Cemtrex, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, three months ended December 31, 2023. The filing was signed February 13, 2024. Cemtrex operates Security (Vicon) and Industrial Services (AIS); the quarter’s results include the Heisey Mechanical business acquired in July 2023.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter |
|---|---|---|
| Revenue | $16.88 million | $11.97 million |
| Gross profit / margin | $7.08 million / 42% | $5.04 million / 42% |
| Operating loss | $738,372 | $1.95 million |
| Net loss | $1.30 million | $6.34 million |
| Net loss attributable to Cemtrex shareholders | $1.21 million | $6.28 million |
| Cash used by continuing operating activities | $3.14 million | $5.87 million |
- Revenue increased 41%. Security revenue rose 31% to $9.17 million; Industrial Services revenue rose 55% to $7.71 million, reflecting increased demand and Heisey’s contribution.
- Gross margin held at 42%. Operating expenses were $7.82 million, including $6.97 million in general and administrative expenses and $848,805 in research and development.
- Cash and cash equivalents were $2.84 million at December 31; restricted cash was an additional $1.18 million. The company reported a $2.28 million working-capital deficit, compared with $1.95 million of working capital at September 30, 2023.
- Current liabilities were $28.70 million. Current maturities of long-term liabilities totaled $15.72 million; the revolving credit balance was $3.36 million, with $1.64 million of stated availability. The $5 million facility is secured by eligible receivables and finished-goods inventory.
- Total liabilities were $37.98 million, versus total assets of $45.30 million. Cash, cash equivalents and restricted cash declined by $2.53 million during the quarter to $4.02 million.
Changes and notable items
- The prior-year quarter included a $3.24 million loss from discontinued operations, including a loss on sale. The current quarter recorded $10,492 of income from discontinued operations, primarily related to royalties. This difference accounts for much of the improvement in reported net loss.
- General and administrative expenses increased 28% year over year. Management attributed the rise mainly to payroll, insurance, office supplies, and repairs and maintenance; current-quarter severance included approximately $155,000.
- Research and development expenses declined 45% to $848,805. Other expense declined to $505,272, mainly because the prior-year quarter included debt deferral charges and amortization of original issue discounts that did not recur.
- Financing cash flow was positive $998,099, chiefly reflecting revolving-credit borrowings and repayments and payments on secured debt. Investing cash outflow was $390,310, including capital expenditures and a $100,000 MasterpieceVR investment.
- Common shares outstanding were 1,055,636 as of February 9, 2024. During the quarter, 9,853 common shares were issued for services valued at $40,000; 115,037 Series 1 preferred shares were issued as dividends.
Outlook, risks and contingencies
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern, citing recurring losses, the working-capital deficit and current debt. It says the company does not have adequate cash or available credit to meet short- or long-term needs and may be unable to meet obligations over the next 12 months without additional outside capital and debt restructuring or refinancing. The financial statements include no adjustments for this uncertainty.
- Management identifies potential mitigations including the Vicon credit facility, cost and pricing actions, prior sales of unprofitable brands, and possible equity issuance or debt-for-equity transactions. It cautions that these plans may not succeed and equity financing or debt settlement in shares could dilute shareholders.
- Debt maturities and obligations warrant attention: the filing lists a $4.69 million note due June 2024, a $450,000 software-license obligation due June 2024, and a $240,000 Heisey seller note due July 2024. Current maturities overall were $15.72 million.
- Series 1 preferred stock failed to regain Nasdaq’s minimum bid-price compliance; it was suspended from Nasdaq on January 22, 2024 and is quoted on OTC Markets as CETXP. A planned reverse-split proposal for the preferred shares did not pass for lack of a quorum. The company reported buying back 71,951 preferred shares for $69,705 after quarter-end.
- The company filed a preliminary Form S-1 on January 17, 2024 to register common stock and warrants for sale through a placement agent. The filing provides no specific revenue or earnings guidance.
- Management says inflation has affected operations and reports responding with price increases and cost-saving measures. It identifies economic conditions, competition and pricing, manufacturing or supplier issues, and access to credit among forward-looking risks.
- Management reported disclosure controls and procedures were effective as of December 31, 2023, with no material changes in internal control over financial reporting during the quarter. The filing reports no legal proceedings and states that management does not expect existing proceedings to have a material adverse effect.
Most important facts for investors to verify
- Whether Cemtrex can raise capital and refinance or restructure near-term obligations in light of the explicit going-concern warning and working-capital deficit.
- Actual available borrowing capacity under the asset-based credit line, covenant compliance, and the company’s ability to service and renew debt as it comes due.
- Progress, terms and dilution implications of the Form S-1 financing, and any further equity issuance or debt settled in shares.
- Whether revenue growth and gross margins persist, particularly after separating organic growth from Heisey’s contribution and assessing operating cash generation.
- The status and trading liquidity of Series 1 preferred stock following its Nasdaq suspension and move to OTC Markets.