Cemtrex, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023; comparisons are to the fiscal year ended September 30, 2022. This is an annual filing, not a quarterly report. Cemtrex operates Security (Vicon), Industrial Services (AIS), and Corporate segments. During the year, it sold Cemtrex Advanced Technologies and Cemtrex XR to CEO Saagar Govil and acquired Heisey Mechanical through AIS.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $59.37 million | $45.03 million |
| Gross profit / margin | $25.69 million / 43% | $16.57 million / 37% |
| Operating loss | $(1.51) million | $(14.13) million |
| Net loss | $(9.23) million | $(13.29) million |
| Net loss attributable to Cemtrex stockholders | $(9.20) million | $(13.02) million |
| Cash used by continuing operating activities | $4.72 million | $16.26 million |
| Cash, cash equivalents, and restricted cash | $6.35 million | $11.47 million |
| Working capital | $1.95 million | $6.25 million |
| Total debt and secured liabilities, per debt note | $24.44 million | $20.57 million |
| Current debt obligations | $14.51 million | $16.89 million |
Revenue rose 32%, reflecting stronger demand in both segments and $2.32 million of Heisey revenue after its July 2023 acquisition. Security revenue increased 44% to $34.36 million; Industrial Services revenue increased 18% to $25.01 million. Gross margin improved in both segments: Vicon benefited from price increases and lower transportation costs, while AIS cited higher service prices and lower subcontractor costs.
Operating loss narrowed substantially, but the company remained loss-making. Interest expense was $4.97 million, up from $3.88 million. FY2022 included $8.40 million of realized gains on marketable securities and a $3.32 million goodwill impairment; FY2023 included $0.42 million of employee retention credit income. FY2023 discontinued operations recorded a $2.84 million loss, including a $2.46 million loss on the sale of the former businesses.
Continuing operations used $4.72 million in operating cash. Investing activities used $5.63 million, principally for property and equipment and the Heisey acquisition; financing activities provided $2.04 million. Cash and restricted cash fell by $5.82 million. Restricted cash was $1.02 million, so cash and equivalents were $5.33 million. The filing reports total liabilities of $40.11 million.
Material changes and notable transactions
- Heisey acquisition: AIS acquired Heisey Mechanical on July 1, 2023. Preliminary consideration was $2.79 million, plus a separate $1.50 million real-estate purchase. The purchase-price allocation remains preliminary. Acquisition financing included a $2.16 million loan and a $1.20 million mortgage, both at SOFR plus 2.8%.
- Divestitures: The company sold Cemtrex Advanced Technologies and Cemtrex XR to Mr. Govil. Consideration included cash, revenue royalties, and a $1.60 million SAFE tied to future fundraising or an exit for the Advanced Technologies business. Some contingent consideration was valued at zero; Cemtrex recognized $704,893 in discounted royalties receivable from Cemtrex XR.
- Equity used for obligations: Cemtrex issued 241,655 common shares to satisfy $1.92 million of notes and accrued interest, and issued 30,103 shares for $215,800 of services. It also paid Series 1 preferred dividends in shares. A 35-for-1 reverse split of common stock took effect in January 2023.
- Debt modifications and financing: Certain lender agreements were amended or extended. A $5 million revolving credit facility from Pathward was obtained after year-end, on October 5, 2023, to repay the NIL Funding term loan and fund Vicon operations.
Outlook, risks, and contingencies
Going concern: Management and the independent auditor state that substantial doubt exists about Cemtrex’s ability to continue as a going concern. The filing cites recurring losses, $14.51 million of debt due within the next fiscal year, and $1.95 million of working capital. Management points to cost reductions from divestitures, improved Vicon pricing, debt refinancing, and possible equity issuance, but says there is no guarantee these plans will succeed. Equity financing or settling debt with stock could dilute shareholders.
The company provides no specific revenue or earnings guidance. Management identifies demand, economic conditions, competition and pricing, supply-chain availability, interest rates, access to financing, acquisition integration, cybersecurity, and the ability to develop products and retain skilled employees as risks. The company reported no material legal proceedings known to it, but disclosed continuing obligations under the SEC’s 2022 cease-and-desist order. The company and Mr. Govil paid penalties of $2.20 million and $350,000, respectively; the order followed SEC findings of securities-law violations, which were neither admitted nor denied.
Nasdaq had granted the Series 1 preferred stock a temporary extension to regain bid-price compliance by January 19, 2024. A shareholder meeting to approve a reverse split did not achieve a quorum on December 26, 2023, and was adjourned. Common stock had regained bid-price compliance in February 2023. Related-party matters include the asset sales to the CEO and receivables due from the sold businesses and from entities controlled by founder and former CFO Aron Govil.
The auditor issued an unmodified opinion on the financial statements but included a going-concern emphasis. Goodwill valuation and related-party receivables were identified as critical audit matters. Management concluded internal control over financial reporting was effective; the auditor did not attest to that conclusion.
Key facts investors should verify
- How Cemtrex plans to meet the $14.51 million of current debt obligations and fund operations, and whether the Pathward facility was drawn and on what terms.
- Whether the company regained Nasdaq bid-price compliance for Series 1 preferred stock by the stated deadline, and the status and terms of any reverse split.
- The collectability, timing, and valuation of related-party receivables and contingent sale proceeds, including amounts tied to the CEO and former businesses.
- The debt disclosure reconciliation: the debt note lists $24.44 million of debt and secured liabilities, while a risk-factor passage cites approximately $37.8 million of consolidated debt. The filing text does not clearly reconcile these values.
- The final Heisey purchase-price allocation and its contribution to revenue, margins, cash flow, and debt-service capacity.