		-		561,470
Inventory –net of allowance for inventory obsolescence		-		1,043,865
Prepaid expenses and other assets		-		153,461
Total current assets		-		2,473,216

Property and equipment, net		-		825,850
Other		-		672,627
Total Assets	$	-	$	3,971,693

Liabilities
Current liabilities
Accounts payable	$	-	$	205,622
Short-term liabilities		-		464,429
Deposits from customers		-		125,032
Accrued expenses		-		10,136
Total current liabilities		-		805,219

Long-term liabilities
Deferred revenue				6,273
Total long-term liabilities		-		6,273
Total liabilities	$	-	$	811,492

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-month periods ended December 31, 2022 and 2021, are as follows:

	2022		2021
	Three months ended December 31,
	2022		2021

Total net sales	$	649,061	$	1,259,904
Cost of sales

SEC Form 10-Q filed by Cemtrex Inc.