XML 38 R25.htm IDEA: XBRL DOCUMENT

Interim Statement Presentation (Policies)

6 Months Ended

Mar. 31, 2021

Basis of Presentation and Use of Estimates

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, 2020, of Cemtrex Inc.

The accompanying condensed consolidated balance sheet has been derived from the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2020, adjusted and restated as further discussed in Note 2 of these financial statements. Additionally, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss), the Condensed Consolidated Statement of Stockholders’ Equity, the Condensed Consolidated Statements of Cash Flows, and notes to the financial statements related to the results of the three and six month periods ended March 31, 2020, have been restated.

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 Advanced Technologies Inc., Cemtrex Ltd., Cemtrex Technologies Pvt. Ltd., Griffin Filters, LLC, Cemtrex XR Inc., and Advanced Industrial Services, Inc. and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiaries, Telesite USA, IQInVision, Vicon Industries Ltd., and Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.

Restatement of Financial Statements

Background

On February 23, 2021, Cemtrex’s Board of Directors determined that certain transactions between Cemtrex Inc. and First Commercial, a company owned by former Executive Director, former Controlling Shareholder and former CFO, Aron Govil, were incorrectly handled and accounted for.

The total amount of disputed transfers was approximately $7,100,000 and occurred in fiscal year 2017 in the amount of $5,600,000 and in fiscal year 2018 in the amount of $1,500,000. Cemtrex did not find any other such transfers during this period or thereafter, upon further review of the Company’s records.

Upon the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial statements. The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted for, and subsequent years were affected by the roll forward effects of these entries. The Company found unsupported advertising expenses in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000 of intangible assets and $975,000 of research and development expenses, as translated at from Indian Rupee at the time, were recorded on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated. The total amount of unsubstantiated transfers recorded by Cemtrex India and the unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000, corresponding with the total amount in question regarding First Commercial transfers during fiscal years 2017 and 2018.

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

Position and Adjusting Entries

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

The table below represents the balances of the affected accounts on the Condensed Consolidated Balance Sheets as of September 30, 2020, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and six months ended March 31, 2020, Condensed Consolidated Statement of Stockholders’ Equity, and the Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2020.

Condensed Consolidated Balance Sheets

	Balance as reported on September 30, 2020			Adjustment of net value of intangible assets			Cumulative effect of derecognition of expenses		Loss on amounts transferred to First Commercial			Restatement on Dividends			Cumulative effect of currency translation		Adjusted balance at September 30, 2020

Property and equipment, net	$	9,558,936		$	(2,597,185	)											$	6,961,751
Series 1 preferred stock dividends payable	$	1,081,690										$	(1,081,690	)			$	-
Additional paid-in capital	$	63,313,336										$	(3,091,570	)			$	60,221,766
Retained earnings (accumulated deficit)	$	(33,172,690	)				$	3,579,346	$	(7,100,000	)	$	4,173,260				$	(32,520,084	)
Accumulated other comprehensive income	$	853,643													$	923,469	$	1,777,112

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

	For the three months ended
	March 31, 2020
	Previously reported			Adjustments		Adjusted

Net Income income/(loss) attributable to Cemtrex, Inc. shareholders	$	(1,886,648	)	$	287,547	$	(1,599,101	)
Foreign currency translation gain/(loss)	$	(750,696	)	$	870	$	(749,826	)
Loss Per Share-Basic	$	(0.30	)	$	0.05	$	(0.26	)
Loss Per Share-Diluted	$	(0.30	)	$	0.05	$	(0.26	)

	For the six months ended
	March 31, 2020
	Previously reported			Adjustments			Adjusted

Net loss available to Cemtrex, Inc. shareholders	$	(2,203,469	)	$	548,750		$	(1,654,719	)
Foreign currency translation gain	$	(157,377	)	$	(9,423	)	$	(166,800	)
Loss Per Share-Basic	$	(0.42	)	$	0.10		$	(0.31	)
Loss Per Share-Diluted	$	(0.42	)	$	0.10		$	(0.31	)

Condensed Consolidated Statement of Stockholders’ Equity

	For the six months ended
	March 31, 2020
	Previously reported			Adjustments			Adjusted

Retained earnings (accumulated deficit) at September 30, 2019	$	(20,067,685	)	$	(3,611,902	)	$	(23,679,587	)
Net income/(loss)	$	(2,203,469	)	$	548,750		$	(1,654,719	)
Retained earnings (accumulated deficit) at March 31, 2020	$	(24,357,704	)	$	(976,602	)	$	(25,334,306	)
Accumulated other comprehensive income/(loss)at September 30, 2019	$	796,004		$	806,889		$	1,602,893
Comprehensive income/(loss)	$	564,597		$	(870	)	$	563,727
Accumulated other comprehensive income/(loss) at March 31, 2020	$	1,379,030		$	806,019		$	2,185,049
Additional paid-in capital	$	46,895,763		$	(2,064,670	)	$	44,831,093

Condensed Consolidated Statements of Cash Flows

	For the six months ended
	March 31, 2020
	Previously reported			Adjustments			Adjusted

Net loss	$	(2,016,406	)	$	548,750		$	(1,467,656	)
Depreciation and amortization	$	1,427,718		$	(539,327	)	$	888,391
Net cash used by operating activities	$	(1,380,126	)	$	9,423		$	(1,370,703	)
Effect of currency translation	$	(184,551	)	$	(9,423	)	$	(193,974	)

On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.

As part of the Settlement Agreement, Mr. Govil was required to pay the Company consideration with a total value of $7,100,000 (the “Settlement Amount”) by entering into the Agreement. The Settlement Amount was paid in a combination of Mr. Govil forfeiting certain Preferred Stock and outstanding options and executing a secured note in the amount of $1,533,280. The Independent Board of Directors in coordination with Management concluded the settlement represented fair value and was conducted on “arm’s length” terms.

In March 2021, Mr. Govil returned to the Company 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 shares of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively, the “Securities”). For the purposes of accounting recognition, the Company determined the fair value of the Series A, Series C, and Series 1 Preferred stock based on the closing trading value of the Series 1 Preferred Stock on the date of the agreement.

The Company recognized the gain with respect to the surrendered Securities during this reporting period. The gain of $3,674,165 is reported as Settlement Agreement - Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

As discussed above, Mr. Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note matures and is due in full in two years and bears interest at 9% per annum and is secured by all of Mr. Govil’s assets. Mr. Govil also agreed to sign an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note is fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain will not be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

Accounting Pronouncements

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, 2020, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

Recently Issued Accounting Standards

In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes, to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company on October 1, 2021; early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statement disclosures, results of operations and financial position.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). The update provides optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020, through December 31, 2022. The Company adopted this guidance in the second quarter of 2020. The adoption of this guidance had no impact on the Company’s Condensed Consolidated Financial Statements or the related disclosures.