Cemtrex, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; comparisons are with the year ended September 30, 2019. This is an annual report, not a standalone fourth-quarter report. Cemtrex operates Advanced Technologies (AT), including Vicon security products and smart/VR/AR technologies, and Industrial Services (IS), providing industrial installation and maintenance services. Electronics Manufacturing and environmental products were exited and reported as discontinued operations.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $43.52 million | $39.27 million |
| Gross profit / margin | $19.36 million / 44% | $15.56 million / 40% |
| Operating loss | $4.03 million | $7.45 million |
| Loss from continuing operations | $8.89 million | $11.30 million |
| Net loss attributable to Cemtrex | $9.93 million | $22.36 million |
| Cash used by operating activities, continuing operations | $3.28 million | $3.57 million |
- AT revenue rose 34% to $25.75 million; IS revenue fell 11% to $17.77 million, with management attributing the decline mainly to COVID-19-related lower demand.
- Working capital was $23.29 million, versus $3.24 million a year earlier. Cash and restricted cash totaled $21.07 million, including $1.58 million restricted.
- Total debt was approximately $19.39 million, of which $7.03 million was current. Debt included $3.47 million of PPP loans that management expected to be forgiven; forgiveness was not assured in the filing.
- Financing activities provided $21.52 million. The company raised $11.62 million net through common-stock offerings and issued $8.74 million of common stock to settle notes and accrued interest.
Changes, outlook, and notable risks
- Revenue increased 11%, principally from AT growth, including Vicon. Gross margin improved, while operating loss narrowed. The net loss comparison also reflects much lower discontinued-operation losses than in 2019.
- COVID-19 delayed customer orders, supply deliveries, and product development; IS bookings were down more than 20%. Management noted comparatively less slowdown in AT and growing opportunities for Vicon surveillance products, but said the pandemic’s future impact was uncertain.
- Management said available cash and operating cash generation should meet the needs of current operations for FY2021, while warning that growth or new-product investment may require more capital. The company retained a shelf registration allowing future securities offerings.
- The financial-statement notes describe substantial losses and debt obligations as raising going-concern considerations; management said its financing and cost-reduction plans alleviated them. The filing provides no formal revenue or earnings guidance.
- The company disclosed an ongoing SEC investigation involving, among other matters, Telidyne, securities offerings, business operations, and use of proceeds. It said it was cooperating and was not then subject to enforcement proceedings; outcome and costs were uncertain.
- Management reported ineffective disclosure controls and a material weakness in internal control over financial reporting, citing insufficient qualified accounting personnel and inadequate review controls. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- Other investor risks include substantial leverage and refinancing needs, potential dilution, competitive and technology risks, customer and supply-chain disruption, and concentrated voting control through preferred-stock voting rights. A related-party receivable from Ducon Technologies, owned by former CFO Aron Govil, was approximately $1.43 million.
- Subsequent to year-end, Cemtrex acquired Virtual Driver Interactive for approximately $1.34 million and made a $500,000 investment in MasterpieceVR.
Important facts to verify
- Whether and when the $3.47 million PPP loans were forgiven, and the status and terms of debt maturities and refinancing.
- Cash availability after restricted balances, ongoing operating cash use, and the company’s ability to fund FY2021 operations without further financing.
- Progress remediating the accounting-control material weakness and developments or costs related to the SEC investigation.
- Collection and terms of the Ducon related-party receivable; the filing reports it as $1.432 million in one place and $1.433 million elsewhere.
- Share dilution and voting control: common shares rose from 3.96 million at September 30, 2019 to 17.62 million at September 30, 2020; later outstanding-share figures differ by date.
- Performance of AT and IS, COVID-19 recovery, asset sales, and the expected returns and funding needs of the VDI and MasterpieceVR investments.