Cemtrex, Inc. — Form 10-Q Summary
Business and period: Cemtrex operates Advanced Technologies, including Vicon security and surveillance products, and Industrial Services, including industrial installation and maintenance. This unaudited report covers the fiscal quarter and nine months ended June 30, 2022, compared with the same 2021 periods.
Financial performance
- Quarter revenue: $13.63 million, up 32% year over year. Advanced Technologies revenue rose 40% to $8.16 million; Industrial Services revenue rose 22% to $5.47 million.
- Quarter gross profit and margin: $5.88 million and approximately 43%, versus $4.13 million and 40%. Operating loss was $2.12 million, compared with $2.30 million. Net loss attributable to Cemtrex shareholders was $680,793, versus net income of $1.10 million; basic and diluted loss per share was $0.03.
- Nine-month revenue: $37.03 million, up 30%. Gross profit was $13.80 million, but gross margin fell to approximately 37% from 42%. Operating loss widened to $9.99 million from $6.31 million. Net loss attributable to shareholders was $9.88 million, versus net income of $1.86 million; loss per share was $0.41.
- Expenses and other items: Nine-month general and administrative expense increased 24% to $20.32 million, and research and development expense increased to $3.47 million. Nine-month net other expense was $316,680, versus net other income of $8.32 million a year earlier. The 2021 comparison included a $3.67 million related-party settlement gain; 2022 included marketable-security gains and PPP loan forgiveness, as well as interest and stock-related financing costs.
- Cash flow: Operating activities used $10.25 million in the first nine months, versus $6.18 million in the prior-year cash-flow statement. Investing activities provided $517,029 and financing activities provided $5.90 million, principally from an $8 million note issuance. Cash, cash equivalents and restricted cash totaled $12.96 million at June 30, down from $17.19 million at September 30, 2021.
- Liquidity and debt: Current assets were $33.14 million and current liabilities $27.39 million; working capital was approximately $5.75 million. Short-term liabilities were $17.15 million. The company also reported bank loans, notes payable, a mortgage and PPP debt; a $3.5 million bank credit line had no balance drawn. Certain notes mature in 2023, and a bank loan was payable in December 2022.
- Balance sheet and shares: Total assets were $51.20 million, total liabilities $33.25 million, and Cemtrex stockholders’ equity $17.17 million. Common shares outstanding rose from 20.78 million at September 30, 2021 to 26.26 million at June 30, 2022, including shares issued to settle debt and in connection with financing.
Changes, outlook and risks
- Management attributed revenue growth to stronger demand, particularly for Vicon security products. Quarter gross margin improved after price increases, while nine-month margin declined amid supply-chain and transportation costs.
- Inventory increased 50% to $8.46 million as the company built stock for expected shipments and to mitigate supply constraints. Management warned that supply-chain delays, inflation, wage increases and product-development delays could weigh on costs, margins and revenue.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing nine-month losses and current debt. Management nevertheless stated that available cash and expected operating cash generation should support current operations for at least 12 months; it also noted that issuing common stock may be used to satisfy short-term liabilities. No specific financial guidance was provided.
- Disclosure controls were deemed ineffective, with a material weakness attributed to insufficient accounting personnel, inadequate period-end review, and untimely account reconciliations and asset recoverability assessments. Management said it was seeking additional accounting personnel and remediation.
- Related-party receivables totaled $1.47 million, including an overdue $500,000 amount related to the sale of Griffin Filters; collection of the remaining balance was still under negotiation. The filing reported no legal proceedings and no subsequent events requiring disclosure.
Important facts for investors to verify
- Assess whether operating cash use, near-term maturities and the going-concern risk can be managed without further dilutive financing.
- Review the terms, maturity schedules and classification of the $17.15 million in short-term liabilities and other notes payable.
- Track whether inventory converts to sales and whether supply-chain, shipping and wage pressures continue to affect margins.
- Monitor remediation of the material weakness and the collection status of related-party receivables.
- Reconcile filing inconsistencies: working capital is stated as $5.751 million in MD&A and $5.757 million in a note; prior-year operating cash use is stated as $6.18 million in the cash-flow statement but $6.20 million in MD&A. The filing also gives a slightly different quarter shareholder loss in MD&A than in the financial statements.