As filed with the U.S.
Securities and Exchange Commission on November 23 , 2016
Registration No. 333-213369
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT NO. 2
TO
FORM
S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Cemtrex,
Inc.
(Exact name of registrant as specified
in its charter)
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Delaware
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3825
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30-039914
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification No.)
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19 Engineers Lane
Farmingdale, New York 11735
Tel.: (631) 756-9116
(Address, including zip
code, and telephone number, including area code, of registrant’s principal executive offices)
Aron Govil
Executive Director
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, 15
th
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.
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 statement number of the earlier effective registration 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 statement
number of the earlier effective registration 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 statement
number of the earlier effective registration 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. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
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¨
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Accelerated Filer
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¨
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Non-accelerated Filer
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¨
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Smaller reporting company
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x
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(Do not check if a smaller reporting company)
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CALCULATION OF REGISTRATION
FEE
Title of Each Class of
Securities
To Be Registered
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Amount To Be
Registered
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Proposed
Maximum
Offering Price
Per Unit
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Proposed
Maximum
Aggregate
Offering Price
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Amount of
Registration
Fee
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Subscription Rights to purchase Units consisting of Shares of Series 1 Preferred
Stock and Series 1 Warrants to purchase Common Stock
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4,705,474
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-
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-
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-
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(1)
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Units consisting of Shares of Series 1 Preferred Stock and Series 1 Warrants to Purchase
Common Stock
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1,500,000
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$
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10.00
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$
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15,000,000
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–
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(2)
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Series 1 Preferred Stock, par value $.001 per share
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1,500,000
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$
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10.00
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$
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15,000,000
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$
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1,510.50
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Series 1 Warrants to purchase Shares of Common Stock, par value $.001 per share (3)
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3,000,000
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–
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–
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–
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Shares of Common Stock issuable upon exercise of Series 1 Warrants (4)
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3,000,000
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$
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5.49
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$
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16,457,190
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$
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1,657.24
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Series 1 Preferred Stock issuable as payment-in-kind dividends (5)
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450,000
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$
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10.00
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$
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4,500,000
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$
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453.15
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Total Registration Fee
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$
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3,620.89
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(6)
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(1)
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The rights are being issued without consideration. Pursuant
to Rule 457(g), no separate registration fee is payable with respect to the rights being
offered hereby since the rights are being registered in the same registration statement
as the securities to be offered pursuant thereto.
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(2)
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No additional filing fee is required.
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(3)
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Pursuant to Rule 457(g), no separate
registration fee is required for the Series 1 Warrants offered hereby because they are
being registered on the same registration statement as the common stock underlying the
Series 1 Warrants.
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(4)
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For the purpose
of calculating this fee the warrant exercise price is based on 115% of the five-day
volume weighted average price per share of the common stock, as reported by Nasdaq Capital
Market ($4.77), prior to the date of filing of this registration statement. Pursuant
to Rule 416, the securities being registered hereunder include such indeterminate number
of additional shares of common stock as may be issuable upon exercise of Series 1 Warrants
registered hereunder as a result of stock splits, stock dividends, or similar transactions.
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(5)
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Represents shares of Series 1 Preferred
issuable in respect of dividends accruing on the Series 1 Preferred through the third
anniversary of issuance based on the liquidation preference of such shares.
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(6)
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A registration
filing fee of $1,007 was previously paid in connection with the registrant’s registration
statement (No. 333-210700) filed on April 12, 2016 and withdrawn on May 17, 2016.
A registration fee in the amount of
$2,613.89,
representing the balance of the total registration filing fee, accompanied the initial
filing of this registration statement.
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The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in
this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
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Subject to Completion, dated November 23 , 2016
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Subscription
Rights Offering
Up
to an Aggregate of 1,500,000 Units,
Each
Unit Consisting of
One
Share of Series 1 Preferred Stock
and
Two Series 1 Warrants,
Upon
the Exercise of Subscription Rights at $10.00 per Unit
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 shares of our Series 1 Preferred Stock, par value $0.001 per share, which we refer 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 _________, 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 share of our Series 1 Preferred
and two Series 1 Warrants, with each Series 1 Warrant entitling the holder to purchase one share of our common stock, at a subscription
price of $10.00 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 use
these
proceeds to supplement
our 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.
The rights offering commences
on __________, 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 day of the subscription period or, if earlier,
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.”
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Purchase Price
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Dealer-Manager
Fee (1)
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Proceeds, Before
Expenses, to Us
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Per unit
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$
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10.00
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$
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0.60
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$
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9.40
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Total (2)
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$
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15,000,000
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$
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900,000
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$
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14,100,000
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(1) In
connection
with 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 righ
ts 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 10 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 beginning on page 8 of this prospectus for more information.
Neither the Securities
and Exchange Commission 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 call
Okapi
Partners LLC, the information agent for the rights offering, at (212) 297-0720 or (877) 259-6290 (toll free), or by email at
cemtrex@okapipartners.com
.
The date of this prospectus is _________, 2016
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.
Prospectus
Summary
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, “we,”
“us,” “Cemtrex,” “our,” “our company” and “the company” refer to Cemtrex,
Inc., a Delaware corporation, and unless the context otherwise indicates, its consolidated subsidiaries.
The Company
Overview
We are 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 Manufacturing Services (EMS) group
and the Industrial Products and Services (IPS) group.
Our EMS group provides
end-to-end electronic manufacturing services 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, sells 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 capabilities in plant
and equipment erection, relocation and disassembly in numerous industrial markets such as automotive, printing and graphics, industrial
automation, packaging and chemicals.
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 of high precision equipment in a wide variety of industrial
markets such as automotive, printing and graphics, industrial automation, packaging and chemicals, for a purchase price of approximately
$7.5 million. The purchase price was paid in the form of $5.0 million in cash, $1.5 million in a seller note and $1.0 million
from the issuance 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.
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, New York 11735, 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”) 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
our website does not constitute part of this 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.
Issuer
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Cemtrex, Inc.
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Rights Offering
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We are distributing to holders of our common stock on the record
date, at no charge, non-transferable subscription rights to purchase up to an aggregate of 1,500,000 units. Each unit shall
consist of (i) one share of our Series 1 Preferred and (ii) two Series 1 Warrants to purchase shares of our common stock.
Holders will receive one subscription right for every two shares of common stock owned as of 5:00 p.m., Eastern time, on _________,
2016, the record date of the rights offering.
If the rights offering
is fully subscribed, we expect the gross proceeds from the rights offering to be $15 million. Each subscription right reflects
a basic subscription privilege and an over-subscription privilege, as described below. The basic subscription privilege and
the over-subscription privilege are both subject to proration, as described below. This offering is being made solely to holders
of our common stock on the record date. We do not expect to issue any additional shares of Series 1 Preferred or Series 1
Warrants after this transaction.
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Subscription Price
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$10.00 per unit, payable in cash. To be effective, any payment
related to the exercise of a subscription right must clear prior to the end of the subscription period or such earlier date
as may be specified in the subscription procedures furnished or made available to subscription rights holders.
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Basic Subscription Privilege
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The basic subscription privilege will
entitle you to purchase one unit at a subscription price of $10.00 for every two shares of common stock owned as of the
record date. A unit consists 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). We refer to these units throughout this prospectus as the “units.” At the
end of the subscription period, unexercised subscription rights will expire and have no value. You may exercise your basic
subscription privilege for any number of units you are entitled to pursuant to the basic subscription privilege or you
may choose not to exercise any subscription rights.
There is no minimum number of units
you must purchase, but you may not purchase fractional units.
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.
If an insufficient number of units
is available to fully satisfy all basic subscription privilege requests, we will allocate the available units, as applicable,
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.
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.
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Over-Subscription Privilege
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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.
If you fully exercise your basic subscription
privilege, the over-subscription privilege entitles you to purchase additional units that remain unsubscribed at the expiration
of the rights offering, if any, by other holders of subscription rights in this rights offering at the same subscription
price per unit, subject to the availability and pro-rata allocation of units among stockholders exercising this over-subscription
privilege, as described herein.
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.
The subscription rights agent will notify subscription rights holders of the number of units allocated to each holder
exercising the over-subscription privilege as promptly as may be practicable after the allocations are completed.
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Additional Limitations on Exercise
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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 net operating losses, tax credits and other tax attributes (the “Tax Attributes”)
under the Internal Revenue Code of 1986, as amended (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 as we in our sole discretion shall determine to be advisable in order to preserve our ability
to use the Tax Attributes.
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Record Date
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5:00 p.m., Eastern time, on ____________, 2016.
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Expiration of the Rights Offering
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5:00 p.m., Eastern time, on ____________, 2016.
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Securities Holders of Subscription Rights May Purchase
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Holders of the subscription rights will have the right to purchase
an aggregate of up to 1,500,000 units consisting of shares of our Series 1 Preferred and Series 1 Warrants to purchase shares
of our common stock.
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No Minimum Requirements
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There is no minimum purchase requirement for closing this offering,
and no minimum purchase requirement for any subscription rights holder.
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Description of Series 1 Preferred
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Dividends.
Holders of the Series 1 Preferred will be 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 Series 1 Preferred.
Dividends will be entitled to be paid prior to any dividend to the holders of our common stock. See
“Description of Capital Stock —Series 1 Preferred —Dividends.”
Liquidation Preference.
The Series 1 Preferred will have 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 Series 1 Preferred, and then
to the holders of our series A preferred stock and common stock. The holders of Series 1 Preferred will have preference
over the holders of our common stock and series A preferred stock on any liquidation, dissolution or winding up of our
company. As of June 30, 2016, we had total consolidated debt of approximately $23.3 million.
No Conversion.
The Series
1 Preferred will not be convertible into or exchangeable for shares of our common stock or any other security.
Voting Rights.
Except
as otherwise provided in the certificate of designation, preferences and rights or as required by law, the Series 1 Preferred
will 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 Series 1 Preferred will be entitled to two votes
for each share of Series 1 Preferred held on the record date as though each share of Series 1 Preferred were two shares
of our common stock. Holders of the Series 1 Preferred will vote as a class on any amendment altering or changing the
powers, preferences or special rights of the Series 1 Preferred so as to affect them adversely.
Rank.
The Series 1 Preferred
will rank with respect to distribution rights upon our liquidation, winding-up or dissolution and dividend rights, junior
to all of our existing and future indebtedness but senior to our series A preferred stock, common stock and any other
class of capital stock we issue in the future. See “Description of Capital Stock —Series 1 Preferred
—Rank.”
In addition, the Series 1 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.
Redemption.
We may redeem
any or all of the Series 1 Preferred 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 Series 1 Preferred, we may select the shares to be redeemed by redeeming shares
proportionally, by lot, or by any other equitable method.
The redemption price for any shares
of Series 1 Preferred will be an amount equal to the $10.00 purchase price per share plus any accrued but unpaid dividends
to the date fixed for redemption. See “Description of Capital Stock —Series 1 Preferred —Redemption.”
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.
Trading.
The Series
1 Preferred will not be listed for trading 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.
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Description of Series 1 Warrants
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Exercise
Price and Terms.
Each Series 1 Warrant entitles the holder to purchase one share of common
stock at any time and from time to time on or before the fifth anniversary of the date of issuance,
at an exercise price equal $___ 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 Series 1 Warrants
are exercisable only for cash. See “Description of Capital Stock —Series 1 Warrants —Exercise
and Terms.”
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.
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Use of Proceeds
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We intend to use the net proceeds of the offering 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 from this offering
to repay or reduce certain of our outstanding indebtedness, particularly our short-term convertible notes payable. Additionally,
we expect to use any proceeds we receive from the exercise of Series 1 Warrants for working capital and other corporate purposes.
See “Use of Proceeds.”
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Material U.S. Federal
Tax Consequences to
U.S. Holders
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For U.S. federal income tax purposes, you should not recognize
income or loss upon receipt or exercise of a subscription right. You should consult your own tax advisor as to the tax consequences
to you of the receipt, exercise or lapse of the subscription rights in light of your particular circumstances. See “Material
U.S. Federal Income Tax Consequences to U.S. Holders.”
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Risk Factors
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Before you exercise your subscription rights to purchase a unit,
you should carefully consider risks described in the section entitled “Risk Factors,” beginning on page 10 of
this prospectus.
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Limitation on Purchase of Units
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We will not issue units to any stockholder that is required
to obtain prior clearance or approval from, or submit a notice to, any state or federal regulatory authority to acquire, own,
or control such units if we determine that, as of the expiration date of the rights offering, such clearance or approval has
not been satisfactorily obtained and any applicable waiting period has not expired.
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Non-Transferability of Subscription Rights
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The subscription rights may not be sold, transferred
or assigned and will not be listed for trading on any stock exchange or market.
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No Board Recommendation
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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 of the rights offering. Please see “Risk Factors” for a discussion of material risks.
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Extension, Cancellation and Amendment
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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. We do not presently intend
to extend the rights offering or the subscription period. We may also extend the rights offering
and subscription period for a period of more than 30 days, but if we do so, 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 prior to the closing of the
rights offering for any reason or for no reason at all. 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 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 subscribed for rights the opportunity to cancel
such subscriptions and issue a refund of any money advanced by such stockholder and recirculate
an updated prospectus. In addition, upon such event, we may extend the expiration date of
the subscription period 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 of the subscription period. The terms of the rights offering cannot
be modified or amended after the expiration date of the subscription period. 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, to increase participation in the rights offering.
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Placement Period
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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.
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Procedures for Exercising Rights
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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
in the subscription documents. The subscription documents must be received by the subscription rights agent on or prior
to 5:00 p.m., Eastern time, on _______, 2016, the expiration date of the rights offering. Once you exercise your subscription
rights, you cannot revoke your exercise. In addition, because we may terminate or withdraw the rights offering at our
discretion, your participation in the rights offering is not assured. Persons holding equity securities through a broker,
dealer, trustee, depository for securities, custodian bank or other nominee that desire to exercise their subscription
rights with respect thereto should contact the appropriate institution or nominee and request it to effect the transaction
for them.
If you cannot deliver your completed
subscription documents to the subscription rights agent prior to the expiration of the subscription period, you may follow
the guaranteed delivery procedures described under “The Rights and the Rights Offering.”
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Transfer Agent and Registrar for the Units and Series 1 Preferred and
Warrants
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Continental Stock Transfer & Trust Company.
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Subscription Rights Agent
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Continental Stock Transfer & Trust Company.
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Information Agent
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Okapi Partners LLC.
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Dealer-Manager
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Source Capital Group, Inc.
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Shares Outstanding Before the Rights Offering
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9,410,947 shares of our common stock were outstanding as
of the record date. In addition, (i) 1,000,000 shares of series A preferred stock, (ii) stock options to purchase 275,400
shares of common stock and (iii) convertible notes to acquire up to approximately 1,000,000 shares of common stock were outstanding
before this offering. No shares of Series 1 Preferred or Series 1 Warrants were outstanding as of the record date or are outstanding
as of the date of this prospectus.
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Shares Outstanding After the Rights Offering
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Assuming all units are sold in the rights offering, in addition
to the outstanding securities noted above, we expect approximately 1,500,000 shares of our Series 1 Preferred and Series 1
Warrants to purchase up to 3,000,000 shares of our common stock will be outstanding immediately after completion of this rights
offering. We do not expect to issue any additional shares of Series 1 Preferred or Series 1 Warrants after this rights offering.
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Fees and Expenses
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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. for acting as the dealer-manager, as well as acting as 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. You will be responsible for paying any
other commissions, fees, taxes or other expenses incurred in connection with your exercise of the subscription rights.
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Payments to Broker-Dealers and Other Intermediaries
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The dealer-manager, Source Capital Group, Inc., 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 their subscription rights. See “Plan of Distribution.”
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Questions
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If you have any questions about the rights offering, including
questions about subscription procedures and requests for additional copies of this prospectus or other documents, please contact
the information agent,
Okapi Partners LLC at (212) 297-0720 or (877)
259-6290 (toll free), or by email at
cemtrex@okapipartners.com
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Implications of Our Being an “Emerging Growth Company”
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:
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are
not required to obtain an attestation and report from our auditors on our management’s
assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley
Act of 2002;
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are
not required to provide a detailed narrative disclosure discussing our compensation principles,
objectives and elements and analyzing how those elements fit with our principles and
objectives;
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are
not required to obtain a non-binding advisory vote from our stockholders on executive
compensation or golden parachute arrangements;
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are
exempt from certain executive compensation disclosure provisions requiring a pay-for-performance
graph and Chief Executive Officer pay ratio disclosure;
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may
present only two years of audited financial statements and only two years of related
Management’s Discussion and Analysis of Financial Condition and Results of Operations;
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are
eligible to claim longer phase-in periods for the adoption of new or revised financial
accounting standards under §107 of the JOBS Act; and
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will
not be required to conduct an evaluation of our internal control over financial reporting
for two years.
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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.
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.
Risk
Factors
An investment in the
units 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, you should carefully consider the specific factors discussed under the heading “Risk Factors” in
the prospectus, together with all of the other information contained or incorporated by reference in the prospectus or appearing
or incorporated by reference in this prospectus. You should also consider the risks, uncertainties and assumptions discussed under
Item 1A, “Risk Factors,” in Part II 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 filings we make with the SEC after the date of this prospectus, all of which are incorporated herein by reference, and
may be amended, supplemented or superseded from time 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 cause you to 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.
Risks Applicable 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.
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, 9,410,947 shares of common stock and 1,000,000 shares of series
A preferred stock currently outstanding, each share of series A preferred stock has 9.51 votes, or an aggregate of 9,505,056 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 21,916,003 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 4,672,613 shares, or 21.3% of our voting shares, (iii) Aron Govil,
as a series A preferred stockholder, will be able to vote 9,505,056 shares, or 43.4% of our voting shares, and (iv) our Series
1 Preferred holders will be able to vote 3,000,000 shares, or 13.7% 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 65.0% 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 68% 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
to our series A preferred stock and common stock but junior to all of our existing and future indebtedness 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 our Series 1 Preferred only after all
of our liabilities have been paid. In addition, our Series 1 Preferred will rank structurally senior to our series A preferred
stock and common stock, but junior to all existing and future liabilities of our subsidiaries, 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 created 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 discretion of the use of such proceeds. You will be relying on the judgment
of our management with regard to the use of such proceeds, and you will not have the opportunity, as part 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.
Risks Relating to Our Business
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.
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, we 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 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.
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 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 may continue to be unable to
timely file certain current and periodic reports and other documents with the SEC.
We did not timely
file with the SEC (i) our definitive proxy statement, which includes the information required by Part III of Form 10-K, within
120 days of our fiscal year ended September 30, 2015, (ii) our Form 8-K in relation 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 us to become ineligible to use Form S-3, a shorter registration statement that is
often used for “shelf” registrations. If we are not able to file our current and periodic reports and other documents
with the SEC in the future in the times specified by the Securities Exchange Act, we will continue to lose 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 our 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.
We are substantially dependent upon
the success and continued market acceptance 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.
The failure of the
emissions monitoring and controls market to develop as we anticipate and any lack of acceptance of our emissions monitoring 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 over an extended period with serious adverse impact on our financial condition.
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 June 30, 2016,
our total indebtedness was approximately $23.3 million, including a revolving line of credit 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 of $1.1
million. Approximately $7.6 million of our debt as of June 30, 2016 is classified as current and approximately $2.0 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. 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 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 able 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.
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 business
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 small 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.
Our sales and gross margins depend
significantly on market demand for our products, as to which there can be no assurances.
The uncertainty in
the U.S. and 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:
|
·
|
customers’
attempts to manage their inventory;
|
|
·
|
variation
in demand for the company’s customers’ products design changes; or
|
|
·
|
acquisitions
of or consolidation among customers.
|
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 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 cause us to obtain greater external financing which adversely
affects our financial performance.
Our products could face serious
competitive challenges, including rapid technological changes, and pricing pressure from competitors, which could adversely affect
our business.
In the event that
one or more of our product lines become the subject of significant pressures from our existing and future competitors, market
conditions, technological change, or any combination thereof, our sales revenues and our gross margins may suffer protracted and
serious declines with the result that we will likely incur protracted losses thereby. 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.
Factors affecting the industries
that utilize our customers’ products could negatively impact our customers and us.
We have no real control
over these factors and to the extent that any one or more of them change dramatically, we may be facing significant financial
challenges that are in excess of our abilities. These factors include:
|
·
|
increased
competition among our customers and their competitors;
|
|
·
|
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;
|
|
·
|
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 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 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 other products at price levels that would allow us to achieve and maintain
profit margins and positive cash flow.
We are a small company
and we face rapid technological change in many of our product markets and we may not be able to introduce any 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 new
products cannibalize sales of 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.
We have grown through acquisitions
and are continuously looking to fund other 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 intend 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, 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 and risks inherent in entering markets in which we have no or limited
prior experience. Future acquisitions may also result in 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 recently completed
the acquisitions of Advanced Industrial Services Inc., an installer of high precision equipment, and Periscope, GmbH, an electronics
manufacturing company. We need to raise funds to finance acquisitions and support the working capital requirements of the
acquired companies. There is substantial risk that we will only be able to raise funds that would cause substantial dilution to
the existing stockholders or at terms that may be very expensive. In the past, we have raised funds from related party loans and
there can be no assurance that such related party loans will be available to us in the future. Further, there can be no guarantee
that we will be able to raise funds in sufficient amounts in the future and on terms that are reasonable in light of our current
circumstances. Persons who 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, we may not be able to complete any further acquisitions and provide
working capital for the completed acquisitions.
We could be subject to economic,
political, regulatory and other risks arising from international operations.
Operating in international
markets requires significant 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:
|
·
|
the
need to adapt our content and user interfaces for specific cultural and language differences,
including licensing a certain portion of our content library before we have developed
a full appreciation for its performance within a given territory;
|
|
·
|
difficulties
and costs associated with staffing and managing foreign operations;
|
|
·
|
management
distraction;
|
|
·
|
political
or social unrest and economic instability;
|
|
·
|
compliance
with United States laws, such as the Foreign Corrupt Practices Act, export controls and
economic sanctions, and local laws prohibiting corrupt payments to government officials;
|
|
·
|
unexpected
changes in regulatory requirements;
|
|
·
|
less
favorable foreign intellectual property laws;
|
|
·
|
adverse
tax consequences such as those related to repatriation of cash from foreign jurisdictions
into the United States, non-income related taxes such as value-added tax or other indirect
taxes, changes in tax laws or their interpretations, or the application of judgment in
determining our global provision for income taxes and other tax liabilities given inter-company
transactions and calculations where the ultimate tax determination is uncertain;
|
|
·
|
fluctuations
in currency exchange rates, which could impact revenues and expenses of our international
operations and expose us to foreign currency exchange rate risk;
|
|
·
|
profit
repatriation and other restrictions on the transfer of funds;
|
|
·
|
differing
payment processing systems as well as consumer use and acceptance of electronic payment
methods, such as payment cards;
|
|
·
|
new
and different sources of competition;
|
|
·
|
different
and more stringent user protection, data protection, privacy and other laws; and
|
|
·
|
availability
of reliable broadband connectivity and wide area networks in targeted areas for expansion.
|
Our failure to manage
any of these risks successfully could harm our international operations and our overall business, and results of our operations.
Even though we achieved a profit
for the fiscal year ended September 30, 2015, we cannot assure you that we will remain profitable and maintain a positive cash
flow or, if we are profitable and have a positive cash flow, that we can sustain operations that are profitable and have a positive
cash flow in the future.
We continue to incur
significant expenditures related 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, accounting 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 we will be able to maintain profitability with our existing revenues and in the future generate such additional
revenues, improve our gross margins, or both of them 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.
We have no ability
to predict the extent to which governmental standards and regulations will favor or disfavor our products, our technology, or
the business strategies that we have or will implement in the future. There is a distinct risk that we may face governmental standards
and regulations that seriously undercut our fundamental assumptions regarding existing trends in regulation and technology and
assumptions regarding the type of technology to use. To the extent that we are not able to accurately predict these trends and
effectively utilize these predictions in our business strategy, we may suffer protracted losses with 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 requirement 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 that we do
not possess or are not able to develop, it could have a material adverse effect on our business, operating results, 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 result of litigation or other proceedings relating to intellectual property rights.
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 defects could cause us to
incur significant 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 our
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
existence and enforcement of government environmental regulations. If these regulations
are not maintained or enforced then the market for the company’s products could
deteriorate;
|
|
·
|
Retaining
and keeping qualified employees and management personnel;
|
|
·
|
Ability
to upgrade our products to keep up with the changing market place requirements;
|
|
·
|
Ability
to keep up with our competitors who have much higher resources than us;
|
|
·
|
Ability
to find sub-suppliers and sub-contractors to assemble and install our products;
|
|
·
|
General
economic conditions of the industry and the ability of potential customers to spend money
on setting up new industries that require our products;
|
|
·
|
Ability
to maintain or raise adequate working capital required for the operations and future
growth; and
|
|
·
|
Ability
to retain our Chief Executive Officer and other senior key personnel.
|
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.
We depend on the continued
service of our senior management. Due to the nature of our business, we may have difficulty locating and hiring qualified personnel
and retaining such personnel once hired. The loss of the services of any of our key personnel, or our failure to attract and retain
other qualified and experienced personnel on acceptable terms, could limit our ability to execute our growth strategy resulting
in a slower rate of growth.
We are an “emerging growth
company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result
in our consolidated financial statements not being comparable to those of some other public companies. As a result of this and
other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
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:
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are
not required to obtain an attestation and report from our auditors on our management’s
assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley
Act of 2002;
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are
not required to provide a detailed narrative disclosure discussing our compensation principles,
objectives and elements and analyzing how those elements fit with our principles and
objectives;
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are
not required to obtain a non-binding advisory vote from our stockholders on executive
compensation or golden parachute arrangements;
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are
exempt from certain executive compensation disclosure provisions requiring a pay-for-performance
graph and Chief Executive Officer pay ratio disclosure;
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may
present only two years of audited financial statements and only two years of related
Management’s Discussion and Analysis of Financial Condition and Results of Operations;
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are
eligible to claim longer phase-in periods for the adoption of new or revised financial
accounting standards under §107 of the JOBS Act; and
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will
not be required to conduct an evaluation of our internal control over financial reporting
for two years.
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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 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.
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 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, our ability to produce accurate and timely financial statements could be impaired,
which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.
Ensuring that we have
effective internal control over financial reporting and disclosure controls and procedures 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 our internal controls over financial reporting for compliance with Section 404 of the Sarbanes-Oxley Act of 2002. If we are
not able to comply with the requirements 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 controls over financial reporting that could rise to the
level of a material weakness, 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 controls over
financial reporting, we will be unable to assert that our internal controls over financial reporting are effective. If we are
unable to assert that our internal controls over financial reporting are effective, we could be subject to investigations or sanctions
by the U.S. Securities and Exchange Commission or other regulatory authorities, and we could lose investor confidence in the accuracy
and completeness of our financial reports, which could cause an adverse effect on the market price of our common stock, our business,
reputation, financial position and results of operation. In addition, we could be required to expend significant management time
and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations
or proceedings.
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
traded on the Nasdaq Capital Market. If our stockholders sell substantial amounts of our common stock in the public market, including
the shares of common stock issuable upon the exercise of the Series 1 Warrants, shares issued in 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
stock could fall and we may be unable to sell our common stock in the future.
Our common stock may experience
extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.
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The
market price of our common stock may fluctuate substantially due to a variety of factors,
including:
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our
business strategy and plans;
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changing
factors related to doing business in various jurisdictions within the United States;
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new
regulatory pronouncements and changes in regulatory guidelines and timing of regulatory
approvals;
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general
and industry-specific economic conditions;
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additions
to or departures of our key personnel;
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variations
in our quarterly financial and operating results;
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changes
in market valuations of other companies that operate in our business segments or in our
industry;
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lack
of adequate trading liquidity;
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announcements
about our business partners;
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changes
in accounting principles; and
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general
market conditions.
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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.
Because
we have never paid 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 paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future.
Rather, we currently intend to retain future earnings, if any, to finance operations. 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. Therefore, any return on an investment in our common stock would come only from an increase in the value of our common
stock.
The
receipt of subscription rights may be treated as a taxable distribution to you.
We
believe the distribution of the subscription rights in this rights offering should be a non-taxable distribution to holders of
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. If this rights offering is deemed to 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 income
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 to 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 this 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 a 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).
You will receive one subscription right for every two shares of our common stock held of record by you as of 5:00 p.m., Eastern
time, on ______, the record date.
The subscription rights
will be evidenced by subscription documents. Each subscription right will entitle the holder 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. The shares of Series 1 Preferred and the Series 1 Warrants to be issued as components of the units in
the rights offering do not currently trade on any stock exchange or market, and are only transferable 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 and
to 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 at
cemtrex@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 shares of our common stock you owned 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, 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 _______, 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 at
cemtrex@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 at
cemtrex@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 the
information
agent, Okapi Partners LLC, at (212) 297-0720 or (877) 259-6290 (toll free), or by email at
cemtrex@okapipartners.com
for
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 no shares of our Series 1 Preferred or Series 1 Warrants were outstanding.
The offering of 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 Warrants that we will issue in this rights offering through the exercise of subscription
rights will depend on the number of units that are subscribed for 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 Warrants 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.
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 at
cemtrex@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 at
cemtrex@okapipartners.com
.
DESCRIPTION
OF CAPITAL STOCK
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 20,000,000 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. At August 29
th
, 2016,
9,410,947 shares of common stock were issued and outstanding and 1,000,000 shares of series A preferred stock were issued and
outstanding.
Common Stock
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.
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.
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.
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 shares of preferred stock or series A preferred stock, except for 1,500,000 shares of Series
1 Preferred as described in this prospectus.
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 1 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.
The Series 1 Preferred
and Series 1 Warrants offered by this prospectus will be sold only together in units. Each unit is immediately detachable and
consists of one share of Series 1 Preferred and two Series 1 Warrants. Each Series 1 Warrant entitles the holder to purchase one
share of our common stock. The shares of Series 1 Preferred and Series 1 Warrants will be separately transferable following the
closing. The units will not be traded.
Series 1 Preferred
At the closing of this
offering, we expect to issue up to 1,500,000 shares of preferred stock, designated as “Series 1 Preferred.” When issued,
the Series 1 Preferred will be fully paid and nonassessable. Prior to this offering, no shares of Series 1 Preferred have been
issued or outstanding.
Dividends
Holders of the Series
1 Preferred will be 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 Series
1 Preferred, valued at their liquidation preference. The Series 1 Preferred will rank 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
The Series 1 Preferred
will have 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 Series 1 Preferred, and then
pari passu
to the holders of the
series A preferred stock and our common stock. The holders of Series 1 Preferred will have preference over the holders of our
common stock on any liquidation, dissolution or winding up of our company. The holders of Series 1 Preferred will also have preference
over the holders of our series A preferred stock.
Voting Rights
Except as otherwise provided
in the certificate of designation, preferences and rights or as required by law, the Series 1 Preferred will 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 Series 1 Preferred will be entitled to two votes for each share of Series 1 Preferred held on
the record date as though each share of Series 1 Preferred were 2 shares of our common stock. Holders of the Series 1 Preferred
will vote as a class on any amendment altering or changing the powers, preferences or special rights of the Series 1 Preferred
so as to affect them adversely.
No Conversion
The Series 1 Preferred
will not be convertible into or exchangeable for shares of our common stock or any other security.
Rank
The Series 1 Preferred
will rank with respect to distribution rights upon our liquidation, winding-up or dissolution and dividend rights, as applicable:
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•
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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;
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•
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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;
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•
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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
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junior to all of our existing
and future indebtedness.
|
In addition, the Series
1 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
We may redeem any or all
of the Series 1 Preferred 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 Series 1 Preferred, we may select the shares to be redeemed by redeeming shares proportionally, by lot, or by any other
equitable method.
The redemption price for
any shares of Series 1 Preferred will be 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:
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the shares will no longer be
deemed outstanding;
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the holders of the shares,
as such, will cease to be stockholders; and
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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.
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There will not be any
sinking fund for the Series 1 Preferred.
Potential Series 1 Preferred Repurchases
We do not currently intend
to repurchase, outside of our redemption rights, any of the Series 1 Preferred in privately-negotiated transactions or in the
over-the-counter market, if any, after the Series 1 Preferred are issued. However, we could do so, subject to applicable regulations
regarding issuer repurchases of their capital stock. If we do so, 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 be entitled to 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
The holders of the Series
1 Preferred will 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 Transfer
& Trust Company, located at 17 Battery Place, 8
th
Floor, New York, New York 10004, will be the transfer agent and
registrar for the Series 1 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
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.
In addition, 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 us through
large acquisitions of its 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.
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 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 Continental Stock Transfer & Trust Company, New York, New York.
The
Rights and 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 shares of our Series 1 Preferred Stock, par value $0.001 per share, and Series 1 Warrants to purchase shares of
our common 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 share of common stock, at a subscription price 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 privilege 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 1,500,000 shares of Series 1 Preferred and Series 1 Warrants to purchase up to 3,000,000 shares of common
stock.
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.
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 at
cemtrex@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:
|
·
|
certified
or personal check drawn against a U.S. bank payable to Continental Stock Transfer &
Trust Company, the subscription rights agent;
|
|
·
|
U.S.
Postal money order payable to Continental Stock Transfer & Trust Company; or
|
|
·
|
wire
transfer of immediately available funds to the subscription account maintained by Continental
Stock Transfer & Trust Company, as subscription rights agent, at _________; ABA #
______; Acct # ______; Reference: ______
|
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:
|
·
|
clearance
of any uncertified check deposited by the subscription rights agent; or
|
|
·
|
receipt
by the subscription rights agent of any certified check bank draft drawn upon a U.S.
bank.
|
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
fractional
subscription 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 at
cemtrex@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 at
cemtrex@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 to
be
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 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.
Use
of Proceeds
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 closing prices during the fiscal quarters for 2015, 2016 and 2017 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 November 22 , 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 quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may not 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.
On November 22 ,
2016, the last reported sale price of our common stock on the Nasdaq Capital Market was $4.29 per share.
As of November 22 ,
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 not declared or paid any cash dividends on our common stock nor do we anticipate paying any cash dividends on our common
stock in the foreseeable future. We expect to retain any future earnings to finance our operations and expansion. The payment
of cash dividends on our common stock 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.
Capitalization
The following table sets
forth our short-term debt and consolidated capitalization as of June 30, 2016 and our consolidated capitalization as adjusted
to give effect to:
|
·
|
the
issuance of the units offered pursuant to this prospectus, assuming the sale of 1,500,000
shares of Series 1 Preferred at $10.00 per unit and no exercise of the Series 1 Warrants;
and
|
|
·
|
the
use of the net proceeds from this offering as described under “Use of Proceeds”
in this prospectus.
|
You should read this table
in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our historical financial statements and notes to those financial statements that are incorporated by reference in this prospectus.
|
|
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.
DILUTION
Stockholders
who do not purchase units in 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 share of our common stock. Our net tangible book value
as 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 offering and the
net tangible book value per share of our common stock immediately after the rights offering.
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.
The
following table illustrates this per-share dilution (assuming a fully subscribed for rights offering 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. Holders
The following is a discussion
of the material U.S. federal income tax consequences of the ownership and disposition of the units. This discussion does not describe
all of the tax considerations that may be relevant to a particular holder’s ownership of the units. This discussion applies
only to U.S. Holders that hold the units as a capital asset for tax purposes and does not address all of the tax consequences
that may be relevant to holders subject to special rules, such as: regulated investment companies, real estate investment trusts,
certain financial institutions, dealers and certain traders in securities or foreign currencies, insurance companies, persons
holding the units as part of a hedge, straddle, conversion transaction or integrated transaction, persons whose “functional
currency” 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.
This discussion is based
upon the tax laws of the United States including the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”),
administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, as 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.
This discussion does not
address all aspects 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 shares 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 in Section 1471(d)(4) of the Code) or certain other non-U.S. entities specified in
Section 1472 of the Code. For purposes of this discussion, a “U.S. holder” is a holder that is, for U.S. federal income
tax purposes:
|
·
|
a
citizen or resident of the United States;
|
|
·
|
a
corporation, or other entity taxable as a corporation for U.S. federal income tax purposes,
created or organized in or under the laws of the United States or any political subdivision
thereof;
|
|
·
|
an
estate the income of which is subject to U.S. federal income taxation regardless of its
source; or
|
|
·
|
a
trust if (i) a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more “United States persons” (within the meaning
of the Code) have the authority to control all substantial decisions of the trust or
(ii) has a valid election in effect under applicable Treasury regulations to be treated
as a United States person.
|
If a partnership (including
any entity treated as a partnership for U.S. federal income tax purposes) receives the subscription rights or holds the units
received upon exercise of the subscription rights or the over-subscription privilege, the tax treatment of a partner in a partnership
generally will depend upon the status of the partner and the activities of the partnership. Such a partner or partnership should
consult its own tax advisor as to the U.S. federal income tax consequences of the receipt and ownership 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.
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.
Receipt of the Subscription Rights
Each subscription
right entitles an eligible stockholder the right 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. Generally, the distribution of stock by a corporation 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) set forth in Section 305(b) of the Code, the distribution
may be taxable 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.
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 Shares
The exercise of the
subscription rights by you or on your behalf likely will not be a taxable transaction for U.S. federal income tax purposes. Your
tax basis 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.
Taxation of Warrants
You generally will
not 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.
Plan
of Distribution
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 _________, 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 at
cemtrex@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-manager and its affiliates may provide to us from time
to time in the future in the ordinary course 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) 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 be
required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 10b-5
and Regulation M under the Exchange Act. These rules and regulations may limit the timing of any purchases and sales of securities
by the dealer-manager acting as a principal. Under these rules and regulations, the dealer-manager must not engage in any stabilization
activity in connection with our securities, 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.
Price Stabilization, Short Positions
No person has been
authorized by our company to engage in any form of price stabilization in connection with this rights offering.
Management Purchases
We expect one or more
of our directors and executive officers to purchase units 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 owning a substantial portion, or a majority, 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 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.
Validity
of the Securities
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.
Experts
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 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 information 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):
|
•
|
Annual Report on Form 10-K
for the fiscal year ended September 30, 2015 filed on December 21, 2015, and as amended
on August 25, 2016, including the information specifically incorporated by reference
into the Form 10-K from our definitive proxy statement for the 2015 Annual Meeting of
Stockholders filed on February 8, 2016;
|
|
•
|
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;
|
|
•
|
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 December 17,
2015 and as amended on March 11, 2016, and further amended on June 27, 2016, August
22, 2016 and September 26, 2016, June 7, 2016 and as amended on August 17, 2016 and further
amended on November 4, 2016 and November 17, 2017
,
April 12, 2016, May 17, 2016, May 27, 2016, June 14, 2016, July 1, 2016, August
22, 2016, and November 9, 2016 ;
|
|
•
|
Definitive Proxy Statement on Schedule 14A
filed on February 8, 2016; and
|
|
|
|
|
•
|
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.
|
We also incorporate
by reference into this prospectus any additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act prior to the completion or termination of the offering, but excluding any information deemed furnished and
not filed with 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 more of the documents incorporated by reference
in this prospectus. You should rely only 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 in this
prospectus.
PART II.
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.
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.
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 (other than the payment of expenses incurred or paid by a director, officer or controlling person in
a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person 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 the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
In addition, we have
entered into indemnification agreements with each of our officers and directors under which we agree to indemnify each officer
and director to the fullest extent now or hereafter permitted by applicable law (including, without limitation, the indemnification
permitted by the General Corporation Law of Delaware) in the event that an officer or director was or is made or is threatened
to be made a party to or a witness in any threatened, pending or completed action, suit, proceeding or appeal, whether civil,
criminal, administrative or investigative, by reason of the fact that such person was or is a director and/or officer of ours
or any of our subsidiaries, both as to action in such person’s official capacity and as to action in another capacity while
holding such directorship or office, where such person acts or acted in that capacity at our request, against all reasonable expenses
(including attorneys’ fees and disbursements), judgments, fines (including excise taxes and penalties) and amounts paid
in settlement actually and reasonably incurred by officer of director in connection with such action, suit, proceeding or appeal.
Pursuant to the dealer-manager
agreement to be filed as Exhibit 1.1 to this Registration Statement, we have agreed to indemnify the dealer-manager, and the dealer-manager
has agreed to indemnify us, against certain civil liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered
Securities.
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:
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 each of the above
transactions exempt from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, no advertising or
general solicitation was employed 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
of the Securities Act by virtue of Section 4(a)(2) of the Securities Act.
Item 16. Exhibits and Financial Statement
Schedules.
The exhibits listed in the following Exhibit
Index are filed as part of this Registration Statement.
Exhibit
No.
|
|
Description
|
|
|
|
1.1*
|
|
Form
of Dealer-Manager Agreement by and between Cemtrex Inc. and Source Capital Group, Inc.
|
|
|
|
2.1
|
|
Asset Purchase Agreement regarding the assets
of ROB Holding AG, ROB Electronic GmbH, ROB Connect GmbH, and ROB Engineering dated Spetember 10, 2013.
(5)
|
|
|
|
2.2
|
|
Stock Purchase Agreement regarding the stock
of Advanced Industrial Services, Inc., AIS Leasing Company, AIS Graphic Services, Inc., and AIS Energy Services, LLC, Dated
December 15, 2015.
(6)
|
|
|
|
2.3
|
|
Asset Purchase agreement between Periscope GmbH
and ROB Centrex Assets UG, ROB Cemtrex Automotive GmbH, and ROB Cemtrex Logistics GmbH.
(7)
|
|
|
|
3.1
|
|
Certificate
of Incorporation of the company.
(1)
|
|
|
|
3.2
|
|
By
Laws of the company.
(1)
|
|
|
|
3.3
|
|
Certificate
of Amendment of Certificate of Incorporation, dated September 29, 2006.
(1)
|
|
|
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation, dated March 30, 2007.
(1)
|
|
|
|
3.5
|
|
Certificate
of Amendment of Certificate of Incorporation, dated May 16, 2007.
(1)
|
|
|
|
3.6
|
|
Certificate
of Amendment of Certificate of Incorporation, dated August 21, 2007.
(1)
|
|
|
|
3.7
|
|
Certificate
of Amendment of Certificate of Incorporation, dated April 3, 2015.
(3)
|
|
|
|
3.8
|
|
Certificate
of Designation of the Series A Preferred Shares , dated September 8, 2009.
(2)
|
|
|
|
3.9*
|
|
Certificate
of Designation of the Series 1 Preferred Stock.
|
|
|
|
4.1
|
|
Form
of Subscription Rights Certificate.
|
|
|
|
4.2
|
|
Form
of Series 1 Preferred Stock Certificate.
|
|
|
|
4.3*
|
|
Form
of Series 1 Warrant.
|
|
|
|
5.1
|
|
Form
of Opinion of Olshan Frome Wolosky LLP.
|
|
|
|
10.1
|
|
Cemtrex
Lease Agreement-Ducon Technologies, Inc.
(1)
|
|
|
|
10.2
|
|
Lease
Agreement between Daniel L. Canino and Griffin Filters, LLC.
(1)
|
|
|
|
10.3
|
|
Asset
Purchase Agreement between Ducon Technologies, Inc. and Cemtrex, Inc.
(1)
|
|
|
|
10.4
|
|
Agreement
and Assignment of Membership Interests between Aron Govil and Cemtrex, Inc.
(1)
|
|
|
|
10.5
|
|
8.0%
Convertible Subordinated Debenture.
(1)
|
|
|
|
10.6
|
|
Letter
Agreement by and between Cemtrex, Inc. and Arun Govil, dated September 8, 2009.
(2)
|
|
|
|
10.7
|
|
Loan Agreement between Fulton Bank, N.A. and
Advanced Industrial Services, Inc., AIS Acquisition, Inc., AIS Leasing Company, dated December 15, 2015.
(6)
|
|
|
|
10.8
|
|
Promissory Note between Kris L. Mailey and AIS
Acquisition, Inc. dated December 15, 2015.
(6)
|
|
|
|
10.9
|
|
Promissory Note between Michael R. Yergo and
AIS Acquisition, Inc. dated December 15, 2015.
(6)
|
|
|
|
10.10
|
|
Term Loan Agreement between Cemtrex GmbH and
Sparkasse Bank for Financing of funds within the scope of the Asset-Deals of the ROB Group, dated October 4, 2013.
(8)
|
|
|
|
10.11
|
|
Working Capital Credit Line Agreement between
Cemtrex GmbH and Sparkasse Bank, dated October 4, 2013 (updated May 8, 2014).
(8)
|
|
|
|
10.12
|
|
Loan Agreement between ROB Cemtrex GmbH and Sparkasse
Bank to finance the purchase of the property at Am Wolfsbaum 1, 75245 Neulingen, Germany, dated October 7, 2013, purchase
completed March 1, 2014.
(9)
|
|
|
|
12.1*
|
|
Ratio
of Earnings to Fixed Charges.
|
|
|
|
14.1
|
|
Corporate
Code of Business Ethics.
(4)
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant
|
|
|
|
23.1
|
|
Consent
of Bharat Parikh & Associates.
|
|
|
|
23.2
|
|
Consent
of Olshan Frome Wolosky LLP (included in its opinion filed as Exhibit 5.1 hereto).
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page of the Registration Statement).
|
99.1
|
|
Form of Instructions as to Use of Subscription
Rights Certificates .
|
|
|
|
99.2
|
|
Form of Letter to Stockholders.
|
|
|
|
99.3
|
|
Form of Notice of Guaranteed Delivery for Rights Certificates .
|
|
|
|
99.4
|
|
Form of Letter to Security Dealers, Commercial Banks, Trust
Companies and Other Nominees.
|
|
|
|
99.5
|
|
Form of Letter to Clients.
|
|
|
|
99.6
|
|
Form of Nominee Holder Certification .
|
_________________
Unless otherwise indicated, exhibits were
previously filed.
*
|
To be filed by amendment.
|
(1)
|
Incorporated by reference from Form 10-12G filed on May 22,
2008.
|
(2)
|
Incorporated by reference from Form 8-K filed on September 10,
2009.
|
(3)
|
Incorporated by reference from Form 8-K filed on August 22,
2016 .
|
(4)
|
Incorporated by reference from Form 8-K filed on July 1, 2016.
|
(5)
|
Incorporated by reference from Form 10-K filed on August
25, 2016.
|
(6)
|
Incorporated by reference from Form 8-K/A filed on September
26, 2016.
|
(7)
|
Incorporated by reference from Form 8-K/A filed on November
4, 2016.
|
(8)
|
Incorporated by reference from Form 8-K/A filed on November
9, 2016.
|
(9)
|
Incorporated by reference from Form 10-Q/A filed on November
10, 2016.
|
Item 17. Undertakings.
|
(a)
|
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:
|
|
i.
|
To include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933;
|
|
ii.
|
To reflect in the
prospectus any facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement.
|
|
iii.
|
To include any
material information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in the registration
statement.
|
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 of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities
offered therein, 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
which remain unsold at the termination of the offering.
|
|
(4)
|
That, for the
purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
If the registrant is subject to Rule
430C (§230.430C of this chapter), 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), 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)
|
For determining
liability of the undersigned registrant under the Securities Act 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;
|
|
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.
|
|
(b)
|
The undersigned
registrant hereby undertakes that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
|
|
(c)
|
The undersigned
registrant hereby undertakes to supplement the prospectus, after the expiration of the
subscription period, to set forth the results of the subscription offer, the transactions
by the underwriters during the subscription period, the amount of unsubscribed securities
to be purchased by the underwriters, and the terms of any subsequent reoffering thereof.
If any public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will be filed
to set forth the terms of such offering.
|
|
(d)
|
Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
|
|
(e)
|
For determining
any liability under the Securities Act, the registrant will treat the information omitted
from the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective.
|
|
(e)
|
For determining
any liability under the Securities Act, the registrant will treat each post-effective
amendment that contains a form of prospectus as a new registration statement for the
securities offered in the registration statement, and that offering of the securities
at that time as the initial bona fide offering of those securities.
|
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, the registrant 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, on November 23,
2016.
|
CEMTREX, INC.
|
|
|
|
By:
|
/s/ Saagar Govil
|
|
|
Saagar Govil
|
|
|
President and Chief Executive Officer
|
|
|
|
|
By:
|
/s/ Renato Dela Rama
|
|
|
Renato Dela Rama
|
|
|
Vice President of Finance
|
Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Saagar Govil
|
|
President and Chief Executive Officer (principal executive officer)
and Director
|
|
November 23 , 2016
|
Saagar Govil
|
|
|
|
|
|
|
|
|
|
/s/ Renato Dela Rama
|
|
Vice President of Finance (principal financial and accounting officer)
|
|
November 23 , 2016
|
Renato Dela Rama
|
|
|
|
|
|
|
|
|
|
/s/ Aron Govil
|
|
Executive Director
|
|
November 23 , 2016
|
Aron Govil
|
|
|
|
|
|
|
|
|
|
/s/ Raju Panjwani*
|
|
Director
|
|
November 23 , 2016
|
Raju Panjwani
|
|
|
|
|
|
|
|
|
|
/s/ Sunny Patel*
|
|
Director
|
|
November 23 , 2016
|
Sunny Patel
|
|
|
|
|
|
|
|
|
|
/s/ Shamik Shah*
|
|
Director
|
|
November 23 , 2016
|
Shamik Shah
|
|
|
|
|
*
By:
|
/s/Aron
Govil
|
|
|
Aron
Govil
|
|
|
Attorney-in-Fact
|
|
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