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RESTATEMENTS OF FINANCIAL STATEMENTS

12 Months Ended

Sep. 30, 2021

Restatements Of Financial Statements

NOTE 3 – RESTATEMENTS 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.

Cemtrex Inc. and Subsidiaries

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.

In response to the above discussed restatements, the Company revisited its fiscal year 2020 financial statements. As a result, the following items have been restated, (i) inventory valuation, recognition of discontinued operations, accrued expenses, and accounts payable of the Company’s subsidiary Vicon Industries, Inc., (ii) fixed asset valuation and deferred revenue of the Company’s subsidiary Advanced Industrial Services, Inc., some of these valuation error dates to prior to acquisition of each entity.

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 year ended September 30, 2020, Condensed Consolidated Statement of Stockholders’ Equity, and the Condensed Consolidated Statements of Cash Flows for the year ended September 30, 2020.

Condensed Consolidated Balance Sheets

	Balance as reported on September 30, 2020			Adjustment of net value of intangible assets			Adjustment resulting from reaudit of Fiscal Year 2020 Financial Statements			Adjustment of net value of inventory			Adjustment of net value of fixed assets			Cumulative effect of restatement adjustments		Loss on amounts transferred to First Commercial			Restatement on Dividends			Cumulative effect of currency translation		Adjusted balance at September 30, 2020

Cash and equivalents	$	19,490,061					$	(3,038	)																	$	19,487,023
Prepaid expenses and other assets	$	1,188,317					$	(12,542	)																	$	1,175,775
Other Assets	$	744,207					$	(362,307	)																	$	381,900
Property and equipment, net	$	9,558,936		$	(2,597,185	)							$	(987,901	)											$	5,973,850
Inventory –net of allowance for inventory obsolescence	$	6,793,806								$	(1,847,349	)														$	4,946,457
Goodwill	$	4,370,894					$	2,851,998																		$	7,222,892
Accounts payable	$	2,857,817					$	1,953,400																		$	4,811,217
Accrued expenses	$	2,392,487					$	(285,460	)																	$	2,107,027
Deferred revenue	$	1,651,784					$	(153,958	)																	$	1,497,826
Other long-term liabilities	$	1,063,733					$	(295,138	)																	$	768,595
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	)													$	1,999,363	$	(7,100,000	)	$	4,173,260				$	$(34,100,067)
Accumulated other comprehensive income	$	853,643																						$	958,814	$	1,812,457

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

				For the year ended
	September 30, 2020
	Previously reported			Adjustments			Adjusted

Net loss available to Cemtrex, Inc. shareholders	$	(13,105,005	)	$	2,634,924		$	(10,470,081	)
Cost of revenues	$	24,153,937		$	1,743,244		$	25,897,181
General and administrative	$	21,570,666		$	(1,206,938	)	$	20,363,728
Preferred dividends	$	3,171,230		$	(3,171,230	)	$	-
Loss Per Share-Basic	$	(1.28	)	$	0.27		$	(1.01	)
Loss Per Share-Diluted	$	(1.28	)	$	0.27		$	(1.01	)

Cemtrex Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

				For the year ended
				September 30, 2020
	Previously reported			Adjustments			Adjusted

Retained earnings (accumulated deficit) at September 30, 2019	$	(20,067,685	)	$	(3,562,301	)	$	(23,629,986	)
Dividends pad in series preferred shares	$	(2,089,540	)	$	2,089,540		$	-
Accrued dividends	$	(1,081,690	)	$	1,081,690		$	-
Net income/(loss)	$	(9,706,659	)	$	(763,422	)	$	(10,470,081	)
Retained earnings (accumulated deficit) at September 30, 2020	$	(33,172,690	)	$	(927,377	)	$	(34,100,067	)
Accumulated other comprehensive income/(loss)at September 30, 2019	$	796,004		$	958,814		$	1,754,818
Foreign currency translation gain	$	22,294		$	35,345		$	57,639
Income in noncontrolling interest	$	35,345		$	(35,345	)	$	-
Accumulated other comprehensive income/(loss) at September 30, 2020	$	853,643		$	958,814		$	1,812,457
Additional paid-in capital at September 30, 2019	$	40,344,837		$	(1,002,030	)	$	39,342,807
Additional paid-in capital at September 30, 2020	$	63,313,336		$	(3,091,570	)	$	60,221,766
Non-controlling interst of Vicon at September 30, 2019	$	885,874		$	(70,690	)	$	815,184
Income in noncontrolling interest	$	191,771		$	35,345		$	227,116
Non-controlling interst of Vicon at September 30, 2020	$	1,077,645		$	(35,345	)	$	1,042,300

Condensed Consolidated Statements of Cash Flows

For the year ended

September 30, 2020

Previously reported Adjustments Adjusted

Net loss $ (9,706,659 ) $ (536,306 ) $ (10,242,965 )

Depreciation and amortization $ 2,460,043 $ (594,317 ) $ 1,865,726

Inventory $ (1,586,651 ) $ 1,743,244 $ 156,593

Accrued expenses $ (499,527 ) $ (174,265 ) $ (673,792 )

Net cash used by operating activities - continuing operations $ (3,786,202 ) $ 438,356 $ (3,347,846 )

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 satisfied 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.

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 options surrendered were valued using the Black-Scholes option pricing model.

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).

Cemtrex Inc. and Subsidiaries