Cemtrex, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2021; comparison is to FY2020, which was restated. This is an annual report, not a standalone fourth-quarter report. Cemtrex operates Advanced Technologies (AT), including video security, SmartDesk, virtual reality and software businesses, and Industrial Services (IS), which provides industrial installation and maintenance services.
Financial performance and position
| Metric | FY2021 | FY2020, restated |
|---|---|---|
| Revenue | $43.13 million | $43.52 million |
| Gross profit / margin | $16.97 million / 39% | $17.62 million / 40% |
| Operating loss | $(8.74) million | $(4.57) million |
| Net loss attributable to Cemtrex shareholders | $(7.81) million | $(10.47) million |
| Cash used in operating activities | $(10.05) million | $(3.35) million from continuing operations |
| Working capital at year-end | $15.09 million | $19.91 million |
| Cash and restricted cash at year-end | $17.19 million, including $15.43 million cash and equivalents | $21.07 million |
| Total debt reported | Approximately $16.4 million | — |
- AT revenue fell 6% to $24.15 million; IS revenue rose 7% to $18.98 million. AT operating loss was $9.79 million; IS operating income was $1.05 million.
- G&A increased 11% to $22.54 million, and research and development expense rose to $3.17 million from $1.83 million.
- FY2021 continuing operations reported income of $394,000, but discontinued operations produced an $8.28 million loss. The filing attributes the lower shareholder net loss versus 2020 largely to one-time other-income items, rather than an improvement in operating results.
- Reported other income includes $5.32 million of PPP loan forgiveness, $3.67 million recognized from a related-party settlement, $733,000 of employee retention credits, and $2.61 million of realized and unrealized marketable-securities gains. These are unusual items and should not be treated as recurring operating performance.
- Current liabilities were $19.65 million, including $9.98 million of short-term liabilities. The debt maturity schedule shows about $9.98 million due in FY2022. The company also had a $3.5 million bank line of credit with no balance drawn at year-end.
Material changes and unusual matters
- Revenue declined about 1% year over year, while gross margin slipped by approximately one percentage point. Operating loss widened despite a smaller reported net loss.
- COVID-19 delayed customer orders, product development and component deliveries. IS bookings were down more than 20%; AT was described as less affected. Management also noted increased opportunity for Vicon video-surveillance products.
- In the fourth quarter, Cemtrex abandoned certain assets related to its exited environmental-products business and recorded an $8.3 million long-lived-asset impairment charge. Discontinued operations reported an $8.28 million loss for the year.
- The company acquired Virtual Driver Interactive in October 2020 for stated consideration of approximately $1.34 million plus contingent consideration, and invested $500,000 in MasterpieceVR through a SAFE.
- The company identified approximately $7.1 million of disputed or unsupported transfers and expenses connected with former CFO and director Aron Govil and First Commercial. It restated FY2020 and described effects on earlier periods. The settlement included surrendered preferred shares and options and a secured $1.53 million note; the note and related gain were not recognized pending payment. The company says the adjustments did not change previously reported cash, debt or revenue for the affected prior periods.
- Common shares increased from 17.62 million at September 30, 2020 to 20.78 million at September 30, 2021. During FY2021, 3.16 million shares were issued to settle about $5.03 million of notes and interest; an additional 2.89 million shares were issued in October 2021 to settle about $2.47 million. The filing reports 23.67 million common shares outstanding as of January 20, 2022.
Outlook, risks and controls
- Management said cash on hand and expected operating cash generation should fund current operations through FY2022, but cautioned that growth—particularly new products—may require additional capital. The filing’s going-concern note says substantial doubt arose from losses and upcoming debt obligations; management believes its plans alleviate that doubt and provide at least 12 months of liquidity.
- Key risks include recurring losses, substantial debt and refinancing needs, potential equity dilution, weak operating cash flow, COVID-related disruptions, supply-chain delays and labor shortages, competition, product-development and market-acceptance risk, and dependence on key personnel.
- Management reported material weaknesses in internal control over financial reporting, citing insufficient qualified accounting personnel and inadequate review, reconciliation and asset-recoverability processes. The auditor did not provide an internal-control attestation. The financial-statement audit opinion was unqualified and noted the restatement; goodwill, long-lived-asset impairment and inventory valuation were critical audit matters.
- The company disclosed an ongoing SEC investigation involving, among other matters, First Commercial, Telidyne, securities offerings, business operations and use of proceeds. Cemtrex said it was cooperating and was not then subject to enforcement proceedings; outcome, duration and potential costs were uncertain.
- A $1.49 million related-party receivable from Ducon Technologies, including $500,000 due for the sale of Griffin Filters, remained outstanding at year-end; the company said it was negotiating a payment arrangement.
Most important facts for investors to verify
- Whether operating cash use, current debt maturities and working-capital needs can be managed without further financing or material share issuance.
- How much FY2021 reported income depended on PPP forgiveness, credits, securities gains and the related-party settlement, and whether core segment performance improves.
- The implementation and effectiveness of remediation for the disclosed accounting-control weaknesses, and any further consequences of the restatement or SEC investigation.
- Collection prospects for the Ducon receivable and the $1.53 million secured settlement note, which was not recognized as an asset or gain.
- Whether the $8.3 million impairment and remaining assets or obligations tied to discontinued operations are fully reflected, and whether future impairment or disposal costs may arise.
- The effect of further debt-for-equity settlements, preferred-stock dividends and other potential issuances on common-share dilution and control.