Cemtrex, Inc. — Form 10-Q Summary
Business context and period: Cemtrex operates Advanced Technologies (AT), including video security, software and virtual/augmented reality businesses, and Industrial Services (IS), providing industrial installation and maintenance services. This report covers the three months ended December 31, 2021—the first quarter of fiscal 2022, not calendar 2022 Q1—and compares results with the three months ended December 31, 2020. Financial statements are unaudited.
Key financial results
| Metric | Quarter ended Dec. 31, 2021 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $10.67 million | $8.84 million | Up 21% |
| Gross profit / margin | $3.87 million / 36% | $4.01 million / 45% | Profit down; margin contracted 9 percentage points |
| Operating expenses | $7.92 million | $6.05 million | Up 31%; G&A and R&D increased |
| Operating loss | $4.05 million | $2.05 million | Loss widened by about 98% |
| Net loss attributable to Cemtrex shareholders | $4.48 million; $0.19 per share | $1.69 million; $0.09 per share | Loss widened |
| Cash used in operations | $4.35 million | $1.09 million | Greater operating cash outflow |
| Cash used in investing / financing | $0.29 million / $0.63 million | $0.67 million / $1.63 million | Investing primarily reflected fixed-asset purchases; financing included debt payments |
Segment results: AT revenue rose 20% to $5.62 million; gross profit was $2.44 million and operating loss was $3.89 million. IS revenue rose 21% to $5.05 million; gross profit declined to $1.43 million, while operating loss improved to $0.16 million. Both segments’ revenue growth was attributed primarily to recovery from pandemic-related disruption in the prior-year period.
Balance sheet, liquidity and debt
- At December 31, 2021, cash and equivalents were $10.34 million and restricted cash was $1.63 million, totaling $11.97 million. Combined cash and restricted cash was down from $17.19 million at September 30, 2021.
- Working capital was $12.80 million, versus $15.09 million at fiscal year-end. Current assets were $28.84 million and current liabilities were $16.04 million.
- Total assets were $46.82 million and total liabilities were $24.40 million. Cemtrex stockholders’ equity was $21.51 million; accumulated deficit was $46.39 million.
- Inventory increased $1.43 million to $7.09 million, which management attributed to stocking for planned future product shipments. Net trade receivables fell to $5.55 million; a separate $1.49 million receivable was due from related party Ducon Technologies.
- The balance sheet reports $7.59 million of short-term liabilities, $2.40 million of notes payable, $0.49 million of long-term bank loans and $2.23 million of mortgage payable. The debt note describes additional individual borrowings and maturities; the filing’s balance-sheet classifications and note detail do not provide a clear, readily reconciled total debt figure.
Material changes, outlook and risks
- Revenue increased, but higher cost of revenues reduced gross margin. G&A rose 22% to $6.61 million, with personnel, travel, marketing and sales cited; R&D more than doubled to $1.31 million, primarily for AT product and software development.
- Other expense, net, was $0.48 million, compared with other income of $0.34 million in the prior-year quarter. Management says current-quarter other income included $971,500 from PPP loan forgiveness. The filing states that $121,400 of PPP loans remained subject to final SBA forgiveness approval.
- Operating cash outflow and the decline in cash reflect, among other items, inventory purchases and payments of liabilities. Management said available cash and expected operating cash generation should meet current fiscal 2022 operating needs, but cautioned that growth—especially new-product sales—may require substantial capital and that funding sufficiency is not guaranteed.
- The company cited continuing uncertainty from COVID-19, supply-chain delays, inflation, higher input costs and wage pressures, which could delay product launches, raise costs and pressure margins. It reported signs of recovery in bookings and revenue and growing opportunities for Vicon security products, but gave no quantified revenue or earnings guidance.
- Common shares outstanding increased to 23,673,210 from 20,782,194 during the quarter. The company issued 2,891,016 common shares to settle $3.29 million of debt and related amounts; this is a significant dilution and financing item.
- Related-party receivables included $500,000 for the Griffin Filters sale that was past due, and the company said it was negotiating a payment agreement for amounts due from Ducon. The filing also describes a prior settlement with former executive Aron Govil relating to disputed historical transfers; $3.67 million of gain on surrendered securities was recognized, while a separate $1.53 million secured note was not recognized as income pending payment.
- Management identified a material weakness in internal control over financial reporting, citing insufficient accounting personnel, inadequate period-end review and delays in certain account reconciliations and asset-recoverability assessments. Management said it was seeking additional accounting personnel and planned remediation.
- Subsequent events: the CFO was dismissed on January 28, 2022, and an interim CFO appointed; on February 2, 2022, the company made an additional $500,000 SAFE investment in MasterpieceVR. The filing reported no legal proceedings.
Important facts for investors to verify
- How Cemtrex plans to fund continued operating cash burn, debt maturities and any investment or growth requirements.
- Whether inventory builds convert into sales, and whether gross margins recover amid supply-chain, inflation and wage pressures.
- The composition and maturity schedule of short-term liabilities and total borrowings, including reconciliation of the balance-sheet figures with the debt-note details.
- Collection prospects and timing for the $1.49 million related-party receivable, including the past-due $500,000 Griffin Filters amount.
- Progress in remediating the material weakness and whether disclosure and financial-reporting controls become effective.
- Final SBA approval for remaining PPP forgiveness, and the effect of debt-for-equity settlements and preferred-stock issuance on future dilution and voting rights.