Cemtrex, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013; fiscal year ends September 30. The filing was signed August 9, 2013. Cemtrex designs and sells emissions-monitoring equipment and provides environmental-control products and services through Griffin Filters, LLC.
Financial performance
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $5.332 million | $3.672 million | $11.139 million | $7.365 million |
| Gross profit | $327,023 | $359,834 | $1,214,667 | $1,546,957 |
| Gross margin | 6.1% | 9.8% | 10.9% | 21.0% |
| Operating income | $23,276 | $109,026 | $362,339 | $691,787 |
| Net income | $7,668 | $64,654 | $231,010 | $423,687 |
Quarterly revenue grew 45.2%, which management attributed mainly to a large Griffin Filters project. Gross profit fell 9.1% as that project had a lower margin; operating expenses rose to $303,747 from $250,808. Nine-month revenue rose 51.2%, while gross profit and net income declined. Management cited lower-margin jobs and a less favorable product mix. The filing reports quarterly EPS of $0.00 basic and $0.01 diluted; nine-month EPS is $0.01 basic and diluted.
Financial position and cash flow
- At June 30, 2013, cash was $69,609, current assets $2.358 million, current liabilities $468,191, and working capital $1.890 million. The current ratio was approximately 5.0, compared with 4.5 at September 30, 2012.
- Total assets were $2.602 million and total liabilities $1.474 million, versus $1.732 million and $835,689, respectively, at September 30, 2012.
- Liabilities included a $1.006 million unsecured note payable to former CEO Arun Govil, accruing interest at 5% with no due date; the balance was $476,458 at September 30, 2012. A $92,922 bank overdraft was also reported. The company reported no balance on its bank line of credit.
- Operating cash flow was a use of $740,562 for the nine months, compared with cash provided of $745,995 in the prior-year period. Investing activities used $145,504; financing activities provided $622,630, including $529,708 of net related-party notes and the $92,922 overdraft. Cash decreased $263,436 to $69,609.
Related parties, outlook, and risks
- Sales to related party Ducon Technologies totaled $9.269 million, or about 83% of nine-month revenue, compared with $3.330 million in the prior-year period. The filing reports a $1.078 million Ducon receivable at June 30, 2013 and $340,000 prepaid to Ducon for supplies.
- The company had invested $225,048 in Pluto Technologies, whose CEO is also Cemtrex’s CEO; the balance was $80,000 at September 30, 2012.
- Management said cash on hand and operating cash flow should support current fiscal-2013 operations, but higher sales could require additional cash. It described the market outlook as fairly strong, citing emissions regulation and interest in air-quality and energy-efficiency products.
- A planned Green DCV installation agreement in India was in preliminary planning; no revenue had been recognized. Management also planned growth through acquisitions and investments. These are forward-looking plans, not reported results.
- Risks include dependence on regulatory demand, competition from larger companies, uncertain market data and working-capital needs, and potential product obsolescence. The company said it lacked a bank credit line to support bid and performance bonds and did not carry product-liability insurance. It reported no current lawsuits or reportable subsequent events.
Important facts for investors to verify
- Results discrepancies: The statements report quarterly net income of $7,668 and nine-month net income of $231,010. MD&A instead calls $10,968 and $330,010 “net” income, amounts that match the statements’ pretax income. Confirm the correct figures and any related narrative.
- Cash-flow descriptions: The cash-flow statement reports operating cash used of $740,562 and investing cash used of $145,504, while MD&A describes these amounts as cash provided. It also characterizes financing cash inconsistently with the statement, which reports $622,630 provided. Verify the narrative against the underlying cash flows.
- Comparative and expense figures: MD&A gives prior-year nine-month gross profit as $1,546,197, while the statement reports $1,546,957. Its nine-month operating-expense discussion also contains figures that do not match the statements. Confirm the intended values.
- Related-party exposure and liquidity: Assess collectability of the Ducon receivable and recoverability of the related-party prepayment and Pluto investment, given low cash and negative operating cash flow.
- Period and share data: The balance sheet reports 39,822,862 common shares outstanding at June 30, while the cover page reports 40,599,129 shares as of August 9. Verify the intervening share change and the reported weighted-average share count.