As filed with the U.S. Securities and Exchange Commission on December 6 , 2016
Registration No. 333-213369
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Cemtrex, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 30-0399914 | |||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial | |||
Classification Code Number) | (I.R.S. Employer Identification Number) |
276 Greenpoint Ave Bld. 8 Suite 208
Brooklyn, NY 11222
19 Engineers LaneFarmingdale, New York 11735
Tel.: no. (631) 756-9116
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Aron GovilThe Corporation Trust Company
Corporation Trust Center
1209 Orange St.
Wilmington, DE 19801
Executive Director(302) 658-7581 (Tel.)
Cemtrex, Inc.19 Engineers Lane
Farmingdale, New York 11735
Tel.: (631) 756-9116
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Spencer G. Feldman, Esq.
Olshan Frome Wolosky LLP
1325 Avenue of the Americas, 15th Floor
New York, New York 10019
Tel.: (212) 451-2300
Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of this Registration Statement.
(Approximate date of commencement of proposed sale to the public)
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.x ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.¨ ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.¨ ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Act:
| Large | Accelerated | ||
| Non-accelerated | |||
| Smaller reporting company |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities To Be Registered | Amount To Be Registered | Proposed Maximum Offering Price Per Unit | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||||||||||
Subscription Rights to purchase Units consisting of Shares of Series 1 Preferred Stock and Series 1 Warrants to purchase Common Stock | 4,912,054 | - | - | - | (1) | |||||||||||
| Units consisting of Shares of Series 1 Preferred Stock and Series 1 Warrants to Purchase Common Stock | 1,500,000 | $ | 10.00 | $ | 15,000,000 | – | (2) | |||||||||
| Series 1 Preferred Stock, par value $.001 per share | 1,500,000 | $ | 10.00 | $ | 15,000,000 | $ | 1,510.50 | |||||||||
| Series 1 Warrants to purchase Shares of Common Stock, par value $.001 per share (3) | 3,000,000 | – | – | – | ||||||||||||
| Shares of Common Stock issuable upon exercise of Series 1 Warrants (4) | 3,000,000 | $ | 5.49 | $ | 16,457,190 | $ | 1,657.24 | |||||||||
| Series 1 Preferred Stock issuable as payment-in-kind dividends (5) | 450,000 | $ | 10.00 | $ | 4,500,000 | $ | 453.15 | |||||||||
| Total Registration Fee | $ | 3,620.89 | (6) | |||||||||||||
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered(1)(2) | Maximum Offering Price Per Share (3) | Maximum Aggregate Price (3) | Amount of Registration Fee(3) | ||||||||||||
| Series 1 Preferred Stock, par value $0.001 per share | 250,000 | $ | 1.80 | $ | 450,000 | $ | 41.72 | |||||||||
| Total | 250,000 | $ | 1.80 | $ | 450,000 | $ | 41.72 | |||||||||
| Pursuant to Rule | ||
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| (3) | ||
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The registrantRegistrant hereby amends this registration statementRegistration Statement (the “Registration Statement”) on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statementRegistration Statement shall become effective on such 2 date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
COPIES OF COMMUNICATIONS TO:
The Doney Law Firm
4955 S. Durango Dr. Ste. 165
Las Vegas, NV 89103
(702) 982-5686 (Tel.)
SUBJECT TO COMPLETION, February 15, 2022
The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the United States Securities and Exchange Commission (the “SEC”) is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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Subscription Rights OfferingPROSPECTUS
Up250,000 SHARES OF SERIES 1 PREFERRED STOCK
We are offering 250,000 shares of our Series 1 Preferred Stock as in-kind dividend payments under the terms of our Series 1 Preferred Stock. Holders of our Series 1 Preferred Stock are entitled to an Aggregatereceive cumulative cash dividends at the rate of 1,500,000 Units,
Each Unit Consisting10% of
One Share the purchase price per year, payable semiannually on the last day of March and September in each year. Dividends may also be paid, at our option, in additional shares of Series 1 Preferred Stock, and Twovalued at their liquidation preference of $10.00 per share. The Series 1 Warrants,
UponPreferred ranks senior to the Exercise of Subscription Rights at $10.00 per Unit
We are distributing, at no charge,common stock with respect to dividends. Dividends will be entitled to be paid to the Series 1 Preferred Stock prior to any dividend to the holders of our common stock, non-transferable subscription rights to purchase up to an aggregate of 1,500,000 units consistingstock.
The offering will terminate one year after this registration statement is declared effective by the SEC. We will not receive any proceeds from the sale of shares of our Series 1 Preferred Stock par value $0.001 per share, which we referissued as dividends to in this prospectus as the Series 1 Preferred, and series 1 warrants to purchase shares of our common stock, par value $0.001 per share, which we refer to in this prospectus as the Series 1 Warrants. Holders of the subscription rights will be entitled to purchase any number of units, up to the aggregate number of subscription rights held by each holder, subject to proration as described herein. The purchase price for the units is $10.00 per unit. You will receive one subscription right for every two shares of common stock you own as of 5:00 p.m., Eastern time, on December__ , 2016, the record date of the rights offering.
Each subscription right will entitle you, subject to proration as described herein, to purchase one unit consisting of one shareholders of our Series 1 Preferred and twoStock.
Our Series 1 Warrants, with eachPreferred Stock is listed on the Nasdaq Capital Market under the symbol CETXP. On February 9, 2022, the last reported sales price for our Series 1 Warrant entitling the holder to purchase one share of our common stock, at a subscription price of $10.00Preferred Stock was $1.80 per unit, which we refer to as the basic subscription privilege.
If you fully exercise your basic subscription privilege, and any portion of the units remain available under the rights offering, you may also exercise an over-subscription privilege to purchase additional units that remain unsubscribed at the expiration of the rights offering, if any, subject to the availability and pro-rata allocation of units among stockholders exercising this over-subscription privilege.
We are conducting this rights offering to raise up to $15.0 million in additional capital. We intend to usethese proceeds to supplementour operating cash flows to fund our new product development and acquisition growth plan. We also plan to utilize a smaller portion of the proceeds to repay or reduce certain of our outstanding indebtedness. Our board of directors has chosen to give you the opportunity to purchase additional securities to maintain your current percentage ownership in our company and provide us with additional capital at these price levels.share.
The rights offering commences on December__ , 2016 and the subscription rights will expire if they are not exercised by 5:00 p.m., Eastern time, on __________, 2016, unless the rights offering is extended. There is no minimum number of subscription rights that must be exercised in this rights offering, no minimum number that any subscription rights holder must exercise, and no minimum number of units that we will issue at the closing of this rights offering. We may extend the subscription period up to an additional 30 days, at our sole discretion, in which case the offering would continue on a subscriptions first-come, first-serve basis, calculated on a daily basis with the potential for pro-rata allocation of shares among participants subscribing on the last daypurchase of the subscription period or, if earlier,securities offered through this prospectus involves a high degree of risk. You should carefully read and consider the last day on which the rights offering is first over-subscribed.If the rights offering is not fully subscribed following expiration of the rights offering, Source Capital Group, Inc., the dealer-manager for this rights offering, has agreed to use its commercially reasonably efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by our common stockholders.
Our board of directors is making no recommendation regarding your exercise of the subscription rights. The subscription rights may not be sold, transferred, or assigned and will not be listed for trading on any stock exchange or market. We reserve the right to cancel the rights offering at any time prior to the closing of the rights offering for any or no reason in our sole discretion. If the right offering is cancelled, all subscription payments received by the subscription rights agent will be promptly returned, without interest. Payments for the exercise of subscription rights will be held by the subscription rights agent until the closing of the rights offering.
We have engaged Source Capital Group, Inc. as the dealer-manager for this rights offering. See “Plan of Distribution.”
| Purchase Price | Dealer-Manager Fee (1) | Proceeds, Before Expenses, to Us | ||||||||||
| Per unit | $ | 10.00 | $ | 0.60 | $ | 9.40 | ||||||
| Total (2) | $ | 15,000,000 | $ | 900,000 | $ | 14,100,000 | ||||||
(1) In connectionwith this rights offering, we have agreed to pay Source Capital Group, Inc. as the dealer-manager a fee of 6.0% of the proceeds of the rights offering, plus a 1.8% non-accountable expense fee and an out-of-pocket accountable expense allowance of 0.2% of the proceeds of the rights offering. See “Plan of Distribution.” For any unsubscribed units placed by Source Capital Group during the 45-day placement period following the expiration of the rights offering, we have agreed to pay Source Capital Group a placement fee equal to 6% of such sales, in lieu of the dealer-manager fee, together with a continuing 1.8% non-accountable expense fee and out-of-pocket accountable expense allowance of 0.2% of the proceeds of the offering, with such placement fee and expenses to be calculated in respect of the total gross proceeds paid to and received by us for subscriptions accepted by us from investors in connection with such placement and such placement fee and expenses not to exceed the aggregate amounts that would have been otherwise received by Source Capital Group if the rights offering were to have been fully subscribed. Neither the placement fee nor expense allowance in connection with the placement will be payable with respect to any units purchased as result of the exercise of any basic subscription privilege or over-subscription privilege in the rights offering.
(2) Assumes that the rights offering is fully subscribed, but excludes proceeds from the exercise of the Series 1 Warrants included within the units.
In the event that there are unsubscribed units in this rights offering, Aron Govil, our Executive Director, through Ducon Technologies, Inc., a company which he controls, has indicated to us that he may purchase up to approximately $3.3 million of units during the 45-day placement period following the expiration of the rights offering through the conversion into units of a note payable by us to Ducon Technologies in a like amount. This note was issued to Ducon Technologies to partially fund our acquisition of Periscope, GmbH in May 2016. All units sold to Ducon Technologies, if any, will be at the same price and on the same terms as purchasers in the rights offering.
The exercise of your subscription rights involves material risks. See “Risk Factors” beginning on page 10section of this prospectus as well as the risk factors and other information in any documents we incorporate by reference into this prospectus, to read about important factors you should consider before exercising your subscription rights.
We are an “emerging growth company” as defined under the federal securities laws and will be subject to reduced public company reporting requirements. Please read the disclosures beginningtitled “Risk Factors” on page 8 of this prospectus for more information.3 before buying any Series 1 Preferred Stock.
Neither the Securities and Exchange CommissionSEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
If you have any questions or need further information about this rights offering, please callOkapi Partners LLC, the information agent for the rights offering, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
The date of this prospectusThis Prospectus is December__ , 2016dated February 15, 2022
PROSPECTUS
TABLE OF CONTENTS
We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. The distribution of this prospectus and the offering of the securities in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States. This prospectus do not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus in any jurisdiction in which it would be unlawful for us to make such an offer or solicitation.
This summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that you should consider before making an investment decision. We urge you to read the entire prospectus and the documents incorporated by reference in this prospectus carefully, including the historical financial statements and notes thereto, which are incorporated herein by reference from our Quarterly Report on Form 10-Q for the period ended June 30, 2016 filed on August 15, 2016 (the “Quarterly Report on Form 10-Q”) and from our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 filed on December 21, 2015 and amended on August 25, 2016 (the “Annual Report on Form 10-K”) for a more complete understanding of this rights offering. Please read “Risk Factors” beginning on page 10 of this prospectus and the information presented under “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” which are incorporated herein by reference from our Quarterly Report on Form 10-Q and Annual Report on Form 10-K, as updated by our subsequently filed reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for more information about important risks that you should consider before investing in the securities offered hereby. As used in this prospectus, unless the context otherwise requires, “we,” “us,” “Cemtrex,” “our,” “our company”the “Company” and “the company”“Cemtrex” refers to Cemtrex, Inc. All dollar amounts in this prospectus are in U.S. dollars unless otherwise stated. You should read the entire prospectus before making an investment decision to purchase our common shares.
About Cemtrex
Cemtrex was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual and augmented realities, industrial solutions, and intelligent security systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc., and its subsidiaries.
The Company continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019, the Company reached a Delaware corporation,strategic decision to exit the environmental products business, which was part of the Industrial Services Segment. Accordingly, the Company has reported the results of the environmental control products business as discontinued operations in the Consolidated Statements of Operations and unlessin the context otherwise indicates, its consolidated subsidiaries.Consolidated Balance Sheets.
The Company presently has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS).
Advanced Technologies
Cemtrex’s Advanced Technologies segment operates several brands that deliver cutting-edge software and hardware technologies:
| ■ | Vicon Industries – Vicon Industries, a majority owned subsidiary, provides end-to-end video security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms. | |
| ■ | SmartDesk – SmartDesk is focused on reinventing the workspace through developing state-of-the-art, modern, fully integrated, workplace solutions. | |
| ■ | Cemtrex XR (“CXR”) – CXR is focused on realizing the potential of the metaverse. CXR delivers Virtual Reality (VR) and Augmented Reality (AR) solutions that provide higher productivity, progressive design and impactful experiences for consumer products, and various commercial and industrial applications. The Company is in the process of developing virtual reality applications for commercialization in the metaverse over the next couple years. CXR also invests in emerging startups focused on building best in class solutions for the metaverse. | |
| ■ | Virtual Driver Interactive (“VDI”) – VDI provides innovative driver training simulation solutions for effective and engaging learning for all ages and skills. | |
| ■ | Bravo Strong – Bravo Strong is a gaming and content studio working to building games and experiences for the metaverse. | |
| ■ | good tech (formerly Cemtrex Labs) – good tech provides mobile, web, and enterprise software application development services for startups to large enterprises. |
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Industrial Technology
Overview
We areCemtrex’s IS segment operates through a rapidly growing diversified technology company operating in a wide array of business segments providing solutions to meet today’s industrial and manufacturing challenges. We provide manufacturing services of advanced electronics system assemblies, broad-based industrial services, instruments and emission monitors for industrial processes, and industrial air filtration and environmental control systems. Our operations are currently divided into two market groups – the Electronics Manufacturingbrand, Advanced Industrial Services (EMS) group and the Industrial Products and Services (IPS) group.
Our EMS group provides end-to-end electronic manufacturing services(“AIS”), that, include product design and sustaining engineering services, printed circuit board assembly and production, cabling and wire harnessing, systems integration, comprehensive testing services, and completely assembled electronic products. Our EMS group offers fully integrated contract manufacturing services to global original equipment manufacturers (OEMs) and technology companies that operate primarily in the medical, industrial, automation, automotive and renewable energy markets.
Our IPS group provides a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide. The group manufactures, sellssingle-source expertise and services monitoring instruments, software and systems for measurement of emissions of greenhouse gases, hazardous gases, and particulate and other regulated pollutants used in emissions trading globally, as well as for industrial processes. We also market monitoring and analysis equipment for gas and liquid measurement for various downstream oil and gas applications and industrial process applications. In addition, we offer one-source expertise and capabilitiesrigging, millwrighting, in plant andmaintenance, equipment erection, relocation, and disassembly in numerous industrial markets such as automotive, printing and graphics, industrial automation, packaging and chemicals.
to diversified customers. We have rapidly grown to become one of the leading worldwide diversified technology companies in our business segments. We have grown through both organic expansion and acquisitions. Our broad sales and marketing efforts in the United States, Europe and Asia, through our direct sales force, independent sales representatives and a variety of other distribution channels, have largely driven this growth. Acquisitions have also accelerated this growth with our purchases of the ROB Group, an electronics manufacturing solutions company located in Germany (October 2013), Advanced Industrial Services Inc., an installer of high precision equipment located in York, Pennsylvania (December 2015) and, most recently, Periscope, GmbH, an electronics manufacturing firm located in northern Germany (June 2016). For the fiscal years ended September 30, 2015 and 2014, we had revenues of $56.9 million and $47.7 million, respectively, and net income of $2.8 million and $2.7 million, respectively. For the nine months ended June 30, 2016 and 2015, we had revenues of $56.9 million and $42.8 million, respectively, and net income of $3.0 million and $2.3 million, respectively, and we had total assets of $52.5 million at June 30, 2016.
Recent Developments
On December 15, 2015, we acquired Advanced Industrial Services Inc. (AIS), an installer ofinstall high precision equipment in a wide variety of industrial markets such aslike automotive, printing and& graphics, industrial automation, packaging, and chemicals among others. We are a leading provider of reliability-driven maintenance and contracting solutions for a purchase pricethe machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
For the fiscal years ended September 30, 2021 and 2020, we had total revenues of approximately $7.5 million. The purchase price was paid in the form$43.1 million and $43.5 million, respectively, and net loss of $5.0$7.9 million in cash, $1.5and $10.2 million, in a seller note and $1.0respectively. We had total assets of $52.9 million from the issuanceas of 315,458 shares of our common stock. AIS averaged approximately $23.0 million in annual revenue during 2013 and 2014. We financed the acquisition by obtaining a $5.25 million self-amortizing, seven-year term loan and $3.5 million working capital credit line. The loans carry annual interest rates at the 30-day LIBOR rate, plus 2.25% and 2.0%, respectively. The seller note matures in three years and bears interest at 6% per year.September 30, 2021.
On May 31, 2016 we acquired machinery and equipment, and the electronics manufacturing and logistics businesses of Periscope, GmbH. These operations deal primarily with major German automotive manufacturers, including Tier 1 suppliers in the industry, as well as with industries including telecommunications, industrial goods, luxury consumer products, display technology, and other industrial OEMs. We purchased the assets of Periscope in consideration for $4,902,670 in cash, $717,936 in the form of a seller note and $3,298,600 in proceeds from the issuance of a related party note.
Corporate Information
We were incorporated in Delaware in April 1998. Our principal executive offices are located at 19 Engineer Lane, Farmingdale,276 Greenpoint Ave, Brooklyn, New York 11735,11222, and our telephone number is (631) 756-9116. We maintain a website at www.cemtrex.com. We make our periodic and current reports that are filed with the Securities and Exchange Commission (the “SEC”)SEC available, free of charge, on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Information contained on, or accessible through, our website doesis not constitutea part of, and is not incorporated by reference into, this prospectus supplement or the accompanying prospectus.
Our shares of common stock trade on the Nasdaq Capital Market under the symbol “CETX.”
The Offering
The summary below describes the principal terms of the subscription rights, the units, the Series 1 Preferred and the Series 1 Warrants. Certain of the terms and conditions described below are subject to important limitations and exceptions. Subscription rights holders should read this prospectus in its entirety, as well as all documents incorporated by reference in it, before making any decision to exercise their subscription rights. As used in this section, the terms “we,” “us,” “Cemtrex,” “our,” “our company” and “the company” refer to Cemtrex, Inc. and not any of its subsidiaries.
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Implications of Our Being an “Emerging Growth Company”Summary Financial Information
As a company with less than $1.0 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
| Balance Sheet Data | September 30, 2021 | |||
| Cash | $ | 15,426,976 | ||
| Total Assets | $ | 52,939,888 | ||
| Liabilities | $ | 29,385,212 | ||
| Total Stockholders’ Equity | $ | 22,590,650 | ||
| Statement of Operations | Year Ended September 30, 2021 | |||
| Revenue | $ | 43,130,934 | ||
| Net Loss for the Period | $ | (7,886,269 | ) | |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.RISK FACTORS
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting, are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure, and may present only two years of audited financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or such earlier time that we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed third fiscal quarter.
An investment in the unitsour common shares involves a high degree of risk. Prior to making a decision about investing in the units, in addition to the specific risks set forth below, youYou should carefully consider the specific factors discussed under the heading “Risk Factors” in the prospectus, together with all ofrisks described below and the other information contained or incorporated by reference in the prospectus or appearing or incorporated by reference in this prospectus. You should also considerprospectus before investing in our common shares. If any of the following risks uncertaintiesoccur, our business, operating results and assumptions discussed under Item 1A, “Risk Factors,” in Part IIfinancial condition could be seriously harmed. The trading price of our Quarterly Report on Form 10-Q for the period ended June 30, 2016, our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, filed on December 21, 2015 and amended on August 25, 2016, and any updates contained in our subsequent quarterly reports on Form 10-Q, annual reports on Form 10-K and other filingscommon shares, if we make with the SEC after thepublicly trade at a later date, of this prospectus, all of which are incorporated herein by reference, and may be amended, supplemented or superseded from timecould decline due to time by other reports we file with the SEC in the future and any additional prospectus supplement. The occurrence of any of these risks, might causeand you tomay lose all or part of your investment in the offered securities. Moreover, the risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations or otherwise have a material adverse effect on the trading price of, and/or on your ability to sell, the Series 1 Warrants.investment.
Risks ApplicableRelated to the Rights Offering and Our Securities
Our principal stockholder has effective voting control over our company which has important implications with respect to this rights offering.Covid-19
We currently have 1,000,000 shares of series A preferred stock outstanding, all issued to Aron Govil, our Executive Director. Pursuant to the certificate of designation for such shares, each outstanding share of series A preferred stock is entitled to the number of votes equal to the result of (i) the total number of shares of our common stock outstanding at the time of such vote multiplied by 1.01, divided by (ii) the total number of shares of our series A preferred stock outstanding at the time of such vote, at each meeting of stockholders of our company with respect to any and all matters presented to our stockholders for their action or consideration, including the election of directors. Because we have, prior to this offering, 9,824,108 shares of common stock and 1,000,000 shares of series A preferred stock currently outstanding, each share of series A preferred stock has 9.92 votes, or an aggregate of 9,992,350 votes, constituting 50.2% of our voting shares. While the series A preferred stock holder is not entitled to receive subscription rights in this offering, approximately 50.3% of our outstanding shares of common stock, which are entitled to receive subscription rights, are owned by Aron Govil and by Saagar Govil, our President and Chief Executive Officer and the son of Aron Govil.
Following this offering, assuming all 1,500,000 units are sold (but before any Series 1 Warrants are exercised), our Series 1 Preferred holders will have an aggregate of 3,000,000 votes. The issuance of the Series 1 Preferred does not impact the “floating” majority-vote provision for the series A preferred stock. Therefore, without giving effect to any purchase of units by Aron Govil through Ducon Technologies, in the placement following the expiration of the rights offering, there will be a total of 23,329,164 voting shares, of which (i) Aron Govil and Saagar Govil, as common stockholders, will be able to vote 4,738,334 shares, or 21.6% of our voting shares, (ii) our other common stockholders will be able to vote 5,085,774 shares, or 22.8 % of our voting shares, (iii) Aron Govil, as a series A preferred stockholder, will be able to vote 9,992,350 shares, or 44.4 % of our voting shares, and (iv) our Series 1 Preferred holders will be able to vote 3,000,000 shares, or 13. 4 % of our voting shares. Because the series A preferred stock has a “floating” majority-vote provision, the exercise of the Series 1 Warrants into shares of our common stock will likewise adjust upwards the number of shares of common stock which the shares of series A preferred stock are entitled. Accordingly, whether or not Aron Govil and Saagar Govil participate in this as common stockholders or Aron Govil participates in the placement following the offering, as discussed above, with their combined continuing voting interest of 65. 6 % of our voting shares, they will be able to effectively control the outcome of certain matters requiring a stockholder vote, including offers to acquire our company and election of directors, due to the terms of the series A preferred stock and their ownership of a majority of our outstanding common stock. Lastly, in the event Aron Govil fully participates in the placement as noted above, he would hold an additional 331,920 shares of Series 1 Preferred, carrying 663,840 votes, which would further increase the Govils’ combined voting interest to 67.1 % of our voting shares.
None of our officers, directors or significant stockholders is obligated to exercise their subscription rights and, as a result, the offering may be undersubscribed.
None of our officers, directors or significant stockholders, including Aron Govil and Saagar Govil, is obligated to participate in this offering. We cannot guarantee Aron Govil or Saagar Govil will exercise their basic or over-subscription rights to purchase any units issued in connection with this offering. As a result, the offering may be undersubscribed and proceeds may not be sufficient for the use of proceeds we describe in this prospectus.
If we terminate this offering, we will have no obligation other than to promptly return subscription monies.
We may decide, in our discretion and for any reason, or for no reason at all, to cancel or terminate the rights offering at any time prior to the closing date. If this offering is terminated, we will have no obligation with respect to rights that have been exercised except to promptly return, without interest or deduction, the subscription monies deposited with the subscription rights agent. If we terminate this offering, your rights will expire worthless.
There is no back-stop or standby commitment in place to purchase rights or units that are not purchased in the offering.
There is no back-stop or standby commitment in place to purchase rights or units that are not exercised in the offering. Consequently, there is no assurance that the offering will raise any amount of funds.
The dealer-manager is not underwriting this offering, but may act as a placement agent of the units underlying the rights.
If the rights offering is not fully subscribed following expiration of the rights offering, Source Capital Group, Inc., as the dealer-manager for this rights offering, has agreed to use its commercially reasonable efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by our common stockholders. No assurance can be given that any unsubscribed units will be sold during this period. Source Capital Group is not an underwriter of the rights or the units issuable upon exercise of the basic subscription privilege or over-subscription privilege. Under our agreement with the dealer-manager, Source Capital Group is solely providing marketing assistance and advice to us in connection with this offering.Its services to us in this connection cannot be construed as any assurance that this offering will be successful. Source Capital Group does not make any recommendation with respect to whether you should exercise the basic subscription privilege or over-subscription privilege, or to otherwise invest in our company.
We do not intend to issue any additional shares of Series 1 Preferred or Series 1 Warrants after this transaction.
We do not expect to issue any additional shares of Series 1 Preferred or Series 1 Warrants after this transaction. Consequently, we expect trading of the Series 1 Preferred and Series 1 Warrants, if any, to be limited to what we issue in this transaction.
Although there may be low or no correlations between the trading prices of the Series 1 Preferred and Series 1 Warrants and our common stock, decreases in the price of our common stock may cause decreases in the trading price of the Series 1 Preferred and Series 1 Warrants.
The trading price of the Series 1 Preferred and Series 1 Warrants, if any, may have only a low correlation, and may have no correlation, with the trading price of our common stock. Nevertheless, decreases in the trading price of our common stock, which could occur as the result of developments in our business or from future sales of common stock by us or by holders of the common stock or for other reasons, may cause decreases in the trading price of the Series 1 Preferred and Series 1 Warrants to decline. For example, in the future, we may sell shares of our common stock to raise capital or to acquire interests in other companies. Any of these events may dilute your ownership interest in the company and adversely affect the price of our common stock and, in turn, of the Series 1 Warrants. In addition, we have reserved shares of our common stock for issuance upon the exercise of stock options and upon conversion of convertible notes. Any of these events, and any other event that results in sales of a substantial amount of our common stock in the public market, or the perception that any such sales may occur, could reduce the market price of our common stock and, in turn, the trading price of the Series 1 Warrants. This could also impair our ability to raise additional capital through the sale of our securities. Any of the foregoing events could have a material adverse effect on holders of the Series 1 Preferred and Series 1 Warrants and the trading price of the Series 1 Warrants.
The Series 1 Preferred will rank senior toglobal pandemic may disrupt our series A preferred stock and common stock but junior to allbusiness or the business of our existing and future indebtedness in the event of a liquidation, winding up or dissolution of our business.customers.
In December 2019, a novel strain of corona virus, which causes the eventinfectious disease known as COVID-19 was reported. The World Health Organization declared COVID-19 a Public Health Emergency and Global Pandemic. COVID-19 has severely impacted economies around the world.
The current COVID-19 pandemic has impacted our business operations and the results of our liquidation, winding up or dissolution,operations in this fiscal year, primarily with delays in expected orders by many customers and new product development, including newer versions of surveillance software since our assets would be available to make payments to holderstechnical facility in Pune, India has been under lock down on multiple occasions. Overall bookings level in the IS segment of our Series 1 Preferred only after allbusiness were down by more than 20%, however our AT segment has experienced relatively less slow down. In addition, due to delays in certain supply chain areas, the expected launch times of our liabilities have been paid. In addition,new products and new versions has resulted in delays of several months.
The broader implications of COVID-19 on our Series 1 Preferred will rank structurally seniorresults from operations going forward remains uncertain. The COVID-19 pandemic has the potential to cause adverse effects to our series A preferred stockcustomers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and common stock, but junior to all existing and future liabilities of our subsidiaries,manufacturing output as well as the capital stock of our subsidiaries held by third parties and employees holding shares of any other direct or indirect subsidiary of ours, whether now existing or createddelays in the future, which issues shares or other equity interests to employees. In the event of our bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying our and our subsidiaries’ liabilities, to pay any amounts to the holders of our Series 1 Preferred then outstanding. As of June 30, 2016, we had total consolidated debt of approximately $23.3 million and 1,000,000 shares of series A preferred stock outstanding. As of June 30, 2016, as adjusted to give effect to this offering and our expected use of the net proceeds, our total consolidated debt would be unchanged. Any liquidation, winding up or dissolution of the company or of any of its wholly or partially owned subsidiaries would have a material adverse effect on holders of the Series 1 Preferred.
Purchasers of the units may be adversely affected by our issuance of any subsequent series of preferred stock.
The terms of the Series 1 Preferred do not restrict our ability to offer one or more additional new series of preferred stock, any or all of which may rank equally with or have preferences over our Series 1 Preferred as to dividend payments, voting rights, rights upon liquidation or other types of rights. We would have no obligation to consider the specific interests of the holders of the Series 1 Preferred in creating any such new series of preferred stock or engaging in any such offering or transaction. Our creation of any new series of preferred stock or our engaging in any such offering or transaction could have a material adverse effect on holders of the Series 1 Preferred.
Your subscription privilege, including your basic subscription privilege, is subject to adjustment and reduction.
If the rights offering is over-subscribed, in which case the total number of units available in the rights offering will be allocated to participating stockholders on a pro-rata basis, as set forth more fully in this prospectus, then the number of units that each participating stockholder will be eligible to receive will depend upon the number of subscription rights exercised by the stockholder and the total number of subscription rights exercised. All subscriptions, including the basic subscription privilege and over-subscription privilege, are subject to proration. If all basic subscription privileges were fully exercised, each stockholder would be entitled to exercise approximately 80% of the rights such stockholder holds. If any proration is necessary, subscriptions for the units will be prorated.
In addition, if the exercise by a stockholder of the basic subscription privilege or the over-subscription privilege could, as determined by the company in its sole discretion, potentially result in a limitation on the company’s ability to use the Tax Attributes under the Code, and rules promulgated by the Internal Revenue Service, the company may, but is under no obligation to, reduce the exercise by such stockholder of the basic subscription privilege or the over-subscription privilege to such number of units as the company in its sole discretion shall determine to be advisable in order to preserve the company’s ability to use the Tax Attributes.
We may not be permitted to make current payment of dividends on the Series 1 Preferred.
Under Delaware law, we may only pay dividends or make distributions to our stockholders from our surplus (as determined in accordance with the Delaware General Corporation Law) or our net profits for the current fiscal year or the fiscal year before which the dividend or distribution is declared under certain circumstances. Therefore, our ability to pay dividends and make any other distributions in the future will depend upon our financial results, liquidity and financial condition.
Your rights as a Series 1 Preferred stockholder are primarily those set forth in the terms of the Series 1 Preferred, and our board may prefer the interests of the common stockholders if they differ from those of the Series 1 Preferred stockholders.
The special contractual preferences of the Series 1 Preferred are primarily governed by the principles of contract law, rather than being fiduciary in nature. While our board of directors has fiduciary duties to the holders of the Series 1 Preferred to the extent those holders share rights with the common stockholders, if there is a divergence of interests between the holders of the Series 1 Preferred stock and common stock, it will generally be the duty of our board to prefer the interests of the common stockholders to those of the preferred stockholders.
The Series 1 Warrants may be redeemed for nominal consideration.
The Series 1 Warrants are redeemable by us at $0.10 per Series 1 Warrant in certain circumstances. Although holders of the Series 1 Warrants have the right to exercise their Series 1 Warrants through the date of redemption, they may be unable to do so due to their lack of funds at the time of redemption.
Because our management will have broad discretion over the use of the proceeds from the rights offering, you may not agree with how we use the proceeds, and we may not invest the proceeds successfully.
We are conducting the rights offering to raise additional capital primarily to supplement our operating cash flows to fund our new product development and acquisition growth plan. We will retain broad discretionactivities. However, on the other hand, opportunities in the video surveillance field have been growing for Vicon products.
The extent of the usepandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of such proceeds. You will be relyingthe pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the judgmentdevelopment of our management with regardtreatments or vaccines, and the resumption of widespread economic activity. Due to the useinherent uncertainty of such proceeds,the unprecedented and you will not haverapidly evolving situation, we are unable to predict with any confidence the opportunity, as partlikely impact of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for the company.COVID-19 pandemic on our future operations. This could materially impact our results of operations, cash flows, and financial condition.
Risks RelatingRelated to Our Businessour Financial Condition
There is no guarantee that cash flow from operations and/or debt and equity financings will provide sufficient capital to meet our expansion goals and working capital needs.needs, or fund our operations.
Our current strategic plan includes the expansion of our company both organically and through acquisitions if market conditions and competitive conditions allow. Due to the long-term nature of investments in acquisitions and other financial needs to support organic growth, including working capital, we expect our long-term and working capital needs to periodically exceed the short-term fluctuations in cash flow from operations. Accordingly, weWe anticipate that we will likely raise additional external capital from the sale of common stock, preferred stock and debt instruments as market conditions may allow, in addition to cash flow from operations (which may not always be sufficient), to fund our growth and working capital needs. To the extent that our internally-generated cash flow is insufficient to meet our needs, we are subject to uncertain and ever-changing debt and equity capital market conditions over which we have no control. The magnitude and the timing of the funds that we need to raise from external sources also cannot be easily predicted.
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In the event that we need to raise significant amounts of external capital at any time or over an extended period, we face a clear risk that we may need to do so under adverse capital market conditions with the result that our existing shareholders, as well as persons who acquire our common stock, may incur significant and immediate dilution should we raise capital from the sale of our common or preferred stock. Similarly, we may need to meet our external capital needs from the sale of secured or unsecured debt instruments at interest rates and with such other debt covenants and conditions as the market then requires. In all of these transactions we anticipate that we will likely need to raise significant amounts of additional external capital to support our growth. However, there can be no guarantee that we will be able to raise external capital on terms that are reasonable in light of current market conditions. In the event that we are not able to do so, those who acquire our common stock may face significant and immediate dilution and other adverse consequences. Further, debt covenants contained in debt instruments that we issue may limit our financial and operating flexibility with consequent adverse impact on our common stock market price.
We have a history of losses and may continue to be unable to timely file certain current and periodic reports and other documents withexperience losses in the SEC.future, which could result in the market price of our common stock declining.
We did not timely file with the SEC (i) our definitive proxy statement, which includes the information required by Part IIIhave incurred net losses, including net losses of Form 10-K, within 120 days of our fiscal year ended September 30, 2015, (ii) our Form 8-K$7.8 million in relation2021, $10.2 million in 2020 and $21.8 million in 2019. We expect to our meeting of shareholders held on March 7, 2016, or (iii) several other current reports filed during the preceding 12 calendar months. All of these reports were ultimately filed, but their lateness caused uscontinue to become ineligibleincur significant product development, sales and marketing and administrative expenses. As a result, we will need to use Form S-3, a shorter registration statementgenerate significant revenues to achieve profitability. We cannot be certain that is often used for “shelf” registrations. If we are not able to file our current and periodic reports and other documents with the SECwill achieve profitability in the future inor, if we achieve profitability, to sustain it. If we do not achieve and maintain profitability, the times specified by the Securities Exchange Act, we will continue to losemarket price for our eligibility to use Form S-3 for future capital raises, and that could impair our ability to conduct more efficient and expeditious public offerings of ourcommon stock off of shelf registrations. Our inability to timely file current and periodic reports in the future could materially and adversely affect our financial condition and results of operations.may decline, perhaps substantially.
We are substantially dependent uponThe Company is exposed to credit risk, market risk, and fluctuations in the success and continued market acceptancevalues of our technology and a favorable regulatory environment; the absence of which may significantly reduce our sales, profits and cash flow and adversely impact our financial condition.its investment portfolio.
The failureCompany invests excess cash that the Company has on hand in large cap securities listed on major exchanges, including stocks and options. The Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, market and economic conditions, political risk, sovereign risk, interest rate fluctuations or other factors.
Although we have not recognized any material losses related to our cash equivalents, short-term investments, or long-term investments, future declines in the market values of such investments could have an adverse effect on our financial condition and operating results. As a result, the value and liquidity of the emissions monitoringCompany’s cash, cash equivalents, and controls market to develop as we anticipatemarketable securities may fluctuate substantially. Therefore, although the Company has not realized any significant losses on its cash, cash equivalents, and any lack of acceptance of our emissions monitoringmarketable securities, future fluctuations in their value could result in significant losses and control equipment technology would adversely affect our environmental control products business. In this respect, we may find that other competing technologies may be offered by other existing competitors or by those that enter the market and these competing technologies may offer a better cost-benefit ratio than our products and/or at lower prices with the result that our sales, profits, and cash flow may suffer significantly overcould have an extended period with serious adverse impact on ourthe Company’s financial condition.condition and operating results.
We have substantial debt which could adversely affect our ability to raise additional capital to fund operations and prevent us from meeting our obligations under outstanding indebtedness.
As of JuneSeptember 30, 2016,2021, our total indebtedness was approximately $23.3$16.4 million, including a revolving linenotes payable of credit$11.3 million, mortgage payable of $2.3 million, and bank loans of $2.7 million, convertible notes payable of $2.0 million, non-convertible notes payable of $1.2 million, related party notes payable of $3.3 million, bank loans of $7.1 million and mortgage of $3.9 million. In July 2016, we issued another convertible note in the amount ofincluding $1.1 million. Approximately $7.6 million of our debt as of June 30, 2016 is classified as current and approximately $2.0PPP loans that the Company expects to be forgiven. Approximately $9.97 million of such debt is convertible into shares of our common stock. We intend to apply only a small portion of the proceeds from this offering to repay or reduce our outstanding debt and, therefore, we will continue to have a significant amount of indebtedness following this offering.classified as current. This substantial debt could have important consequences, including the following: (i) a substantial portion of our cash flow from operations may be dedicated to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations, future business opportunities and capital expenditures; (ii) our ability to obtain additional financing for working capital, debt service requirements and general corporate purposes in the future may be limited; (iii) we may face a competitive disadvantage to lesser leveraged competitors; (iv) our debt service requirements could make it more difficult to satisfy other financial obligations; and (v) we may be vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out activities that are important to our growth.
Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond management’s control. If we are unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could impair our liquidity. Any refinancing of indebtedness, if available at all, could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. Despite our significant amount of indebtedness, we may be ableneed to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial debt.
We have outstanding convertible notes with fluctuating conversion rates that are set at a discount to market prices of our common stock during the period immediately preceding conversion, which may result in material dilution to our common stockholders.
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As of June 30, 2016, we had outstanding unsecured convertible notes issued to a number of unrelated third parties in the aggregate principal amount of $2,031,000. Of these unsecured convertible notes, $766,000 under four notes are convertible into shares of our common stock at a price per share equal to 75% of the average closing bid prices of our common stock for the ten days preceding the conversion date (the “75% Notes”), while $1,265,000 under three notes are convertible into shares of our common stock at a price per share equal to 80% of the average closing bid prices of our common stock for the ten days preceding the conversion date (the “80% Notes”). This could result in material dilution to existing stockholders of our company, particularly in the event that the average closing bid prices of our common stock declines below the exercise price of the Series 1 Warrants in this offering. The number of shares of common stock into which the notes may be converted may increase without an upper bound as a consequence of the fluctuating conversion rate that is 75% or 80% of the weighted average market price at the time of conversion. By way of illustration, the following table sets forth the dilutive impact of conversion of the unsecured convertible notes, assuming that the average closing bid price of our common stock for the ten days preceding the conversion is equal to $5.00 (the expected approximate exercise price of the Series 1 Warrants in this offering), $4.00, $3.00 and $2.00 per share:
| Conversion Price | ||||||||||||
| Average Closing Bid Price | Principal Amount | (75%/80% of Market) | Shares Issuable | |||||||||
| $ 5.00: | ||||||||||||
| 75% Notes | $ | 766,000 | $ | 3.75 | 204,267 | |||||||
| 80% Notes | 1,265,000 | 4.00 | 316,250 | |||||||||
| $ 4.00: | ||||||||||||
| 75% Notes | $ | 766,000 | $ | 3.00 | 255,334 | |||||||
| 80% Notes | 1,265,000 | 3.20 | 395,313 | |||||||||
| $ 3.00: | ||||||||||||
| 75% Notes | $ | 766,000 | $ | 2.25 | 340,445 | |||||||
| 80% Notes | 1,265,000 | 2.40 | 527,084 | |||||||||
| $ 2.00: | ||||||||||||
| 75% Notes | $ | 766,000 | $ | 1.50 | 510,667 | |||||||
| 80% Notes | 1,265,000 | 1.60 | 790,625 | |||||||||
Additionally, we have outstanding convertible notes in the aggregate principal amount of $2,055,000 with fixed conversion prices ranging from $5.00 to $6.50 per share. Approximately 465,000 shares of our common stock are issuable pursuant to these notes at the election of the holder.
Our ability to secure and maintain sufficient credit arrangements is key to our continued operations and there is no assurance we will be able to obtain sufficient additional equity or debt financing in the future.
There is no assurance that we will be able to retain or renew our credit agreements and other finance agreements in the future. In the event the businessour company grows rapidly, the uncertain economic climate continues, or we acquire one or more other companies, additional financing resources will likely be necessary in the current or future fiscal years. As a smallsmaller public company with a limited ability to attract and obtain financing, there is no assurance that we will be able to obtain sufficient additional equity or debt financing in the future on terms that are reasonable in light of current market conditions.
Risks Related to our Business
We are substantially dependent upon the success and continued market acceptance of our technology; the absence of which may significantly reduce our sales, profits and cash flow and adversely impact our financial condition.
In addition to overall reduced market demand, other competing technologies may be offered by both existing competitors or by those that enter the market and these competing technologies may offer a better cost-benefit ratio than our products and/or at lower prices with the result that our sales, profits, and cash flow may suffer significantly over an extended period with serious adverse impact on our financial condition.
We have taken a multi-operational approach, and some of our business segments have historically failed to benefit our company, and there remains a risk that our remaining segments may not prove to be successful. We may divest or expand into new areas that are outside of our current business activities and those activities may not prove to be successful.
We continuously assess the composition of our portfolio businesses to ensure it is aligned with our strategic objectives and positioned to maximize growth and return in the coming years. Since our business concerns new and developing technologies, and many of these endeavors fail, some of the businesses in our portfolio may not be successful in generating sufficient revenue to be a viable option for our company.
During fiscal 2018, for instance, we made a strategic decision to exit the Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Similarly, during fiscal 2019, we also reached a strategic decision to exit the environmental products business, which was part of the Industrial Services Segment.
Now the Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS). Within these segments there are a number of technologies that we are pursuing, as discussed in this annual report under “Item 1. Business.” There is a risk that one or more of our technologies will not be successful in generating revenue to sustain the expenditures associated with its existence. Moreover, having multiple business segments may present challenges, such as fluctuations in our operating results, using the company’s limited resources on less worthy business pursuits, and distracting management from obtaining its goals with respect to our overall operations. If we are unable to establish our technologies in the market, and overcome the challenges of doing so, we could go out of business.
As we continuously review our portfolio of businesses we may exit or enter into new business activities which may ultimately prove to be unsuccessful.
Our future operating results depend in part on continued successful research, development and marketing of new and improved products and services through our Advanced Technologies segment, and there can be no assurance that we will successfully introduce new products and services into the market.
The success of new and improved products and services through our Advanced Technologies segment depends on our research and development efforts and the initial acceptance of our products and solutions by consumers. In most instances these are all new lines of business for our company, and IoT, VR & AR industries are changing rapidly, and our management has limited experience with consumer products in general. Our business is affected by varying degrees of technological change and corresponding shifts in customer demand, which result in unpredictable product transitions, shortened life cycles and increased importance of being first to market with new products and services. We may experience difficulties or delays in the research & development, production and/or marketing of new products and services due to lack of capital, which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
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Our future operating results depends in part on the continued successful operation of our Industrial Services segment, and there can be no assurance that we will be successful in this business.
The success of selling services through our Industrial Services segment depends on our ability to hire and retain talent, our ability to market these services successfully to clients, the overall demand for these services, and the quality of our workmanship by our customers, among other factors. Our business is affected by varying degrees of technological change and corresponding shifts in customer demand, which result in unpredictable product transitions, shortened life cycles and increased importance of being first to market with new products and services. We may experience difficulties or delays in the delivery of services due to lack of capital or lack of adequate talent, which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to continue to compete in our markets.
Our failure to successfully develop, sell and market our SmartDesk in a timely and cost-effective manner could adversely affect our future profitability.
We believe that our profitability will depend in part on our ability to effectively (i) market and sell SmartDesk, (ii) continue our engineering effort to develop new features for the SmartDesk as requested by customers, (iii) market SmartDesk through our own marketing organization and via third-party distribution channels in the United States and internationally, and (iv) deliver SmartDesk to customers with appropriate installation and service. Failure to successfully execute these tasks in a timely and cost-effective manner could adversely affect profitability. There can be no assurance that we will be successful in these efforts or that even when our SmartDesk is delivered, it will achieve market acceptance in a timely fashion. Further, there can be no assurance that expenses incurred in connection with the development, sales and marketing of SmartDesk will not exceed our expectations, or that SmartDesk will generate revenues sufficient to offset these expenses. In addition, although we have filed numerous U.S. patent applications relating to various aspects and features of our SmartDesk, there can be no assurance that any patents will issue on any of the pending patent applications.
Our operating results may fluctuate, which could have a negative impact on our ability to grow our client base, establish sustainable revenues and succeed overall.
Our results of operations may fluctuate as a result of a number of factors, some of which are beyond our control including but not limited to:
| ● | general economic conditions in the geographies and industries where we sell our services and conduct operations; legislative policies where we sell our services and conduct operations; | |
| ● | the budgetary constraints of our customers; seasonality; | |
| ● | success of our strategic growth initiatives; | |
| ● | costs associated with the launching or integration of new or acquired businesses; | |
| ● | timing of new product introductions by us, our suppliers and our competitors; product and service mix, availability, utilization and pricing; | |
| ● | the mix, by state and country, of our revenues, personnel and assets; | |
| ● | movements in interest rates or tax rates; | |
| ● | changes in, and application of, accounting rules; | |
| ● | changes in the regulations applicable to us; | |
| ● | litigation matters. |
As a result of these factors, we may not succeed in our business and we could go out of business.
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We operate in a cyclical business, which could result in significant fluctuations in demand for our products
Cyclical changes in our customers’ businesses have, in the past, resulted in, and may in the future result in, significant fluctuations in demand for our products, selling prices, and our profitability. Most of our customers operate in cyclical industries. Their requirements for our technologies fluctuate significantly as a result of changes in general economic conditions, technological changes, customer demand, and other factors. During periods of increasing demand, our customers typically seek to increase their inventory of our products to avoid production bottlenecks. When demand for their products peaks and begins to decline, as has happened in the past, they tend to reduce or cancel orders for our products while they use up accumulated inventory. Business cycles vary somewhat in different geographical regions and customer industries. Significant fluctuations in sales of our products affect our unit manufacturing costs and affect our profitability by making it more difficult for us to predict our production, raw materials, and shipping needs. Changes in demand mix, needed technologies, and end-use markets may adversely affect our ability to match our products, inventory, and capacity to meet customer demand and could adversely affect our operating results and financial condition. We are also vulnerable to general economic events or trends beyond our control, and our sales and profits may suffer in periods of weak demand.
Our sales and gross margins depend significantly on market demand for our products, as to which there can be no assurances.assurance.
The uncertainty in the U.S.United States and in the international economic and political environment could result in a decline in demand for our products in any industry. Our gross margins are dependent upon our ability to maintain sales volumes at levels that allow us to cover our fixed costs and variable costs per unit. To the extent that one or more product lines experience a significant and protracted decline in sales volume, we may experience significant declines in our gross margins that may result in losses. Further, any adverse changes in tax rates and laws affecting our customers could result in decreases in demand of our products and thus decrease our gross margins. Any of these factors could negatively impact our business, results of operations and financial condition.
Many of our existing and future customers do not commit to firm production schedules, which may result in higher fixed costs per unit for us relative to our competitors.
Most of our customers do not commit to long-term production schedules, which makes it difficult to schedule production and achieve maximum efficiency at our manufacturing facilities and to manage inventory levels. As a result, our fixed costs per unit may be higher than our competitors who are able to achieve greater economies with longer production runs at lower costs per unit and, at the same time, achieve lower manufacturing costs as a result and as a result of better manufacturing scheduling.
The volume and timing of sales to our customers may vary due to:
Many of our existing and future customers do not commit to firm production schedules. As a result, we are unable to forecast the level of customer orders with any precision. This means that it is very difficult for us to schedule production and maximize utilization of manufacturing capacity and manage inventory levels. This may adversely impact our unit manufacturing costs so that our unit manufacturing costs may be higher than our competitors’ costs.
In these circumstances, we anticipate that we could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of our existing and future customers. Orders from our customers are subject to cancellation, and delivery schedules from our customers fluctuate as a result of changes in our customers’ demand, thereby adversely affecting our results of operations, and may result in higher inventory levels. Higher inventory levels may cause us to obtainneed greater external financing, which adversely affects our financial performance.
Our products could face seriousintense competitive challenges, including rapid technological changes, and pricing pressure from competitors, which could adversely affect our business.
In the event that one or moreAll of our product lines become theare subject ofto significant pressurescompetition from our existing and future competitors, market conditions and technological change, or anya combination thereof,of them, and our sales revenues and our gross margins may suffer protracted and serious declines with the result that we willwould likely incur protracted losses thereby.losses. Further, the barriers to entry in several of our lines of business are not so significant that we may be facing competition from others who see significant opportunities to enter the market and undercut our prices with products that possess superior technological attributes at prices that offer our customers a better value. In this instance, we could incur protracted and significant losses and persons who acquire our common stock would suffer losses thereby.
From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share. Competition and customer pressures may also restrict our ability to increase prices in response to commodity and other input cost increases. Our results of operations will suffer if profit margins decrease, as a result of a reduction in prices, increased input costs or other factors, and if we are unable to increase sales volumes to offset those profit margin decreases. We may also need to increase spending on marketing, advertising and new product innovation to protect existing market share or increase market share. The success of our investments is subject to risks, including uncertainties about trade and consumer acceptance. As a result, our increased expenditures may not maintain or enhance market share and could result in lower profitability.
Factors affecting the industries that utilize our customers’ products could negatively impact our customers and us.
We have no real control over these factors affecting the industries that utilize our products and to the extent that any one or more of themthese industries change dramatically, we may be facing significant financial challenges that are in excess of our abilities.existing capabilities. These factors include:
| increased competition among our customers and their competitors; |
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| the inability of our customers to develop and market their products; |
| recessionary periods in our customers’ markets; |
| the potential that our customers’ products become obsolete; |
| our customers’ inability to react to rapidly changing technology; and |
| our customers’ inability to pay for our products, which could, in turn, affect the company’s results of operations. |
If we are unable to develop new products, our competitors may develop and market products with better features that may reduce demand for our existing and potential products or otherwise result in our products becoming obsolete and could materially and adversely affect our ability to sustain profitability.
There are many larger competitors who compete directly with us and who have significantly greater financial, technological and research resources. These larger competitors have greater technological and research abilities that put us at a severe disadvantage. This may serve to severely damage our reputation and our ability to market and sell otherour products at price levels that would allow us to achieve and maintain profit margins and positive cash flow.
We are a smallsmaller public company, and we face rapid technological change in many of our product markets and we may not be able to introduce any successful new products or any enhancements to our existing products on a timely basis, or at all. This could result in prolonged and significant losses. In addition, our introduction of any new products could adversely affect the sales of certain of our existing products if these new products cannibalize sales ofdirectly compete with our existing products. If our competitors develop innovative technologies that are superior to our products or if we fail to accurately anticipate market trends and respond on a timely basis with our own innovations, we may not achieve sufficient growth in its revenues to attain profitability or if we do, we may not be able sustain profitability.
The success of new product introductions is dependent on a number of factors, including, but not limited to, timely and successful development of new products, including software development, market acceptance of these products and our ability to manage the risks associated with these introductions. These risks include development and production capabilities, management of inventory levels to support anticipated demand, the risk that new products may have quality defects in the early stages of introduction, and obsolescence risk of existing products.
Developing and maintaining a patent portfolio is an expensive and time-consuming process and there is no assurance the Company will successfully develop patents to protect the intellectual property it is working on.
We are increasingly dependent on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks, or network security breaches our operations could be disrupted and we could incur significant costs and reputational harm as a result
We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information; to manage a variety of business processes and activities; and to comply with regulatory, legal, and tax requirements. We also depend on our information technology infrastructure for digital marketing and sales activities and for electronic communications among our locations, personnel, customers, and suppliers around the world. Many of the information technology systems used by us globally have been in place for many years and not all hardware and software is currently supported by vendors. These information technology systems are susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, cyber-attacks, telecommunication failures, user errors, or catastrophic events. If our information technology systems suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially affected, and we could experience delays in reporting our financial results.
We have been, and likely will continue to be, subject to various cyber-attacks. To date, we have seen no material impact on our business or operations from these attacks or events. Any future significant compromise, breach, or misuse of our data security could result in significant costs and damage to our reputation. The ever-evolving threats mean us and our third-party service providers must continually evaluate and adapt our respective systems and processes and overall security environment, as well as those of any companies we acquire. There is no guarantee that these measures will be adequate to safeguard against all data security compromises, breaches, or misuses. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, compliance with those requirements could also result in additional costs.
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Third-party service providers, such as distributors, subcontractors, vendors, and data processors have access to certain portions of our sensitive data. In the event that these service providers do not appropriately protect our data, the result could be a security breach or loss of our data. Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.
In addition, if we are unable to prevent security breaches, we may suffer financial and reputational damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our customers or suppliers. Furthermore, the disclosure of non-public sensitive information through external media channels could lead to the loss of intellectual property or damage our reputation and brand image.
We are also in the process of converting certain information technology networks and systems and consolidating certain global systems. If such projects fail, or if unexpected technical difficulties arise, our operations and financial systems could be adversely affected. Further, we could incur additional costs or require additional technical support to resolve such difficulties.
We have grown through acquisitionsOur operating results are sensitive to raw material and are continuously looking to fund other acquisitions; our failure to raise funds may have the effect of slowing down our growthresale product availability, quality, and our use of proceeds for acquisitions subjects us to acquisition-related risks.cost
We seek to have many sources of supply for each of our major requirements in order to avoid significant dependence on any one or a few suppliers. However, the supply of materials or other items could be disrupted by natural disasters, international trade tariffs, wars, pandemics, disputes and or other events. Despite market price volatility for certain requirements and materials pricing pressures at some of our businesses, the raw materials and various purchased components needed for our products have generally been available in sufficient quantities. In some instances lead times have extended beyond normal due to logistic delays and labor shortages occurring globally. Some of our products, however, require the use of raw materials that are available from only a limited number of regions around the world, are available from only a limited number of suppliers, or may be subject to significant fluctuations in market prices. Our results of operations may be adversely affected if we have difficulty obtaining these raw materials, our key suppliers experience financial difficulties, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials. Our inability to recover increased costs through increased sales prices could have an adverse impact on our results of operations. For periods in which the prices for these raw materials rise, we may be unable to pass on the increased cost to our customers, which would result in decreased sales margins for the products in which they are used. For periods in which prices for these raw materials decline, we may be required, as has occurred in the past, to write down our inventory carrying cost of these raw materials and products. Depending on the extent of the difference between market price and our carrying cost, the write-down could have a significant adverse effect on our results of operations.
We intendresell products manufactured by other component and interconnect product manufacturers. Should these manufacturers experience difficulties supplying the products that we resell, or such suppliers use other channels to use a portion of the net proceeds from this transaction to finance the anticipated growth of our company including a proposed acquisition of an electronics manufacturing solutions company based in the Silicon Valley area, if consummated, and other possible acquisitions of complementary (including competitive) businesses,market their products, and technologies. However, any future acquisitions may result in material transaction costs, increased interest and amortization expenses related to goodwill and other intangible assets, increased depreciation expense and increased operating expenses, any ofwe could experience lower sales, which could have an adverse effect on our results of operations.
Our operating results may be adversely affected by non-U.S. operations
We have significant international operations and our operating results and financial position. Acquisitions will require integration of acquired assetscondition could be adversely affected by economic, political, health, regulatory, and management into our operations to realize economies of scale and control costs. Acquisitions may involve other risks, including diversion of management attention that would otherwise be available for ongoing internal development of our business and risks inherentcircumstances existing in entering marketsforeign countries in which we operate. International manufacturing and sales are subject to inherent risks, including production disruption by employee union or works council actions, changes in local economic or political conditions, the imposition of currency exchange restrictions, unexpected changes in regulatory environments, potentially adverse tax law changes, changes in trade, import or export laws and regulations, and the exchange rate risk discussed above. Although we have nooperations around the world, a significant natural event could disrupt supply or limited prior experience. Future acquisitions may also result in potentially dilutive issuancesproduction or significantly affect the market for some or all of equity securities. In addition, consummation of acquisitions may subject us to unanticipated business uncertainties, contingent liabilities or legal matters relating to those acquired businesses for which the sellers of the acquired businesses may not fully indemnify us.our products. There can be no assurance that these factors will not have an adverse impact on our production capabilities or otherwise adversely affect our business will grow through acquisitions, as anticipated. and operating results.
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In addition to specific country risks, our operations and sales are dependent on an integrated global operation. As a result, disruptions resulting from inter-governmental trade disputes, imposition of tariffs, and imposition of trade sanctions could adversely affect our operations, growth, or profitability.
Volatility in currency exchange rates may adversely affect our financial condition, results of operations and cash flows.
Our international operations accounted for approximately 8% of our net sales in 2021. We are exposed to the effects (both positive and negative) that fluctuating exchange rates have on translating the financial statements of our international operations, most of which are denominated in local currencies, into the U.S. dollar. Fluctuations in exchange rates may affect product demand and reported profits in our international operations. In addition, currency fluctuations may affect the prices we pay suppliers for materials used in our products, along with other local costs incurred in foreign countries for foreign entities with U.S. dollar functional currency. As a result, fluctuating exchange rates may adversely impact our results of operations and cash flows.
Our business and results of operations may be materially adversely effected by compliance with import and export laws.
We recently completedmust comply with various laws and regulations relating to the acquisitionsimport and export of Advanced Industrial Services Inc.,products, services and technology from the U.S. and other countries having jurisdiction over our operations, which may affect our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies and in other circumstances, we may be required to obtain an installerexport license before exporting a controlled item. The length of high precision equipment,time required by the licensing processes can vary, potentially delaying the shipment of products or performance of services and Periscope, GmbH, an electronics manufacturing company. We need to raise funds to finance acquisitions and support the working capital requirementsrecognition of the acquired companies. Therecorresponding revenue. In addition, failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to import and export products and services and damage to our reputation. Moreover, any changes in export control or sanctions regulations may further restrict the export of our products or services, and the possibility of such changes requires constant monitoring to ensure we remain compliant. Any restrictions on the export of our products or product lines could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Risks Related to Legal Uncertainty
We are involved in an ongoing SEC investigation, which could divert management’s focus, result in substantial expenses, and have an adverse impact on our reputation, financial condition, results of operations and cash flows.
The Company has received subpoenas from the Securities and Exchange Commission (“SEC”). The subpoenas request documents and information concerning, among other things, a company known as Telidyne Inc., a company controlled by our prior officer and director, Aron Govil, securities offerings related to Telidyne, and the Company’s own product and services, business operations, securities’ offerings and use of proceeds. Although the Company is not currently the subject of any enforcement proceedings, the investigation could lead to enforcement proceedings and substantial riskexpenses if the SEC contends that the Company has not complied with securities laws. The Company is fully cooperating with the SEC’s requests. The Company has incurred legal and accounting expenses and may incur significant legal and accounting expenditures in connection with the SEC’s investigation. The Company is unable to predict how long the SEC’s investigation will continue or its outcome.
Our global operations subject us to many different and complex laws and rules, and we will only be ablemay face difficulty in compliance.
Due to raise funds that would cause substantial dilutionour global operations, we are subject to many laws governing international relations (including but not limited to the existing stockholdersForeign Corrupt Practices Act, the U.S. Export Administration Act the EU General Data Protection Regulation, and the U.K. Modern Anti-Slavery Act); which prohibit improper payments to government officials and restrict where and how we can do business, what information or at terms that may be very expensive. In the past,products we can supply to certain countries, what personal information we can transfer, and what information we can provide to a non-U.S. government. Although we have raised funds from related party loansprocedures and policies in place that should mitigate the risk of violations of these laws, there can be no assurance that such related party loans will be available to us in the future. Further, there can beis no guarantee that wethey will be able to raise funds in sufficient amounts in the futuresufficiently effective. If, and on terms that are reasonable in light of our current circumstances. Persons whowhen we acquire our common stock may suffer immediate and substantial dilution and, in other instances, the total loss of their investment if we are not able to raise sufficient funds on reasonable terms. In the event that we are unable to raise funds in sufficient amounts and on reasonable terms,new businesses we may not be able to complete any further acquisitionsensure that the pre-existing controls and provide working capital forprocedures meant to prevent violations of the completed acquisitions.rules and laws were effective, and we may not be able to implement effective controls and procedures to prevent violations quickly enough when integrating newly acquired businesses. Acquisitions of new businesses in new non-U.S. jurisdictions may also subject us to new regulations and laws, and we may face difficulties ensuring compliance with these new requirements.
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WeProvisions in the Delaware law and our Bylaws could be subjectmake it very difficult for an investor to economic, political, regulatory and other risks arising from international operations.bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.
OperatingMembers of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in international markets requires significantlimited circumstances, pursuant to provisions in the Delaware law and our Bylaws. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and management attention and will subject us to regulatory, economic and political risks that may be different from and incremental to those in the United States. In addition to the risks that we face in the United States, our international operations may involve risks that could adversely affect our business, including:
Our failure to manage any of these risks successfully could harm our international operations and cash flows, and adversely affect prevailing market prices for our overall business, and results of our operations.common stock.
Even thoughIf we achieved a profit for the fiscal year ended September 30, 2015, we cannot assure you that we will remain profitablefail to establish, maintain and maintain a positive cash flow or, if we are profitableenforce intellectual property rights with respect to our technology, our financial condition, results of operations and have a positive cash flow, that we can sustain operations that are profitable and have a positive cash flow in the future.business could be negatively impacted.
We continueOur ability to incur significant expenditures relatedestablish, maintain and enforce intellectual property rights with respect to selling and marketing and general and administrative activities as well as capital expenditures and anticipate that our expenses may increase in the foreseeable future as we expand our business. Further, as a public company we continue to incur significant legal, accountingproprietary technologies, patents, patent applications, software and other expenses that we would not incur as a private company. To maintain profitability, we will need to generate significant additional revenues with significantly improved gross margins. There can be no assurance that werights will be ablea significant factor in determining our future financial and operating performance. We seek to maintain profitability withprotect our existing revenuesintellectual property rights by relying on a combination of patent, trade secret and copyright laws. We also use confidentiality and other provisions in the future generate such additional revenues, improve our gross margins, or bothagreements that restrict access to and disclosure of themour confidential know-how and maintain and sustain our profitability or a positive cash flow.
We face constant changes in governmental standards by which our environmental control products are evaluated and we have no control over these standards.trade secrets.
We have no abilityfiled patent applications with respect to predict the extent to which governmental standards and regulationsmany aspects of our technologies. However, we cannot provide any assurances that any of these applications will favorultimately result in issued patents or, disfavor our products,if patents are issued, that they will provide sufficient protections for our technology or the business strategies thatagainst competitors. Although we have or will implementfiled various patent applications for some of our core technologies, we currently hold only six issued patents, with two in the future. There is a distinct risk thatUnited States and four in Canada, and we may face governmental standardsdelays and regulations that seriously undercutdifficulties in obtaining our fundamental assumptions regarding existing trends in regulation and technology and assumptions regarding the type of technology to use. To the extent thatother filed patents, or we aremay not be able to accurately predictobtain such patents at all.
Outside of these trendspatent applications, we seek to protect our technology as trade secrets and effectively utilizetechnical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that are similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished.
While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these predictions insystems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our business strategy,employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we may suffer protracted losses withcannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the result that persons who acquire our common stock will suffer losses thereby.
We believe that, due to the constant focus on the environment and clean air standards throughout the world, a requirementtechnology deployed at customer sites in the future, to adhere to new and more stringent regulations both domestically and abroad is possible as governmental agencies seek to improve standards required for certification of products intended to promote clean air. In the event our products fail to meet these ever-changing standards, some or all of our emission monitoring and environmental control products may become obsolete.
The future growth of our environmental control business depends, in part, on enforcement of existing emissions-related environmental regulations and further tightening of emission standards worldwide with regulations that allow our products to compete effectively against our competitors.
We expect that the future environmental control products business growth will likely be driven, in part, by the enforcement of existing emissions-related environmental regulations and tightening of emissions standards worldwide. If such standards do not continue to become stricter or are loosened or are not enforced by governmental authorities or if such standards require the use of technologies thatwhich we do not possess orcontrol, may be readily observable by third parties who are not ableunder contractual obligations of non-disclosure, which may limit or compromise our ability to develop,continue to protect such technology as a trade secret.
Monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.
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From our customers’ standpoint, the strength of the intellectual property under which we control can be a critical determinant of the value of our products and services. If we are unable to secure, protect and enforce our intellectual property, it may become more difficult for us to attract new customers. Any such development could have a material adverse effect on our business, operating results,prospects, financial condition and long-term prospects.
We may incur substantial costs enforcing our proprietary information, defending against third-party patents, invalidating third-party patents or licensing third-party intellectual property, as a resultresults of litigation or other proceedings relating to intellectual property rights.operations.
We have undertaken only a limited evaluation of our intellectual property rights and we may discover that one or more of our intellectual property rights infringe upon the patents or rights of others with the result that we may incur significant losses thereby. In that event, any person who acquires our common stock may suffer losses thereby.
While we believe that our technology and procedures are likely proprietary, we cannot assure you that others have not or will not replicate our technology and procedures and achieve greater efficiencies and success at our expense.
In that event, we could suffer serious and protracted losses and negative cash flow thereby, our strategy has been to rely on our flexibility to develop custom engineered solutions for various applications and be responsive to customer needs. We cannot assure you that this strategy is or will remain effective to meet these challenges.
We may not have sufficient financial resources to defend our intellectual property rights or otherwise successfully defend against claims that we have infringed on a third party’s intellectual property and, as a result, it may adversely affect our business, financial condition and results of operations.
Even if such claims are not valid, they could subject us to significant costs. In addition, it may be necessary in the future to enforce our intellectual property rights to determine the validity and scope of the proprietary rights of others. Litigation may also be necessary to defend against claims of infringement or invalidity by others. We may not have sufficient financial resources to defend our intellectual property rights or otherwise to successfully defend the company against valid or spurious claims that we have infringed upon the intellectual property rights of others.
An adverse outcome in litigation or any similar proceedings could force us to take actions that could harm its business. These include: (i) ceasing to sell products that contain allegedly infringing property; (ii) obtaining licenses to the relevant intellectual property which we may not be able to obtain on terms that are acceptable, or at all; (iii) indemnifying certain customers or strategic partners if it is determined that we have infringed upon or misappropriated another party’s intellectual property; and (iv) redesigning products that embody allegedly infringing intellectual property. Any of these results could adversely and significantly affect our business, financial condition and results of operations. In addition, the cost of defending or asserting any intellectual property claim, both in legal fees and expenses, and the diversion of management resources, regardless of whether the claim is valid, could be significant and lead to significant and protracted losses.
We may not have sufficient funds to defend a class action suit from a customer as a result of our installed base of products.
Our products are installed at large industrial plants where products of other manufacturers and suppliers are also installed. We could be subject to a class action lawsuit from a customer as a result of loss sustained by a customer due to malfunction of another manufacturer’s product. We may not have sufficient financial resources to successfully defend such a lawsuit.
Product defectsliability lawsuits against us could cause us to incur significantsubstantial liabilities and to limit commercialization of our product liability, warranty and repair and support costs and damage our reputation, which would have a material adverse effect on our business.
Although we test ouror any future products defects may be discovered in future or existing products. These defects could cause us to incur significant warranty, support and repair costs and divert the attention of research and development personnel. It could also significantly damage our reputation and relationship with distributors and customers, which would adversely affect our business. In addition, such defects could result in personal injury or financial or other damages to customers who may seek damages with respect to such losses. A product liability claim against us, even if unsuccessful, would likely be time consuming and costly to defend. We carry some product liability insurance but we cannot assure you that the amount of coverage that we carry is sufficient to insulate us from these claims. In the event of any claim asserting product defects, we will be directly exposed to liability for claims in excess of our coverage limits and there is a clear risk that we and our stockholders could suffer significant and protracted losses thereby.
The markets in which we operate are highly competitive, and many of our competitors have significantly greater financial and managerial resources than we do.
There is significant competition among companies that provide emissions monitoring and environmental control systems. Several companies market products that compete directly with our products. Other companies offer products that potential customers may consider to be acceptable alternatives to our products and services. We face direct competition from companies with far greater financial, technological, manufacturing and personnel resources.
Our results may fluctuate due to certain regulatory, marketing and competitive factors over which we have little or no control.
The factors listed below, some of which we cannot control, may cause our revenue and results of operations to fluctuate significantly:
The loss of the services of Aron Govil and Saagar Govil for any reason would materially and adversely affect our business operations and prospects.
Our financial success is dependent to a significant degree upon the efforts of Aron Govil, our Executive Director, and Saagar Govil, our President and Chief Executive Officer. Aron Govil, who previously served as our Chairman of the Board, has knowledge regarding environmental control systems and has financial resources and business contacts that would be extremely difficult to replace. Saagar Govil possesses engineering, sales and marketing experience concerning our company that our other officers do not have. We have not entered into employment arrangements with them. There can be no assurance that Aron Govil and Saagar Govil will continue to provide services to us. While Saagar Govil devotes all of his working time to our company, Aron Govil devotes an average of 20 hours per week to our company and the balance of his working time is devoted to other business and investment activities. A voluntary or involuntary departure by Aron Govil and/or Saagar Govil could have a materially adverse effect on our business operations if we were not able to attract a qualified replacement for them in a timely manner.
We have a small management team. The loss of any member of our senior management and any significant failure to attract and retain qualified personnel in a competitive labor market could limit our ability to execute our growth strategy, resulting in a slower rate of growth or a period of losses and/or negative cash flow.develop.
We depend onface an inherent risk of product liability exposure related to the continued servicesale of our senior management. Due toproducts and the naturefuture sale of our business, weplanned products. We may have difficulty locating and hiring qualified personnel and retaining such personnel once hired. The loss of the services ofbe sued if any of our key personnel, or ourproducts allegedly causes injury. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to attractwarn of dangers inherent in the product, negligence, strict liability, and retain other qualified and experienced personnel on acceptable terms,a breach of warranties. We may also be subject to liability for a misunderstanding of, or inappropriate reliance upon, the information we provide. If we cannot successfully defend ourselves against claims that our product or planned products caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for our product or any planned products that we may develop; | |
| ● | injury to our reputation and significant negative media attention; | |
| ● | significant costs to defend the related litigation and distraction to our management team; | |
| ● | substantial monetary awards to plaintiffs; | |
| ● | loss of revenue; and | |
| ● | the inability to commercialize any future products that we may develop. |
Such events could limitsubject us to costly litigation, require us to pay substantial amounts of money to injured parties, delay, negatively impact, or end our abilityopportunity to executemarket those products, or require us to suspend or abandon our growth strategy resultingcommercialization efforts. Even in a slower rate of growth.
We arecircumstance in which we do not believe that an “emerging growth company” andadverse event is related to our election to delay adoption of newproduct, the investigation into the circumstance may be time-consuming or revised accounting standards applicable to public companiesinconclusive. These investigations may result ininterrupt our consolidated financial statements not being comparable to those of some other public companies.sales efforts. As a result of this and other reduced disclosure requirements applicable to emerging growth companies,these factors, a product liability claim, even if successfully defended, could harm our securities may be less attractive to investors.business.
As a company with less than $1.0 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” under the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
We intendcurrently maintain product liability insurance coverage, which may not be adequate to take advantage ofcover all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of newliabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or revised financial accounting standards under §107 of the JOBS Act. Our electionin an amount adequate to use the phase-in periodssatisfy any liability that may make it difficult to compare our consolidated financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.arise.
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Certain of these reduced reporting requirements and exemptions were already available
If we experience material weaknesses in the future or otherwise fail to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtainmaintain an auditor attestation and report regarding management’s assessmenteffective system of internal control over financial reporting are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure, and may present only two years of audited financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.
We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our securities less attractive as a result of our election, we may have difficulty raising all of the proceeds we seek in this offering.
If we fail to maintain proper and effective internal controls in the future, we may not be able to accurately or timely report our ability to produce accurate and timely financial statements could be impaired,condition or results of operations, which could harm our operating results, investors’ views ofmay adversely affect investor confidence in us and, as a result, the value of our common stock.
Ensuring thatAs a public company, we have effectiveare required to maintain internal control over financial reporting and disclosure controls and proceduresto report any material weaknesses in place is a costly and time-consuming effort that needs to be frequently evaluated. As a public company, we conduct an annual management assessment of the effectiveness of oursuch internal controls over financial reporting for compliance withcontrols. Section 404 of the Sarbanes-Oxley Act of 2002. Ifrequires that we are not able to comply withevaluate and determine the requirementseffectiveness of Section 404 of the Sarbanes-Oxley Act of 2002, or if we or our independent registered public accounting firm identify ongoing deficiencies in our internal controlscontrol over financial reporting and provide a management report on internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that could rise to the level ofthere is a reasonable possibility that a material weakness,misstatement of our financial statements will not be prevented or detected on a timely basis. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal controlscontrol over financial reporting, we will be unable to assert that our internal controls are effective. The identification of one or more material weaknesses would preclude a conclusion that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.
Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its evaluation, our management concluded that as of September 30, 2021, there are effective.material weaknesses in our internal control over financial reporting. The material weaknesses relates to the Company lacking sufficient, qualified, accounting personnel and the associated sufficient processes and systems. The shortage of qualified accounting personal resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. Additionally, the Company’s current processes and systems do not provide for necessary, timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. These deficiencies are common in small companies, similar to us, with limited personnel.
We are required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “smaller reporting company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. If we are unable to assert that our internal controlscontrol over financial reporting areis effective, we could be subjector when required in the future, if our independent registered public accounting firm is unable to investigations or sanctions byexpress an unqualified opinion as to the U.S. Securities and Exchange Commission or other regulatory authorities, and we couldeffectiveness of our internal control over financial reporting, investors may lose investor confidence in the accuracy and completeness of our financial reports which could cause an adverse effect onand the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
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Risks Related to Acquisitions
We have grown through acquisitions and are continuously looking to fund other acquisitions; our failure to raise funds for acquisitions may have the effect of slowing down our growth and our use of funds for acquisitions subjects us to acquisition-related risks.
We intend to make acquisitions of complementary (including competitive) businesses, products and technologies. However, any future acquisitions may result in material transaction costs, increased interest and amortization expenses related to goodwill and other intangible assets, increased depreciation expense and increased operating expenses, any of which could have an adverse effect on our operating results and financial position. Acquisitions will require integration of acquired assets and management into our operations to realize economies of scale and control costs. Acquisitions may involve other risks, including diversion of management attention that would otherwise be available for ongoing internal development of our business reputation,and risks inherent in entering markets in which we have no or limited prior experience. In connection with future acquisitions, we may make potentially dilutive issuances of equity securities. In addition, consummation of acquisitions may subject us to unanticipated business uncertainties, contingent liabilities or legal matters relating to those acquired businesses for which the sellers of the acquired businesses may not fully indemnify us. There can be no assurance that our business will grow through acquisitions, as anticipated.
We may fail to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions.
We believe there are meaningful opportunities to grow through acquisitions and joint ventures across all product categories and we expect to continue a strategy of selectively identifying and acquiring businesses with complementary products. We may be unable to identify, negotiate, and complete suitable acquisition opportunities on reasonable terms. There can be no assurance that any business acquired by us will be successfully integrated with our operations or prove to be profitable to us. We may incur future liabilities related to acquisitions. Should any of the following problems, or others, occur as a result of our acquisition strategy, the impact could be material:
| ● | difficulties integrating personnel from acquired entities and other corporate cultures into our business; | |
| ● | difficulties integrating information systems; | |
| ● | the potential loss of key employees of acquired companies; | |
| ● | the assumption of liabilities and exposure to undisclosed or unknown liabilities of acquired companies; or | |
| ● | the diversion of management attention from existing operations. |
Risks Related to Our Management and Control Persons
The loss of the services of Saagar Govil for any reason would materially and adversely affect our business operations and prospects.
Our financial positionsuccess is dependent to a significant degree upon the efforts of Saagar Govil, our Chairman, President and Chief Executive Officer. Saagar Govil possesses engineering, sales and marketing experience concerning our company that our other officers do not have. We have not entered into an employment arrangement with Mr. Govil, and we have not obtained key man insurance over him. There can be no assurance that Saagar Govil will continue to provide services to us. A voluntary or involuntary departure by Saagar Govil could have a materially adverse effect on our business operations if we were not able to attract a qualified replacement for him in a timely manner.
If we are unable to attract and retain qualified personnel, especially our design and technical personnel, we may not be able to execute our business strategy effectively.
Our future success depends on our ability to retain, attract and motivate qualified personnel, including our management, sales and marketing, finance, and especially our design and technical personnel. As the source of our technological and product innovations, our design and technical personnel represent a significant asset. Any inability to retain, attract or motivate such personnel could have a material adverse effect on our business and results of operation. In addition, weoperations.
Our management stockholders have significant stockholdings in and influence over our company which could be requiredmake it impossible for public stockholders to expend significant managementinfluence the affairs of our company.
We are a “controlled company” under Nasdaq Listing Rules. Approximately 90% of our outstanding voting shares, which includes our common stock, Series C preferred stock and Series 1 preferred stock, are beneficially held by Saagar Govil, our Chairman, President and Chief Executive Officer. Pursuant to certificate of designation for our Series C preferred, each outstanding share of Series C Preferred Stock is entitled to the number of votes equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and financial resources to correct any material weaknesses that may be identified or to responddivided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any regulatory investigationsand all matters presented to our shareholders for their action or proceedings.consideration, including the election of directors. As a result of Saagar Govil’s ownership of our common stock, Series C preferred stock, and Series 1 preferred stock, he controls, and will control in the future, substantially all matters requiring approval by the stockholders of our company, including the election of all directors and approval of significant corporate transactions. This could make it impossible for public stockholders to influence the affairs of our company.
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Risks Related to Our Securities
Sales of substantial amounts of our common stock in the public market could depress the market price of our common stock.
Our common stock, is tradedSeries 1 warrants and Series 1 Preferred Stock are listed for trading on the Nasdaq Capital Market. If our stockholders sell substantial amounts of our common stocksecurities in the public market, including the shares of common stock issuable upon the exercise of theour Series 1 Warrants,warrants and stock options, and shares issued as consideration in future acquisitions, and shares issuable upon the exercise of outstanding stock options, or the market perceives that such sales may occur, the market price of our common stocksecurities could fall and we may be unable to sell our common stocksecurities in the future.
Our common stocksecurities may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.
The market price of our securities may fluctuate substantially due to a variety of factors, including:
| our business strategy and plans; | ||
| changing factors related to doing business in various jurisdictions within the United States; | ||
| new regulatory pronouncements and changes in regulatory guidelines and timing of regulatory approvals; | ||
| general and industry-specific economic conditions; | ||
| additions to or departures of our key personnel; | ||
| variations in our quarterly financial and operating results; | ||
| changes in market valuations of other companies that operate in our business segments or in our industry; | ||
| lack of | ||
| announcements about our business partners; | ||
| ● | Intellectual property disputes; | |
| ● | Operating results below or exceeding expectations or period-to-period fluctuations in our financial results; |
| Whether we achieve profits or not; | ||
| ● | changes in accounting principles; and | |
| general market |
The market prices of the securities of early-stage companies, particularly companies like ours without consistent product revenues and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and harm our financial condition and results of operations.
BecauseOur Series 1 preferred stock and all of our existing and future indebtedness rank senior to our common stock in the event of a liquidation, winding up or dissolution of our business.
In the event of our liquidation, winding up or dissolution, our assets would be available to make payments to holders of all existing and future indebtedness and Series 1 preferred stock before payments to holders of our common stock. In the event of our bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying amounts to the holders of our indebtedness and Series 1 preferred stock, to pay anything to common stockholders. As of September 30, 2021, we had total consolidated debt of approximately $16.4 million and 1,885,151 shares of Series 1 preferred stock outstanding. Any liquidation, winding up or dissolution of our company or of any of our wholly or partially owned subsidiaries would have never paida material adverse effect on holders of our common stock.
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Our common stockholders may be adversely affected by the issuance of any subsequent series of preferred stock.
Our certificate of incorporation does not restrict our ability to offer one or more additional new series of preferred stock, any or all of which may rank equally with or have preferences over our common stock as to dividend payments, voting rights, rights upon liquidation or other types of rights. We would have no obligation to consider the specific interests of the holders of common stock in creating any such new series of preferred stock or engaging in any such offering or transaction. Our creation of any new series of preferred stock or our engaging in any such offering or transaction could have a material adverse effect on holders of our common stock.
The public trading market for the common stock may be limited in the future.
Our common stock is listed for trading on the Nasdaq Capital Market under the symbol CETX. The trading volume fluctuates and there have been time periods during which the common stock trading volume has been limited. Management can make no assurances that trading volume will not be similarly limited in the future. Without an active trading market, there can be no assurance of any liquidity or resale value of the common stock, and stockholders may be required to hold their shares of common stock for an indefinite period of time.
We may not pay cash dividends on our common stock and have no plans to do so, the only return on an investment in our common stock will come from any increase in the value of the common stock.
Since beginning our business, we have not paidOur board of directors declared a one-time cash dividendsdividend on our common stock in April 2017. The terms of our series 1 preferred stock provide for the payment of semiannual dividends on the last day of March and do not intend to paySeptember in each year, which began in March 2017. No other cash dividends have been declared or paid by us on our stock during either of the two most recent fiscal years or the period through the date of this prospectus. Other than with respect to our series 1 preferred stock, our board of directors declares dividends when, in its discretion, it determines that a dividend payment, as opposed to another use of cash, is in the foreseeablebest interests of the stockholders. Such decisions are based on the facts and circumstances then existing including, without limitation, our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. As a result, we cannot predict when, or whether, another dividend on our common stock will be declared in the future. Rather, we currently intend
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission (“SEC”) encourages companies to retaindisclose forward-looking information so that investors can better understand future earnings, ifprospects and make informed investment decisions. This prospectus contains these types of statements. Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to finance operations. Further,place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The factors listed in the “Risk Factors” section of this prospectus, as well as any cautionary language in this prospectus, provide examples of these risks and uncertainties. The safe harbor for forward-looking statements is not applicable to this offering pursuant to Section 27A of the Securities Act of 1933.
We will not receive any proceeds from the issuance of in-kind dividends of our Series 1 Preferred Stock to the holders of our Series 1 Preferred Stock.
PLAN OF DISTRIBUTION AND DETERMINATION OF OFFERING PRICE
We are offering 250,000 shares of our Series 1 Preferred Stock as in-kind dividend payments under the terms of our Series 1 Preferred provide thatStock. Holders of our Series 1 Preferred Stock are entitled to receive cumulative cash dividends at the rate of 10% of the purchase price per year, payable semiannually on suchthe last day of March and September in each year. Dividends may also be paid, at our option, in additional shares of Series 1 Preferred Stock, valued at their liquidation preference of $10.00 per share. The Series 1 Preferred ranks senior to the common stock with respect to dividends. Dividends will be entitled to be paid to the Series 1 Preferred Stock prior to any cash dividend to the holders of our common stock. Therefore, any return on an investment in our common stock would come only from an increase in the value of ourOur Series 1 Preferred Stock does not convert into common stock.
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The Certificate of Designation filed with the State of Delaware for the Series 1 Preferred Stock provides that dividends on the Series 1 Preferred Stock will be paid out of legally available funds at the date of 10% of the Preference Amount of $10.00 per year from the issuance date through the date of redemption or surrender. Dividends shall be fully cumulative, accruing, without interest, and shall be payable semiannually in arrears on the last day of March and September in each year, commencing March 31, 2017. Dividends on the Series 1 Preferred Stock shall be paid in cash; provided, however, that we may pay such dividend, at our option, in fully paid and nonassessable, registered shares of Series 1 Preferred Stock. Shares of Series 1 Preferred Stock issued as dividends will be delivered in physical certificates unless we are notified, at least 20 days prior to a particular dividend, of the recipient’s election to receive the dividend through DTC. If we deliver shares of Series 1 Preferred Stock in lieu of cash, we must do so for all the dividends payable on such date. Shares issued as dividends shall be rounded to the nearest whole number. Each dividend shall be paid to the holders of Series 1 Preferred Sock not more than 10 days after the applicable dividend payment date. Dividends shall accrue regardless of whether we have earnings, whether there are funds legally available and whether we declare it or not.
The receipt of subscription rights may be treated as a taxable distribution to you.DILUTION
We believe the distribution of the subscription rights in this rights offering should be a non-taxable distributionintend to holders ofissue 250,000 shares of common stock under Section 305(a) of the Code. Please see the discussion on the “Material U.S. Federal Income Tax Consequences to U.S. Holders” below. This position is not binding on the Internal Revenue Service, or the courts, however.our Series 1 Preferred Stock as an in-kind dividend. If this rights offering is deemed toyou invest in our Series 1 Preferred Stock, your interest will be part of a “disproportionate distribution” under Section 305 of the Code, your receipt of subscription rights in this offering may be treated as the receipt of a taxable distribution to you equal to the fair market value of the subscription rights. A “disproportionate distribution” is a distribution or a series of distributions, including deemed distributions, that has the effect of the receipt of cash or other property by some stockholders or holders of debt instruments convertible into stock and an increase in the proportionate interest of other stockholders in a company’s assets or earnings and profits. Any such distribution would be treated as dividend incomediluted immediately to the extent of our current and accumulated earnings and profits, if any, with any excess being treated as a return of capital to the extent thereof and then as capital gain. Each holder of shares of common stock and considering participation is urged to consult his, her or its own tax advisor with respect todifference between the particular tax consequences of this rights offering.
SPECIAL NOTE REGARDING Forward-Looking Statements
This prospectus and the information incorporated by reference in this prospectus contain certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “expect,” “believe,” “goal,” “plan,” “intend,” “estimate,” “may,” “will,” and similar expressions and variations thereof are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Those statements appear in this prospectus and the documents incorporated herein and therein by reference, particularly in the sections entitled “Prospectus Summary” and “Risk Factors,” and include statements regarding the intent, belief or current expectations of our company and management that are subject to known and unknown risks, uncertainties and assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed in or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” set forth below in this prospectus.
This prospectus and the information incorporated by reference in this prospectus also contain statements that are based on management’s current expectations and beliefs, including estimates and projections about our company and industry, financial condition, results of operations and other matters. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that may cause actual results to vary materially from those projected in the forward-looking statements.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by U.S. federal securities law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements contained herein after we distribute this prospectus, whether as a result of any new information, future events or otherwise.
Questions and Answers about the Rights Offering
The following questions and answers are intended to help you locate answers to questions you may have about thispublic offering and related matters, but they do not purport to be complete. The following questions and answers are subject to, and qualified in their entirety by, the more detailed information set forth elsewhere in this prospectus or incorporated herein by reference. See “Risk Factors,” “Description of Capital Stock —Series 1 Preferred,” “Description of Capital Stock —Series 1 Warrants,” “The Rights and the Rights Offering,” and the other information in this prospectus and the information incorporated herein by reference.
What is the rights offering?
We are distributing to holders of our common stock, at no charge, non-transferable subscription rights to subscribe for units consisting of aprice per share of our Series 1 Preferred Stock and two Series 1 Warrants. Each Series 1 Warrant entitles the holder to purchase one share of our common stock at an exercise price of$___ per share (representing 115% of the five-day volume weighted average priceas adjusted net tangible book value per share of our common stock prior to and including the record date). You will receive one subscription right for every two sharesSeries 1 Preferred Stock after this offering.
The net tangible book value of our common stock held of record by youSeries 1 Preferred Stock as of 5:00 p.m., Eastern time, on December__ ,September 30, 2021 was approximately $15.71 million, or approximately $0.69 per share. Net tangible book value per share represents the record date.amount of our total tangible assets less total liabilities divided by the sum of our total number of Series 1 Preferred Stock, Series C Preferred Stock, and Common Stock shares outstanding.
The subscription rights will be evidencedDilution per share to new investors represents the difference between the amount per share paid by subscription documents. Each subscription right will entitlepurchasers for our Series 1 Preferred Stock in this offering and the holdernet tangible book value per share of Series 1 Preferred Stock immediately following the completion of this offering.
After giving effect to a basic subscription privilege and an over-subscription privilege for all basic subscription privileges that remain unsubscribed, in each case subject to proration and as described below. Thethe sale of shares of Series 1 Preferred Stock offered by this prospectus at a public offering price of $1.80 per share, and the Series 1 Warrants to be issuedafter deducting estimated aggregate offering expenses payable by us, our as componentsadjusted net tangible book value as of the unitsSeptember 30, 2021 would have been approximately $15.71 million, or approximately $0.69 per share. This represents a $0.01 decrease in the rights offering do not currently trade on any stock exchange or market,net tangible book value to our existing stockholders and are only transferablean immediate dilution in as adjusted net tangible book value of approximately $1.12 per share to the extent permitted in the instruments governing such securities. We expect the Series 1 Preferred and Series 1 Warrants to trade in the over-the-counter market andto be quoted on the OTCQB marketplace operated by OTC Markets Group. There is no assurance that the Series 1 Preferred or the Series 1 Warrants will be quoted on the OTCQB marketplace.
If I want to subscribe for the units, how do I get started?
To subscribe for the units, you must follow the process described in the subscription documents sent to you and also available from the information agent. For assistance or copies of the documents you may contact the information agent, Okapi Partners LLC at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
Where can I find the number of subscription rights I hold?
The number of subscription rights you hold will be shown on the subscription documents. The number shown is the total number of your subscription rights. You may exercise any or all of them for the units, but the number you exercise cannot exceed the number shown.
If you want to increase the number of subscription rights that you will be entitled to receive, you will need to purchase additional shares of common stock at least four trading days prior to the record date, so that you or your nominee will be the record holder of those additional shares on the record date. Neither we nor our board of directors or the dealer-manager recommends that you do so.
What are the Series 1 Preferred Shares?
The Series 1 Preferred shares are traditional shares of preferred stock, and may be held as registered book-entry shares or held in a traditional brokerage account, at the holder’s election.
Do the Series 1 Preferred have a liquidation preference over the common stock?
Yes, the Series 1 Preferred will rank senior to the common stock, as well as our series A preferred stock, if our company is liquidated. In the event of any liquidation, dissolution or winding up of our company, any amounts remaining available for distribution to stockholders after payment of all of our liabilities will be distributed first among the holders of Series 1 Preferred and then to the holders of common stock and series A preferred stock, with the holders of Series 1 Preferred having a liquidation preference over those junior classes.
What is the basic subscription privilege?
The basic subscription privilege of each subscription right gives our stockholders of record as of the record date the opportunity to purchase one unit at a subscription price of $10.00 per unit. We have granted to you, as a stockholder of record as of 5:00 p.m., Eastern time, on the record date, one subscription right for every two sharespurchasers of our common stock you owned at that time. For example, if you owned 1,000in this offering, as illustrated by the following table:
| Public offering price per share | $ | 1.80 | ||||||
| Net tangible book value per share as of September 30, 2021 | $ | 0.69 | ||||||
| Decrease in net tangible book value per share attributable to investors purchasing our Series 1 Preferred Stock in this offering | $ | (0.01 | ) | |||||
| As adjusted net tangible book value per share as of September 30, 2021 after giving effect to this offering | $ | 0.68 | ||||||
| Dilution per share to investors purchasing our Series 1 Preferred in this offering | $ | 1.12 |
The table above is based on 20,782,194 share of our Common Stock, 50,000 shares of our common stock as of 5:00 p.m., Eastern time, on the record date, you would receive 500 subscription rightsSeries C Preferred Stock, and would have the right, subject to proration, to purchase up to 500 units for $10.00 per unit with your basic subscription privilege. If you fully exercise your basic subscription privilege, you would also be entitled to an unlimited over-subscription privilege, in each case subject to proration as described herein. You may exercise the basic subscription privilege of any number of your subscription rights, or you may choose not to exercise any subscription rights. If you exercise your basic subscription privilege, you may elect to purchase units up to the number of subscription rights you hold. However, all subscriptions, including those pursuant to the basic subscription privilege, are subject to proration.
If you hold your shares in the name of a broker, custodian bank, dealer or other nominee who uses the services of the Depository Trust Company (the “DTC”), DTC will issue one subscription right to the nominee for every two shares of our common stock you own at the record date. The basic subscription privilege of each subscription right can then be used, subject to proration, to purchase one unit at a subscription price of $10.00 per unit. As in the example above, if you owned 1,000 shares of our common stock on the record date, you would receive 500 subscription rights and would have the right to purchase an aggregate of 500 units for $10.00 per unit with your basic subscription privilege, subject to proration as described herein. If you fully exercise your basic subscription privilege, you would also be entitled to an unlimited over-subscription privilege, subject to proration as described herein.
There is no minimum number of units you must purchase, but you may not purchase fractional units. When determining the number of subscription rights you will receive, divide the number of shares of our common stock you own by two, and round up to the next whole number. You may exercise all or a portion of your basic subscription privilege, or you may choose not to exercise any subscription rights at all. However, if you exercise less than your full basic subscription privilege, you will not be entitled to purchase shares under your over-subscription privilege.
Any excess subscription payments received by the subscription rights agent will be promptly returned, without interest.
What is proration?
We do not intend to sell more than 1,500,000 units, in total, in this rights offering. If an insufficient number of shares is available to fully satisfy all basic subscription privilege requests, we will allocate the available units pro-rata among those stockholders exercising their basic subscription privilege in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such stockholder subscribed for under the basic subscription privilege by a fraction (A) the numerator of which is 1,500,000 and (B) the denominator of which is the total number of units sought to be subscribed for under the basic subscription privilege by all holders exercising their basic subscription privilege. This is called proration. If any proration is necessary, subscriptions for the units will be prorated. For example, if the basic subscription privilege requests for the units were for 1,882,189 units, the total number of units that would be issued would be 1,500,000, or approximately 80% of such requests.
The subscription rights agent will notify rights holders of the number of units allocated to each holder promptly after completion of the allocation process. Any excess subscription payments received by the subscription rights agent will be promptly returned, without interest.
What is the over-subscription privilege?
We do not expect all of our stockholders to exercise all of their basic subscription privileges. The over-subscription privilege provides stockholders that do exercise all of their basic subscription privileges the opportunity to purchase the units that are not purchased by other stockholders. If you fully exercise your basic subscription privilege, the over-subscription privilege entitles you to subscribe for additional units unclaimed by other holders of subscription rights in this offering at the same purchase price per unit. If an insufficient number of units is available to fully satisfy all over-subscription privilege requests, we will allocate the available units pro-rata among those stockholders exercising their over-subscription privilege in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such stockholder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the number of unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscription privilege by all holders participating in such over-subscription.
To properly exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege prior to the expiration of the rights offering or such earlier date as may be specified in the subscription documents you receive from the subscription rights agent (or via the web portal established by the subscription rights agent). Because we will not know the total number of unsubscribed units prior to the expiration of the rights offering, you will need to deliver payment in an amount equal to the aggregate purchase price for the maximum number of units that you desire to purchase. See “The Rights Offering—The Subscription Rights—Over-Subscription Privilege.”
Any excess subscription payments received by the subscription rights agent will be promptly returned, without interest.
We do not intend to extend the subscription period for the rights offering. If the rights offering subscription period is extended (the “extension period”), (i) all basic subscription privileges exercised prior to the beginning of the extension period will be honored first, (ii) all over-subscription privileges exercised prior to the beginning of the extension period will be honored second, and all basic and over-subscription privileges exercised during the extension period will be filled daily on a first-come, first-serve basis. If your subscription arrives during the first-come, first-serve extension period and the rights offering is over-subscribed, then the subscriptions received on or after the day on which the offering is first over-subscribed will be prorated as described above. Any subscriptions received during the extension period, but after the date on which the rights offering is fully subscribed, will not be allocated any units. The subscription rights agent will notify rights holders of the number of units, if any, allocated to each, promptly after completion of the allocation process.
What are the limitations on the exercise of the basic subscription privilege and over-subscription privilege?
Subject to your ability to exercise the over-subscription privilege, you may only purchase the number of units purchasable upon exercise of the basic subscription privilege included in the subscription rights distributed to you in the rights offering, and even then you will be subject to proration. Accordingly, the number of units that you may purchase in the rights offering is limited both by the number of shares of our common stock that you held on the record date and by the potential proration provisions of this offering. Although stockholders that fully and properly exercise their basic subscription privilege have the right to exercise the over-subscription privilege, there can be no assurances of the number of units that a holder will be able to acquire through the exercise of the over-subscription privilege, if any. We reserve the right to reject any or all subscriptions not properly submitted or the acceptance of which would, in the opinion of our counsel, be unlawful or which, for any other reason, we deem inconsistent with the requirements of the offering as described herein.
All subscriptions, including subscriptions pursuant to the basic subscription privilege, will be subject to proration. If all the basic subscription privilege rights were exercised, all subscription rights holders would be subject to proration of their basic subscription privilege, and each subscription rights holder would be entitled to purchase a total number of units of approximately 80% of the number of subscription rights held by such subscription rights holder. If any proration is necessary, subscriptions for units will be prorated.
In addition, if the exercise by a stockholder of the basic subscription privilege or the over-subscription privilege could, as determined by us in our sole discretion, potentially result in a limitation on our company’s ability to use the Tax Attributes, under the Code, and rules promulgated by the Internal Revenue Service, we may, but are under no obligation to, reduce the exercise by such stockholder of the basic subscription privilege or the over-subscription privilege to such number of units as we in our sole discretion shall determine to be advisable in order to preserve our ability to use the Tax Attributes.
Why is Cemtrex conducting this rights offering?
We are conducting this rights offering to raise up to $15.0 million in additional capital. We intend to use these proceeds to supplement our operating cash flows to fund our new product development and acquisition growth plan.We currently have no commitments or agreements with respect to any acquisition. We also plan to utilize a smaller portion of the proceeds to repay or reduce certain of our outstanding indebtedness, particularly our short-term convertible notes payable. Our board of directors has chosen to give you the opportunity to purchase additional securities to maintain your current percentage ownership in our company and provide us with additional capital at these price levels. We cannot assure you that we will not need to seek additional financing in the future.
How were the $10.00 per unit purchase price and the exercise price of the Series 1 Warrants determined?
The purchase price of the units and the exercise price of the Series 1 Warrants offered in this rights offering were determined by our board of directors, taking into account the advice of the dealer-manager, Source Capital Group, Inc.,based on a number of factors, including but not limited to: our need for capital, the likely cost of capital from other sources, the price at which our principal stockholders would be willing to purchase our securities, our business prospects, the need to offer securities at a price that would be attractive to our investors and encourage them to participate in the rights offering, the historic and current market price of our common stock, general conditions in the securities market and the difficult market conditions prevailing for the raising of equity capital, our operating history and the liquidity of our common stock. In determining the purchase price, our board did not take into account the anticipated limited liquidity in the potential trading of the Series 1 Warrants, because the board had no way to estimate the probable extent or absence of trading activity in the Series 1 Warrants. We have established the purchase price by ourselves with the advice of our dealer-manager. The purchase price is not the result of any negotiation between us and any person. The board of directors established the purchase price at $10.00 per unit and the Series 1 Warrant exercise price at $___ per share (representing 115% of the five-day volume weighted average price per share of our common stock prior to and including the record date). The purchase price is not necessarily related to our book value, net worth or any other established criteria of value and may or may not be considered the fair value of the units offered in the rights offering. You should not consider the subscription price of the units or the exercise price of the Series 1 Warrants as any indications of the fair value of our common stock or the securities to be offered in this rights offering. After the date of this prospectus, our common stock may trade at prices above or below these prices. Subscription rights holders should consider the potential lack of liquidity carefully before making a decision to exercise their subscription rights for the units.
Will there be an active trading market for the units and other securities?
There is no established trading market for the units, Series 1 Preferred or Series 1 Warrants and we do not intend to list the units, Series 1 Preferred, or Series 1 Warrants on any national securities exchange.We expect the Series 1 Preferred and Series 1 Warrants to trade in the over-the-counter market and to be quoted on the OTCQB marketplace operated by OTC Markets Group. We cannot guarantee that a trading market for the Series 1 Preferred or Series 1 Warrants will develop or, if a trading market for these securities does develop, the depth or liquidity of that market. If no active trading market develops, you may not be able to resell the Series 1 Preferred or the Series 1 Warrants at their fair market value, or at all. There will be no holders of the Series 1 Preferred or Series 1 Warrants to help establish a trading market other than purchasers in this transaction. Further, we do not expect to issue any additional Series 1 Preferred or Series 1 Warrants. Consequently, trading of these securities may be very limited and possibly non-existent.
Am I required to exercise any or all of the subscription rights I receive in the rights offering?
No. You may exercise any number of your subscription rights, or you may choose not to exercise any subscription rights at all. Exercising or not exercising your subscription rights will not affect the number of shares of our common stock you own (or have the right to own upon exercise or conversion of other securities). However, if you choose not to exercise your subscription rights, your ownership interest in the company and your voting and other rights may be diluted by other stockholder purchases (to the extent we receive any subscriptions in this rights offering).
What happens if I own fewer than two shares of common stock or the number I own is not exactly divisible by two?
If you own fewer than two shares of our common stock, you will receive one whole subscription right. If you own a number of shares of common stock that is not exactly divisible by two, you will receive one whole subscription right for the remainder of one share.
How soon must I act to exercise my subscription rights?
The subscription rights may be exercised at any time beginning on December__ , 2016 and prior to the expiration of the subscription period, which is on _____________, 2016, at 5:00 p.m., Eastern time, unless the subscription period is extended. If you elect to exercise any rights, the subscription rights agent must actually receive all required documents and payments from you prior to the expiration of the subscription period or such earlier date as may be specified in the subscription documents. Although we have the option of extending the subscription period for a period not to exceed 30 days, we do not intend to do so.
How do I exercise my subscription rights?
To exercise your subscription rights, you must follow the process described in the subscription documents sent to you and also available from the information agent. For assistance you may contact the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
If I want to exercise my subscription rights but my shares are held in the name of my broker, dealer, custodian bank or other nominee, what should I do?
You should contact the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
What if I attempt to exercise my subscription rights for the units, but I am not a U.S. citizen, or for any other reason the subscription rights agent determines that I am not allowed to subscribe for the units?
If for any reason the subscription rights agent determines that you cannot subscribe for the units, the subscription rights agent will return your subscription funds to you. You may call theinformation agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.comfor assistance.
Who is the subscription rights agent for this offering?
Continental Stock Transfer & Trust Company.
Who is the transfer agent for our Series 1 Preferred, Series 1 Warrants and common stock?
Continental Stock Transfer & Trust Company.
Who is the information agent for this offering?
Okapi Partners LLC.
Who is the dealer-manager for this offering and placement agent for any unsubscribed units?
Source Capital Group, Inc.
May I transfer my subscription rights?
No. You may not sell or transfer your subscription rights to anyone.
Are we requiring a minimum subscription to complete the rights offering?
No. We may complete the rights offering regardless of the number of subscription rights that may be exercised.
Are there any conditions to completing the rights offering?
No, but we have the right to cancel or modify the terms of the offering in our sole discretion.
Can our company’s board of directors extend, cancel or amend the rights offering?
Yes. We have the option to extend the rights offering and the period for exercising your subscription rights for a period not to exceed 30 days, at our sole discretion, in which case the offering would continue on a subscriptions first-come, first-serve basis, calculated on a daily basis with the potential for pro-rata allocation of units among participants subscribing on the day, if any, on which the offering becomes oversubscribed. We do not presently intend to extend the rights offering. If we elect to extend the expiration of the rights offering, we will issue a press release announcing such extension no later than 9:00 a.m., Eastern time, on the next business day after the most recently announced expiration time of the rights offering. We will extend the duration of the rights offering as required by applicable law or regulation and may choose to extend it if we decide to give investors more time to exercise their subscription rights in the rights offering. If we elect to extend the rights offering for a period of more than 30 days, holders who have subscribed for rights may cancel their subscriptions and receive a refund of all money advanced. Our board of directors may cancel the rights offering at any time in its sole discretion. If the rights offering is cancelled, we will issue a press release notifying stockholders of the cancellation and all subscription payments received by the subscription rights agent will be promptly returned, without interest or penalty.
Our board of directors also has the right to amend or modify the terms of the rights offering in its sole discretion. If we make any fundamental change to the terms of the rights offering set forth in this prospectus, we will offer persons who have exercised their subscription rights the opportunity to cancel their purchases and the subscription rights agent will refund the funds advanced by each such person and recirculate an updated prospectus. In addition, upon such event, we may extend the expiration date of the rights offering to allow holders of subscription rights ample time to make new investment decisions and for us to recirculate updated documentation. Promptly following any such occurrence, we will issue a press release announcing any changes with respect to the rights offering and the new expiration date. The terms of the rights offering cannot be modified or amended after the expiration date of the rights offering. Although we do not presently intend to do so, we may choose to amend or modify the terms of the rights offering for any reason, including, without limitation, in order to increase participation in the rights offering. Such amendments or modifications may include a change in the purchase price, although we do not currently anticipate any such change.
Has our company’s board of directors made any recommendation to our stockholders regarding the rights offering?
No. Neither we nor our board nor the dealer-manager are making any recommendation to stockholders regarding the exercise of subscription rights in the rights offering. You should make an independent investment decision about whether or not to exercise your rights. Stockholders who exercise subscription rights risk the loss of the amount invested. There is currently no public market for our shares of Series 1 Preferred or Series 1 Warrants. Further, although the Series 1 Preferred and Series 1 Warrants are expected to trade in the over-the-counter market and to be quoted on the OTCQB marketplace, there may not be a liquid market or even any purchasers at any price for the Series 1 Preferred or Series 1 Warrants you may purchase in this transaction. Please see “Risk Factors” for a discussion of material risks involved in investing in the units.
What will happen if I choose not to exercise my subscription rights?
Whether or not you exercise your subscription rights, the number of shares of our common stock you own (or have the right to own upon exercise or conversion of other securities) will not change. However, if you choose not to exercise your subscription rights, your ownership interest in the company and your voting and other rights may be diluted by other stockholder purchases (to the extent we receive any subscriptions in this rights offering).
I am not a U.S. citizen or resident. May I exercise my subscription rights in this rights offering?
Persons who are not U.S. citizens or residents may exercise their subscription rights in this rights offering.
Will I receive a certificate representing my new Series 1 Preferred if I purchase units?
You will have the choice to receive a certificate or to hold your Series 1 Preferred in a brokerage account of your choice.
Will there be a CUSIP number for the Series 1 Preferred and Series 1 Warrants?
Yes.
If I exercise some or all of my subscription rights, may I cancel my exercise before the rights offering closes?
No. All exercises of subscription rights are irrevocable, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights and even if our board of directors extends the rights offering for a period of up to 30 days. However, if we amend the rights offering to allow for an extension of the rights offering for a period of more than 30 days or make a fundamental change to the terms of the rights offering set forth in this prospectus, you may cancel your purchase and receive a refund of any money you have advanced. You should not exercise your subscription rights unless you are certain that you wish to purchase units at the purchase price of $10.00 per unit.
How many shares of the company’s common stock and how many shares of the Series 1 Preferred and Series 1 Warrants will be outstanding after the rights offering?
At the record date, 9,410,947 shares of our common stock were outstanding, and no1,885,151 shares of our Series 1 Preferred Stock outstanding and issued as of September 30, 2021.
To the extent that outstanding derivative securities are exercised, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or Series 1 Warrants were outstanding. The offering ofstrategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the Series 1 Preferred and Series 1 Warrants in this offering will have no effect at all initially on the number of shares of our common stock outstanding.The number of shares of our Series 1 Preferred and Series 1 Warrantsextent that we will issue in this rights offeringadditional capital is raised through the exercisesale of subscription rights will depend onequity or convertible debt securities, the numberissuance of units that are subscribed forthese securities could result in the rights offering. If the rights offering is fully subscribed, we will issue a total of 1,500,000 units consisting of 1,500,000 shares of Series 1 Preferred and Series 1 Warrantsfurther dilution to purchase 3,000,000 shares of our common stock. We do not expect to issue any additional shares of Series 1 Preferred or Series 1 Warrants after this transaction. Consequently, we expect trading of securities to be limited to what we issue in this transaction.stockholders.
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How much will the company receive from the rights offering?
If the offering is fully subscribed for 1,500,000 units, the proceeds of the offering, net of estimated expenses, including dealer-manager fees, will be approximately $13.7 million. Please see “Use of Proceeds.”
Are there material risks in exercising my subscription rights?
Yes. The exercise of your subscription rights involves material risks. Among other things, you should carefully consider each of the risks described under the heading “Risk Factors” in this prospectus and the documents incorporated by reference.
If the rights offering is not completed, will my subscription payment be refunded to me?
Yes. The subscription rights agent will hold all funds it receives in a segregated bank account until completion of the rights offering. If the rights offering is not completed, all subscription payments received by the subscription rights agent will be promptly returned, without interest. If you own your common stock in a brokerage account, it may take longer for you to receive the return of your payment because the subscription rights agent will return your payment through the record holder of your shares of common stock.
Will the subscription rights be listed on a stock exchange or national market?
No. The subscription rights may not be sold, transferred or assigned and will not be listed for trading on any stock exchange or market.
How do I exercise my subscription rights if I live outside the United States?
We will mail this prospectus and the subscription documents to stockholders whose addresses are outside the United States or who have an army post office or foreign post office address.To exercise your subscription rights, you must follow the process described in the subscription documents sent to you and also available from the information agent. For assistance you may contact the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
What fees or charges apply if I purchase the units?
We are not charging any fee or sales commission to issue subscription rights to you or to issue the units to you if you exercise your subscription rights. If you exercise your subscription rights through the record holder of your shares, you are responsible for paying any fees your record holder may charge you.
What are the U.S. federal income tax consequences of exercising subscription rights?
For U.S. federal income tax purposes, you generally should not recognize income or loss in connection with the receipt or exercise of subscription rights unless the rights offering is treated as a distribution described in either Section 305(b) or 305(c) of the Code. We believe that the rights offering should not be treated as either such distribution, but certain aspects of that determination are unclear. Our position is not binding on the Internal Revenue Service or the courts, however. You are urged to consult your own tax advisor as to your particular tax consequences resulting from the receipt and exercise of subscription rights and the receipt, ownership and disposition of our Series 1 Preferred and Series 1 Warrants. For further information, please see “Material U.S. Federal Income Tax Consequences to U.S. Holders.”
If I hold Series 1 Preferred, how will I receive any dividends paid on the Series 1 Preferred?
Dividends on the Series 1 Preferred will be paid in cash or in additional shares of Series 1 Preferred and will be paid to the record holders of the Series 1 Preferred at their registered addresses.
Who should I contact if I have other questions?
If you have other questions or need assistance, please contact the information agent,Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
DESCRIPTION OF CAPITAL STOCKSECURITIES TO BE REGISTERED
This description is only a summary and is qualified in its entirety by reference to the description of our capital stock included in our certificate of incorporation and our by-laws, which have been filed as exhibits to the registration statement of which this prospectus forms a part. You should read our certificate of incorporation and by-laws for additional information before you buy any of our securities. See “Where You Can Find More Information” and “Information Incorporated by Reference.”
General
Our authorized capital stock consists of 20,000,00050,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share, of which 1,000,000 shares are designated as series A preferred stock, 100,000 are designated as series C preferred stock and 3,000,000 shares are designated as series 1 preferred stock. At August 29th, 2016, 9,410,947As of February 9, 2022, 23,673,210 shares of common stock were issued and outstanding and 1,000,0000 shares of series A preferred stock issued and outstanding, 50,000 shares of Series C preferred stock issued and outstanding and 1,979,753 shares of series 1 preferred stock were issued and outstanding.
In addition, as of February 9, 2022, there were an aggregate of 433,965 shares of our common stock issuable upon the exercise of our publicly traded series 1 warrants that have an exercise price of $50.48 per share and 950,000 shares of our common stock reserved for issuance upon the exercise of our outstanding stock options at a weighted average exercise price of $1.74 per share.
Common Stock
Voting Power; Dividends.Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and have the right to vote cumulatively for the election of directors. This means that in the voting at our annual meeting, each stockholder or his proxy, may multiply the number of his shares by the number of directors to be elected then cast the resulting total number of votes for a single nominee, or distribute such votes on the ballot among the nominees as desired. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available therefor, subject to any preferential dividend rights for our outstanding preferred stock.
Liquidation, Dissolution and Winding Up. Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any of our outstanding preferred stock.
Preemptive and Other Rights. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Our common stockholders may not receive any assets or funds until our creditors have been paid in full and the preferential or participating rights of our preferred stockholders have been satisfied. If we participate in a corporate merger, consolidation, purchase or acquisition of property or stock, or other reorganization, any payments or shares of stock allocated to our common stockholders will be distributed pro-rata to holders of our common stock on a per share basis. If we redeem, repurchase or otherwise acquire for payment any shares of our common stock, we will treat each share of common stock identically.
We may issue additional shares of our common stock and our preferred stock, if authorized by the board, without the common stockholders’ approval, unless required by Delaware law or a stock exchange on which our securities are traded. If we receive the appropriate payment, shares of our common stock that we issue will be fully paid and nonassessable.
Nasdaq Capital Market. Our shares of common stock are traded on the Nasdaq Capital Market under the symbol CETX.
Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Clear Trust LLC, Lutz, Florida.
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Preferred Stock
Under our certificate of incorporation, our board of directors is authorized, without further stockholder action, to issue up to 10,000,000 shares of preferred stock in one or more series, with such powers, designations, preferences and relative, participating, optional and other rights and such qualifications, limitations and restrictions thereof as shall be set forth in the resolutions providing therefor. We have no present plans to issue any additional shares of preferred stock or series A preferred stock, except for 1,500,000 shares of Series 1 Preferred as described in this prospectus.stock.
Series A Preferred Stock
In September 2009, we issued shares of our series A preferred stock to Aron Govil, our Executive Director. Pursuant to the certificate of designation relating to those shares, each issued and outstanding share of series A preferred stock is entitled to the number of votes equal to the result of (i) the total number of shares of common stock outstanding at the time of such vote multiplied by 1.01, and divided by (ii) the total number of shares of series A preferred stock outstanding at the time of such vote, at each meeting of our stockholders with respect to any and all matters presented to our stockholders for their action or consideration, including the election of directors.
Our series A preferred stock has equal distribution rights with our common stockholders upon liquidation, dissolution or winding-up of our company, and otherwise has no pre-emptive, subscription, conversion or redemption rights.
Units Offered
The following description of the material terms and provisions of the Series 1C Preferred and Series 1 Warrants comprising the units being offered is qualified in its entirety by reference to the form of certificate of designation, preferences and rights of the Series 1 Preferred and to the form of Series 1 Warrant, filed as exhibits to the registration statement of which this prospectus forms a part.Stock
TheOn October 3, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series 1C Preferred and Series 1 Warrants offered by this prospectus will be sold only together in units. Each unit is immediately detachable and consistsStock, consisting of up to one sharehundred thousand (100,000) shares, par value $0.001. Under the Certificate of Designation, holders of Series 1C Preferred Stock are entitled to the number of votes per share equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and two Series 1 Warrants. Each Series 1 Warrant entitlesdivided by (ii) the holder to purchase one sharetotal number of our common stock. The shares of Series 1C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and Series 1 Warrants will be separately transferable followingall matters presented to our shareholders for their action or consideration, including the closing. The units will not be traded.election of directors.
Series 1 Preferred
At the closingIn January and February 2017, we issued an aggregate of this offering, we expect to issue up to 1,500,0001,735,858 shares of series 1 preferred stock designated as “Series(the “series 1 Preferred.” When issued,preferred”), having the Series 1 Preferred will be fully paidfollowing powers, preferences and nonassessable. Prior to this offering, no shares of Series 1 Preferred have been issued or outstanding.rights:
Dividends
Dividends. Holders of the Seriesseries 1 Preferred will bepreferred are entitled to receive cumulative cash dividends at the rate of 10% of the purchase price per year, payable semiannually on the last day of March and September in each year. Dividends may also be paid, at our option, in additional shares of Seriesseries 1 Preferred,preferred, valued at their liquidation preference. The Seriesseries 1 Preferred will rankpreferred ranks senior to the common stock with respect to dividends. Dividends will be entitled to be paid prior to any dividend to the holders of our common stock.
Liquidation Preference
Liquidation Preference.The Seriesseries 1 Preferred will havepreferred has a liquidation preference of $10.00 per share, equal to its purchase price. In the event of any liquidation, dissolution or winding up of our company, any amounts remaining available for distribution to stockholders after payment of all liabilities of our company will be distributed first to the holders of Seriesseries 1 Preferred,preferred, and thenpari passu to the holders of the series A preferred stock and our common stock. The holders of Seriesseries 1 Preferred willpreferred have preference over the holders of our common stock on any liquidation, dissolution or winding up of our company. The holders of Seriesseries 1 Preferred willpreferred also have preference over the holders of our series A preferred stock.
Voting Rights
Rights.Except as otherwise provided in the certificate of designation, preferences and rights or as required by law, the Seriesseries 1 Preferred willpreferred vote together with the shares of our common stock (and not as a separate class) at any annual or special meeting of stockholders. Except as required by law, each holder of shares of Seriesseries 1 Preferred will bepreferred is entitled to two votes for each share of Seriesseries 1 Preferredpreferred held on the record date as though each share of Seriesseries 1 Preferredpreferred were 2two shares of our common stock. Holders of the Seriesseries 1 Preferred willpreferred vote as a class on any amendment altering or changing the powers, preferences or special rights of the Seriesseries 1 Preferredpreferred so as to affect them adversely.
No Conversion
No Conversion. The Seriesseries 1 Preferred willpreferred are not be convertible into or exchangeable for shares of our common stock or any other security.
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Rank
Rank. The Seriesseries 1 Preferred will rankpreferred ranks with respect to distribution rights upon our liquidation, winding-up or dissolution and dividend rights, as applicable:
| ● | senior to our series A preferred stock, common stock and any other class of capital stock we issue in the future unless the terms of that stock provide that it ranks senior to any or all of the series 1 preferred; | |
| ● | on a parity with any class of capital stock we issue in the future the terms of which provide that it will rank on a parity with any or all of the series 1 preferred; | |
| ● | junior to each class of capital stock issued in the future the terms of which expressly provide that such capital stock will rank senior to the series 1 preferred and the common stock; and | |
| ● | junior to all of our existing and future indebtedness. |
In addition, the Seriesseries 1 Preferred,preferred, with respect to rights upon our liquidation, winding-up or dissolution, will be structurally subordinated to existing and future indebtedness of our company and subsidiaries, as well as the capital stock of our subsidiaries held by third parties.
As of June 30, 2016, we had total consolidated debt of approximately $23.3 million and 1,000,000 shares of series A preferred stock outstanding.
Redemption
Redemption. We may mandatorily redeem any or all of the Seriesseries 1 Preferredpreferred at any time and from time to time at our option, by giving notice (by issuing a press release or otherwise making a public announcement, by mailing a notice of redemption or otherwise). If we redeem fewer than all of the outstanding shares of Seriesseries 1 Preferred,preferred, we may select the shares to be redeemed by redeeming shares proportionally, by lot, or by any other equitable method.
The mandatory redemption price for any shares of Seriesseries 1 Preferred will bepreferred is an amount equal to the $10.00 purchase price per share plus any accrued but unpaid dividends to the date fixed for redemption.
From and after any applicable redemption date, if funds necessary for the redemption are available and have been irrevocably deposited or set aside, then:
There will not be any sinking fund for the Series 1 Preferred.
| the shares will no longer be deemed outstanding; |
| ● | the holders of the shares, as such, will cease to be stockholders; and | |
| ● | all rights with respect to the shares of series 1 preferred will terminate except the right of the holders to receive the redemption price, without interest. |
Potential Series 1 Preferred Repurchases
We do not currently intend tomay also repurchase, outside of our mandatory redemption rights, any shares of the Seriesseries 1 Preferredpreferred in privately-negotiated transactions or in the over-the-counteropen market if any, after the Series 1 Preferred are issued. However, we could do so,purchases on Nasdaq, subject to applicable regulations regarding issuer repurchases of their capital stock. If we do so,In such cases, we would most likely do so at prices substantially lower than the prices at which we might be entitled to redeem the shares. Because our right to redeem the Series 1 Preferred will be at prices no less than the purchase price, we will have an economic incentive to repurchase shares of Series 1 Preferred at their trading prices, if any, from time to time if those prices are lower than the price at which we would beare entitled to mandatorily redeem the shares. If we repurchase shares of Series 1 Preferred, the trading market for the Series 1 Preferred, if any, would become less liquid, which would likely cause the trading prices of the Series 1 Preferred to decrease further, which would give us an economic incentive to repurchase additional shares. The occurrence of the foregoing would have a material adverse effect on holders of the Series 1 Preferred and the liquidity in and trading prices, if any, of the Series 1 Preferred.
Anti-dilution Adjustments
The Series 1 Preferred will not be adjusted, and no additional shares of Series 1 Preferred will be issued solely as a result of, any future change to or affecting our common stock, except that we will use reasonable efforts to make a corresponding pro-rata adjustment to the Series 1 Preferred if we effect any stock dividend, stock split or combination of our common stock. In connection with any such adjustments, we would either pay cash in lieu of fractional shares or round any fractional share up or down.
Treatment in Merger
If we are party to any merger or consolidation in which our common stock is changed into or exchanged for stock or other securities of any other person or cash or any other property (or a right to receive the foregoing), we will use reasonable efforts to cause the outstanding shares of Series 1 Preferred to be treated as if such shares were additional outstanding shares of common stock in connection with any such transaction. No assurance can be given that we would be able to do so. Further, we could be involved in transactions other than a merger or consolidation in which our common stock might be changed into or exchanged for stock or other securities of another person or cash or any other property (or a right to receive the foregoing) in which the outstanding shares of Series 1 Preferred would not be treated as if such shares were additional outstanding shares of common stock.
Form
The Series 1 Preferred may be held in registered book-entry form or through an intermediary.
Trading
The Series 1 Preferred will not be listed on the Nasdaq Capital Market or any other national securities exchange. We expect the Series 1 Preferred to trade in the over-the-counter market and to be quoted on the OTCQB marketplace operated by OTC Markets Group.
No Other Rights
Rights.The holders of the Seriesseries 1 Preferred willpreferred have no preemptive or preferential or other rights to purchase or subscribe to any stock, obligations, warrants or other securities of ours.
Transfer Agent and Registrar
Continental Stock Trading. The series 1 preferred is listed for trading on the Nasdaq Capital Market under the symbol CETXP.
Transfer &Agent and Registrar. Clear Trust, Company, located at 17 Battery Place, 8th Floor, New York, New York 10004, will beLLC, Florida, is the transfer agent and registrar for the Seriesour series 1 Preferred.preferred.
Series 1 Warrants
Exercise and Terms
Each Series 1 Warrant entitles the holder thereof to purchase one share of our common stock at an exercise price equal to $___ per share (representing 115% of the five-day volume weighted average price per share of our common stock prior to and including the record date). The exercise price is subject to similar anti-dilution provisions as the shares of Series 1 Preferred. Series 1 Warrants will be exercisable, at any time and from time to time, on or before the fifth anniversary of the date of issuance by delivery of an exercise notice duly completed and tendering of the aggregate exercise price. The Series 1 Warrants are exercisable only for cash.
A holder will be prohibited under the terms of the Series 1 Warrants from effecting the exercise of the Series 1 Warrants to the extent that, as a result of the exercise, the holder of such shares beneficially owns more than 4.99% (or, if this limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon such exercise.
Call Option
The Series 1 Warrants are callable by us at a price of $0.10 per underlying share of common stock on 30 days’ notice if (i) the average closing price of our common stock for 30 consecutive trading days exceeds 200% of the exercise price, (ii) our common stock continues to be traded on the Nasdaq Capital Market or is trading on another national securities exchange and (iii) the registration statement forming a part of this prospectus remains effective (or another registration statement covering the shares underlying the Series 1 Warrants has been declared effective) and such shares are not subject to lock-up restrictions.
Trading
We expect the Series 1 Warrants to trade in the over-the-counter market and to be quoted on the OTCQB marketplace operated by OTC Markets Group. There is no assurance that the Series 1 Warrants will be quoted on the OTCQB marketplace.
Warrant Agent
Continental Stock Transfer & Trust Company will be the warrant agent for the Series 1 Warrants.
Anti-Takeover Provisions
WeThe terms of our shares of series A, none are subjectissued and outstanding at this time, and series C preferred stock, held by Saagar Govil, our CEO, may also have the effect of discouraging a takeover of our company. Pursuant to the provisionscertificate of Section 203designation for our Series A preferred stock, each outstanding share of Series A preferred stock is entitled to the number of votes equal to the result of (i) the total number of shares of our common stock outstanding at the time of such vote multiplied by 1.01, divided by (ii) the total number of shares of our series A preferred stock outstanding at the time of such vote, at each meeting of stockholders of our company with respect to any and all matters presented to our stockholders for their action or consideration, including the election of directors. Pursuant to the certificate of designation for our Series C preferred stock, each issued and outstanding Series C Preferred Share shall be entitled to the number of votes equal to the result of: (i) the number of shares of common stock of the General Corporation LawCompany (The “Common Shares”) issued and outstanding at the time of Delaware. Section 203 prohibits certain publicly held Delaware corporations from engaging in a “business combination” with an “interested stockholder,” for a periodsuch vote multiplied by 10.01; divided by (ii) the total number of three years afterSeries C Preferred Shares issued and outstanding at the datetime of such vote, at each meeting of shareholders of the transaction in which the person became an “interested stockholder,” unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset salesCompany with respect to any and other transactions resulting in a financial benefitall matters presented to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a personshareholders of the Company for their action or entity who,consideration, including the election of directors. Holders of Series C Preferred Shares shall vote together with affiliatesthe holders of Common Shares as a single class. As a result of Saagar Govil’s ownership of our Series C preferred stock, our management stockholders control, and associates, owns (or withinwill control in the preceding three years, did own) 15% or more of the corporation’s voting stock. The statute contains provisions enabling a corporation to avoid the statute’s restrictions iffuture, substantially all matters requiring approval by the stockholders holding a majority of our company, including the corporation’selection of all directors and approval of significant corporate transactions. Given this continuing voting interest of our series A preferred stock approve.and series C preferred stock, its holder will be able to exert significant influence over all corporate activities including the outcome of tender offers, mergers, proxy contests or other purchases of common stock, which could discourage others from initiating changes of control.
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In addition, our
Our certificate of incorporation, as amended, in order to combat “greenmail,” provides in general that any direct or indirect purchase by us of any of our voting stock or rights to acquire voting stock known to be beneficially owned by any person or group which holds more than 5% of a class of our voting stock and which has owned the securities being purchased for less than two years must be approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of voting stock, subject to certain exceptions. The prohibition of “greenmail” may tend to discourage or foreclose certain acquisitions of our securities, which might temporarily increase the price of our securities. Discouraging the acquisition of a large block of our securities by an outside party may also have a potential negative effect on takeovers. Parties seeking control of usour company through large acquisitions of itsour securities will not be able to resort to “greenmail” should their bid fail, thus making such a bid less attractive to persons seeking to initiate a takeover effort.
We are subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits certain publicly held Delaware corporations from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an “interested stockholder,” unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person or entity who, together with affiliates and associates, owns (or within the preceding three years, did own) 15% or more of the corporation’s voting stock. The statute contains provisions enabling a corporation to avoid the statute’s restrictions if the stockholders holding a majority of the corporation’s voting stock approve.
Indemnification of Directors and Officers
Our certificate of incorporation provides that any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not by or in the right of the company) by reason of the fact that he is or was a director, officer, incorporator, employee or agent of the company, or is or was serving at the request of the company as a director, officer, incorporator, employee or agent of another company, partnership, joint venture, trust or other enterprise, shall be entitled to be indemnified by the company to the full extent then permitted by law or to the extent that a court of competent jurisdiction shall deem proper or permissible under the circumstance, whichever is greater, against expenses (including attorneys’ fees), judgments, fines and amount paid in settlement incurred by such person in connection with such action, suit or proceeding. Such right of indemnification shall inure whether or not the claim asserted is based on matters which pre-date the company’s adoption of the indemnification provisions in its certificate of incorporation. Furthermore, such right of indemnification will continue as to a person who has ceased to be a director, officer, incorporator, employee or agent and will inure to the benefit of the heirs and personal representatives of such person.
Nasdaq Capital MarketINTERESTS OF NAMED EXPERTS AND COUNSEL
Our sharesNo expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock are tradedwas employed on a contingency basis, or had, or is to receive, in connection with the Nasdaq Capital Market underoffering, a substantial interest, direct or indirect, in the symbol “CETX.”
Transfer Agent and Registrarregistrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The transfer agent and registrar forDoney Law Firm, our common stock is Continental Stock Transfer & Trust Company, New York, New York.
The Rights andindependent legal counsel, has provided an opinion on the rights offering
The Subscription Rights
We are distributing, at no charge, to holders of our common stock, non-transferable subscription rights to purchase up to an aggregate of 1,500,000 units consisting of sharesvalidity of our Series 1 Preferred Stock, par value $0.001 per share,Stock.
The consolidated financial statements as of September 30, 2021 and Series 1 Warrants2020 and for the fiscal years then ended incorporated by reference in this prospectus have been so incorporated in reliance on the report of Grassi & Co., CPAs, P.C., an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in auditing and accounting.
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Overview
Cemtrex was incorporated in 1998, in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual and augmented realities, industrial solutions, and intelligent security systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
The Company continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019, the Company reached a strategic decision to exit the environmental products business, which was part of the Industrial Services Segment. Accordingly, the Company has reported the results of the environmental control products business as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets.
The Company presently has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS).
Advanced Technologies (AT)
Cemtrex’s Advanced Technologies segment operates several brands that deliver cutting-edge software and hardware technologies:
| - | Vicon Industries – Vicon Industries, a majority owned subsidiary, provides end-to-end video security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms. | |
| - | SmartDesk – SmartDesk is focused on reinventing the workspace through developing state-of-the-art, modern, fully integrated, workplace solutions. | |
| - | Cemtrex XR (“CXR”) – CXR is focused on realizing the potential of the metaverse. CXR delivers Virtual Reality (VR) and Augmented Reality (AR) solutions that provide higher productivity, progressive design and impactful experiences for consumer products, and various commercial and industrial applications. The Company is in the process of developing virtual reality applications for commercialization in the metaverse over the next couple years. CXR also invests in emerging startups focused on building best in class solutions for the metaverse. | |
| - | Virtual Driver Interactive (“VDI”) – VDI provides innovative driver training simulation solutions for effective and engaging learning for all ages and skills. | |
| - | Bravo Strong – Bravo Strong is a gaming and content studio working to building games and experiences for the metaverse. | |
| - | good tech (formerly Cemtrex Labs) – good tech provides mobile, web, and enterprise software application development services for startups to large enterprises. |
Industrial Services (IS)
Cemtrex’s IS segment operates through a brand, Advanced Industrial Services (“AIS”), that, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
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Recent Developments
Potential Impacts of COVID-19 on our Business
The current COVID-19 pandemic has impacted our business operations and the results of our operations in this fiscal year, primarily with delays in expected orders by many customers and new product development, including newer versions of surveillance software since our technical facility in Pune, India has been under lock down on multiple occasions. Overall bookings level in the IS segment of our business were down by more than 20%, however our AT segment has experienced relatively less slow down. In addition, due to delays in certain supply chain areas, the expected launch times of our new products and new versions has resulted in delays of several months.
The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic has the potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities. However, on the other hand, opportunities in the video surveillance field have been growing for Vicon products.
The extent of the pandemics effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Acquisition of Virtual Driver Interactive
On October 26, 2020, the company acquired Virtual Driver Interactive (“VDI”), a California based provider of innovative driver training simulation solutions for a purchase price of $1,339,774 plus contingent consideration of $175,428.
For over 10 years, VDI has been known for its effective and engaging driver training systems, designed for users of all ages and skill levels. The Company offers comprehensive training for new teen and novice drivers, along with advanced training for corporate fleets and truck drivers. VDI’s wide range of training courses and system options provide customers with highly portable, affordable and effective solutions, all while focusing on the dangers of distracted driving. Results for VDI will be reported under the AT segment.
The Company paid $900,000 in cash and issued a Note payable in the amount of $439,774. This note carries interest of 5% and is payable in two installments of $239,774 plus accumulated interest on October 26, 2021, which was made, and $200,000 plus accumulated interest due on October 26, 2022. Additionally, the Company paid contingent consideration of $175,428 in May 2021. There is no further contingent consideration specified in the purchase agreement. The Company has accounted for this acquisition as a business combination and has allocated the purchase price as follows, $876,820 to proprietary software, $39,992 to inventory, and $598,391 to goodwill.
Strategic Investment
On November 13, 2020, Cemtrex made a $500,000 investment via a simple agreement for future equity(“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the year ended September 30, 2021.
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Business Strategy
Our focus is to utilize our commonresources and capabilities to build brands and businesses in areas where we see unique opportunities to create exceptional value for our customers, shareholders, and employees over the long term. We aim to grow in markets where we see significant long-term opportunity to create an attractive return on shareholder equity. Generally, these markets are high growth markets that are changing due to innovation, new technologies, or other industry shifts taking place. In these markets we seek to build or acquire businesses that have attractive gross margins, strong opportunities for customer retention, and are asset light. We take a long term approach with our strategies and seek returns over five years or longer time horizons.
We believe our ability to attract and retain new customers comes from our ongoing commitment to understanding our customers’ business performance requirements and our expertise in meeting or exceeding these requirements and enhancing their competitive advantage through cutting edge technology. We work closely with our customers from an operational and senior executive level to achieve a deep understanding of our customer’s goals, challenges, strategies, operations, and products to ultimately provide the best solutions for them.
We continue to seek and execute additional strategic acquisitions and focus on expanding our products and services as well as entering into new markets. We believe that the diversity of our products & services and our ability to deliver full solutions to a variety of end markets provides us with multiple sources of income and growth and a competitive advantage relative to other players in the industry. We constantly look for opportunities to gain new customers and penetrate geographic locations and end markets or acquire new product or service opportunities through acquisitions that are operationally and financially beneficial for the Company.
Suppliers
The Company is not dependent on, nor expects to become dependent on, any one or a limited number of suppliers. The Company buys parts and components to assemble and manufacture its equipment and products. The Company also utilizes sub-suppliers and third-party vendors to procure from or fabricate its components based on its design, engineering and specifications. The Company also enters into subcontracts for field installation, which the Company supervises; and the Company manages all technical, physical and commercial aspects of the performance of the Company contracts. To date, the Company has not experienced major difficulties either in obtaining fabricated components and other materials and parts or in obtaining qualified subcontractors for installation work, however, there have been some delays in certain components due to COVID-19. The Company seeks to have many sources of supply for each of its major requirements to avoid significant dependence on any one or a few suppliers. However, the supply of materials or other items could be disrupted by natural disasters, international trade tariffs, wars, pandemics, disputes and or other events. Despite market price volatility for certain requirements and materials pricing pressures at some of our businesses, the raw materials and various purchased components needed for the Company’s products have generally been available in sufficient quantities. In some instances, lead times have extended beyond normal due to logistic delays and labor shortages occurring globally.
Competition
The Company faces substantial competition in each of its products & services and principal markets. Most of its competitors are larger and have greater financial resources than the Company; several are divisions of multi-national companies. The Company competes on the basis of price, engineering and technological expertise, know-how and the quality of its products, systems and services. Additionally, the Company’s management believes that the successful delivery, installation and performance of the Company’s products and systems is a key factor in gaining business as customers typically prefer to make significant purchases from a company with a solid performance history.
The Company obtains virtually all its contracts through competitive bidding. Although price is an important factor and may in some cases be the governing factor, it is not always determinative, and contracts are often awarded on the basis of the efficiency or reliability of products, past performance records, and the engineering and technical expertise of the bidder. Several companies market products that compete directly with Company’s products. Other companies offer products that potential customers may consider to be acceptable alternatives to Company’s products and services. The Company faces direct competition from companies with far greater financial, technological, manufacturing and personnel resources.
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Intellectual Property
Over the years, the Company has developed proprietary technologies that give it an edge in competing with its competitors. Thus, the Company relies on a combination of trade secrets and know-how to protect its intellectual property. The Company currently has multiple patents and patent claims that it owns. Additionally, the Company has multiple patent applications pending related to the development of SmartDesk and will pursue those patents based upon its financial resources. Cemtrex continues to invest in research and development with intention of developing proprietary technology and intellectual property as allowed by its financial resources.
Sales and Marketing
The Company sells its products globally and depending on the brand, relies on direct sales force, manufacturing representatives, distributors, integrators and installers, commission sales agents, magazine advertisements, internet advertising, trade shows, trade directories and catalogue listings, e-commerce, to market its products and services. The Company’s arrangements with sales representatives accord each a defined territory or market within which to sell some or all of its products and systems, provide for the payment of agreed-upon sales commissions or wholesale pricing and are terminable at will. The Company’s sales representatives do not have authority to execute contracts on the Company’s behalf.
The Company’s sales representatives also serve as ongoing liaison function between the Company and its customers during the installation phase of the products and systems and address customers’ questions or concerns arising thereafter. The Company selects representatives based upon industry reputation, prior sales performance including number of prospective leads generated and sales closure rates, and the breadth of territorial coverage, among other criteria.
Technical inquiries received from potential customers are referred to the engineering personnel. Thereafter, the Company’s sales and engineering personnel jointly prepare a budget proposal, or a final bid. The period between initial customer contact and issuance of an order is generally between two and twelve months.
The Company has been selling its SmartDesk directly from its website whereby customers can place orders and make payments. The Company has been marketing SmartDesk through direct-to-consumer internet channels, including social media sites such as Facebook and Instagram as well as showcasing the product at several trade shows. The Company plans to continue its marketing efforts for the SmartDesk by marketing the product to enterprise clients and increase its overall marketing and sales efforts in online media.
Customers
The Company’s principal customers in its AT segment are generally consumers, government agencies or commercial businesses. The Company’s principal customers in its IS segment include businesses engaged in manufacturing, chemical, packaging, printing, electronics, automotive, construction, and metallurgical processing. Historically, most of the customers have purchased individual products or systems which, in many instances, operate in conjunction with products and systems supplied by others. No one single customer accounts for more than 10% of its annual sales.
For the AT segment, the Company is responsible for the design, production, supply, and delivery of products to its customers. In order to satisfy customer orders, the Company must consistently meet production deadlines and maintain a high standard of quality.
Insurance
The Company currently maintains different types of insurance, including general property coverage, and directors & officers’ insurance. The Company also maintains product liability insurance with respect to its products and equipment. Management believes that the insurance coverage that it has is adequate for its current business needs.
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Employees
The Company employs approximately 344 full-time employees and approximately 35 part-time employees as of January 6, 2022, including 172 engaged in engineering, 96 in manufacturing & field service and 110 in administrative, sales and marketing functions.
GOVERNMENT REGULATION
The Company’s operations are subject to certain foreign, federal, state and local regulatory requirements relating to, among others, environmental, waste management, labor and health and safety matters. Management believes that the Company’s business is operated in material compliance with all such regulations.
The Company has the following properties:
The Company has moved its corporate activities to New York City with a month-to-month lease of 2,500 square feet of office space at a rate of $13,000 per month.
The Company’s IS segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-year lease at a monthly rent of $4,555 expiring on August 31, 2022.
The Company’s AT segment leases (i) approximately 6,700 square feet of office and warehouse space in Pune, India from a third party in an five year lease at a monthly rent of $6,453 (INR456,972) expiring on February 28, 2024, (ii) approximately 30,000 square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of $28,719 expiring on March 31, 2027, (iii)approximately 4,570 square feet of office space in El Dorado Hills, California in a 63 month lease assumed by the company upon the acquisition of VDI expiring on November 30, 2022, and (iv) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-year lease with at a monthly rent of $7,329 (£5,771) which expires on March 24, 2031 and contains provisions to terminate in 2026.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company’s Common Stock currently trades on the NASDAQ Capital Markets under the symbol “CETX”.
As of February 9, 2022, the Company had 65 shareholders of record. This amount does not take into account shareholders whose shares are held in “street name” by brokerage houses or other intermediaries.
The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Each subscription right will entitle you, subject to proration as described herein, to purchase one unit consisting of one share of our Series 1 Preferred and two Series 1 Warrants, with each Series 1 Warrant entitling the holder to purchase one share50,000,000 shares of common stock, at a subscription price$0.001 par value per share. On February 9, 2022, there were 23,673,210 shares of $10.00 per unit.
Each holder of record of our common stock as of the record date for the rights offering will receive one subscription right for every two shares of our common stock owned by such holder as of 5:00 p.m., Eastern time, on the record date. Each holder of one or more but less than two shares of our common stock as of 5:00 p.m., Eastern time, on the record date will nevertheless receive one subscription right. Holders of more than two shares of our common stock holding a number of shares not divisible by two will receive one additional subscription right for the remainder of one share.
Each subscription right will entitle the holder to a basic subscription privilegeissued and an over-subscription privilege, which are described below. The basic subscription privilege and the over-subscription privilege are both subject to proration. If all the rights were exercised, all subscription rights holders would be subject to proration of their basic subscription privilege, and each subscription rights holder would be entitled to purchase a total number of units of approximately 80% of the number of subscription rights held by such subscription rights holder. If any proration is necessary, subscriptions for the units will be prorated.
Basic Subscription Privilege
The basic subscription privilege of each subscription right gives our stockholders of record as of the record date the opportunity to purchase one unit consisting of one share of our Series 1 Preferred and two Series 1 Warrants. Each Series 1 Warrant entitles the holder to purchase one share of our common stock at an exercise price of$___ per share (representing 115% of the five-day volume weighted average price per share of our common stock prior to and including the record date), from the date of issuance through its expiration five years from the date of issuance, at a subscription price of $10.00 per unit, subject to proration. We have granted to each stockholder of record as of 5:00 p.m., Eastern time, on the record date, one subscription right for every two shares of our common stock owned by such stockholder at that time. For example, if you owned 1,000 shares of our common stock as of 5:00 p.m., Eastern time, on the record date, you would receive 500 subscription rights and would have the right to purchase 500 units, for $10.00 per unit, with your basic subscription privilege plus an unlimited over-subscription privilege, in each case subject to proration as described herein. You may exercise the basic subscription privilege of any number of your subscription rights, or you may choose not to exercise any subscription rights. If you do not exercise your basic subscription privilege in full, you will not be entitled to purchase any units under your over-subscription privilege.
If you hold your shares in the name of a broker, custodian bank, dealer or other nominee who uses the services of the Depository Trust Company, or DTC, DTC will issue one subscription right to the nominee for every two shares of our common stock you own at the record date. The basic subscription privilege of each subscription right can then be used to purchase one unit for $10.00 per unit, subject to proration. As in the example above, if you owned 1,000 shares of our common stock on the record date, you would receive 500 subscription rights and would have the right to purchase 500 units for $10.00 per unit with your basic subscription privilege plus an unlimited over-subscription privilege as described below, subject in each case to proration.
If an insufficient number of units is available to fully satisfy all basic subscription privilege requests, we will allocate the available units pro-rata among those stockholders exercising their basic subscription privilege in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such stockholder subscribed for under the basic subscription privilege by a fraction (A) the numerator of which is 1,500,000 and (B) the denominator of which is the total number of units sought to be subscribed for under the basic subscription privilege by all holders exercising their basic subscription privilege. All subscriptions, including subscriptions pursuant to the basic subscription privilege, will be subject to proration. If all the rights were exercised, all rights holders would be subject to proration of their basic subscription privilege, and each rights holder would be entitled to purchase a total number of units of approximately 80% of the number of rights held by such rights holder. The subscription rights agent will notify subscription rights holders of the number of units allocated to each holder exercising the basic subscription privilege as promptly as may be practicable after the allocations are completed.
Any excess subscription payments received by the subscription rights agent will be promptly returned, without interest.
Over-Subscription Privilege
The over-subscription privilege provides each stockholder that fully exercises all of such holder’s basic subscription privileges the opportunity to purchase the units that are not purchased by other stockholders. If you fully exercise your basic subscription privilege, the over-subscription privilege entitles you to subscribe for additional units unclaimed by other holders of subscription rights in this offering at the same subscription price per unit. If an insufficient number of units is available to fully satisfy all over-subscription privilege requests, we will allocate the available units, pro-rata among those stockholders exercising their over-subscription privilege in proportion to the product (rounded down to the nearest whole number so that the subscription price multiplied by the aggregate number of units does not exceed the aggregate offering amount) obtained by multiplying the number of units such stockholder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the number of unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscription privilege by all holders participating in such over-subscription. The subscription rights agent will notify subscription rights holders of the number of units, if any, allocated to each holder exercising the over-subscription privilege as promptly as may be practicable after the allocations are completed.
To properly exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege prior to the expiration of the subscription period. Because we will not know the total number of unsubscribed units prior to the expiration of the rights offering, if you wish to maximize the number of units you purchase pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of units available to you, assuming that no stockholder other than you has purchased any units pursuant to its basic subscription privilege and over-subscription privilege.
There may not be sufficient units available to purchase the number of units issuable upon the exercise of your basic subscription privilege or your over-subscription privilege. We will only honor over-subscription privileges to the extent sufficient unsubscribed units are available following the exercise of subscription rights under the basic subscription privilege. We will not issue more than 1,500,000 units, consisting in the aggregate of 1,500,000outstanding, 1,979,753 shares of Series 1 Preferredpreferred stock issued and Series 1 Warrants to purchase up to 3,000,000outstanding, and 50,000 shares of common stock.Series C preferred stock issued and outstanding.
To the extent the aggregate subscription available to you pursuant to the subscription privileges is less than the amount you actually paid in connection with the exercise of the subscription privileges, you will be allocated only the number of unsubscribed units available to you promptly after the expiration of the rights offering.
To the extent the amount you actually paid in connection with the exercise of the subscription privileges is less than the aggregate subscription price of the maximum number of units available to you, you will be allocated the number of units for which you actually paid in connection with the privilege.
Any excess subscription payments received by the subscription rights agent will be promptly returned, without interest.
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Limitation on Exercise of Basic Subscription Privilege and Over-Subscription Privilege
If the rights offering is over-subscribed, in which case the total number of units available in the rights offering will be allocated to participating stockholders on a pro-rata basis, as set forth more fully in this prospectus, then the number of units that each participating stockholder will be eligible to receive will depend upon the number of subscription rights exercised by the stockholder and the total number of subscription rights exercised. All subscriptions, including the basic subscription privilege, are subject to proration. If all basic subscription privileges were fully exercised, each stockholder would be entitled to exercise approximately 80% of the rights such stockholder holds. If any proration is necessary, subscriptions for units will be prorated.
If the exercise by a stockholder of the basic subscription privilege or the over-subscription privilege could, as determined by us in our sole discretion, potentially result in a limitation on our company’s ability to use the Tax Attributes, under the Code and rules promulgated by the Internal Revenue Service, we may, but are under no obligation to, reduce the exercise by such stockholder of the basic subscription privilege or the over-subscription privilege to such number of units as we in our sole discretion shall determine to be advisable in order to preserve our company’s ability to use the Tax Attributes.
Allocations
The subscription rights agent will perform the allocations of the units in this offering. The subscription rights agent will notify rights holders who validly exercise their subscription rights the number of units allocated to each as promptly as may be practicable after completion of the allocation process.
Reasons for the Rights Offering
We are conducting this rights offering to raise up to $15.0 million in additional capital. We intend to use these funds to supplement our operating cash flows to fund our new product development and acquisition growth plan.We currently have no commitments or agreements with respect to any acquisition. We also plan to utilize a smaller portion of the proceeds to repay or reduce certain of our outstanding indebtedness, particularly our short-term convertible notes payable. Our board of directors has chosen to give you the opportunity to purchase additional securities to maintain your current percentage ownership in our company and provide us with additional capital at these price levels.
Method of Exercising Subscription Rights
To exercise your subscription rights, you must follow the process described in the subscription documents sent to you and also available from the information agent. For assistance you may contact the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
The exercise of subscription rights will be irrevocable and may not be cancelled or modified, even if the rights offering is extended by our board of directors, unless we amend the subscription period to extend it by more than 30 days or make a fundamental change to the terms of the rights offering set forth in this prospectus. In any such case, you may cancel your subscription and receive a refund of any money you have advanced. You may exercise your subscription rights as follows:
Subscription by Registered Holder with U.S. or Canadian Address
To exercise your subscription right to buy units, you must (a) properly complete the subscription process as set forth in the subscription documents and (b) submit payment for all the subscription rights you elect to exercise under the basic subscription privilege and over-subscription privilege, to the subscription rights agent, Continental Stock Transfer & Trust Company, at the address set forth on the subscription documents prior to 5:00 p.m., Eastern time, on ________, 2016, the expiration date of the rights offering. If the mail is used to forward subscription documents and/or a certified or bank check, it is recommended that insured, registered mail be used. Once you exercise your subscription rights, you cannot revoke your exercise. In addition, since we may terminate or withdraw the rights offering at our discretion, your participation in the rights offering is not assured.
Subscription by DTC Participants
Banks, trust companies, securities dealers and brokers that hold our equity securities as nominee for more than one beneficial owner may, upon proper showing to the subscription rights agent, exercise their subscription privileges on the same basis as if the beneficial owners were record holders on the record date through the Depository Trust Company (the “DTC”). The DTC will issue one basic subscription privilege to purchase one unit to you for every two shares of our common stock that is held by you or is issuable to you as of the record date. Each basic subscription privilege can then be used to purchase one unit for $10.00 per unit. You may exercise these subscription privileges through DTC’s PSOP Function and instructing DTC to charge your applicable DTC account for the subscription payment for the units and deliver such amount to the subscription rights agent. DTC must receive the subscription instructions and payment for the units by the expiration date of the rights offering.
Subscription by Beneficial Owners
If you are a beneficial owner of our equity securities that are registered in the name of a broker, custodian bank or other nominee, or if you hold common stock certificates and would prefer to have an institution conduct the transaction relating to the subscription rights on your behalf, you should instruct your broker, custodian bank or other nominee or institution to exercise your subscription rights and deliver all documents and payment on your behalf prior to 5:00 p.m., Eastern time, on the expiration date of this rights offering. Your subscription rights will not be considered exercised unless the subscription rights agent receives from you, your broker, custodian, nominee or institution, as the case may be, all of the required documents and your full subscription price payment prior to 5:00 p.m., Eastern time, on the expiration date of the rights offering.
Payment Method
Payments must be made in full in U.S. currency by personal check, certified check or bank draft, or by wire transfer, and payable to _______. You must timely pay the full subscription payment, including payment for the over-subscription privilege, if applicable, for the full number of units you wish to acquire pursuant to the exercise of subscription rights by delivering a:
Any personal check used to pay for units must clear the appropriate financial institutions prior to the expiration date of the rights offering. The clearing house may require five or more business days. Accordingly, stockholders who wish to pay the subscription price by means of an uncertified personal check are urged to make payment sufficiently in advance of the expiration date to ensure such payment is received and clears by such date. Subscription documents received after that time will not be honored, and we will return your payment to you, without interest or deduction.
The subscription rights agent will be deemed to receive payment upon:
You should read the instruction letter accompanying the subscription documents carefully and strictly follow it.DO NOT SEND SUBSCRIPTION DOCUMENTS OR PAYMENTS TO US. We will not consider your subscription received until the subscription rights agent has received delivery of a properly completed and duly executed subscription documents and payment of the full subscription amount. The risk of delivery of all documents and payments is on you or your nominee, not us or the subscription rights agent.
Unless a subscription document provides that the units are to be delivered to the record holder of such subscription rights or such document is submitted for the account of a bank or a broker, signatures on such subscription document must be guaranteed by an “Eligible Guarantor Institution,” as such term is defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, subject to any standards and procedures adopted by the subscription rights agent.
Calculation of Subscription Rights Exercised
If you do not indicate the number of subscription rights being exercised, or do not forward full payment of the total subscription price payment for the number of subscription rights that you indicate are being exercised, then you will be deemed to have exercised your basic subscription privilege with respect to the maximum number of subscription rights that may be exercised with the aggregate subscription price payment you delivered to the subscription rights agent. If we do not apply your full subscription price payment to your purchase of units, we or the subscription rights agent will promptly return the excess amount to you by mail, without interest or deduction after the expiration date of this rights offering.
Fractional Rights and Units
No fractionalsubscription rights or cash in lieu thereof will be issued or paid. If you own fewer than two shares of our common stock, you will receive one whole subscription right. If you own a number of shares of common stock that is not exactly divisible by two, you will receive one whole subscription right for the remainder of one share.
Expiration Date and Amendments
The subscription period during which you may exercise your subscription rights expires at 5:00 p.m., Eastern time, on___________, 2016. If you do not exercise your subscription rights prior to that time, your subscription rights will expire and will no longer be exercisable. We will not be required to issue units to you if the subscription rights agent receives your subscription documents or your subscription payment after that time, regardless of when the subscription documents and subscription payment were sent. We may extend the offering up to an additional 30 days, at our sole discretion. We do not presently intend to extend the rights offering. If we elect to extend the rights offering, we will issue a press release announcing such extension no later than 9:00 a.m., Eastern time, on the next business day after the most recently announced expiration time of the rights offering. We will extend the rights offering as required by applicable law or regulation and may choose to extend it if we decide to give investors more time to exercise their subscription rights in the rights offering. If we elect to extend the rights offering for a period of more than 30 days, then holders who have subscribed for rights may cancel their subscriptions and receive a refund of all subscription payments advanced.
Our board of directors also reserves the right to amend or modify the terms of the rights offering. If we make any fundamental changes to the terms of the rights offering set forth in this prospectus, we will offer potential purchasers who have exercised their rights the opportunity to cancel their subscriptions and issue a refund of any subscription payments advanced by such stockholder and recirculate an updated prospectus. In addition, upon such event, we may extend the expiration date of the rights offering to allow holders of subscription rights ample time to make new investment decisions and for us to recirculate updated documentation. Promptly following any such occurrence, we will issue a press release announcing any changes with respect to the rights offering and the new expiration date. The terms of the rights offering cannot be modified or amended after the closing of the rights offering. Although we do not presently intend to do so, we may choose to amend or modify the terms of the rights offering for any reason, including, without limitation, in order to increase participation in the rights offering. Such amendments or modifications may include a change in the subscription price, although no such change is presently contemplated.
Placement Period
If the rights offering is not fully subscribed following expiration of the rights offering, Source Capital Group, Inc. has agreed to use its commercially reasonable efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by our common stockholders. No assurance can be given that any unsubscribed units will be sold during this period. In the event that there are unsubscribed units in this rights offering, Aron Govil, our Executive Director, through Ducon Technologies, Inc., a company which he controls, has indicated to us that he may purchase up to approximately $3.3 million of units during the 45-day placement period following the expiration of the rights offering through the conversion into units of a note payable by us to Ducon Technologies in a like amount. This note was issued to Ducon Technologies to partially fund our acquisition of Periscope, GmbH in May 2016. All units sold to Ducon Technologies, if any, will be at the same price and on the same terms as purchasers in the rights offering.
Subscription Price
The purchase price was determined by our board of directors, taking into account the advice of the dealer-manager, Source Capital Group, Inc., as well as historical and recent trading prices of our common stock. We have established the purchase price by ourselves with the advice of Source Capital Group. The purchase price is not the result of any negotiation between us and any person. The board of directors established the purchase price at $10.00 per unit and the Series 1 Warrant exercise price at $___ per share (representing 115% of the five-day volume weighted average price per share of our common stock prior to and including the record date). The purchase price is not necessarily related to our book value, net worth or any other established criteria of value and may or may not be considered the fair value of the units offered in the rights offering. Subscription rights holders should consider the potential lack of liquidity carefully before making a decision to exercise their subscription rights for the units. See “Risk Factors.”
Conditions, Withdrawal and Termination
We reserve the right to withdraw the rights offering prior to the expiration of the rights offering for any reason. We may terminate the rights offering, in whole or in part, if at any time before completion of the rights offering there is any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to the rights offering that in the sole judgment of our board of directors would or might make the rights offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the rights offering. We may choose to proceed with the rights offering even if one or more of these events occur. If we terminate, cancel or withdraw the rights offering, in whole or in part, we will issue a press release notifying the stockholders of such event, all affected subscription rights will expire without value, and all subscription payments received by the subscription rights agent will be promptly returned, without interest, following such termination, cancellation or withdrawal.
Cancellation Rights
Our board of directors may cancel the rights offering at any time prior to the time the rights offering is completed for any reason. If we cancel the rights offering, we will issue a press release notifying stockholders of the cancellation and all subscription payments received by the subscription rights agent will be promptly returned, without interest.
Subscription Rights Agent
The subscription rights agent for this offering is Continental Stock Transfer & Trust Company. To exercise your subscription rights for the units, you must follow the process described in the subscription documents sent to you and also available from the information agent. For assistance or copies of the documents you may contact the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com. To exercise your subscription rights for the units you will need to use the traditional paper documentation.
You should direct any questions or requests for assistance concerning the method of subscribing for the units, or for additional copies of this prospectus and subscription documents to the information agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
Fees and Expenses
We will pay all fees charged by each of the transfer agent, the subscription rights agent and the information agent in connection with the rights offering. We will also pay the fees of Source Capital Group, Inc. acting as the dealer-manager, and placement agent for any unsubscribed units,consisting of a 6% commission on the proceeds of the offering and a 1.8% non-accountable expense fee, as well as an out-of-pocket accountable expense allowance of 0.2% of the proceeds of the offering. Source Capital Group has informed us that it will re-allow 4.0% of its dealer-manager fee to each broker-dealer whose clients purchase units in this offering pursuant to the exercise of their subscription rights. See “Plan of Distribution.” You are responsible for paying any other commissions, fees, taxes or other expenses incurred in connection with the exercise of the subscription rights.
Transferability of Subscription Rights
The subscription rights granted to you are non-transferable and, therefore, you may not sell, transfer or assign your subscription rights to anyone. The subscription rights will not be listed for trading on any stock exchange or market.
Validity of Subscriptions
We will resolve all questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility to participate in the rights offering. In resolving all such questions, we will review the relevant facts, consult with our legal advisors to the extent we deem necessary, and we may request input from the relevant parties. Our determination will be final and binding. Once made, subscriptions and directions are irrevocable, and even if the rights offering is extended by our board of directors, and we will not accept any alternative, conditional or contingent subscriptions or directions. However, if we amend the rights offering to allow for an extension of the rights offering for a period of more than 30 days or make a fundamental change to the terms of the rights offering set forth in this prospectus, you may cancel your subscription and receive a refund of any money you have advanced. We reserve the absolute right to reject any subscriptions or directions not properly submitted or the acceptance of which would be unlawful. You must resolve any irregularities in connection with your subscriptions before the subscription period expires, unless waived by us in our sole discretion. Neither we nor the subscription rights agent has any duty to notify you or your representative of defects in your subscriptions. A subscription will be considered accepted, subject to our right to withdraw or terminate the rights offering, only when the subscription rights agent has received a properly completed and duly executed subscription documents and any other required documents and the full subscription payment. Our interpretations of the terms and conditions of the rights offering will be final and binding.
Return of Funds
The subscription rights agent will hold funds received in payment for the units in a segregated account pending completion of the rights offering. The subscription rights agent will hold this money until the rights offering is completed or is withdrawn and canceled. If the rights offering is canceled for any reason, all subscription payments received by the subscription rights agent will be promptly returned, without interest. In addition, all subscription payments received by the subscription rights agent will be promptly returned, without interest, if subscription rights holders decide to cancel their subscription rights in the event that we extend the rights offering for a period of more than 30 days after the expiration date or if there is a fundamental change to the terms of the rights offering.
Foreign Stockholders
Non-U.S. citizens or residents are permitted to purchase the units to the extent such purchases do not violate any law, rule, regulation or other requirement or prohibition of any non-U.S. governmental authority and do not require any registration or qualification or other action by or on behalf of the company or any other entity involved in the offering. To exercise subscription rights, our foreign stockholders must notify the subscription rights agent prior to 11:00 a.m., Eastern time, at least three business days prior to the expiration of the rights offering.
No Revocation or Change
Once you submit the subscription documents to exercise any subscription rights, you have no right to revoke or change the exercise or request a refund of funds paid. All exercises of subscription rights are irrevocable, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights and even if the rights offering is extended by our board of directors, unless we amend the rights offering to allow for an extension of the rights offering for a period of more than 30 days or make a fundamental change to the terms of the rights offering set forth in this prospectus, in which case you may cancel your subscription and receive a refund of any money you have advanced. You should not exercise your subscription rights unless you are certain that you wish to purchase units at the purchase price.
Regulatory Limitations
We will not be required to issue to you any units in this rights offering if, in our opinion, you are or may be required to obtain prior clearance or approval from any state or federal regulatory authorities to purchase, own or control such units and if, at the time the subscription period expires, you have not obtained such clearance or approval. We also will not be required to issue to you any units in this rights offering if, in our opinion, any such issuance may violate any law, rule or regulation or other requirement or prohibition of any non-U.S. governmental authority or may require any registration or qualification or other action by or on behalf of the company or any other entity involved in the offering.
U.S. Federal Income Tax Treatment of Subscription Rights Distribution
We believe that our distribution and any stockholder’s receipt and exercise of the rights to purchase the units should not be taxable to our stockholders for the reasons described below in “Material U.S. Federal Income Tax Consequences to U.S. Holders.”
No Recommendation to Subscription Rights Holders
Our board of directors is making no recommendation regarding your exercise of the subscription rights. You are urged to make your decision based on your own assessment of our business and the rights offering. Please see “Risk Factors” for a discussion of material risks involved in investing in the units.
No Standby Commitment
We have not entered into any standby purchase arrangement in connection with this offering.
Listing
None of the subscription rights, the units, the Series 1 Preferred or the Series 1 Warrants will be listed for trading on the Nasdaq Capital Market or any other national securities exchange. The subscription rights are completely non-transferrable. We expect the Series 1 Preferred and Series 1 Warrants to trade in the over-the-counter market and tobe quoted on the OTCQB marketplace operated by OTC Markets Group. There is no assurance that the Series 1 Preferred or Series 1 Warrants will be quoted on the OTCQB marketplace.
Other Matters
We are not making the rights offering in any state or other jurisdiction in which it would be unlawful to do so, nor are we distributing or accepting any offers to purchase any units from subscription rights holders who are residents of any such states or other jurisdictions or who are otherwise prohibited by federal or state laws or regulations from accepting or exercising the subscription rights or holding units.
Ratio of Earnings to Fixed Charges
The following table sets forth our ratio of earnings to fixed charges for each of the periods indicated. You should read these ratios in connection with our consolidated financial statements, including the notes to those statements, and the other financial information included or incorporated by reference herein. See Exhibit 12.1 to the registration statement of which this prospectus forms a part for additional detail regarding the computation of the ratio of earnings to fixed charges.
| (Unaudited) Fiscal Year Ended September 30, | (Unaudited) Nine Months Ended June 30, | |||||||||||
| 2014 | 2015 | 2016 | ||||||||||
| Ratio of earnings to fixed charges | 7.94 | 5.54 | 5.15 | |||||||||
| Deficiency of earnings to fixed charges (in thousands) | - | - | - | |||||||||
For the purpose of this computation, the term “fixed charges” means the sum of the following: (a) interest expensed and capitalized, (b) amortized premiums, discounts and capitalized expenses related to indebtedness, (c) an estimate of the interest within rental expense, and (d) preference security dividend requirements of consolidated subsidiaries. The term “earnings” is the amount resulting from adding and subtracting the following items: (i) pre-tax income from continuing operations before adjustment for income or loss from equity investees, plus (ii) fixed charges, plus (iii) amortization of capitalized interest, plus (iv) distributed income of equity investees, plus (v) our share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges, less the following: (A) interest capitalized, (B) preference security dividend requirements of consolidated subsidiaries, and (C) the noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges.
Assuming the sale of an aggregate of 1,500,000 units in this offering at the purchase price of $10.00 per unit, we estimate that we will receive approximately $13.7 million in net proceeds from this offering, after deducting the dealer-manager or placement fees and our expenses of the offering, which we estimate will be approximately $110,000 (but without giving effect to the exercise of the Series 1 Warrants).
We intend to use the net proceeds from this offering for the following purposes:
| Purpose | Estimated Amount | Estimated Percentage of Net Proceeds | ||||||
| Development of new products | $ | 1,000,000 | 7.3 | % | ||||
| Funding acquisition growth plan | 6,000,000 | 43.8 | % | |||||
| Repayment of certain outstanding debt | 5,000,000 | 36.5 | % | |||||
| Working capital and general corporate purposes | 1,690,000 | 12.3 | % | |||||
| Total | $ | 13,690,000 | 100.0 | % | ||||
We intend to use a significant portion of the net proceeds of this offering to supplement our operating cash flows to fund our new product development and acquisition growth plan.
Our acquisition growth plan includes acquisitions of complementary (including competitive) businesses, products and technologies to, among other purposes, diversify our current product offerings in parallel with internally developing new products. We frequently engage in evaluations of potential acquisitions and negotiations for possible acquisitions, certain of which, if consummated, could significantly enhance our competitive position. Our general objective is to acquire only those businesses which will be accretive and synergistic in terms of revenues, business lines, customers and cross-selling opportunities. Although we have identified potential acquisition candidates in connection with our acquisition growth plan, we currently have no commitments or agreements with respect to any such acquisitions other than the proposed acquisition described below.
On October 6, 2016, we entered into a letter of intent to acquire all of the outstanding shares of an electronics manufacturing solutions company based in the Silicon Valley area. The company is focused on electronic manufacturing services primarily for global semiconductor customers, as well as original equipment manufacturers in the medical, industrial and telecommunications industries. The letter of intent also contemplates the acquisition by us of the company’s operations in India, which supports the company’s engineering and prototype development. Based upon information provided by the company to us, the company’s annual revenues have averaged $7 million over the last two full years. The purchase price to be paid for such shares and operations is expected to be approximately $1.4 million. We intend to finance the acquisition with cash on hand and availability under our credit facilities (if such transaction is consummated); however, we may utilize a small portion of the net proceeds of this offering to cover the costs of integrating the company into our operations and transitioning its staff both in the United States and India. Consummation of the transaction contemplated by the letter of intent is subject to the execution and delivery of a definitive purchase agreement and the satisfaction of the closing conditions which will be contained therein. It is contemplated that the acquisition will be consummated by December 1, 2016, but there can be no assurance that a definitive purchase agreement will be entered into, or that the acquisition will be consummated upon the terms set forth in the letter of intent, or otherwise.
There can be no assurance that we will consummate this or any other acquisition in the near future. Acquisitions involve numerous acquisition-related risks and may not ultimately prove to be beneficial to our company. See “Risk Factors – We have grown through acquisitions and are continuously looking to fund such acquisitions; our failure to raise funds may have the effect of slowing down our growth and our use of proceeds for acquisitions subjects us to acquisition-related risks.”
We also plan to utilize a smaller portion of the proceeds from this offering to repay or reduce our outstanding indebtedness, particularly our short-term convertible notes payable to third parties. As of June 30, 2016, these convertible notes, accruing interest at 8% or 10% per year and maturing 12 months from issuance, totaled approximately $2,031,000. The proceeds of these notes were used by us for our general working capital needs. We may also use a limited amount of additional proceeds to reduce lesser working-capital oriented bank facilities.
Working capital and general corporate purposes include amounts required to pay for salaries, professional fees, public reporting costs, office-related expenses and other corporate expenses, including interest and overhead. We may also use a limited portion of the net proceeds, together with remaining amounts previously funded under notes payable by us, to repurchase shares of our common stock under our previously-announced repurchase plan.
Assuming the exercise of all the Series 1 Warrants, we will receive an additional $15.0 million in gross cash proceeds. We expect to use any proceeds we receive from the exercise of Series 1 Warrants for working capital and other corporate purposes.
In the event that Aron Govil, our Executive Director, elects to participate in the placement following the expiration of the rights offering, we will not receive any cash proceeds from the sale of units to Aron Govil, through Ducon Technologies, from the conversion into units of the note payable by us to Ducon Technologies in the amount of up to approximately $3.3 million.
If less than 1,500,000 units are sold in the offering, or if Mr. Govil participates in the placement as mentioned above, resulting in less than $13.7 million in proceeds, the use of the net proceeds will be substantially as set forth above, except that the amounts to be allocated to fund our new product development and acquisition growth plan will be prioritized and proportionally increased.
The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated needs of our business. As a result, our management will have broad discretion to allocate the net proceeds of the offering. Pending their ultimate use, we intend to invest the net proceeds in short-term government obligations.
MARKET PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our shares of common stock have been traded on the Nasdaq Capital Market since June 25, 2015 under the symbol “CETX.” Prior to listing on the Nasdaq Capital Market, our shares were quoted on the OTC Bulletin Board under the same symbol.
The price ranges presented below represent the highest and lowest closingquoted bid prices during the fiscalcalendar quarters for 2015, 20162019, 2020 and 20172021 reported by the Nasdaq Capital Market or the OTC Bulletin Board, as applicable.
| Fiscal Year Ended September 30, | ||||||||||||||||||||||||
| Fiscal Quarter | 2015 | 2016 | 2017 | |||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
First (Oct. 1–Dec. 31) through December 5 , 2016 | $ | 4.74 | $ | 3.60 | $ | 3.44 | $ | 2.36 | $ | 5.00 | $ | 3.76 | ||||||||||||
| Second (Jan. 1– Mar. 31) | 4. 20 | 2.58 | 2.85 | 1.65 | __ | __ | ||||||||||||||||||
| Third (Apr. 1–Jun. 30) | 5.40 | 2.70 | 3.69 | 1.90 | __ | __ | ||||||||||||||||||
| Fourth (Jul. 1-Sept. 30), | 4.35 | 2.23 | 5.95 | 3.71 | __ | __ | ||||||||||||||||||
These quotationsexchange. The quotes represent prices between dealers and do not reflect inter-dealer prices, without retail mark-up, mark-downmark-ups, markdowns or commissions and therefore may not necessarily represent actual transactions. These prices have been adjusted from the actual prices for such periods to reflect the 1-for-6 reverse stock split which took place on April 15, 2015.
| Stock Price | ||||||||||
| Year | Fiscal Period | High | Low | |||||||
| 2021 | 4th Quarter | $ | 1.96 | $ | 1.14 | |||||
| 3rd Quarter | $ | 1.86 | $ | 1.24 | ||||||
| 2nd Quarter | $ | 2.80 | $ | 1.27 | ||||||
| 1st Quarter | $ | 1.62 | $ | 1.03 | ||||||
| 2020 | 4th Quarter | $ | 1.75 | $ | 0.97 | |||||
| 3rd Quarter | $ | 3.11 | $ | 0.67 | ||||||
| 2nd Quarter | $ | 2.51 | $ | 0.66 | ||||||
| 1st Quarter | $ | 1.64 | $ | 1.18 | ||||||
| 2019 | 4th Quarter | $ | 2.48 | $ | 1.33 | |||||
| 3rd Quarter | $ | 4.31 | $ | 1.70 | ||||||
| 2nd Quarter | $ | 7.44 | $ | 4.00 | ||||||
| 1st Quarter | $ | 12.00 | $ | 4.59 | ||||||
On December 5 , 2016,
As reported by NASDAQ Capital Markets, on February 9, 2022, the last reported saleclosing sales price of our common stock on the Nasdaq Capital MarketCompany’s Common Stock was $4.2 4$0.73 per share.
As of December 5 , 2016, we had approximately 1,757 stockholders of record and a greater number of beneficial holders for whom shares are held in a “nominee” or “street” name.
Dividend Policy
We have notOur board of directors declared or paid anya one-time cash dividends on our common stock nor do we anticipate paying any cash dividendsdividend on our common stock in the foreseeable future. We expect to retain any future earnings to financeApril 2017. The terms of our operations and expansion. Theseries 1 preferred stock provide for the payment of semiannual dividends on the last day of March and September in each year, which began in March 2017. No other cash dividends have been declared or paid by us on our stock during either of the two most recent fiscal years or the period through the date of this prospectus. Other than with respect to our series 1 preferred stock, our board of directors declares dividends when, in its discretion, it determines that a dividend payment, as opposed to another use of cash, is in the best interests of the stockholders. Such decisions are based on the facts and circumstances then existing including, without limitation, our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. As a result, we cannot predict when, or whether, another dividend on our common stock will be declared in the future will be at the discretion of our board of directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the board of directors considers relevant. Further, the terms of our Series 1 Preferred provide that cash dividends on such shares will be entitled to be paid prior to any cash dividend to the holders of our common stock.future.
CapitalizationSecurities Authorized for Issuance under Equity Compensation Plans
The following table sets forth our short-term debt and consolidated capitalizationpresents certain information as of JuneSeptember 30, 2016 and2021, regarding our consolidated capitalization as adjusted to give effect to:equity compensation plans:
| Plan category | Number of Common Stock Shares to be Issued upon Exercise of Outstanding Options | Weighted Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance under Plans (1) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Approved by security holders | ||||||||||||
| 2020 Equity Compensation Plan | 2,000,000 | |||||||||||
| Not approved by security holders | ||||||||||||
| Options | 950,000 | $ | 1.74 | |||||||||
| Total | 950,000 | $ | 1.74 | 2,000,000 | ||||||||
| See more detailed information regarding our equity compensation plans in the |
You should read this tableRecent Sales of Unregistered Securities
The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in conjunctionan Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K.
| 27 |
For the fiscal year ended September 30, 2021, 198,316 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The Company retired 469,949 shares worth $1,051,793 during fiscal 2021.
For the fiscal year ended September 30, 2021, we issued 3,159,655 shares of common stock to satisfy $5,025,651 of notes payable and accumulated interest.
For the year ended September 30, 2021, 50,000 shares of Series C Preferred Stock, and 1,000,000 shares of Series A Preferred Stock were retired.
During October 2021, 2,891,016 shares of common stock were issued to satisfy $2,466,478 of notes payable and accumulated interest.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with “Management’sa view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Our audited consolidated financial statements as of and for the years ended September 30, 2021 and 2020, are hereby incorporated by reference in their entirety from our Form 10-K for the year ended September 30, 2021, filed with the SEC on January 21, 2022, as amended in the Form 10-K/A filed with the SEC on January 27,2022.
MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and notes to those financial statements thatOperations for the year ended September 30, 2021 are hereby respectively incorporated by reference in this prospectus. its entirety from our Form 10-K filed with the SEC on January 21, 2022.
| As of June 30, 2016 | ||||||||
| Actual | As Adjusted | |||||||
| Current liabilities: | ||||||||
| Revolving line of credit | $ | 2,723,483 | $ | 2,723,483 | ||||
| Convertible notes payable | 2,031,000 | – | ||||||
| Notes payable – short-term | 717,936 | 717,936 | ||||||
| Current portion of long-term liabilities | 2,104,098 | 2,104,098 | ||||||
| Long-term liabilities: | ||||||||
| Notes payable | $ | 445,865 | $ | 445,865 | ||||
| Notes payable - related party | 3,319,200 | 3,319,200 | ||||||
| Loans payable to bank | 7,095,481 | 7,095,481 | ||||||
| Mortgage payable | 3,911,746 | 3,911,746 | ||||||
| Shareholders' equity: | ||||||||
| Preferred stock series 1, $0.001 par value, 2,000,000 shares authorized, 1,500,000 shares issued and outstanding | $ | – | $ | 1,500 | ||||
| Preferred stock series A, $0.001 par value, 1,000,000 shares authorized, issued and outstanding, respectively | 1,000 | 1,000 | ||||||
| Common stock, $0.001 par value, 20,000,000 shares authorized, 9,290,968 shares issued and outstanding at June 30, 2016 | 9,291 | 9,291 | ||||||
| Additional paid-in capital | 4,435,863 | 19,434,363 | ||||||
| Retained earnings | 9,384,186 | 9,384,186 | ||||||
| Accumulated other comprehensive loss | (709,597 | ) | (709,597 | ) | ||||
| Total shareholders’ equity | $ | 13,120,743 | $ | 28,120,743 | ||||
| Total capitalization | $ | 27,893,035 | $ | 42,893,035 | ||||
The table above does not reflect the possible conversion into units of a note payable – related party by us to Ducon Technologies in the amount of $3,319,200, as described in the prospectus. The effect of the conversion would essentially be to reduce our long-term liabilities and total capitalization by such amount as of June 30, 2016 on an adjusted basis.
DILUTIONDIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Stockholders who do not purchase units inAs of February 9, 2022, the rights offering (and upon exercise of the Series 1 Warrants issued pursuant to this rights offering) may experience an immediate dilution of the net tangible book value per sharemembers of our common stock. Our net tangible book value asBoard of June 30, 2016 was approximately $12,275,000, or $1.30 per share of our common stock (based upon 9,410,947 shares of our common stock outstanding). Net tangible book value per share is equal to our total net tangible book value, which is our total tangible assets less our total liabilities, divided by the number of shares of our outstanding common stock. Dilution per share equals the difference between the amount per share of common stock paid by purchasers of units in the rights offeringDirectors and the net tangible book value per share of our common stock immediately after the rights offering.Executive Officers are:
| Name and Address | Age | Positions and Offices | ||
| Saagar Govil | 35 | Chairman of the Board of Directors,President, | ||
| 276 Greenpoint Avenue, Suite 208 | Chief Executive Officer, & Director | |||
| Brooklyn, NY 11222 | ||||
| Paul J. Wyckoff | 52 | Interim Chief Financial Officer | ||
| 276 Greenpoint Avenue, Suite 208 | ||||
| Brooklyn, NY 11222 | ||||
| Brian Kwon | 35 | Director | ||
| 276 Greenpoint Avenue, Suite 208 | ||||
| Brooklyn, NY 11222 | ||||
| Manpreet Singh | 38 | Director | ||
| 276 Greenpoint Avenue, Suite 208 | ||||
| Brooklyn, NY 11222 | ||||
| Chris Wagner | 61 | Director | ||
| 276 Greenpoint Avenue, Suite 208 | ||||
| Brooklyn, NY 11222 | ||||
| Metodi Filipov | 58 | Director | ||
| 276 Greenpoint Avenue, Suite 208 | ||||
| Brooklyn, NY 11222 |
Based on the aggregate offering of a maximum of 1,500,000 units and after deducting estimated offering expenses payable by us of approximately $110,000, and the application of the estimated $13,700,000 of net proceeds from the rights offering, our pro forma net tangible book value as of June 30, 2016 would have been approximately $25,965,000 or $2.16 per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $0.86 per share and an immediate dilution to stockholders who do not participate in the rights offering of $0.28 per share.
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The following table illustrates this per-share dilution (assuming a fully subscribed for rights offeringPrincipal Occupations and Business Experience of 1,500,000 units at the subscription price of $10.00 per unit, including an estimated issuance of 2.6 million shares of common stock to holders of Series 1 Warrants):
| Price per unit | $ | 10.00 | ||
| Price per share to Purchasers | $ | 5.77 | ||
| Net tangible book value per share prior to the rights offering | $ | 1.30 | ||
| Increase per share attributable to the rights offering | $ | 0.86 | ||
| Pro forma net tangible book value per share after the rights offering | $ | 2.16 | ||
| Dilution in net tangible book value per share to purchasers | $ | 3.61 |
Material U.S. Federal Income Tax Consequences to U.S. HoldersDirectors and Executive Officers
The following is a discussionbrief account of the material U.S. federal income tax consequencesbusiness experience of the ownershipCompany’s directors:
Saagar Govil is the Company’s Chairman since June 2014, and dispositionthe Chief Executive Officer and President since December 2011. He has been working at Cemtrex since 2008, initially as a field engineer, subsequently moving into sales, and management roles as Vice President of Operations. Saagar was recently recognized as a Forbes’ 30 Under 30 in 2016, Business Insiders #17 on Top 100 of Silicon Alley in 2015, and Top 40 Under 40 by Stony Brook University in 2014. Saagar Govil has a B.E. in Materials Engineering from Stony Brook University, N.Y.
Paul J. Wyckoff was appointed Cemtrex’s Interim Chief Financial Officer On January 28, 2022. Mr. Wyckoff has been with Cemtrex since March of 2014 when he joined as the Manager of Financial Reporting and since January of 2019 has served as the Company’s Corporate Controller. Prior to joining Cemtrex, Mr. Wyckoff was the Controller at Vaso Corporation (formerly Vasomedical, Inc.) a medical device distribution company based in Plainview, NY. Mr. Wyckoff has nearly 20 years of private accounting experience and holds a B.S. in Accounting from SUNY College at Old Westbury.
Brian Kwon was appointed to the as a director on September 28, 2021 and is presently the President and Chief Procurement Officer of H Mart. Brian has extensive operations experience in purchasing, distribution, logistics, IT, HR, and e-commerce from his time at H-Mart. Brian has completed the Harvard Business School General Management Program.
Manpreet Singh was appointed as a director on November 1, 2021 and is currently the founder and Chief Investment Officer of Singh Capital Partners (SCP), a multifamily office that directs investments into venture capital, real estate, and growth equity. SCP invests capital on behalf of Fortune 500 CXOs, Unicorn founders and operators and has executed investments in North America, Europe and Asia. He serves on the numerous non-profit and private company boards including AcquCo, US Inspect, Embrace Software, Snowball Industries, Shukr Investments, Suburban Hospital (John Hopkins Medicine) and Dingman Center at the Smith School of Business. He is a CFA charterholder and Manpreet received his MBA from the Wharton School of Business in Entrepreneurship, Finance, and Real Estate. He also holds a B.S. in Finance with a citation in Entrepreneurship from the University of Maryland, College Park. Mr. Singh’s extensive knowledge of finance allow him to make valuable contributions to the Board.
Chris Wagner was appointed as a director on November 3, 2021 and is a technology expert who partners with investors, executives, and entrepreneurs to grow their professional brands, revenues, and customers. Chris is currently a Managing Partner at OTT Advisors. Prior to joining OTT, he co-founded internet start-up NeuLion and helped grow the business to $100 million dollars, which sold to Endeavor for $250 million in cash. After spending more than a decade in the video internet streaming industry, Mr. Wagner has developed an uncanny ability to start-up new technology businesses and enhance existing enterprises through digitally enabled services. Mr. Wagner holds a bachelor’s degree in communications and business administration from the University of Delaware. Mr. Wagner’s extensive knowledge of finance allow him to make valuable contributions to the Board.
Metodi Filipov was appointed to the Board on February 9, 2018 and is an entrepreneur and technology executive with over 25 years of experience creating, operating and driving growth for technology companies. He has a proven track record of identifying business opportunities and building compelling products. Metodi was formerly VP of Operations at Cemtrex from 2008 to 2010. After Cemtrex, Mr. Filipov served as Managing Director of Bianor, a mobile consulting company providing solutions for enterprise clients. There, he led the development and implementation of innovative mobile products in industries including aviation, pharmaceutical and entertainment. Metodi co-founded Flipps Media, an OTT video distribution platform positioned to be an alternative to traditional cable pay-per-view systems. Before Bianor, he served as product lead for Raritan, a data center technology organization, where he was an integral part of the units. This discussion doestransition team that led the company to becoming a global IT service management solutions provider. Prior to joining Raritan, Mr. Filipov served as VP of Operations at ISS, a security products company. There, he successfully managed product development and contract manufacturing across continents. Mr. Filipov has extensive experience delivering superior solutions with a focus on optimized efficiency and productivity.
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None of our directors or officers is a director in any other reporting companies. None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last ten years. The Company is not describe allaware of any proceedings to which any of the tax considerations that may be relevantCompany’s officers or directors, or any associate of any such officer or director, is a party adverse to a particular holder’s ownershipthe Company or any of the units. This discussion applies onlyCompany’s subsidiaries or has a material interest adverse to U.S. Holders that hold the units as a capital asset for tax purposes and does not address allit or any of its subsidiaries.
Each director of the tax consequences that may be relevant to holdersCompany serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to special rules, such as: regulated investment companies, real estate investment trusts, certain financial institutions, dealersremoval by the Company’s shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and certain traders in securities or foreign currencies, insurance companies, persons holdinguntil the units as partsuccessor is elected at the annual meeting of a hedge, straddle, conversion transaction or integrated transaction, persons whose “functional currency”the board of directors and is not the U.S. dollar, persons liable for the alternative minimum tax, tax-exempt organizations, and persons holding the units that own or are deemed to own 10% or more of our voting shares.qualified.
This discussion is based upon the tax lawsMeetings of the United States includingBoard of Directors
During the Internal Revenue Codefiscal year ended September 30, 2021 (“Fiscal 2021”), the Board of 1986, as amended to the date hereof (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, asDirectors held four meetings.
Committees of the date hereof. These laws are subject to change, possibly with retroactive effect. The discussion does not address any state, local or non-U.S. tax consequences.Board
This discussion does not address all aspectsOur Board of U.S. federal income taxation that may be applicable to holders in light of their particular circumstances or to holders subject to special treatment under the U.S. federal income tax laws, including, but not limited to, financial institutions, brokers and dealers in securities or currencies, insurance companies, regulated investment companies, real estate investment trusts, tax-exempt organizations, persons who hold their sharesDirectors currently has one standing committee: The Audit Committee.
Compensation Committee
As a “Controlled Company” as part of a straddle, hedge, conversion or other risk-reduction transaction, persons liable for the alternative minimum tax, persons who have received their common stock pursuant to which the subscription rights in this rights offering have been granted through the exercise of employee stock options or otherwise as compensation for services, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, U.S. expatriates, and persons whose functional currency is not the U.S. dollar and foreign taxpayers. This discussion does not describe any tax consequences arising out of the tax laws of any state, local or foreign jurisdiction, or any U.S. federal tax considerations other than income taxation (such as alternative minimum, estate or gift taxation). This discussion is limited to U.S. holders which hold our shares as capital assets and does not address U.S. holders which beneficially hold our shares through either a “foreign financial institution” (as such term is defined under NASDAQ Listing Rule 5615, the Company is not required to have a Compensation Committee.
Audit Committee
The Audit Committee, which has been established in accordance with requirements of Section 1471(d)(4)3(a)(58)(A) of the Code) or certain other non-U.S. entities specified in Section 1472Exchange Act, is comprised of the Code. For purposesfollowing independent directors: Metodi Filipov (Chair), Brian Kwon, Chris Wagner and Manpreet Singh. The Board of this discussion, a “U.S. holder”Directors has determined that each member of the Audit Committee: (i) is a holderindependent, (ii) meets the financial literacy requirements of the Nasdaq Rules, and (iii) meets the enhanced independence standards established by the SEC. In addition, the Board has determined that Mr. Filipov qualifies as an “audit committee financial expert” as that term is for U.S. federal income tax purposes:defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Exchange Act by the SEC.
The Audit Committee is primarily concerned with the integrity of our financial statements, the independence, qualifications and performance of our independent registered public accounting firm, and our compliance with legal requirements. The Audit Committee operates under a written charter approved by the Board of Directors and the Audit Committee that reflects standards and requirements adopted by the SEC and NASDAQ.
If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) receivesAs indicated in its charter, the subscription rights or holdsAudit Committee’s duties include selecting and engaging our independent registered public accounting firm; reviewing the units received upon exercisescope of the subscription rightsaudit to be conducted by our independent registered public accounting firm; overseeing our independent registered public accounting firm and reviewing the results of its audit; reviewing our financial reporting processes, including the accounting principles and practices followed and the financial information provided to shareholders and others; overseeing our internal control over financial reporting and disclosure controls and procedures; and serving as our legal compliance committee.
Nomination of Directors
The Company does not currently have a standing nominating committee or a formal nominating committee charter. As a “Controlled Company” as such term is defined by NASDAQ Listing Rule 5615 the over-subscription privilege,Company is not required to have a Nominating Committee. Currently, the tax treatment of a partner in a partnership generally will depend upon the statusindependent members of the partnerBoard (Messrs. Kwon, Singh, Wagner, and Filipov), rather than a nominating committee, approve or recommend to the activitiesfull Board those persons to be nominated. The Board believes that the current method of nominating directors is appropriate because it allows each independent board member input into the nomination process and does not unnecessarily restrict the input that might be provided from an independent director who could be excluded from a committee. Currently, three of the partnership. Suchfive Directors are independent. Furthermore, the Board has adopted by resolution a partner or partnership should consult its own tax advisor as to the U.S. federal income tax consequencesdirector nomination policy. The purpose of the receipt and ownershippolicy is to describe the process by which candidates for inclusion in the Company’s recommended slate of director nominees are selected. The director nomination policy is administered by the Board. Many of the subscription rights or the ownership of the units received upon exercise of the subscription rights or, if applicable, upon exercise of the over-subscription privilege.benefits that would otherwise come from a written committee charter are provided by this policy.
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YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF YOUR RECEIPT, OWNERSHIP, AND EXERCISE OF THE SUBSCRIPTION RIGHTS, THE OWNERSHIP AND DISPOSITION OF SERIES 1 PREFERRED AND THE SERIES 1 WARRANTS, AND THE OWNERSHIP AND DISPOSITION OF COMMON STOCK RECEIVED UPON THE EXERCISE OF THE SERIES 1 WARRANTS TO PURCHASE OUR COMMON STOCK, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS.
ReceiptIn the ordinary course, absent special circumstances or a change in the criteria for Board membership, the incumbent directors who continue to be qualified for Board service and are willing to continue as directors are re-nominated. If the Board thinks it is in the best interest of the Subscription RightsCompany to nominate a new individual for director in connection with an annual meeting of shareholders, or if a vacancy occurs between annual shareholder meetings, the Board will seek potential candidates for Board appointments who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. Director candidates will be selected based on input from members of the Board, senior management of the Company and, if deemed appropriate, a third-party search firm.
Each subscription right entitles an eligible stockholderCandidates for Board membership must possess the rightbackground, skills and expertise to purchase one unit consistingmake significant contributions to the Board, to the Company and its shareholders. Desired qualities to be considered include substantial experience in business or administrative activities; breadth of one shareknowledge about issues affecting the Company; and ability and willingness to contribute special competencies to Board activities.
The Board of our Series 1 PreferredDirectors intends to review the director nomination policy from time to time to consider whether modifications to the policy may be advisable as the Company’s needs and two Series 1 Warrants. Each Series 1 Warrant entitlescircumstances evolve, and as applicable legal or listing standards change. The Board may amend the holderdirector nomination policy at any time.
The Board will consider director candidates recommended by shareholders and will evaluate such director candidates in the same manner in which it evaluates candidates recommended by other sources, as described above. Recommendations must be in writing and mailed to purchase one shareCemtrex, Inc., 276 Greenpoint Avenue, Suite 208, Brooklyn, NY 11222, Attention: Corporate Secretary, and include all information regarding the candidate as would be required to be included in a proxy statement filed pursuant to the proxy rules promulgated by the SEC if the candidate were nominated by the Board of our common stock at an exercise priceDirectors (including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). The shareholder giving notice must provide (i) his or her name and address, as they appear on the Company’s books, and (ii) the number of $___ per share (representing 115%shares of the five-day volume weighted average price per share of our common stock priorCompany which are beneficially owned by such shareholder. The Company may require any proposed nominee to and including the record date), from the date of issuance through its expiration five years from the date of issuance, at a subscription price of $10.00 per unit. Generally, the distribution of stock by a corporationfurnish such other information it may require to its stockholders with respect their stock is not taxable to such stockholders pursuant to Section 305(a) of the Code. For such purpose, a distribution of rights to acquire stock of the distributing corporation constitutes a distribution of stock. However, if a distribution of stock or rights to acquire stock is within one of several exceptions to the general rule of Section 305(a)be set forth in Section 305(b)a shareholder’s notice of the Code, the distribution may be taxablenomination which pertains to the stockholders of the distributing corporation as described below.
Many of the exceptions to the general rule of Section 305(a) set forth in Section 305(b) involve preferred stock, such as the distribution of preferred stock in certain circumstances pursuant to Section 305(b)(5). Treasury regulations define preferred stock not for its preferred rights and privileges, but its inability to participate in corporate growth to any significant extent. It is the opinion of Olshan Frome Wolosky LLP that the Series 1 Preferred should not be preferred stock for tax purposes based on certain representations relied upon in rendering the opinion, and, accordingly, that none of the Section 305(b) exceptions that apply to preferred stock for tax purposes should apply to the rights offering and that the rights offering should be evaluated for Section 305 purposes as if the company has only one outstanding class of stock. However, the application of the Code Section 305 rules to the rights offering and any interest therein or obtained thereby is uncertain. This opinion is not binding on the IRS or any court and there can be no assurance that the IRS or a court will agree with this opinion. The remainder of this discussion assumes that the Series 1 Preferred is not treated as preferred stock for tax purposes.
Section 305(b)(2) is an exception to the general rule of Section 305(a) that applies to a “disproportionate distribution.” Pursuant to Section 305(b)(2), a distribution (or a series of distributions of which such a distribution is one) of stock rights constitutes a “disproportionate distribution,” and is therefore taxable, if the distribution results in (i) the receipt of property by some stockholders, and (ii) an increase in the proportionate interest of other stockholders in the assets or earnings and profits of the distributing corporation. For this purpose, the term “property” means money, securities and any other property, except that such term does not include stock in the corporation making the distribution or rights to acquire such stock. A “series of distributions” encompasses all distributions of stock made or deemed made by a corporation which have the result of receipt of cash or property by some stockholders and an increase in the proportionate interests of other stockholders. It is not necessary for a distribution of stock to be considered as one of a series of distributions that such distribution be pursuant to a plan to distribute cash and property to some stockholders and to increase the proportionate interests of the other stockholders, rather it is sufficient if there is a distribution (or a deemed distribution) having such effect. In addition, there is no requirement that both elements of Section 305(b)(2) of the Code occur in the form of a distribution or series of distributions as long as the result is that some stockholders receive cash and property and other stockholders’ proportionate interests increase. Under the applicable Treasury regulations, where the receipt of cash or property occurs more than 36 months following a distribution or series of distributions of stock, or where a distribution is made more than 36 months following the receipt of cash or property, such distribution or distributions will be presumed not to result in the receipt of cash or property by some stockholders and an increase in the proportionate interest of other stockholders, unless the receipt of cash or property by some stockholders and the distribution or series of distributions are made pursuant to a plan.
It is the opinion of Olshan Frome Wolosky LLP that the distribution of subscription rights in the rights offering should not constitute an increase in the proportionate interest of some stockholders in the assets or earnings and profits of the company for the purpose of Section 305(b)(2) based on the fact that all of our stockholders will receive rights in the rights offering based upon their respective ownership of our common stock, as well as based on certain representations relied upon in rendering the opinion, and, accordingly, that the rights offering should not constitute part of a “disproportionate distribution,” pursuant to Section 305(b)(2) of the Code. However, the application of the Code Section 305 rules to the rights offering and any interest therein or obtained thereby is uncertain. This opinion is not binding on the IRS or any court and there can be no assurance that the IRS or a court will agree with this opinion. The remainder of this discussion assumes that Section 305(b)(2) does not apply to the subscription rights offering.
Subject to the foregoing, it is the opinion of Olshan Frome Wolosky LLP that you should not recognize taxable income for U.S. federal income tax purposes in connection with the receipt of the subscription rights in the rights offering and the remainder of this discussion so assumes Olshan Frome Wolosky LLP is unable to opine at a higher level of certainty associated with the application of the Code Section 305 rules to the rights offering and any interest therein or obtained thereby. In the event the IRS successfully asserts or a court determines that your receipt of subscription rights is currently taxable pursuant to Section 305(b)(2) of the Code, the discussion below under the heading “Alternative Treatment of Subscription Rights” describes the tax consequences that will result from such a determination.nominee.
Tax Basis and Holding Period of the Subscription Rights
Your tax basis of the subscription rights for U.S. federal income tax purposes will depend on the fair market value of the subscription rights you receive and the fair market value of your existing shares of common stock on the date you receive the subscription rights. The tax basis of the subscription rights received by you in the subscription rights offering will be zero unless either (i) the fair market value of the subscription rights on the date such subscription rights are distributed is equal to at least 15% of the fair market value of such common stock on the date of distribution or (ii) you elect to allocate part of the tax basis of such shares to the subscription rights. If either (i) or (ii) is true, then, if you exercise the subscription rights, your tax basis in your shares of common stock will be allocated between the subscription rights and the shares of common stock with respect to which the subscription rights were received in proportion to their respective fair market values on the date the subscription rights are distributed.
We have not obtained an independent appraisal of the valuation of the subscription rights and, therefore, you should consult with your tax advisor to determine the proper allocation of basis between the subscription rights and the shares of common stock with respect to which the subscription rights are received.
Your holding period for the subscription rights will include your holding period for the shares of common stock with respect to which the subscription rights were received.
Expiration of the Subscription Rights
If you allow subscription rights received in the subscription rights offering to expire, you will not recognize any gain or loss. If you have tax basis in the subscription rights, the tax basis of the shares of common stock owned by you with respect to which such subscription rights were distributed will be restored to the tax basis of such shares immediately prior to the receipt of the subscription rights in the offering.
Alternative Treatment of Subscription Rights
Receipt. If the IRS were to successfully assert that the distribution of the subscription rights in the rights offering resulted in a “disproportionate” distribution or is otherwise taxable pursuant to Section 305(b)(2), each holder would be considered to have received a distribution with respect to such holder’s stock in an amount equal to the fair market value of the subscription rights received by such holder on the date of the distribution. This distribution generally would be taxed as dividend income to the extent of your ratable share of our current and accumulated earnings and profits. The amount of any distribution in excess of our earnings and profits will be applied to reduce, but not below zero, your tax basis in your stock, and any excess generally will be taxable to you as capital gain (long-term, if your holding period with respect to your capital stock is more than one year as of the date of distribution, and otherwise short-term). Your tax basis in the subscription rights received pursuant to the rights offering would be equal to their fair market value on the date of distribution and the holding period for the subscription rights would begin upon receipt.
Expiration. In the event that you allow your subscription rights to expire without exercising them, the tax basis in your shares of common stock with respect to which the subscription rights were received will be equal to their tax basis immediately before your receipt of the subscription rights (and, accordingly, the tax basis in your subscription rights will be deemed to be zero) and, therefore, you will not recognize any loss upon the expiration of the subscription rights. If the subscription rights expire without exercise after you have disposed of all or a portion of your shares of common stock, you should consult your own tax advisor regarding the ability to recognize a loss (if any) on the expiration of the subscription rights.
Exercise of the Subscription Rights; Tax Basis and Holding Period of the SharesDirector Compensation
The exercisemembers of the subscription rights by you or on your behalf likely will not be a taxable transactionBoard receive quarterly compensation of $5,000. Additionally, we reimburse our directors for U.S. federal income tax purposes. Your tax basisexpenses incurred in the units acquired upon exercise of the subscription rights will equal the sum of the price paid for the units and your tax basis (as determined above), if any, in the subscription rights you exercised. The holding period of the units will begin on the day the subscription rights are exercised.
The holding period for the Series 1 Preferred and Series 1 Warrants acquired through exercise of the subscription rights will begin on the date the subscription rights are exercised.connection with attending board meetings.
Taxation of WarrantsInsider Trading Policy
You generally will notWe recognize gain or loss upon exercise of a Series 1 Warrant to acquire common stock. Your tax basis of the common stock received upon exercise of a Series 1 Warrant for cash generally will equal the tax basis of the Series 1 Warrant, increased by the amount paid upon exercise of the Series 1 Warrant.
Your holding period of common stock received upon exercise of a Series 1 Warrant will begin on the date the Series 1 Warrant is exercised.
In the event a Series 1 Warrant lapses unexercised, you will recognize a capital loss in an amount equal to the tax basis of the Series 1 Warrant. Such capital loss will be long-term if your holding period of such Series 1 Warrant was more than one year at the time of lapse. The deductibility of capital losses is subject to limitations.
Taxation of Series 1 Preferred
Distributions.Generally, any distribution with respect to the Series 1 Preferred that is paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, will constitute a dividend and will be includible in gross income by you when paid. Distributions with respect to the Series 1 Preferred in excess of our current or accumulated earnings and profits would be treated first as a non-taxable return of capital to the extent of your basis in the Series 1 Preferred (thus reducing such tax basis dollar-for-dollar), and thereafter as capital gain, which will be long-term capital gain if the your holding period for such stock at the time of distribution exceeds one year.
Sale, Exchange or Other Disposition. Upon a sale, exchange or other disposition of the Series 1 Preferred , you generally will recognize capital gain or loss equal to the difference between the amount realized (not including any amount attributable to declared and unpaid dividends, which generally will be taxable as described above, under “— Taxation of Series 1 Preferred — Distributions,” to holders that have not previously included such dividends in income) and your tax basis in the Series 1 Preferred so disposed. Such capital gain or loss generally will be long-term capital gain or loss if your holding period for such stock at the time of disposition exceeds one year. The deductibility of capital losses is subject to limitations.
Taxation of Common Stock
Distributions.Distributions received with respect to our common stock will be treated as described above under “— Taxation of Series 1 Preferred — Distributions.”
Sale, Exchange or Other Disposition. Upon a sale, exchange or other disposition of our common stock, you generally will recognize capital gain or loss in the manner described above under “— Taxation of Series 1 Preferred— Sale, Exchange or Other Disposition.”
Additional Medicare Tax on Net Investment Income
An additional 3.8% tax will be imposed on the “net investment income” of certain U.S. citizens and resident aliens, and on the undistributed “net investment income” of certain estates and trusts. Among other items, “net investment income” generally includes gross income from dividends and net gain from the disposition of property, such as our capital stock, less certain deductions. You should consult your tax advisor with respect to this additional tax.
Information Reporting and Backup Withholding
In general, payments made to you of proceeds from the sale or other disposition of Series 1 Warrants, Series 1 Preferred, or our common stock may be subject to information reporting to the IRS and possible U.S. federal backup withholding at the then applicable backup withholding rate. Backup withholding will not apply if you furnish a correct taxpayer identification number (certified on the IRS Form W-9 or valid substitute Form W-9) or otherwise establish that you are exempt from backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability. You may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.
You should consult your own tax advisor regarding your qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable.
Introduction
Promptly after the record date for the rights offering, we will distribute the subscription rights and subscription documents to stockholders of record as of 5:00 p.m., Eastern time, on December__ , 2016. If you wish to exercise your subscription rights, you should follow the instructions in the subscription documents sent to you and also available from the information agent. If you are unable to do so, you may call the information agent for assistance. See “The Rights Offering—Method of Exercising Subscription Rights.” If you have any questions, you should contact the information agent,Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email atcemtrex@okapipartners.com.
Dealer-Manager
Source Capital Group, Inc., which is a registered broker-dealer and member of the Financial Industry Regulatory Authority (FINRA), will act as the dealer-manager for this rights offering. The dealer-manager’s principal business address is 276 Post Road West, Westport, Connecticut 06880. Under the terms and subject to the conditions contained in the dealer-manager agreement between us and the dealer-manager, the dealer-manager will provide marketing assistance and advice to us in connection with this offering and will solicit the exercise of subscription rights. This rights offering is not contingent upon any number of subscription rights being exercised. The dealer-manager is not underwriting any of the rights or the units in this offering and does not make any recommendation with respect to such rights or units, including with respect to the exercise of such rights.
Pursuant to the dealer-manager agreement, we are obligated to pay Source Capital Group as compensation a cash fee of 6.0% of the proceeds of the rights offering plus a 1.8% non-accountable expense fee and an out-of-pocket accountable expense allowance of 0.2% of the proceeds of the offering and to indemnify the dealer-manager for, or contribute to losses arising out of, certain liabilities, including liabilities under the Securities Act of 1933, as amended. For any unsubscribed units placed by Source Capital Group after the expiration of the rights offering, we have agreed to pay Source Capital Group a placement fee equal to 6% of such sales, in lieu of the dealer-manager fee, together with a continuing 1.8% non-accountable expense fee and an out-of-pocket accountable expense allowance of 0.2%, with such placement fee and expenses to be calculated in respect of the total gross proceeds paid to and received by us for subscriptions accepted by us from investors in connection with such placement and such placement fee and expenses not to exceed the aggregate amounts that would have been otherwise received by Source Capital Group if the rights offering were to have been fully subscribed. Neither the placement fee nor expense allowance in connection with the placement will be payable with respect to any units purchased as result of the exercise of any basic subscription privilege or over-subscription privilege in the rights offering. The dealer-manager agreement also provides that the dealer-manager will not be subject to any liability to us in rendering the services contemplated by the dealer-manager agreement except for any act of bad faith or gross negligence of the dealer-manager. The dealer-managerCompany’s executive officers and its affiliatesdirectors may provide to ussell shares from time to time in the futureopen market to realize value to meet financial needs and diversify their holdings, particularly in the ordinary courseconnection with exercises of its business certain financial advisory, investment banking and other services for which it will be entitled to receive customary fees.
No dealer-manager fee will be paid to Source Capital Group for sales of units in the rights offering to Ducon Technologies, Inc. in respect of its note conversion.
The dealer-manager has informed us that it has entered into or intends to enter into Selected Dealer Agreements with other broker-dealers pursuant to which (i)stock options. All such other broker-dealers have agreed or will agree to use their commercially reasonable efforts to procure subscriptions for the units, and (ii) the dealer-manager has agreed or will agree to re-allow 4% of its dealer-manager fee to each such broker-dealer whose clients purchase units in this offering pursuant to their subscription rights.
The maximum commission to be received by any independent broker-dealer or any member of FINRA will not be greater than 8% of the proceeds from the sale of units offered pursuant to this prospectus.
Other than as described herein, we do not know of any existing agreements between or among any stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the units offered hereby.
Electronic Distribution
This prospectus may be made available in electronic format on websites or via email or through other online services maintained by the dealer-manager. Other than this prospectus in electronic format, the information on the dealer-manager’s websites and any information contained in any other websites maintained by the dealer-manager is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the dealer-manager, and should not be relied upon by investors.
The foregoing does not purport to be a complete statement of the terms and conditions of the dealer-manager agreement. A copy of the dealer-manager agreement is included as an exhibit to the registration statement of which this prospectus forms a part. See “Where You Can Find More Information” on page 60.
Regulation M Restrictions
The dealer-manager may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any fees received by it might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the dealer-manager would betransactions are required to comply with the requirementsCompany’s Insider Trading Policy.
Section 16 (a) Beneficial Ownership Reporting Compliance of the Securities Exchange Act and
Section 16(a) of the Exchange Act including, without limitation, Rule 10b-5requires directors, executive officers and Regulation M underpersons who beneficially own more than 10% of our common stock (collectively, “Reporting Persons”) to file initial reports of ownership and reports of changes in ownership of our common stock with the Exchange Act. TheseSEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on our review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, we believe that during the year ended September 30, 2021 all Reporting Persons timely complied with all applicable filing requirements.
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Communications with Directors
Shareholders, associates of the Company and other interested parties may communicate directly with the Board of Directors, with the non-management Directors or with a specific Board member, by writing to the Board (or the non-management Directors or a specific Board member) and delivering the communication in person or mailing it to: Board of Directors, Privileged & Confidential, c/o Saagar Govil, CEO, Cemtrex, Inc., 276 Greenpoint Avenue, Suite 208, Brooklyn, NY 11222. Correspondence will be discussed at the next scheduled meeting of the Board of Directors, or as indicated by the urgency of the matter. From time to time, the Board of Directors may change the process by which shareholders may communicate with the Board of Directors or its members. Any changes in this process will be posted on the Company’s website or otherwise publicly disclosed.
Corporate Governance
The Company has an ongoing commitment to good governance and business practices. In furtherance of this commitment, we regularly monitor, and are briefed by outside counsel on, developments in the area of corporate governance and securities law and review our policies and procedures in light of such developments. We comply with the rules and regulations may limit the timing of any purchases and sales of securitiespromulgated by the dealer-manager acting as a principal. Under these rulesSEC and regulations,implement other corporate governance practices we believe are in the dealer-manager must not engage in any stabilization activity in connection with our securities,best interests of the Company and must not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act.shareholders.
Price Stabilization, Short Positions
No person has been authorized by our company to engage in any formCode of price stabilization in connection with this rights offering.
Management PurchasesEthics
We expect one or morehave adopted a code of ethics as of June 28, 2016 that applies to our directorsprincipal executive officer, principal financial officer, and executive officers to purchase unitsprincipal accounting officer as well as our employees. Our standards are in the offering at the public offering price, although none have any commitment to do so. Any such purchases could result in one or more of them owningwriting and are posted on our website. The following is a substantial portion, or a majority,summation of the Series 1 Preferred and Series 1 Warrants.
In the event that there are unsubscribed units in this rights offering, Aron Govil, our Executive Director, through Ducon Technologies, Inc., a company which he controls, has indicated to us that he may purchase up to approximately $3.3 million of units during the 45-day placement period following the expirationkey points of the rights offering through the conversion into unitsCode of a note payable by us to Ducon Technologies in a like amount. This note was issued to Ducon Technologies to partially fund our acquisition of Periscope, GmbH in May 2016. All units sold to Ducon Technologies, if any, will be at the same price and on the same terms as purchasers in the rights offering.
The validity of the securities issuable upon exercise of the rights and being offered by this prospectus has been passed upon for us by Olshan Frome Wolosky LLP, New York, New York. Libertas Law Group, Inc., Santa Monica, California, has acted as counsel to the dealer-manager.
The consolidated financial statements of Cemtrex, Inc. for the fiscal years ended September 30, 2015 and 2014 incorporated by reference in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the report of Bharat Parikh & Associates, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of Advanced Industrial Services Inc. and its subsidiary as of December 14, 2015 and December 31, 2014 and each of the years then ended included in our current report on Form 8-K/A filed on June 27, 2016 have been audited by Bharat Parikh & Associates, independent registered public accountants, as set forth in their report thereon, included therein, and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given on the authority of said firm as experts in accounting and auditing.
The financial statements of Periscope GmbH as of December 31, 2015 and 2014 and each of the twelve-month period ended December 31, 2015 and the period April 1, 2014 to December 31, 2014 included in our current report on Form 8-K/A filed on August 17, 2016, as amended November 17, 2016 and November 29, 2016, have been audited by Bharat Parikh & Associates, independent registered public accountants, as set forth in their report thereon, included therein, and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given on the authority of said firm as experts in accounting and auditing.
Where You Can Find More Information
We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request, at no cost to the requester, a copy of any or all of the information that is incorporated by reference in this prospectus. Requests for such documents should be directed to:
Cemtrex, Inc.
19 Engineers Lane
Farmingdale, New York 11735
Attn: Investor Relations
(631) 756-9116
You may also access the documents incorporated by reference in this prospectus through our website at www.cemtrex.com. Except for the specific incorporated documents listed above, no information available on or through our website shall be deemed to be incorporated in this prospectus or the registration statement of which it forms a part.
Information Incorporated by Reference
The SEC allows us to incorporate by reference into this prospectus certain informationEthics we file with it, which means that we can disclose important information by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus, and information that we file later with the SEC will automatically update and supersede information contained in this prospectus. We incorporate by reference the documents listed below that we have previously filed with the SEC (excluding any portions of any Form 8-K that are not deemed “filed” pursuant to the General Instructions of Form 8-K):adopted:
Quarterly Reports on Form 10-Q for the periods ended December 31, 2015 filed on February 16, 2016, March 31, 2016 filed on May 16, 2016, and June 30, 2016 filed on August 15, 2016 and Amendment No. 2 to Quarterly Report on Form 10-Q for the period ended March 31, 2014 filed on November 10, 2016;
| ||
| Full, fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits to, the | ||
| ■ | Full compliance with applicable government laws, rules and regulations; | |
| ■ | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and | |
| ■ | Accountability for adherence to the code. |
Board Leadership and Structure
Saagar Govil, our Chief Executive Officer, also serves as Chairman of the Board of Directors. The Board believes that the Company and its shareholders are best served by having the Chief Executive Officer also serve as Chairman of the Board. The Board also believes that this structure is appropriate in light of the size of our Company and corresponding size of our Board and the complexity of our business. We believe that Mr. Govil is best positioned to develop agendas that ensure that our Board’s time and attention are focused on the matters that are most critical to us.
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The compensation discussion addresses all compensation awarded to, earned by, or paid to the Company’s named executive officers (“NEO”), which currently consists of Saagar Govil, the Chairman, Chief Executive Officer, President and Secretary, and Paul J. Wyckoff, Interim CFO. As of February 9, 2022, Saagar Govil and Paul J. Wyckoff are currently earning compensation from the Company. Set forth below is the aggregate compensation for services rendered in all capacities to us during our fiscal years ended September 30, 2020, and 2021 by our executive officers.
| OPTION | ||||||||||||||||||||||||
| SALARY | BONUS | AWARDS | OTHER | TOTAL | ||||||||||||||||||||
| PRINCIPAL AND POSITION | YEAR | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| Saagar Govil | 2021 | 600,000 | 300,000 | - | 31,830 | 931,830 | ||||||||||||||||||
| Chairman of the Board | 2020 | 376,923 | 612,303 | - | 24,439 | 1,013,665 | ||||||||||||||||||
| Chief Executive Officer, and President | ||||||||||||||||||||||||
| Christopher C. Moore | 2021 | 137,250 | - | 185,803 | (1) | 7,528 | 330,581 | |||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||
| Aron Govil | 2021 | 9,423 | 9,423 | |||||||||||||||||||||
| Former Executive Director and | 2020 | 276,923 | 243,140 | - | - | 520,063 | ||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||
| Priscilla Popov | 2021 | 46,500 | - | - | - | 46,500 | ||||||||||||||||||
| Former Chief Financial Officer | ||||||||||||||||||||||||
| (1) | Represents the aggregate amount of the fair value of stock option awards on the grant date calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASBASC Topic 718”), rather than actual amounts to be realized by the named executive officer and disregarding any forfeitures based upon exercise price. |
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
On January 6, 2021, the Company granted to Christopher C. Moore, the Company’s CFO, a stock option for 150,000 shares. These options have an exercise price of $1.34 per share, which vest over five years, and they expire after five years. These options were cancelled upon his dismissal on January 28, 2022.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
None
EMPLOYMENT AGREEMENTS
On January 6, 2021, the board of directors appointed Mr. Christopher C. Moore to act as our Chief Financial Officer. The Company entered into an employment agreement with Mr. Moore, whereby the Company agreed to compensate Mr. Moore $195,000, with an annual increase of 3% on each anniversary of continued employment. He is entitled to two semiannual bonus awards of 10% of his base salary to be defined my mutual agreement prior to each six-month interval. We have issued to Mr. Moore a stock option for 150,000 shares of our common stock as discussed above. Mr. Moore is also entitled to three weeks paid vacation and enrollment in our benefit and 401K plans. This agreement was cancelled upon Mr. Moore’s dismissal on January 28, 2022
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table presents information regarding our NEOs’ unexercised options to purchase Common Stock as of September 30, 2021:
| Option Awards | ||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price | Option Expiration Date | |||||||
| Saagar Govil | 400,000 | $ | 1.60 | 9/25/2026 | ||||||
| Saagar Govil | 100,000 | $ | 1.92 | 9/25/2026 | ||||||
| Saagar Govil | 100,000 | $ | 2.30 | 9/25/2026 | ||||||
| Saagar Govil | 100,000 | $ | 2.76 | 9/25/2026 | ||||||
| Christopher C. Moore | 150,000 | $ | 1.58 | 1/5/2026 | ||||||
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Compensation of Directors
The members of the Board receive quarterly compensation of $5,000. Additionally, we reimburse our directors for expenses incurred in connection with attending board meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of February 9, 2022 by:
| ■ | all persons who are beneficial owners of five percent (5%) or more of our common stock; | |
| ■ | each of our directors; | |
| ■ | each of our executive officers; and | |
| ■ | all current directors and executive officers as a group. |
Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them.
As of February 9, 2022, 23,673,210 shares of Common Stock were issued and outstanding. In addition, there were 50,000 shares of Series C Preferred Stock outstanding which are entitled to vote 232,047,245 shares in the aggregate, all of which is held by Saagar Govil and 1,979,753 shares of Series 1 Preferred Stock outstanding which are entitled to vote 3,959,506 shares in the aggregate. Accordingly, a total of 259,679,961 shares may be voted at the Annual Meeting.
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of February 9, 2020 are deemed outstanding. Such shares, however, are not deemed as of February 9, 2022 outstanding for the purpose of computing the percentage ownership of any other person.
| Title of Class | Name and Address of Beneficial Owner | Title | Amount Owned | Percentage of Issued Common Stock (1) | Percentage of voting stock (2) | |||||||||||
| Preferred Stock | Saagar Govil | Chairman of the Board, | 50,000 | (3) | — | 89.4 | % | |||||||||
| (Series C) | 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 | Chief Executive Officer, and President | (4,641 votes per share) | |||||||||||||
| Common Stock | Saagar Govil | Chairman of the Board, | 1,061,889 | (4) | 4 | % | * | |||||||||
| 276 Greenpoint Avenue, Suite 208 Brooklyn, NY 11222 | Chief Executive Officer, and President | |||||||||||||||
| All directors and executive officers as a group (2 persons) | 570,222 | (5) | 4 | % | 89.4 | % | ||||||||||
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* Less than one percent of outstanding shares.
| (1) | Except as otherwise noted herein, the percentage is determined on the basis of 23,673,210 shares of our Common Stock outstanding plus securities deemed outstanding pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under Rule 13d-3, a person is deemed to be a beneficial owner of any security owned by certain family members and any security of which that person has the right to acquire beneficial ownership within 60 days, including, without limitation, shares of our common stock |
| (2) | This percentage is based on the 23,673,210 shares of our Common Stock outstanding, the 232,047,245 votes that the Series C Preferred Stock is entitled to vote, and the 3,959,506 votes that the Series 1 Preferred Stock is entitled to vote based on 2 votes per share. |
| (3) | The Series C Preferred Stock is owned by Saagar Govil, the Company’s CEO, Chairman of the Board, and President. Pursuant to the Certificate of Designation of the Series C Preferred Stock, each issued and outstanding share of Series C Preferred Stock are entitled to the number of votes equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors. |
| (4) | Includes 491,667 shares included in |
| (5) | Consists of actual amount of Common Stock and |
We also incorporateRELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Except as disclosed below or set forth in “Executive Compensation” above, none of the following parties has, during our last two fiscal years, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, in which the Company is a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of the Company’s total assets for the last two completed fiscal years:
| (i) | Any of our directors or officers; | |
| (ii) | Any person proposed as a nominee for election as a director; | |
| (iii) | Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding common shares; | |
| (iv) | Any of our promoters; and | |
| (v) | Any relative or spouse of any of the foregoing persons who has the same house as such person. |
Each director of the Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by referencethe Company’s shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
Director Independence
The Board of Directors has determined that each of Filipov, Singh, Wagner, and Kwon are independent in accordance with NASDAQ rules. To determine independence, the Board of Directors adopted and applied the categorical standards of independence included in NASDAQ Listing Rule 5605(a)(2), which include a series of objective tests, such as that the director is not an employee of the Company and has not engaged in various types of business dealings with the Company.
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Risk Oversight
The Board oversees Company functions in an effort to assure that Company assets are properly safeguarded, that appropriate financial and other controls are maintained, and that the Company’s business is conducted prudently and in compliance with applicable laws, regulations and ethical standards.
While the Board is responsible for risk oversight, Company management is responsible for managing risk. The Company has a robust internal process and a strong internal control environment to identify and manage risks and to communicate with the Board. The Board monitors and evaluates the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board and individual Directors on the significant risks identified and how they are being managed. Directors are free to, and often do, communicate directly with senior management.
Transactions with Related Persons
Ducon Technologies, Inc. and First Commercial are owned by Aron Govil, the former Executive Director and CFO of the Company.
On February 23, 2021, Cemtrex’s Board of Directors determined that certain transactions between Cemtrex Inc. and First Commercial, a company owned by former Executive Director, former Controlling Shareholder and former CFO, Aron Govil, were incorrectly handled and accounted for.
The total amount of disputed transfers was approximately $7,100,000 and occurred in fiscal year 2017 in the amount of $5,600,000 and in fiscal year 2018 in the amount of $1,500,000. Cemtrex did not find any other such transfers during this period or thereafter, upon further review of the Company’s records.
Upon the Company’s investigation into this prospectus any additional documentsmatter, the Company has determined that we may filethere were inaccuracies in the Company’s financial statements. The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted for, and subsequent years were affected by the roll forward effects of these entries. The Company found unsupported advertising expenses in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000 of intangible assets and $975,000 of research and development expenses, as translated at from Indian Rupee at the time, were recorded on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated. The total amount of unsubstantiated transfers recorded by Cemtrex India, and the unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000, corresponding with the SEC under Sections 13(a), 13(c), 14 or 15(d)total amount in question regarding First Commercial transfers during fiscal years 2017 and 2018.
On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.
As part of the Exchange Act priorSettlement Agreement, Mr. Govil was required to pay the Company consideration with a total value of $7,100,000 (the “Settlement Amount”) by entering into the Agreement. The Settlement Amount was satisfied in a combination of Mr. Govil forfeiting certain Preferred Stock and outstanding options and executing a secured note in the amount of $1,533,280. The Independent Board of Directors in coordination with Management concluded the settlement represented fair value.
In March 2021, Mr. Govil returned to the completion or terminationCompany 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 shares of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively, the “Securities”). For the purposes of accounting recognition, the Company determined the fair value of the offering, but excluding any information deemed furnishedSeries A, Series C, and not filed withSeries 1 Preferred stock based on the SEC. Any statements contained in a previously filed document incorporated by reference into this prospectus shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus, or in a subsequently filed document also incorporated by reference herein, modifies or supersedes that statement.
This prospectus may contain information that updates, modifies or is contrary to information in one or moreclosing trading value of the documents incorporated by reference in this prospectus. You should rely onlySeries 1 Preferred Stock on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or the date of the documents incorporated by reference inagreement. The options surrendered were valued using the Black-Scholes option pricing model.
The Company recognized the gain with respect to the surrendered Securities during this prospectus.reporting period. The gain of $3,674,165 is reported as Settlement Agreement - Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
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PART II.As discussed above, Mr. Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note matures and is due in full in two years and bears interest at 9% per annum and is secured by all of Mr. Govil’s assets. Mr. Govil also agreed to sign an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note is fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain will not be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
On August 31, 2019, the Company entered into an Asset Purchase Agreement for the sale of Griffin Filters, LLC to Ducon Technologies, Inc., which Aron Govil, the Company’s CFO, is President, for total consideration of $550,000. As of September 30, 2021, and 2020, including the $550,000 for the sales of Griffin Filters, LLC, there was $1,487,155 and $1,432,209 in trade receivables due from Ducon Technologies, Inc., respectively.
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by us in connection with the offering described in this registration statement (other than the underwriting discount and commissions and the underwriter’s non-accountable expense allowance) will be as follows:
| SEC registration fee | $ | 3,620.89 | ||
| FINRA filing fee | 5,893.58 | |||
| NASDAQ Stock Market filing and listing fee | 10,000.00 | |||
| Blue sky fees | — | |||
| Printing and engraving expenses | 7,500.00 | |||
| Accounting fees and expenses | 30,000.00 | |||
| Legal fees and expenses | 50,000.00 | |||
| Miscellaneous | 2,985,53 | |||
| Total | $ | 110,000.00 |
Item 14. Indemnification of Directors and Officers.DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation providesArticles provide that any person who waswe will indemnify an officer, director, or is a partyformer officer or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not by or in the right of the company) by reason of the fact that he is or was a director, officer, incorporator, employee or agent of the company, or is or was serving at the request of the company as a director, officer, incorporator, employee or agent of another company, partnership, joint venture, trust or other enterprise, shall be entitled to be indemnified by the company to the full extent then permitted by law or to the extent that a court of competent jurisdiction shall deem proper or permissible under the circumstance, whichever is greater, against expenses (including attorneys’ fees), judgments, fines and amount paid in settlement incurred by such person in connection with such action, suit or proceeding. Such right of indemnification shall inure whether or not the claim asserted is based on matters which pre-date the company’s adoption of the indemnification provisions in its certificate of incorporation. Furthermore, such right of indemnification will continue as to a person who has ceased to be a director, officer, incorporator, employee or agent and will inure to the benefit of the heirs and personal representatives of such person.
law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, (otherother than the payment by us of expenses incurred or paid by a director, officerone of our directors, officers, or controlling personpersons in athe successful defense of any action, suit or proceeding)proceeding, is asserted by such director, officerone of our directors, officers, or controlling personpersons in connection with the securities being registered, we will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to thea court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
There have not been any material changes in the registrant’s affairs which have occurred since the end of fiscal year 2021 (the latest fiscal year for which audited financial statements were included in the latest Form 10-K) and that have not been described in a Form 10-Q or Form 8-K filed under the Exchange Act.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information we incorporate by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede information contained in this prospectus and any accompanying prospectus supplement. We incorporate by reference the documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (excluding any portions of any Form 8-K that are not deemed “filed” pursuant to the General Instructions of Form 8-K). The documents we are incorporating by reference are as follows:
| ● | Annual Report on Form 10-K for the fiscal year ended September 30, 2021 filed on January 21, 2022; |
| ● | Annual Report on Form 10-K/A for the fiscal year ended September 30, 2021 filed on January 27, 2022; |
| ● | Current Reports on Form 8-K, but only to the extent that the information set forth therein is “filed” rather than “furnished” under the SEC’s rules, filed on January 26, 2022. |
| ● | Definitive Proxy Statement on Schedule 14A filed on February 27, 2018; |
| ● | Definitive Information Statement on Schedule 14C filed on May 16, 2019; |
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| ● | the description of our common stock contained in our registration statement on Form 10/A filed with the SEC on November 25, 2008 (File No. 000-53238), and any amendment or report filed with the SEC for the purpose of updating the description; |
| ● | the description of our series 1 preferred stock contained in our registration statement on Form 8-A filed with the SEC on February 16, 2017 (File No. 001-37464), and any amendment or report filed with the SEC for the purpose of updating the description; and |
| ● | the description of our common stock contained in our registration statement on Form 8-A filed with the SEC on February 16, 2017 (File No. 001-37464), and any amendment or report filed with the SEC for the purpose of updating the description. |
All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this registration statement and prior to the termination of the offering, shall be deemed to be incorporated by reference into this registration statement and to be a part hereof from the date of filing of such documents, provided, however, that the registrant is not incorporating any information furnished under either Item 2.02 or Item 7.01 of any current report on Form 8-K.
Any document, and any statement contained in a document, incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein, or in any other subsequently filed document that also is incorporated or deemed to be incorporated by reference herein, modifies or supersedes such document or statement. Any such document or statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
The documents incorporated by reference in this prospectus may be obtained from us without charge and will be provided to each person, including any beneficial owner, to whom a prospectus is delivered. You may obtain a copy of the documents at no cost by submitting an oral or written request to:
Cemtrex, Inc.
276 Greenpoint Ave., Bld. 8 Suite 208
Brooklyn, New York 11222
Attention: Investor Relations
Telephone: (631) 756-9116
Additional information about us is available at our website located at www.cemtrex.com. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this prospectus or any accompanying prospectus supplement.
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SUBJECT TO COMPLETION, DATED ______________________
PROSPECTUS
CEMTREX, INC.
250,000 SHARES OF SERIES 1 PREFERRED STOCK
Dealer Prospectus Delivery Obligation
Until _____________________________, all dealers that effect transactions in these securities whether or not participating in this offering, may be required to deliver a prospectus. This is in addition weto the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS IS ACCURATE AS OF THE DATES ON THEIR COVERS. WHEN WE DELIVER THIS PROSPECTUS OR A SUPPLEMENT OR MAKE A SALE PURSUANT TO THIS PROSPECTUS OR A SUPPLEMENT, WE ARE NOT IMPLYING THAT THE INFORMATION IS CURRENT AS OF THE DATE OF THE DELIVERY OR SALE.
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INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of this Offering are as follows:
| Expenses(1) | US($) | |||
| SEC Registration Fee | $ | 41.72 | ||
| Transfer Agent Fees | $ | 1,000.00 | ||
| Accounting Fees and Expenses | $ | 8,000.00 | ||
| Legal Fees and Expenses | $ | 5,000.00 | ||
| Total | $ | 14,041.72 | ||
Note:
(1) All amounts are estimates, other than the SEC’s registration fee.
We are paying all expenses of the Offering listed above. No portion of these expenses will be paid by the selling security holders. The selling security holders, however, will pay any other expenses incurred in selling their shares, including any brokerage commissions or costs of sale.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue, or matter as to which he or she shall have entered into indemnification agreements with eachbeen adjudged to be liable to the corporation unless and only to the extent that the Court of our officersChancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and directors underreasonably entitled to indemnity for such expenses which we agreethe Court of Chancery or other adjudicating court shall deem proper.
Section 145(g) of the Delaware General Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify each officer and directorthe person against such liability under Section 145 of the Delaware General Corporation Law.
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Our bylaws provide that we will indemnify, to the fullest extent now or hereafter permitted by applicable law (including, without limitation, the indemnification permitted by the Delaware General Corporation Law, of Delaware) in the event that an officer or directorany person who was or is made or is threatened to be made a party to or a witnessis otherwise involved in any threatened, pending or completed action, suit, proceeding or appeal,proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that suchhe, or a person for whom he is the legal representative, is or was or is a director and/or officer of ours or anyone of our subsidiaries, bothdirectors or officers or, while serving as to action in such person’s official capacity and as to action in another capacity while holding such directorshipone of our directors or office, where such person actsofficers, is or acted in that capacitywas serving at our request as a director, officer, employee, or agent of another corporation or of another entity, against all reasonableliability and loss suffered and expenses (including attorneys’ fees and disbursements), judgments, fines (including excise taxes and penalties) and amounts paid in settlement actually andfees) reasonably incurred by officer of directorsuch person, subject to limited exceptions relating to indemnity in connection with a proceeding (or part thereof) initiated by such action, suit, proceeding or appeal.person. Our bylaws that will be in effect upon completion of this offering will further provide for the advancement of expenses to each of our officers and directors.
Our certificate of incorporation provides that “No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit.”
PursuantWe also intend to maintain a general liability insurance policy which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, whether or not we would have the dealer-manager agreement to be filed as Exhibit 1.1 to this Registration Statement, we have agreedpower to indemnify the dealer-manager, and the dealer-manager has agreed to indemnify us,such person against certain civil liabilities that may be incurred in connection with this offering, including certain liabilitiessuch liability under the Securities Act.Delaware General Corporation Law or the provisions of charter or bylaws.
Item 15. Recent Sales of Unregistered Securities.RECENT SALES OF UNREGISTERED SECURITIES
TheWe have recently completed the following is a summary of transactions within the last three years involving sales of our securities that were not registered under the Securities Act:unregistered securities:
| Date | Issued To | Shares Issued | Amount Issued | Security Type | ||||||||
| 5/5/2014 | Vendor | 1,667 | common shares | |||||||||
| 10/30/2014 | Investor | 97,923 | common shares | |||||||||
| 11/3/2014 | Employee | 8,334 | common shares | |||||||||
| 12/19/2014 | Investor | 79,326 | common shares | |||||||||
| 3/17/2015 | Vendor | 4,167 | common shares | |||||||||
| 3/24/2015 | Investor | 85,877 | common shares | |||||||||
| 3/26/2015 | Investor | 117,782 | common shares | |||||||||
| 5/7/2015 | Investor | 112,018 | common shares | |||||||||
| 5/20/2015 | Employees | 7,930 | common shares | |||||||||
| 6/8/2015 | Investor | 120,989 | common shares | |||||||||
| 6/25/2015 | Investor | 241,572 | common shares | |||||||||
| 8/21/2015 | Investor | 242,367 | common shares | |||||||||
| 10/19/2015 | Investor | 366,556 | common shares | |||||||||
| 11/3/2015 | Investor | 363,403 | common shares | |||||||||
| 12/15/2015 | Acquisition | 317,460 | common shares | |||||||||
| 12/18/2015 | Investor | 109,154 | common shares | |||||||||
| 12/30/2015 | Employee | 7,583 | common shares | |||||||||
| 1/13/2016 | Investor | 82,313 | common shares | |||||||||
| 3/1/2016 | Investor | $ | 215,000 | convertible note | ||||||||
| 3/17/2016 | Investor | $ | 258,000 | convertible note | ||||||||
| 3/28/2016 | Vendor | 38,661 | common shares | |||||||||
| 4/22/2016 | Investor | $ | 525,000 | convertible note | ||||||||
| 5/20/2016 | Investor | $ | 525,000 | convertible note | ||||||||
| 6/14/2016 | Investor | $ | 215,000 | convertible note | ||||||||
| 7/14/2016 | Investor | $ | 1,055,000 | convertible note | ||||||||
| 8/14/2016 | Vendor | 19,000 | common shares | |||||||||
| 8/17/2016 | Investor | $ | 1,055,000 | convertible note | ||||||||
For eachthe fiscal year ended September 30, 2021, 198,316 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The Company retired 469,949 shares worth $1,051,793 during fiscal 2021.
For the fiscal year ended September 30, 2021, we issued 3,159,655 shares of common stock to satisfy $5,025,651 of notes payable and accumulated interest.
For the year ended September 30, 2021, 50,000 shares of Series C Preferred Stock, and 1,000,000 shares of Series A Preferred Stock were retired.
During October 2021, 2,891,016 shares of common stock were issued to satisfy $2,466,478 of notes payable and accumulated interest.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
For U.S. investors, the above transactions exempt from the registration requirements undershares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, no advertising as amended and/or Regulation D promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation was employedor advertising.
For our offshore investors, the above shares were issued in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors or sophisticated investors, business associates of ours or our executive officers, and transfers were restricted by us in accordance with the requirements of the Securities Act. Each of such persons represented to us that they were accredited or sophisticated investors, that they had been given access to the information they requested to make their investment decision, that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Further, all of the above-referenced persons had access to our documents and could ask any questions of us. Accordingly, we believe that the issuances of the securities listed above were exempt from the registration requirements ofreliance on Regulation S, promulgated under the Securities Act, by virtueas the securities were issued in an “offshore transaction,” as defined in Rule 902(h) of Section 4(a)(2)Regulation and we did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the Securities Act.securities. Each stockholder was not a U.S. person, as defined in Regulation S, and was not acquiring the securities for the account or benefit of a U.S. person.
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Item 16. Exhibits and Financial Statement Schedules.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the following Exhibit Index are filed as part of this Registration Statement.
* Filed herewith
_________________
Unless otherwise indicated, exhibits were previously filed.
| Incorporated by reference from Form 10-12G filed on May 22, 2008. | |
| Incorporated by reference from Form 8-K filed on September 10, 2009. | |
| Incorporated by reference from Form 8-K filed on August 22, 2016. | |
| Incorporated by reference from Form 8-K filed on July 1, 2016. | |
| Incorporated by reference from Form | |
| Incorporated by reference from Form 8-K filed on June 12, 2019. | |
| 7 | Incorporated by reference from Form 8-K/A filed on November 24, 2017. |
| 8 | Incorporated by reference from Form 8-K/A filed on September 26, 2016. |
| Incorporated by reference from Form | |
| Incorporated by reference from Form | |
| Incorporated by reference from Form | |
| 12 | Incorporated by reference from Form 8-K filed on September 8, 2017. |
| 13 | Incorporated by reference from Form 8-K filed on February 26, 2021. |
| 14 | Incorporated by reference from Form 8-K filed on March 22, 2019. |
| 15 | Incorporated by reference from Form 10-K filed on January 21, 2022. |
| 16 | Incorporated by reference from Form 8-K filed on April 1, 2020. |
| 17 | Incorporated by reference from Form 8-K filed on March 9, 2020. |
| 18 | Incorporated by reference from Form 8-K filed on June 4, 2020. |
| 19 | Incorporated by reference from Form 8-K filed on June 12, 2020. |
| 20 | Incorporated by reference from Form 10-K filed on January 5, 2021. |
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Item 17. Undertakings.UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(b) to reflect |
(c) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information |
Provided, however, that (1) Paragraphs (a)(i), (ii), and (iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under |
If the registrantSecurities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we been advised that in the opinion of the Securities and Exchange Commission such indemnification is subjectagainst public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to Rule 430C (§230.430Ca court of this chapter),appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act of 1933, and we will be governed by the final adjudication of such issue.
4. That each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter),the Offering shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter); (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrantRegistrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Farmingdale, State of New York,Brooklyn, NY, on December 6 , 2016.
February 15, 2022.
| CEMTREX, INC. | ||
| By: | /s/ Saagar Govil | |
| Saagar Govil | ||
Chairman of the Board, CEO, President | ||
| By: | /s/ | |
Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| By: | /s/ Saagar Govil | |||||
| President & Secretary (Principal Executive Officer) | ||||||
| February 15, 2022 | By: | |||||
| /s/ |
| |||||
| Paul J. Wyckoff | ||||||
| Interim CFO (Principal Financial and Accounting Officer) | ||||||
| February 15, 2022 | By: | /s/ Manpreet Singh | ||||
| Manpreet Singh, | ||||||
| ||||||
| February 15, 2022 | By: | /s/ Chris Wagner | ||||
| Chris Wagner | ||||||
| Director | ||||||
| February 15, 2022 | By: | /s/ |
| |||
| ||||||
| Metodi Filipov, | ||||||
| Director |
| February 15, 2022 | By: | |||
| /s/ |
| |||
| Brian Kwon, | ||||
| Director |
| |||
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