Cemtrex, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2011 (the first quarter of Cemtrex’s fiscal 2012, ended September 30). The unaudited statements consolidate Cemtrex and wholly owned Griffin Filters, LLC. The company sells emissions-monitoring equipment and environmental-control and filtration systems.
Financial results
| Metric | Three months ended Dec. 31, 2011 | Three months ended Dec. 31, 2010 |
|---|---|---|
| Revenue | $2,020,916 | $1,821,634 |
| Gross profit / margin | $617,279 / about 30.5% | $563,294 / about 30.9% |
| Operating expenses | $318,618 | $403,419 |
| Operating income | $298,661 | $159,875 |
| Interest expense | $15,364 | $15,658 |
| Income before tax | $283,297 | $144,217 |
| Income tax provision | $93,735 | $0 |
| Net income / margin | $189,562 / about 9.4% | $144,217 / about 7.9% |
| Cash from operating activities | $(359,323) | $(96,500) |
Revenue increased 11%, which management attributed mainly to large Griffin Filters contracts. Gross profit rose, but gross margin edged down; management cited low-margin jobs and product mix. Operating expenses fell 21%, primarily because of lower administrative and marketing spending for Green DCV and Ventilation Air Methane MCDR. Net income increased about 31%. The income statement reports 2011 basic and diluted EPS of $0.00; the MD&A table instead reports $0.01.
Balance sheet and liquidity
- At December 31, 2011, cash was $56,553, current assets $1,198,016, current liabilities $950,178, and working capital $247,838. Working capital was $443,533 at September 30, 2011; the current ratio declined from about 1.55 to 1.26.
- Total assets were $2,769,911 and total liabilities $2,485,863, compared with $2,429,119 and $2,334,633, respectively, at September 30. Stockholders’ equity rose to $284,048 from $94,486.
- Shareholder notes payable were $1,535,685, unsecured, bearing 5% interest and with no stated due date. There was no balance on the bank line of credit at September 30, 2011; the filing does not clearly state a December 31 balance.
- Accounts receivable increased to $510,527 from $261,549, and inventory to $365,013 from $317,896. Cash fell from $415,369 to $56,553 during the quarter.
The cash flow statement shows operating cash use of $359,323, investing cash use of $15,000, and financing cash provided of $15,507, producing a $358,816 net cash decrease. Management says cash on hand and cash generated by operations should meet fiscal 2012 needs, but notes that major sales growth, particularly in new products, may require substantial additional capital.
Outlook, risks, and notable matters
- Management described the outlook as “fairly strong,” citing expected demand related to air-quality regulation, boiler requirements, energy efficiency, emissions monitoring, and filtration. No numerical revenue or earnings guidance was provided.
- A prospective Green DCV installation agreement in India remained in preliminary planning; no revenue had been recognized. The company also expressed plans to pursue acquisitions and investments.
- Risks include dependence on regulation and enforcement, competition from larger and better-resourced firms, uncertain market data, technology obsolescence, working-capital needs, and the ability to execute strategy. The company said it lacked a bank credit line to support certain bid and performance bonds and did not maintain product-liability insurance.
- Related-party dealings were significant: the company reported $841,500 of sales to Ducon Technologies and $825,000 of material purchases from it during the quarter, plus $265,923 of prepaid supplies. The company also leases its principal office from Ducon.
- The filing reports no pending material litigation; a prior contract dispute with Sindicatum Carbon Technology was settled without payment by either party and discontinued with prejudice. Management concluded disclosure controls were effective and reported increased controls over common-stock issuance and recording.
Important facts for investors to verify
- Reconcile the cash-flow and MD&A descriptions: the statements show operating cash used and investing cash used, while MD&A describes operating cash as provided and investing activity as generated.
- Clarify the related-party balances and presentation. The balance sheet shows $1,519,075 due from related parties, while the note reports Ducon receivables of $1,535,685; the latter equals the reported shareholder note payable balance.
- Reconcile reported EPS: the income statement shows $0.00 for 2011, while the MD&A table shows $0.01. The filing’s per-share figures may reflect rounding, but it does not explain the difference.
- Confirm share-count disclosures: the cover page gives 40,599,129 shares outstanding as of February 2, 2011, whereas the balance sheet reports 39,822,862 shares at December 31, 2011; the cover-page date predates this filing.
- Assess cash availability and collectability of receivables, including related-party amounts, alongside the large unsecured shareholder note with no due date and the company’s stated need for potential growth capital.