Cemtrex, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended March 31, 2022; fiscal year ends September 30. Figures are unaudited. Cemtrex operates Advanced Technologies (AT) and Industrial Services (IS).
Financial performance
| Metric | Three months ended March 31, 2022 | Six months ended March 31, 2022 |
|---|---|---|
| Revenue | $12.73 million, up 37% year over year | $23.40 million, up 29% |
| Gross profit / margin | $4.05 million / 32%, versus $3.93 million / 42% | $7.92 million / 34%, versus $7.93 million / 44% |
| Operating loss | $3.82 million, versus $1.96 million | $7.87 million, versus $4.01 million |
| Net income (loss) attributable to Cemtrex shareholders | $(4.72) million, versus $2.45 million income | $(9.20) million, versus $0.76 million income |
| Basic and diluted loss per share | $(0.20) | $(0.39) |
Quarterly AT revenue increased 41% to $7.72 million and IS revenue increased 33% to $5.01 million. For the six-month period, AT revenue rose 31% to $13.34 million and IS revenue rose 27% to $10.06 million. Six-month operating results diverged by segment: AT recorded a $9.83 million operating loss, while IS recorded $1.95 million of operating income.
Management attributed revenue growth primarily to recovery from COVID-19-related shutdowns in the prior-year comparison. Lower gross margins reflected supply-chain difficulties and higher transportation costs. Operating losses widened as personnel, travel, insurance, depreciation and amortization, and research and development expenses increased.
Cash flow, liquidity and financing
- Cash, cash equivalents and restricted cash totaled $10.63 million at March 31, 2022, down from $17.19 million at September 30, 2021. The balance sheet separately reports $8.97 million of cash and equivalents and $1.66 million of restricted cash.
- Working capital was $7.60 million, down from $15.09 million at September 30, 2021. Current assets were $33.17 million and current liabilities were $25.56 million.
- For the six months, operating cash use was $7.24 million, investing cash use was $5.65 million, and financing cash provided was $6.48 million. The operating outflow reflected, among other items, inventory purchases and payments of accounts payable and accrued expenses.
- Inventory increased 25% to $7.07 million; net accounts receivable decreased 23% to $6.01 million. Receivables include $1.47 million due from related party Ducon Technologies; the company said it was negotiating a payment agreement.
- In February 2022, Cemtrex issued a lender note with a $9.205 million face amount, 8% interest and an August 2023 maturity. It received $8 million after discounts and fees and issued 1 million common shares to the lender; the shares’ $700,400 fair value was recorded as interest expense. The filing reports the note’s March 31 balance as $9.281 million.
- The company issued 2.89 million common shares during the six months to settle notes and accrued interest. Common shares outstanding were 24.67 million at March 31 and 26.26 million as of May 13, 2022. Management said available cash and operating cash generation should meet fiscal 2022 operating needs, but warned that growth may require substantial capital and that funding sufficiency is not assured.
Material changes, outlook and risks
- Compared with the prior-year quarter, Cemtrex moved from shareholder-attributable income to a substantial loss. The prior-year comparison included a $3.67 million gain from a related-party settlement; no comparable gain was recorded in 2022.
- Management reported that COVID-19-related delays and supply-chain disruption had affected operations and product launches. It cited inflation, higher transportation costs and wage pressure as potential risks to margins and operating costs. It also noted growing opportunities for Vicon video-surveillance products, while the timing and impact of future developments remain uncertain.
- Management gave no quantified revenue or earnings guidance. It stated that cash should cover current fiscal 2022 operating needs, subject to the caveats above.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022, with a material weakness attributed to insufficient accounting personnel. The filing also cites gaps in period-end review, account reconciliation and assessment of asset recoverability. Management said it was seeking additional accounting personnel and working on remediation.
- The company’s remaining $121,400 PPP loan was awaiting final SBA forgiveness approval. It also disclosed the uncollected related-party receivable and the settlement note from former executive Aron Govil; the company does not recognize the note or related gain until payment.
- Subsequent to quarter-end, Cemtrex issued 1.59 million common shares in April and May to settle $600,000 of notes payable and related excess share value recorded as interest expense. It also issued 99,369 Series 1 preferred shares for dividends in April.
Key facts investors should verify
- Whether revenue recovery can translate into improved gross margins and reduced operating losses as supply, freight, wage and other costs evolve.
- Near-term debt maturities, repayment obligations and liquidity, including the February 2022 note and the amended Vicon term loan due March 2023; the filing does not present a single, clearly reconciled total-debt figure.
- Collection prospects for the $1.47 million Ducon related-party receivable, including the overdue $500,000 Griffin sale balance.
- Progress in remediating the material weakness in financial reporting controls and addressing account reconciliation and asset-recoverability review gaps.
- Potential dilution from share issuances for debt and preferred dividends, and the status of final forgiveness for the remaining PPP loan.