Cemtrex, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019. Although the request identifies 2019 Q4, this filing reports annual results; standalone fourth-quarter financial results are not provided in the supplied text. The statements present Electronics Manufacturing and environmental products as discontinued operations.
Business context
Cemtrex reported two continuing segments: Advanced Technologies (AT), including Vicon security and surveillance products and smart/connected technology, and Industrial Services (IS), providing industrial installation, maintenance and contracting services. Vicon was consolidated beginning January 14, 2019, and Cemtrex acquired additional shares in May, bringing its ownership to approximately 72%.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $39.27 million | $22.64 million |
| Gross profit / margin | $15.56 million / 39.6% | $8.22 million / 36.3% |
| Operating loss | $7.45 million | $12.55 million |
| Loss from continuing operations | $11.30 million | $11.03 million |
| Discontinued operations, net of tax | Loss of $10.56 million | Income of $1.79 million |
| Net loss | $21.86 million | $9.24 million |
| Comprehensive loss | $23.05 million | $10.48 million |
- Revenue increased 73%, primarily reflecting Vicon consolidation and higher AT revenue. AT revenue rose to $19.27 million from $1.77 million; IS revenue declined 4% to $20.00 million.
- Operating loss narrowed, but higher interest expense ($4.79 million versus $0.80 million) and losses on discontinued operations drove a substantially larger net loss. The discontinued-operation loss included a $6.37 million loss on sale.
- Cash and cash equivalents were $1.77 million; restricted cash was $1.09 million. Working capital was $3.24 million, down from $10.01 million. Current assets were $18.88 million and current liabilities $15.64 million.
- Continuing operations used cash in operations. The MD&A reports $3.75 million used, while the cash-flow statement shows $3.57 million; the filing text does not provide a clear reconciliation. Discontinued operations provided $7.51 million in operating cash. Total cash at year-end, including restricted cash, was $2.86 million.
- Debt disclosures show approximately $12.3 million of total indebtedness in the risk section; the debt note reports $11.90 million total debt and $10.13 million net debt. Approximately $6.4 million was described as current in the risk section. The company had $5.43 million outstanding under Vicon’s 8.95% term loan, maturing March 2020.
- Common shares outstanding increased from 1.62 million to 3.96 million at fiscal year-end. The company issued $5.05 million of common stock to settle notes and accrued interest; $1.97 million of Series 1 preferred dividends were paid in preferred shares.
Material changes, outlook and risks
- The company sold its Electronics Manufacturing businesses on August 15, 2019, for stated consideration of approximately $7.06 million, including cash, interest-bearing notes and liabilities assumed. It also sold Griffin Filters to Ducon Technologies, a related party, for $550,000, and decided to exit its environmental products business.
- Management said cash on hand and operating cash generation should meet current operating needs for FY2020, while noting that growth may require additional capital. The filing gives no quantified revenue or earnings guidance.
- The financial statements disclose substantial losses and debt obligations that raised going-concern considerations. Management stated that planned capital raising, business exits, asset actions and cost reductions alleviated those concerns; this is not assurance of future funding or performance.
- Key risks include refinancing and liquidity needs, potential additional equity dilution, high debt service, product and technology acceptance, competition, and dependence on key executives. The filing states that insiders beneficially held approximately 87% of voting shares, including preferred shares with enhanced voting rights.
- Management concluded disclosure controls were ineffective and identified a material weakness in internal control over financial reporting: insufficient qualified accounting personnel and inadequate entity-level review controls. The auditor gave an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- The company completed a 1-for-8 reverse stock split in June 2019. A securities class-action settlement of $625,000 and derivative-action settlement of $100,000 were paid by the company’s insurer.
Important facts for investors to verify
- Reconcile the continuing-operations operating cash-flow figures ($3.75 million in MD&A versus $3.57 million in the cash-flow statement) and the differing debt totals across sections.
- Review near-term maturities, refinancing plans and subsequent borrowing; the filing reports additional $1.725 million notes issued in October and December 2019.
- Assess the assumptions supporting management’s going-concern conclusion, given recurring losses, current obligations and reliance on external capital.
- Evaluate the related-party Griffin Filters sale and the effects of insider voting control and preferred-stock rights on common shareholders.
- Monitor remediation of the disclosed material weakness and the company’s ability to improve controls and sustain profitability after the business exits.