Amendment to Registration of Securities (General Form) — Form 10 Filing Table of Contents
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‘10-12G/A’ — Amendment to Registration of Securities (General Form)
Registrant’s
telephone number, including area code: 631-756-9116
x 324
Securities
to be registered pursuant to Section 12(b) of the Act:
None
Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 par value per share
REGISTRATION
NO. ________
TABLE
OF CONTENTS
PAGE
DESCRIPTION
PAGE
ITEM
1
Business
2
ITEM
1A
Risk
Factors
9
ITEM
2
Financial
Information
12
ITEM
3
Properties
16
ITEM
4
Security
Ownership of Certain Beneficial Owners and Management
16
ITEM
5
Directors
and Executive Officers
17
ITEM
6
Executive
Compensation
18
ITEM
7
Certain
Relations and Related Transactions, and Director
Independence
19
ITEM
8.
Legal
Proceedings
19
ITEM
9.
Market
Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters
19
ITEM
10
Recent
Sales of Unregistered Securities
20
ITEM
11
Description
of Registrant’s Securities to be Registered
21
ITEM
12
Indemnification
of Directors and Officers
22
ITEM
13
Financial
Statements and Supplementary Data
23
ITEM
14
Changes
in and Disagreements with Accountants
23
ITEM
15
Financial
Statements and Exhibits
23
SIGNATURES
24
FORWARD-LOOKING
STATEMENTS
In
this
prospectus, we include some forward-looking statements that involve substantial
risks and uncertainties and other factors which may cause our operational and
financial activity and results to differ from those expressed or implied by
these forward-looking statements. In many cases, you can identify these
statements by forward-looking words such as "may,""expect,""anticipate,""believe,""estimate,""plan,""intend" and "continue," or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of operations
or of our financial condition, or state other "forward-looking" information.
You
should not place undue reliance on these forward-looking statements. The
sections captioned "Risk Factors" and "Management's Discussion and Analysis
of
Financial Condition and Plan of Operations," as well as any cautionary language
in this prospectus, provide examples of risks, uncertainties and events that
may
cause our actual results to differ materially from the expectations.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements.
ITEM
1
BUSINESS
Cemtrex
Inc. ("Cemtrex" or the "Company") is a Delaware corporation that designs,
engineers, assembles and sells emission monitoring equipment and instruments
to
the chemicals, pulp and paper, steel, power, coal and petrochemical industries,
as well as to municipalities, hospitals, and state and federal governments.
The
Company's current products include the following:
We
experienced increased revenues (and expenses) in each year as compared to the
preceding year. For the fiscal year ended September 30, 2007, we incurred
revenues of $5,847,663 which is an increase of $1,826,045 from the fiscal year
ended September 30, 2006. For the fiscal year ended, September 30, 2007, we
incurred a net loss of $123,565. For the fiscal year ended September 30, 2006,
we generated a net income of $174,890. The following table summarizes these
results:
On
December 30, 2004, the Company purchased certain assets from Ducon Technologies,
Inc., which related to a business engaged in designing, assembling, selling
and
maintaining emission monitors to utilities and industries. Ducon Technologies
Inc. is owned Arun Govil, the Chairman, Chief Executive Officer, Treasurer
and
President of the Company. In consideration for the asset purchase, the Company
issued to Ducon Technologies, Inc. 3,250,000 shares of its common stock. The
shares were issued under Section 4(2) of the Securities Act of 1933, as amended,
and/or Regulation D promulgated by the Securities and Exchange Commission.
On
April30, 2007, the Company purchased all of the issued and outstanding membership
interests of Griffin Filters LLC, (“Griffin”) a company established since 1971
and engaged in the design, engineering & supplying of industrial air
filtration equipment from its President. Arun Govil, the Chairman, Chief
Executive Officer, Treasurer and President of the Company, was the owner of
100%
of the issued and outstanding membership interests of Griffin. The Company
purchased 100% ownership in Griffin for a purchase price of $ 2,750,000.00.
The
Company completed the Griffin purchase by (i) paying cash of $700,000.00, (ii)
issuing 20,000,000 shares of common stock valued at $750,000.00 and (iii)
issuing a four year convertible debenture in the amount of $1,300,000.00, paying
interest of 8.0% per year and convertible into 30,000,000 shares of common
stock. Griffin had sales and net income of $3,297,409 and $145, 981 respectively
for fiscal year ended September 30, 2006. Griffin is now a wholly-owned
subsidiary of the Company.
The
Company designs, engineers, assembles and sells emission monitoring equipment
and instruments to the chemicals, pulp and paper, steel, power, coal and
petrochemical industries, as well as to municipalities, hospitals, and state
and
federal governments. The Company’s emission monitoring systems are installed at
the exhaust stacks of industrial facilities and are used to measure the outlet
flue gas concentrations of regulated pollutants, such as sulfur dioxide,
hydrogen chloride, hydrogen sulfide, nitrous oxides, ammonia, nitrogen oxide,
carbon dioxide, carbon monoxide and other regulated pollutants. Through use
of
our equipment and instrumentation, our clients can monitor the exhausts to
the
atmosphere from their facilities and comply with Environmental Protection Agency
and state and local emission regulations on dust, particulate, fumes, acid
gases
and other regulated pollutants into the atmosphere.
The
Company is also getting involved in providing turnkey services for carbon credit
projects from abatement of greenhouse gases pursuant to the Kyoto protocol
and
assists project owners in the selling of carbon credits globally. Carbon Credits
are emission offsets that are generated from greenhouse gases abatement,
renewable energy such as solar & wind, and energy efficiency projects which
displace carbon emissions from traditional fossil fuel sources like coal, oil
or
gas with the subsequent reduction in greenhouse gas emissions. Companies,
agencies and governments buy, sell, bank and trade Carbon Credits called
Certified Emission Reductions or CERs. Cemtrex provides consulting services
for
such projects and arranges for investment equity and the sales of CERs for
its
customers.
3
INDUSTRY
BACKGROUND
The
market for environmental control systems and technologies is directly dependent
upon governmental regulations and their enforcement. During the past three
decades, federal, state and local governments have realized the contaminated
air
poses significant threats to public health and safety, and, in response, have
enacted legislation designed to curb emissions of a variety of air pollutants.
Management believes that the existence of governmental regulations creates
demand for the Company’s emission monitoring equipment and environmental control
systems.
These
governmental regulations affect nearly every industrial activity. The principal
federal legislation that was created is the Clean Air Act of 1970, as amended
(Clean Air Act). This legislation requires compliance with ambient air quality
standards and empowers the Environmental Protection Agency (EPA) to establish
and enforce limits on the emissions of various pollutants from specific types
of
facilities. The states have primary responsibility for implementing these
standards and, in some cases, have adopted standards more stringent than those
established by the EPA. In 1990, amendments to the Clean Air Act were adopted
which address, among other things, the country acid rain problem by imposing
strict control on the emissions of sulfur dioxide from power plants. During
1997, EPA approved regulations for ozone related emissions and in 1998 EPA
issued regulations requiring utilities in 22 states to significantly reduce
Nitrogen oxides emissions.
According
to scientists, the Earth's surface has risen in temperature by about 1 degree
Fahrenheit in the past century. There is increasing evidence that certain human
activities are contributing to this change in temperature through activities
that increase the levels of greenhouse gases, primarily carbon dioxide, methane,
and nitrous oxide, in the atmosphere. Greenhouse gases trap heat that would
normally escape back into the atmosphere, thus increasing the Earth's natural
greenhouse effect and increasing temperature over time.
The
Earth's climate is predicted to change because human activities are altering
the
chemical composition of the atmosphere through the buildup of greenhouse
gases—primarily carbon dioxide (CO2),
methane (CH4),
and
nitrous oxide (NOx).
The
heat-trapping property of these gases is undisputed. Although uncertainty exists
about exactly how Earth's climate responds to these gases, global temperatures
are rising.
EPA
Clean Air market Programs
EPA’s
Clean air market programs include various market-based regulatory programs
designed to improve air quality. Clean air markets include various market-based
regulatory programs designed to improve air quality by reducing outdoor
concentrations of fine particles, sulfur dioxide, nitrogen oxides, mercury,
ozone and other significant air emissions. The most well-known of these programs
are EPA’s Acid
Rain Program
and the
NOx
Trading Programs,
which
reduce emissions of sulfur dioxide (SO2)
and
nitrogen oxides (NOx)-compounds
produced by fossil fuel combustion.
Acid
Rain Program
The
goal
of the Acid Rain Program is to achieve significant environmental and public
health benefits through reductions in emissions of sulfur dioxide
(SO2)
and
nitrogen oxides (NOx),
the
primary causes of acid rain. To achieve this goal at the lowest cost to society,
the program employs both traditional and innovative, market-based approaches
for
controlling air pollution. In addition, the program encourages energy efficiency
and pollution prevention.
"Acid
rain" is a broad term referring to a mixture of wet and dry deposition
(deposited material) from the atmosphere containing higher than normal amounts
of nitric and sulfuric acids. The precursors, or chemical forerunners, of acid
rain formation result from both natural sources, such as volcanoes and decaying
vegetation, and man-made sources, primarily emissions of SO2
and
NOx
resulting
from fossil fuel combustion. In the United States, roughly 2/3 of all
SO2
and 1/4
of all NOx
come
from electric power generation that relies on burning fossil fuels, like
coal. Acid rain occurs when these gases react in the atmosphere with
water, oxygen, and other chemicals to form various acidic compounds. The result
is a mild solution of sulfuric acid and nitric acid. When sulfur dioxide and
nitrogen oxides are released from power plants and other sources, prevailing
winds blow these compounds across state and national borders, sometimes over
hundreds of miles.
NOx
Trading Program
The
goal
of the NOx Trading Program is to reduce the transport of ground-level ozone
across large distances. The Ozone
Transport Commission (OTC) NOx
Budget Program
was
implemented from 1999 to 2002 and was replaced by the NOx
Budget Trading Program—also
known as the “NOx
SIP
Call”—in 2003. The NOx
SIP
Call
Program
is a market-based cap and trade program created to reduce emissions of nitrogen
oxides (NOx)
from
power plants and other large combustion sources in the eastern United States.
NOx is a prime ingredient in the formation of ground-level ozone (smog), a
pervasive air pollution problem in many areas of the eastern United States.
The
NOx
Budget
Trading Program was designed to reduce NOx
emissions during the warm summer months, referred to as the ozone season, when
ground-level ozone concentrations are highest.
4
Clean
Air Interstate Rule (CAIR)
On
March10, 2005, EPA issued the Clean Air Interstate Rule (CAIR). This rule provides
states with a solution to the problem of power plant pollution that drifts
from
one state to another. CAIR covers 28 eastern states and the District of
Columbia. The rule uses a cap and trade system to reduce the target
pollutants—sulfur dioxide (SO2)
and
nitrogen oxides (NOx)—by
70
percent.
The
goal
of the Clean Air Interstate Rule (CAIR) is to permanently cap emissions of
SO2
and
NOx
in the
eastern U.S. States must achieve the required emission reductions using one
of
two compliance options: (1) meet the state’s emission budget by requiring power
plants to participate in an EPA-administered interstate cap and trade system,
or
(2) meet an individual state emissions budget through measures of the state’s
choosing.
Clean
Air Mercury Rule (CAMR)
On
March15, 2005, EPA issued the Clean Air Mercury Rule (CAMR) to permanently cap and
reduce mercury emissions from coal-fired power plants for the first time ever.
This rule makes the United States the first country in the world to regulate
mercury emissions from utilities.
The
goal
of the Clean Air Mercury Rule (CAMR) is to reduce mercury emissions from
coal-fired power plants through “standards of performance” for new and existing
utilities and a market-based cap and trade program.
CAMR
establishes “standards of performance” limiting mercury emissions from new and
existing coal-fired power plants, and creates a market-based cap and trade
program that will reduce nationwide utility emissions of mercury in two distinct
phases. The first phase cap is 38 tons and emissions will be reduced by taking
advantage of “co-benefit” reductions—that is, mercury reductions achieved by
reducing sulfur dioxide (SO2)
and
nitrogen oxides (NOx)
emissions under Clean
Air Interstate Rule (CAIR).
In the
second phase, due in 2018, coal-fired power plants will be subject to a second
cap, which will reduce emissions to 15 tons upon full
implementation.
EPA
Emission Monitoring Requirements
EPA’s
emissions monitoring requirements are designed to ensure the compliance with
its
current regulations pursuant to various programs. The emission monitoring
requirements ensure that the emissions data collected is of a known, consistent,
and high quality, and that the mass emissions data from source to source are
collected in an equitable manner. This is essential to support the Clean Air
Markets Program’s mission of promoting market-based trading programs as a means
for solving air quality problems
Continuous
emissions monitoring (CEM) is instrumental in ensuring that the mandated
reductions of SO2,
NOx
mercury
and other pollutants are achieved. While traditional emissions limitation
programs have required facilities to meet specific emissions rates, the current
Program requires an accounting of each ton of emissions from each regulated
unit. Compliance is then determined through a direct comparison of total annual
emissions reported by CEM and allowances held for the unit.
CEM
is
the continuous measurement of pollutants emitted into the atmosphere in exhaust
gases from combustion or industrial processes. EPA has established requirements
for the continuous monitoring of SO2,
volumetric flow, NOx,
diluent
gas, and opacity for units regulated under the Acid Rain Program. In addition,
procedures for monitoring or estimating carbon dioxide (CO2)
are
specified. The CEM rule also contains requirements for equipment performance
specifications, certification procedures, and recordkeeping and reporting.
The
Acid
Rain Program uses a market-based approach to reduce SO2
emissions in a cost-effective manner. (One allowance is an authorization to
emit
1 ton of SO2
during
or after a specified calendar year; a utility may buy, sell, or hold allowances
as part of its compliance strategy.) Complete and accurate emissions data are
key to implementing this market-based approach.
An
essential feature of smoothly operating markets is a method for measuring the
commodity being traded. The CEM data supplies the gold standard to back up
the
paper currency of emissions allowances. The CEM requirements Management believes
instillsconfidence in the market-based approach by verifying the existence
and
value of the traded allowance.
The
owner
or operator of a unit regulated under the Acid Rain Program must install CEM
systems on the unit unless otherwise specified in the regulation. CEM systems
include:
·
An
SO2
pollutant concentration monitor.
·
A
NOx
pollutant concentration monitor.
·
A
volumetric flow monitor.
·
An
opacity monitor.
·
A
diluent gas (O2
or
CO2)
monitor.
·
A
computer-based data acquisition and handling system (DAHS) for recording
and performing calculations with the data.
All
CEM
systems must be in continuous operation and must be able to sample, analyze,
and
record data at least every 15 minutes. All emissions and flow data will be
reduced to 1-hour averages. The rule specifies procedures for converting the
hourly emissions data into the appropriate units of measure.
5
The
following is a summary of monitoring method requirements and options:
·
All
existing coal-fired units serving a generator greater than 25 megawatts
and all new coal units must use CEMs for SO2,
NOx,
flow, and opacity.
·
Units
burning natural gas may determine SO2
mass emissions by: (1) measuring heat input with a gas flowmeter
and using
a default emission rate; or (2) sampling and analyzing gas daily
for
sulfur and using the volume of gas combusted; or (3) using CEMs.
·
Units
burning oil may monitor SO2
mass emissions by one of the following methods:
1.
daily
manual oil sampling and analysis plus oil flow meter (to continuously
monitor oil usage)
2.
sampling
and analysis of diesel fuel oil as-delivered plus oil flow meter
3.
automatic
continuous oil sampling plus oil flow meter
4.
SO2
and flow CEMs.
·
Gas-fired
and oil-fired base-loaded units must use NOx
CEMs.
·
Gas-fired
peaking units and oil-fired peaking units may either estimate
NOx
emissions by using site-specific emission correlations and periodic
stack
testing to verify continued representativeness of the correlations,
or use
NOx
CEMS. The emission correlation method has been significantly streamlined
in the revised rule.
·
All
gas-fired units using natural gas for at least 90 percent of their
annual
heat input and units burning diesel fuel oil are exempt from opacity
monitoring.
·
For
CO2
all units can use either (1) a mass balance estimation, or (2)
CO2
CEMs, or (3) O2
CEMs in order to estimate CO2
emissions.
PRODUCTS
The
Company offers a range of products and systems, incorporating diverse
technologies, to address the needs of a wide variety of industries and their
environmental regulations. Management believes that the Company provides a
single source responsibility for design, engineering, assembly, installation
and
maintenance of systems to its customers. The
Company’s products are designed to operate so as to allow its users to determine
their compliance with the latest governmental emissions regulations. The
Company’s products measure the concentrations of various regulated pollutants in
the flue gases discharging the exhaust stacks at various utilities and
industries.
The
Company's current products include the following:
Management
believes that the Company’s Laser Opacity monitor provides the highest accuracy
and long-term reliability available for stack opacity and dust measurements.
An
EPA-compliant monitoring system, the monitor is a lightweight, efficient
solution for determining opacity or dust concentration in stack gases. Proven
in
many installations worldwide, it advances the state of opacity monitoring with
higher levels of accuracy, flexible installation and reduced long-term
maintenance
Extractive
Continuous Emission Monitors (CEMS)
Cemtrex
provides direct-extractive
and
dilution-extractive
CEMS
equipment & systems that are applicable for utilities, industrial boilers,
FGD systems, SCR-NOx control, furnaces, gas turbines, process heaters,
incinerators, and process controls. In addition to traditional CEMS designed
for
maximum reliability and minimal maintenance in monitoring criteria pollutants,
the Company can also accurately quantify other gaseous compounds through in-situ
or extractive FTIR systems. The Company’s Extractive CEMS can be configured to
monitor for one or all of the following: • NOx • SO2 • CO2 • O2 • CO • THC •
Mercury • H2S • HCl & HF Acid • NH3 • Particulate • Opacity • Volumetric
Flow and Moisture.
Ammonia
Analyzer
The
flue
gas stream which contain ammonia, nitrogen oxides and in some cases sulfur
dioxide utilize Ultra Violet radiation techniques for measurements. All these
components absorb UV radiation, and therefore can be monitored by process
analyzers that utilize UV absorbance techniques for detection.
Mercury
Analyzer
The
EPA
Clean Air Mercury rule requires that all coal fired power plants must provide
continuous mercury monitoring by 2009. Management believes that Cemtrex's SM4
mercury monitor, a result of 10 years experience in mercury monitoring business,
provides reliable online measurements at a much lower cost than any other
competing model in the market. Cemtrex SM4 is the first instrument working
on a
thermo catalytic principle avoiding wet chemical sample treatment. As a
consequence, the Company has found that maintenance demand has been drastically
minimized. Management believes that it is the only monitor that required no
maintenance at a coal fired utility wet stack, no carrier gases, no water and
95% data availability SM4 uses straight extractive Teflon sheathed Hastelloy
probe with no plugging or corrosion.
6
PRODUCT
DEVELOPMENT
There
are
no products under development at the present time.
The
Company is not dependent on, nor expects to become dependent on, any one or
a
limited number of suppliers. The Company buys parts and components to assemble
its equipment and products. The Company does not manufacture or fabricate its
own products or systems. The Company relies on sub-suppliers and third party
vendors to procure from or fabricate its components based on the Company’s
design, engineering and specifications. The Company also enters into
subcontracts for field installation, which the Company supervises; and Company
manages all technical, physical and commercial aspects of the performance of
the
Company contracts. To date, the Company has not experienced difficulties either
in obtaining fabricated components and other materials and parts or in obtaining
qualified subcontractors for installation work.
PARTS,
REPAIR AND REFURBISHMENT SERVICES
The
Company also provide replacement and spare parts and repair and refurbishment
services for its emission monitoring systems following the expiration of its
warranties which generally range up to 12 months. The Company has experienced
only minimal costs from its warranties.
The
Company’s standard terms of sale disclaim any liability for consequential or
indirect losses or damages stemming from any failure of the Company’s products
or systems or any component thereof. The Company seeks indemnification from
its
subcontractors for any loss, damage or claim arising from the subcontractors'
failure to perform.
COMPETITION
The
Company faces substantial competition in each of its principal markets. Most
of
its competitors are larger and have greater financial resources than the
Company; several are divisions of multi-national companies. The Company competes
on the basis of price, engineering and technological expertise, know-how and
the
quality of its products, systems and services. Additionally, the Company’s
management believes that the successful performance of the Company’s installed
products and systems is a key factor in gaining business as customers typically
prefer to make significant purchases from a company with a solid performance
history.
We
obtain
virtually all our contracts through competitive bidding. Although price is
an
important factor and may in some cases be the governing factor, it is not always
determinative, and contracts are often awarded on the basis of the efficiency
or
reliability of products and the engineering and technical expertise of the
bidder. 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, including
Thermo Fisher Scientific Inc., Tekran Instruments Corporation, Altech
Environment USA, Shaw Group, and Horiba Instruments Inc. in the emissions
monitoring business.
INTELLECTUAL
PROPERTY
Over
the
years, the Company has developed proprietary technologies that give us an edge
in competing with its competitors. Thus, the Company relies on a combination
of
trade secrets and know-how to protect its intellectual property. The Company
has
not filed any patents.
MARKETING
The
Company relies on manufacturing representatives, distributors, direct
salespersons, magazine advertisements, internet advertising, trade shows, trade
directories and catalogue listings to market our products and services. The
Company uses more than eight manufacturing sales representatives in the United
States backed by its senior management and technical professionals. The
Company’s arrangements with independent sales representatives accord each a
defined territory within which to sell some or all of the Company’s products and
systems, provide for the payment of agreed-upon sales commissions and are
terminable at will. The Company’s sales representatives do not have authority to
execute contracts on the Company’s behalf.
The
Company’s sales representatives also serve as ongoing liaison function between
us and our customers during the installation phase of our products and systems
and address customers' questions or concerns arising thereafter. The Company
selects representatives based upon industry reputation, prior sales performance
including number of prospective leads generated and sales closure rates, and
the
breadth of territorial coverage, among other criteria.
Technical
inquiries received from potential customers are referred to our engineering
personnel. Thereafter, the Company’s sales and engineering personnel jointly
prepare a budget for future planning, a proposal, or a final bid.
The
period between initial customer contact and issuance of an order is generally
between two and twelve months.
7
CUSTOMERS
The
Company’s principal customers are engaged in refining, power, chemical, mining
and metallurgical processing. Historically, most of our customers have purchased
individual products or systems which, in many instances, operate in conjunction
with products and systems supplied by others. For several years, the Company
has
marketed its products as integrated custom engineered emission monitoring
systems and environmental management solutions. No one single customer accounts
for a large percentage of our annual sales.
On
most
projects, the Company is responsible to its customers for all phases of the
design, assembly, supply and, if included, field installation of its products
and systems. The successful completion of a project is generally determined
by a
successful operational test of the supplied equipment conducted by our field
service technician in the presence of the customer.
TECHNOLOGY
The
Company has developed a broad range of emission monitoring technological base.
The Company’s equipment and instruments are used: (i) to measure particulate,
carbon dioxide, nitrogen oxides, mercury and sulfur dioxide from coal-fired
power plants, (ii) to measure particulate from cement plants, (iii) to measure
hydrocarbons, particulate and sulfur dioxide from refineries, (iv) to measure
hydrogen sulfide, carbon monoxide, ammonia, hydrocarbons and other regulated
pollutants from chemical plants, steel plants, incinerators and other industrial
exhausts. Our emission monitors are capable of meeting all current federal
and
local emission monitoring standards. The Company has not filed any patents
with
respect to its technology.
BONDING
AND INSURANCE
While
only a very few of our contracts require the Company to procure bid and
performance bonds, such requirements are prevalent for large projects or
projects partially or fully funded by federal, state or local governments.
A bid
bond guarantees that a bidder will execute a contract if it is awarded the
job
and a performance bond guarantees performance of the contract. The Company
does
not presently have a bank credit line to back bid or performance bonds. Thus,
the Company cannot bid on certain contracts.
In
certain cases, the Company is able to secure large contracts by accepting
progress payments with retention provisions in lieu of bonds.
The
Company currently maintains different types of insurance, including general
liability and property coverage. The Company does not maintain product liability
insurance with respect to its products and equipment. Management believes that
the insurance coverage that it is adequate for our current business
needs.
GOVERNMENT
REGULATION
Significant
environmental laws, particularly the Federal Clean Air Act, have been enacted
in
response to public concern about the environment. The Company believe that
compliance with and enforcement of these laws and regulations create the demand
for our products and systems and largely determine the level of expenditures
that customers will make to monitor the emissions from their facilities. The
Federal Clean Air Act, initially adopted in 1970 and extensively amended in
1990, requires compliance with ambient air quality standards and empowers the
EPA to establish and enforce limits on the emission of various pollutants from
specific types of industrial facilities. States have primary responsibility
for
implementing these standards, and, in some cases, have adopted more stringent
standards.
The
1990
amendments to the Federal Clean Air Act require, among other matters, reductions
in the emission of sulfur oxides, believed to be the cause of "acid rain,"
in
the emission of 189 identified hazardous air pollutants and toxic substances
and
the installation of equipment and systems which will contain certain named
toxic
substances used in industrial processes in the event of sudden, accidental,
high-volume releases. Such amendments also extend regulatory coverage to many
facilities previously exempt due to their small size and require the EPA to
identify those industries which will be required to install the mandated control
technology for the industry to reduce the emission of hazardous air pollutants
from their respective plants and facilities. The Montreal Protocol, adopted
in
1987, as well as EPA regulations issued in 1992, call for the phase-out of
CFCs.
In addition, regulations promulgated by the EPA in 1993 further limit the
concentration of pollutants, such as hydrogen chloride, sulfur dioxide,
chlorine, heavy metals and hazardous solid substances in the form of extremely
fine dust, from sewage sludge incinerators. Sewage sludge facilities are
required to comply with these regulations. Compliance with all these regulations
can only be achieved by first monitoring the pertinent emission
levels.
EMPLOYEES
The
Company employs 21 full time and three part time employees, consisting of one
executive officer, five managers, ten technical engineers, and five clerical
and
administrative support persons. None of our employees are represented by a
labor
union. In addition, the Company utilizes commission sales personnel and contract
design engineers, on an as needed basis. There are no employment
agreements.
8
FACILITIES
The
Company does not own any real estate.
The
Company leases its principal office at Farmingdale, New York, 4000 square feet
of office and warehouse/shop space in a single story commercial structure on
a
month to month lease from Ducon Technologies Inc., at a monthly rental of $
2,157.00. The Company’s subsidiary Griffin Filters LLC leases approx. 10,000 sq.
ft. of office and warehouse space in Liverpool, New York from a third party
in a
five year lease at a monthly rent of $ 4,225.00 expiring on March 30, 2012.
The
Company has no plans to acquire any property in the immediate future. The
Company believes that its current facilities are adequate for its needs through
the next six months, and that, should it be needed, suitable additional space
will be available to accommodate expansion of the Company's operations on
commercially reasonable terms, although there can be no assurance in this
regard. There are no written agreements.
ITEM
1A
RISK
FACTORS
An
Investment in our common stock involves risks. You should carefully consider
the
following risks, as well as the other information contained in this prospectus.
If any of the following risks actually occur, our business could be materially
harmed.
RISKS
RELATED TO OUR BUSINESS
o
We are
substantially dependent upon
the
success and market acceptance of our technology. The failure of the emissions
monitoring and controls market to develop as we anticipate, would adversely
affect our business.
The
Company's success is largely dependent on increased market acceptance of our
emission monitoring equipment and control systems. If acceptance of emissions
monitoring equipment does not continue to grow, then the Company’s revenues may
be significantly reduced.
o
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.
The
Company may not be able to introduce any new products or any enhancements to
its
existing products on a timely basis, or at all. In addition, the introduction
by
the Company of any new products could adversely affect the sales of certain
of
its existing products. If the Company's competitors develop innovative emissions
testing technology that are superior to the Company's products or if the Company
fails to accurately anticipate market trends and respond on a timely basis
with
its own innovations, the Company may not achieve sufficient growth in its
revenues to attain profitability.
o
We
have
incurred losses for the fiscal year ending September 30, 2007, and we may incur
losses for the foreseeable future.
We
had
net loss of $123,565 for the fiscal year ended September 30, 2007. These losses
have resulted principally from expenses incurred in the extensive demonstration
testing of its new SM4 compliance mercury monitors at various utility sites
and
the low gross margin product line of Griffin Filters. We may continue to incur
significant expenditures related to research and development, selling and
marketing and general and administrative activities as well as capital
expenditures and anticipate that our expenses and losses may increase in the
foreseeable future as we expand our business however, for the nine months ended
June 30, 2008, we generated a profit of $344,900. Further, as a public company
we will also incur significant legal, accounting and other expenses that we
did
not incur as a private company. To achieve profitability, we will need to
generate significant additional revenues with significantly improved gross
margins. It is uncertain when, if ever, we will return to profitability. Even
if
we were to become profitable, we might not be able to sustain or increase
profitability on a quarterly or annual basis.
o
The
Company faces constant changes in governmental standards by which our products
are evaluated.
The
Company believes 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 products may
become obsolete.
o
The
future
growth of our business depends, in part, on enforcement of existing
emissions-related environmental regulations and further tightening of emission
standards worldwide.
The
Company expects that the future business growth will 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, it could have a material adverse effect on our business, operating
results, financial condition and long-term prospects.
o
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 patent and other intellectual property rights.
The
Company considers its technology and procedures proprietary. In particular,
the
Company depends substantially on its flexibility to develop custom engineered
solutions for various applications and be responsive to customer needs. The
Company has not filed for any patents for its technologies.
9
The
Company may be notified of claims that it has infringed a third party's
intellectual property. Even if such claims are not valid, they could subject
the
Company to significant costs. In addition, it may be necessary in the future
to
enforce the Company's 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. An adverse
outcome in litigation or any similar proceedings could force the Company 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 the Company 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 the Company has 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 affect the Company's 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.
o
Product
defects could cause the Company to incur significant product liability,
warranty, repair and support costs and damage its reputation which would have
a
material adverse effect on its business.
Although
the Company rigorously tests its products, defects may be discovered in future
or existing products. These defects could cause the Company to incur significant
warranty, support and repair costs and divert the attention of its research
and
development personnel. It could also significantly damage the Company's
reputation and relationship with its distributors and customers which would
adversely affect its 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 the Company,
even
if unsuccessful, would likely be time consuming and costly to defend.
o
The
markets in which we operate are highly competitive, and many of our competitors
have significantly greater resources than we do.
There
is
significant competition among companies that provide emissions monitoring
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, including
Thermo Fisher Scientific Inc., Tekran Instruments Corporation, Altech
Environment USA, Shaw Group, and Horiba Instruments Inc. in the emissions
monitoring business. Newly developed products could be more effective and cost
efficient than our current or future products. Many of the current
and potential future competitors have substantially more engineering, sales
and
marketing capabilities and broader product lines than we
have.
o
The
Company’s 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 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 CEO and other senior key
personnel.
o
The
loss of our senior management and failure to attract and retain qualified
personnel in a competitive labor market could limit our ability to execute
our
growth strategy, resulting a slower rate of growth.
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.
o
General
economic downturns in general would have a material adverse effect on the
Company's business, operating results and financial condition.
The
Company's operations may in the future experience substantial fluctuations
from
period to period as a consequence of general economic conditions affecting
consumer spending. Therefore, any economic downturns in general would have
a
material adverse effect on the Company's business, operating results and
financial condition.
o
A
demand for payment of the outstanding loan or the conversion into non-assessable
share of common stock of the Company may have an adverse effect on the Company.
10
On
April30, 2007, the Company issued a $1,300,000 Convertible Debenture to Arun Govil,
the Company’s Chairman, CEO, President and Treasurer, in conjunction with the
purchase of Griffin Filters, Inc. pursuant to the Agreement and Assignment
of
Membership Interests between Arun Govil and Cemtrex, Inc. The debenture carries
an 8% annual interest rate with interest payable semiannually in arrears on
the
first business day of January and July each year. The debenture principle is
due
and payable on April 30, 2011.
The
debenture has the right of conversion into 30,000,000 non-assessable shares
of
common stock of the Company at $0.001 (par value) per share. Conversion is
not
exercisable prior to December 31, 2007. Commencing December 31, 2007 and
continuing to April 30, 2011, the Debenture Holder shall have the right of
conversion subject o the terms and conditions of the debenture. In the event
the
face amount of the debenture is not fully converted on or before April 30,2011,
the conversion rights will lapse.
Risks
related to investment in the common stock of the Company
o
We may
need additional funds in the future. We may be unable to obtain additional
funds
or if we obtain financing it may not be on terms favorable to us. You may lose
your entire investment.
Based
on
our current plans, we believe our existing cash and cash equivalents along
with
cash generated from operations will be sufficient to fund our operating expenses
and capital requirements through December 31, 2008, although there is no
assurance of this result, we may need funds in the future. If our capital
resources are insufficient to meet future capital requirements, we will have
to
raise additional funds. If we are unable to obtain additional funds on terms
favorable to us, we may be required to cease or reduce our operating activities.
o
If we
raise additional funds by selling additional shares of our capital stock, the
ownership interests of our stockholders will be diluted.
o
Our
stock trades on the Pink Sheets electronic quotation system.
The
Company’s Common Stock currently trades on the Pink Sheets electronic quotation
system under the symbol “CTEI.PK”. The Pink Sheets is a decentralized market
regulated by the Financial Industry Regulatory Authority in which securities
are
traded via an electronic quotation system. There can be no assurance that a
trading market for the Company's shares will continue to exist in the future,
and there can be no assurance that an active trading market will develop or
be
sustained. The market price of the shares of Common Stock is likely to be highly
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements
of
technological innovations, new products or new contracts by the Company or
its
competitors, developments with respect to proprietary rights, adoption of new
government regulations affecting the environment, general market conditions
and
other factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market price for the common stocks of technology companies. These types of
broad
market fluctuations may adversely affect the market price of the Company's
common stock. See
Risk
Factor “Our stock price may be highly volatile” below.
o
Our
shares of common stock are thinly traded, so stockholders may be unable to
sell
at or near ask prices or at all if they need to sell shares to raise money
or
otherwise desire to liquidate their shares.
Our
common stock has from time to time been “thinly-traded,” meaning that the number
of persons interested in purchasing our common stock at or near ask prices
at
any given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give stockholders
any
assurance that a broader or more active public trading market for our common
shares will develop or be sustained, or that current trading levels will be
sustained.
o
Our
common stock will be subject to “penny stock” rules which may be detrimental to
investors.
If
our
common stock is not listed on a national exchange or market, the trading market
for our common stock may become illiquid. Our common stock trades on the
over-the-counter electronic bulletin board and, therefore, is subject to the
requirements of certain rules promulgated under the Securities Exchange Act
of
1934, which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a "penny stock". The Securities and
Exchange Commission has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share. The
securities will become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchaser of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, among other requirements, monthly statements must be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of purchasers in this offering to sell
the
Common Stock offered hereby in the secondary market.
11
o
We do
not anticipate paying any dividends.
No
dividends have been paid on the common stock of the Company. The Company does
not intend to pay cash dividends on its common stock in the foreseeable future,
and anticipates that profits, if any, received from operations will be devoted
to the Company's future operations. Any decision to pay dividends will depend
upon the Company's profitability at the time, cash available and other relevant
factors.
o
Our
stock price may be highly volatile.
The
market price of our common stock, like that of many other technology companies,
has been highly volatile and may continue to be so in the future due to a wide
variety of factors, including:
·
announcements
of technological innovations by us, our collaborative partners or
our
present or potential competitors;
·
our
quarterly operating results and performance;
·
developments
or disputes concerning patents or other proprietary
rights;
·
acquisitions;
·
litigation
and government proceedings;
·
adverse
legislation;
·
changes
in government regulations;
·
economic
and other external factors; and
·
general
market conditions.
In
addition, potential dilutive effects of future sales of shares of common stock
by shareholdersand
by
the Company could have an adverse effect on the market price of our
shares.
o
Our
principal shareholder has significant influence over our company which could
make it impossible for the public stockholders to influence the affairs of
the
Company.
Approximately
74% of our outstanding voting capital stock is beneficially held by Arun Govilthe Company’s Chairman, Chief executive officer, President and Treasurer. In
addition, Mr. Govil holds a promissory note that may be convertible into
30,000,000 shares of common stock of the Company at his option. Consequently,
Mr. Govil will be able to control substantially all matters requiring approval
by the stockholders of the Company, including the election of all directors
and
approval of significant corporate transactions. This could make it impossible
for the public stockholders to influence the affairs of the Company.
ITEM
2
FINANCIAL
INFORMATION
The
following discussion of the financial condition and plan of operations contains
forward-looking statements that involve risks and uncertainties. Please see
“Risk Factors” and Forward-Looking Statements” elsewhere in this registration
statement.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ON PLAN OF OPERATION
The
following discussion of our financial condition and plan of operations should
be
read in conjunction with the consolidated financial statements and the notes
to
those statements included elsewhere in this prospectus. This discussion includes
forward-looking statements that involve risks and uncertainties. As a result
of
many factors, such as those set forth under "risk factors" and elsewhere in
this
prospectus, our actual results may differ materially from those anticipated
in
these forward-looking statements.
OVERVIEW
Cemtrex
is a full-range of emission monitoring and air filtration products company
engaged in designing, manufacturing and marketing emissions monitors and air
filtration products and providing certain services for green house gases carbon
credit generation projects. Our focus has evolved from expansion through
acquisition to increasing the market share of products more effectively in
the
marketplace
Financial
condition
The
following table sets forth selected historical consolidated financial data
from
our consolidated financial statements and should be read in conjunction with
our
consolidated financial statements including the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” which
are included below.
The
following discussion and analysis is based upon our consolidated financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of revenues and expenses, and assets and liabilities
during the periods reported. Estimates are used when accounting for certain
items such as revenues, allowances for returns, early payment discounts,
customer discounts, doubtful accounts, employee compensation programs,
depreciation and amortization periods, taxes, inventory values, and valuations
of investments, goodwill, other intangible assets and long-lived assets. We
base
our estimates on historical experience, where applicable and other assumptions
that we believe are reasonable under the circumstances. Actual results may
differ from our estimates under different assumptions or conditions. We believe
that the following critical accounting policies affect our more significant
judgments and estimates used in preparation of our consolidated financial
statements.
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We base our estimates
on the aging of our accounts receivable balances and our historical write-off
experience, net of recoveries.
We
value
our inventories at the lower of cost or market. We write down inventory balances
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of the inventory and the estimated market value based upon
assumptions about future demand and market conditions.
Goodwill
is reviewed for possible impairment at least annually or more frequently upon
the occurrence of an event or when circumstances indicate that the Company’s
carrying amount is greater than the fair value. In accordance with SFAS 142,
the
Company examined goodwill for impairment and determined that the Company’s
carrying amount did not exceed the fair value, thus, there was no impairment.
Generally,
sales are recognized when shipments are made to customers. Rebates, allowances
for damaged goods and other advertising and marketing program rebates are
accrued pursuant to contractual provisions and included in accrued expenses.
Certain amount of our revenues fall under the percentage-of-completion method
of
accounting used for long-term contracts. Under this method, sales and gross
profit are recognized as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Sales and gross
profit are adjusted prospectively for revisions in estimated total contract
costs and contract values. Estimated losses are recorded when identified.
RESULTS
OF OPERATIONS
Net
Sales: Net
sales for 2007 increased by $1,826,045 or 45.4%, to $5,847,663, from
$4,021,618 for 2006. Sales growth increased during the year of 2007
primarily due to the acquisition of Griffin Filters in April 2007.
The
overall market demand for our existing business increased during
the last
year. Net sales for three months period ended June 30, 2008 decreased
2%
to $1,272,314, as compared to the similar period ended June 30, 2007.
This
decrease was primarily due to timing delays in completion and shipment
of
certain projects. Net sales for nine months period ended June 30,2008
decreased 1%, to $4,514,788 as compared to the similar period ended
June30, 2007.
Gross
Profit:
Gross profit for 2007 increased $231,847 or 13.95%, to $1,893,566
which
made up 33.1% of net sales, from $1,661,719 for 2006, which made
up 61.8%
of net sales. The lower gross margin in 2007 was a direct result
of the
low gross margin product line of Griffin Filters. In addition, gross
profit in the existing product line decreased due to the extensive
demonstration testing of its new SM4 compliance mercury monitors
at
various utility sites. Gross profit for three months period ended
June 30,2008 increased ($235,914)
or
26.26% to $609,729, which made up 52% of net sales from $405,206,
which
made up 68.9% of net sales. The gross margin for 2007 period includes
lower margin sales of Griffin Filters, whereas in 2006 the higher
gross
margin was a result of high margin field services for monitoring
systems
performed by the Company during that period. Gross profit for nine
months
period ended June 30, 2008 increased $513,532 or 32.79% to $2,079,858
which made up 46% of net sales from $1,566,326, in the similar period
ended June 30, 2007, which made up 34.5% of net sales. The gross
margin
for the six month period in 2007 includes combined margin of the
high
margin emission monitoring systems business and the lower margin
business
of Griffin Filters, whereas in 2006 the higher gross margin was a
result
of high margin business of emission monitoring systems alone during
that
period.
Operating
Expenses: Operating
expenses for 2007 increased $556,398, or 38.3%, to $2,009,795 from
$1,453,397 in 2006. Operating expenses as a percentage of sales decreased
in 2007 to 34.37% from 36.14% in 2006. The decrease in operating
expenses
was primarily due to acquisition of Griffin Filters and having a
larger
sales volume in relation to the same operating expenses for the existing
product line. Operating expenses for three months period ended June30,2008 decreased 3.3% to $511,126, as compared to the similar period
ended
June 30, 2007. Operating expenses for nine months period ended June30,2008 decreased 4.5%, to ($78,185)
as
compared to the similar period ended June 30, 2007. This
14
Net
Income/Loss: The
Company had anet
loss of ($123,565) for 2007 as compared to a net income of $174,890
for
2006. The net loss in 2007 was a result of several factors including:
(i)
increased expenses in demonstration testing of the new SM4 mercury
product
line, (ii) low bookings and sales of the acquired business of griffin
Filters. The Company had a net profit of $67,194 for three month
period
ended June 30, 2008 an increase of 284% from a net loss of ($36,533)
in
the similar period ended June 30, 2007. The higher net income in
2007
period was due to higher gross margin and lower operating expenses
during
that period. Net income for nine months period ended June 30, 2008
increased 608%, to $344,900 as compared to a net loss of ($67,836)
in the
similar period ended June 30, 2007. This increase was primarily due
to
increased net sales.
Provision
for Income Taxes: Our
effective state and federal tax rate, adjusted for the effect of
certain
credits and adjustments, was approximately 38% and 38% for 2007 and
2006,
respectively.
EFFECTS
OF INFLATION
The
Company’s business and operations have not been materially affected by inflation
during the periods for which financial information is presented.
Inventories
increased $52,498 or 26.26% to $252,443 at September 30, 2007 from $199,945
at
September 30, 2006. The increase inventory was due to the acquisition of Griffin
Filters. Inventory increased $121,718 or 48.2% to $374,161 at June 30, 2008
from
$252,443 at September 30, 2007.
Continuing
operations used $802,925 of cash for the fiscal year ended September 30, 2007,
compared to using $399,884 of cash for the fiscal year ended September 30,2006.
The decrease in cash flows was primarily related to the increase in inventory
combined with increase in accounts payable. Continuing operations used $312,958
of cash for the three months ended June 30, 2008. Investing activities for
continuing operations used $713,923 of cash during 2007, compared to providing
$6,130 during 2006. The use of cash by investing activities was primarily
attributable to the purchase of griffin Filters in April, 2007. The financing
activities in 2007 generated $24,483.
We
believe that our cash on hand, cash generated by operations, is sufficient
to
meet the capital demands of our current operations during the 2008 fiscal year.
Any major increases in sales, particularly in new products, may require
substantial capital investment. Failure to obtain sufficient capital could
materially adversely impact our growth potential.
Outlook
We
anticipate that the outlook for our products and services remains quite strong
and we are positioned well to take advantage of it.
We
believe there is currently a gradually increasing public awareness of the issues
surrounding air quality and that this trend will continue for the next several
years. We also believe there is an increase in public concern regarding the
effects of air quality on society and future generations, as well as an increase
in interest by standards-making bodies in creating specifications and techniques
for detecting, defining and solving air quality problems. As a result, we
believe there will be an increase in interest in our mercury monitors, opacity
monitors, carbon credits and air filtration products of subsidiary Griffin
Filters.
This
Outlook section, and other portions of this document, include certain
“forward-looking statements” within the meaning of that term in Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act
of
1934, including, among others, those statements preceded by, following or
including the words “believe,”“expect,”“intend,”“anticipate” or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of assumptions, risks
and
uncertainties. Our actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include those discussed in Item 1A. Risk Factors
as
well as:
15
•
the
shortage of reliable market data regarding the emission monitoring
&
air filtration market,
•
changes
in external competitive market factors or in our internal budgeting
process which might impact trends in our results of
operations,
•
anticipated
working capital or other cash requirements,
•
changes
in our business strategy or an inability to execute our strategy
due to
unanticipated changes in the market,
•
product
obsolescence due to the development of new technologies, and
•
Various
competitive factors that may prevent us from competing successfully
in the
marketplace.
In
light
of these risks and uncertainties, there can be no assurance that the events
contemplated by the forward-looking statements contained in this Form 10/A
will
in fact occur.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk
We
are
exposed to various market risks, primarily changes in interest rates. Market
risk is the potential loss arising from adverse change in market rates and
prices, such as foreign currency exchange and interest rates. For Cemtrex,
these
exposures are primarily related to changes in interest rates. We do not hold
any
derivatives or other financial instruments for trading or speculative purposes.
The
Company’s financial position is not materially affected by fluctuations in
currencies against the U.S. dollar, since there are no assets held outside
the
United States. Risks due to changes in foreign currency exchange rates are
negligible, as the preponderance of our foreign sales occur over short periods
of time or are demarcated in U.S. dollars.
ITEM
3
PROPERTIES
The
Company does not own any real estate.
The
Company leases its principal office at Farmingdale, New York, 4000 square feet
of office and warehouse/shop space in a single story commercial structure on
a
month to month lease from Ducon Technologies Inc., at a monthly rental of
$2,157.00. The Company’s subsidiary Griffin Filters LLC leases approx. 10,000
sq. ft. of office and warehouse space in Liverpool, New York from a third party
in a five year lease at a monthly rent of $ 4,225.00 expiring on March 30,2012.
The Company has no plans to acquire any property in the immediate future. The
Company believes that its current facilities are adequate for its needs through
the next six months, and that, should it be needed, suitable additional space
will be available to accommodate expansion of the Company's operations on
commercially reasonable terms, although there can be no assurance in this
regard. There are no written agreements.
ITEM
4
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth certain information known to us with respect to
the
beneficial ownership of our common stock as of October 31, 2008 by:
o
all
persons who are beneficial owners of five percent (5%) or more of our common
stock;
o
each of
our directors;
o
each of
our executive officers; and
o
all
current directors and executive officers as a group.
Except
as
otherwise indicated, and subject to applicable community property laws, the
persons named in the table below have sole voting and investment power with
respect to all shares of common stock held by them.
16
As
of
October 31, 2008, 34,327,862 shares of common stock are issued and outstanding.
Applicable percentage ownership in the following table is based on 64,327,862
shares of common stock outstanding as of October 31, 2008 which includes shares
underlying a convertible debenture held by Mr. Govil, the President, Chief
Executive Officer and Chairman of the Board of the Company.
(1)
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage ownership
of that person, shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of October 31,2008
are deemed outstanding. Such shares, however, are not deemed outstanding for
the
purpose of computing the percentage ownership of any other person.
All
directors and executive officers as a group (3 persons)
55,430,000
86.2
%
(1)
Except
as otherwise noted herein, the percentage is determined on the basis
of
64,327,862 shares of our common stock outstanding plus securities
deemed
outstanding pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Under
Rule 13d-3, a person is deemed to be a beneficial owner of any
security owned by certain family members and any security of which
that
person has the right to acquire beneficial ownership within 60 days,
including, without limitation, shares of our common stock subject
to
currently exercisable options.
(2)
Includes
the shares underlying the Convertible Debenture issued by the Company
to
Arun Govilthe Company’s Chairman, CEO, President and Treasurer in
conjunction with the purchase of Griffin Filters, Inc. The debenture
has
the right of conversion into 30,000,000 non-assessable shares of
common
stock of the Company at $0.001 (par value) per share. The Debenture
Holder
has the right of conversion, subject to the terms and conditions
of the
debenture, commencing December 31, 2007 and continuing to April 30,2011,
thus Arun Govil has the right to convert the 30,000,000 non-assessable
shares of common stock of the Company within 60 days. In the event
the face amount of the debenture is not fully converted on or before
April30, 2011, the conversion rights will
lapse.
(3)
Includes
the shares owned by Ducon Technologies Inc. is owned by Arun Govil
the
Chairman, Chief Executive Officer, Treasurer and President of the
Company.
(4)
Vanana
Govil is the spouse of Arun Govil, the President, Chief Executive
Officer
and Chairman of the Board of the Company and his shares are attributed
to
Ms. Govil.
ITEM
5 DIRECTORS
AND EXECUTIVE OFFICERS
The
following persons are our executive officers and directors. Directors are
elected to hold offices until the next annual meeting of Shareholders and until
their successors are elected or appointed and qualified. Officers are appointed
by the board of directors until a successor is elected and qualified or until
resignation, removal or death.
Arun
Govil has been our President since December 2004. Mr. Govil is also President
(and owner) of Ducon Technologies Inc., a privately held company engaged in
air
pollution control systems business since 1996. Prior to 1996 Mr. Govil, Mr.
Govil worked at various management and technical positions in the environmental
industry. Mr. Govil holds a B.E. degree in Chemical Engineering and a M.B.A.
in
Finance. He is also a licensed Professional Engineer in New York State and
New
Jersey.
Renato
Dela Rama has been our Vice President of Finance since December 2004. Mr. Dela
Rama is also the Controller of Ducon Technologies Inc. since 2004. Prior to
that, he worked in various accounting and financial management positions. Mr.
Dela Rama holds a B.S. degree in accounting.
Vandana
Govil has served as secretary and Director of the Company since December 2004.
Ms. Govil earned her B.S. in accounting and economics from State University
of
New York at Old Westbury in 2000. From 1987 to 1995, Ms. Govil was a realtor.
Arun Govil and Vandana Govil are husband and wife.
Except
for Mr. and Mrs. Govil, there are no family relationships among our directors
and officers. None of our directors or officers is a director in any other
reporting companies. None of our directors or officers has been affiliated
with
any company that has filed for bankruptcy within the last five years. The
Company is not aware of any proceedings to which any of the Company’s officers
or directors, or any associate of any such officer or director, is a party
adverse to the Company or any of the Company’s subsidiaries or has a material
interest adverse to it or any of its subsidiaries.
Each
director of the Company serves for a term of one year or until the successor
is
elected at the Company's annual shareholders' meeting and is qualified, subject
to removal by the Company's shareholders. Each officer serves, at the pleasure
of the board of directors, for a term of one year and until the successor is
elected at the annual meeting of the board of directors and is qualified.
The
Board
of Directors has not established an audit committee and does not have an audit
committee financial expert. The Board is of the opinion that an audit committee
is not necessary since the company has only two directors to date and such
directors have been performing the functions of an audit committee
The
business address for each of our officers and directors is 19 Engineers Lane,
Farmingdale, NY11735.
ITEM
6 EXECUTIVE
COMPENSATION
BOARD
OF DIRECTORS
All
of
our directors hold office until the next annual meeting of stockholders and
the
election and qualification of their successors. Our executive officers are
elected annually by the board of directors to hold office until the first
meeting of the board following the next annual meeting of stockholders and
until
their successors are chosen and qualified.
DIRECTORS'
COMPENSATION
We
reimburse our directors for expenses incurred in connection with attending
board
meetings but we do not pay our directors fees or other cash compensation for
services rendered as a director.
EXECUTIVE
COMPENSATION
The
compensation discussion addresses all compensation awarded to, earned by, or
paid to the Cemtrex's named executive officers. As of October 31, 2008, two
of
our executive officers are currently earning compensation. Set forth below
is
the aggregate compensation for services rendered in all capacities to us during
our fiscal years ended September 30, 2006 and 2007 by our executive officers.
Except as indicated below, none of our executive officers were compensated
in
excess of $100,000.
On
April30, 2007, the Company issued a $1,300,000 Convertible Debenture to Arun Govilthe Company’s Chairman, CEO, President and Treasurer in conjunction with the
purchase of Griffin Filters, Inc. pursuant to the Agreement and Assignment
of
Membership Interests between Arun Govil and Cemtrex, Inc. The debenture carries
an 8% annual interest rate with interest payable semiannually in arrears on
the
first business day of January and July each year. The debenture principle is
due
and payable on April 30, 2011.
The
debenture has the right of conversion into 30,000,000 non-assessable shares
of
common stock of the Company at $0.001 (par value) per share. Conversion is
not
exercisable prior to December 31, 2007. Commencing December 31, 2007 and
continuing to April 30, 2011, the Debenture Holder shall have the right of
conversion subject to the terms and conditions of the debenture. In the event
the face amount of the debenture is not fully converted on or before April30,2011, the conversion rights will lapse.
AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
None.
ITEM
7
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
December 30, 2004, the Company purchased certain assets from Ducon Technologies,
Inc., which related to a business engaged in designing, assembling, selling
and
maintaining emission monitors to utilities and industries. Ducon Technologies
Inc. is owned by Arun Govil, the Chairman, Chief Executive Officer, Treasurer
and President of the Company. In consideration for the asset purchase, the
Company issued to Ducon Technologies, Inc. 3,250,000 shares of its common stock.
The shares were issued under Section 4(2) of the Securities Act of 1933, as
amended, and/or Regulation D promulgated by the Securities and Exchange
Commission.
On
April30, 2007, the Company purchased all of the issued and outstanding membership
interests of Griffin Filters LLC, (“Griffin”) a company established since 1971
and engaged in the design, engineering & supplying of industrial air
filtration equipment from its President. Arun Govil, the Chairman, Chief
Executive Officer, Treasurer and President of the Company, was the owner of
100%
of the issued and outstanding membership interests of Griffin. The Company
purchased 100% ownership in Griffin for a purchase price of $ 2,750,000.00.
The
Company completed the Griffin purchase by (i) paying cash of $700,000.00, (ii)
issuing 20,000,000 shares of common stock valued at $750,000.00 and (iii)
issuing a four year convertible debenture in the amount of $1,300,000.00, paying
interest of 8.0% per year and convertible into 30,000,000 shares of common
stock. Griffin had sales and net income of $3,297,409 and $145, 981 respectively
for fiscal year ended September 30, 2006. Griffin is now a wholly-owned
subsidiary of the Company.
Ducon
Technologies, Inc. is owned by by Arun Govil the Chairman, Chief Executive
Officer, Treasurer and President of the Company.
Renato
Dela Rama the Vice President of Finance of the Company is also the Controller
of
Ducon Technologies Inc.
Mrs.
Vandana Govil, a director and the Secretary of the Company is the wife of Arun
Gonvil the Chairman, Chief Executive Officer, Treasurer and President of the
Company.
ITEM
8 LEGAL
PROCEEDINGS
The
Company is not currently a party to any material legal action.
ITEM
9
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
On
October 31, 2008, there were 34,327,862 shares of common stock issued and
outstanding and no shares of preferred stock issued or outstanding.
19
APPROXIMATE
NUMBER OF COMMON STOCK HOLDERS
As
of
October 31, 2008, there were approximately 84 holders of record of the Company’s
common stock as determined from the Company’s transfer agent’s list. Such list
does not include beneficial owners of securities whose shares are held in the
names of various dealers and clearing agencies.
Of
the
34,327,862 shares of common stock outstanding, 25,430,000 shares of common
stock
are beneficially held by "affiliates" of the company.
As
of
October 31, 2008, there is a convertible debenture of value $1,300,000
outstanding that are convertible into 30,000,000 shares of our common stock.
Under
certain circumstances, restricted shares may be sold without registration,
pursuant to the provisions of rule 144. In general Rule 144 permits the sale
of
restricted securities without any quantity limitations by a person who is not
an
affiliate of ours and has satisfied a six month holding period under certain
circumstances (including the requirement that the Company has been subject
to
the reporting requirements of the Securities Act of 1934, as amended, for a
period of one year, and the Company is current with respect to such reporting
requirements). Any sales of shares by shareholders pursuant to rule 144 may
have
a depressive effect on the price of our common stock.
DETERMINATION
OF OFFERING PRICE
The
Company’s common stock currently trades on the pink sheets under the symbol:
CTEI.pk.
As
of
October 31, 2008, there were approximately 84 holders of record of the Company's
common stock as determined from the Company’s transfer agent’s list. Such list
does not include beneficial owners of securities whose shares are held in the
names of various dealers and clearing agencies.
No
shares
are being sold with this registration statement.
On
August21, 2007the Company completed a 1:25 reverse split of our common stock. The
Company is authorized to issue 60,000,000 shares of common stock, $0.001 par
value per share. On October 31, 2008, there were 34,327,862 shares of common
stock issued and outstanding and no shares of preferred stock issued or
outstanding.
The
Company's Common Stock trades on the over-the-counter Pink Sheets. The price
ranges presented below represent the highest and lowest quoted bid prices during
the third and fourth quarter for 2006 and the first and second quarters of
2007
reported by Pink Sheets. The quotes represent prices between dealers and do
not
reflect mark-ups, markdowns or commissions and therefore may not necessarily
represent actual transactions.
Common
Stock
Stock
Price
Year
Period
High
Low
2006
3rd
Quarter
$
0.80
$
0.70
4th
Quarter
$
0.75
$
0.19
2007
1st
Quarter
$
0.25
$
0.12
2nd
Quarter
$
0.11
$
0.03
3rd
Quarter
$
0.03
$
0.02
4th
Quarter
$
0.01
$
0.005
2008
1st
Quarter
$
0.014
$
0.004
2nd
Quarter
$
0.03
$
0.006
As
reported by the over-the-counter Pink Sheets, on October 15, 2008 the closing
sales price of the Company’s Common Stock was $0.02 per share.
We
will
bear all expenses in connection with the registration.
ITEM
10 RECENT
SALES OF UNREGISTERED SECURITIES
Set
forth
below is information regarding the issuance and sales of our securities without
registration for the past three (3) years from the date of this Registration
Statement. No such sales involved the use of an underwriter, no advertising
or
public solicitation were involved, and no commissions were paid in connection
with the sale of any securities. The securities marked with an “*” bore a
restrictive legend.
20
Names/Identities
of Persons to
whom
Securities Issued
Title
of Security
Amount
of
Securities Issued
Issue
Date
Aggregate
Price
of
Security
($)
Mazuma
Corp.
Common
300,000
9/25/2006
50,000
Mazuma
Corp.
Common
280,000
11/15/2006
25,000
Mazuma
Corp.
Common
280,000
12/1/2006
25,000
Mazuma
Corp.
Common
400,000
12/12/2006
25,000
Mazuma
Corp.
Common
363,636
1/12/2007
25,000
Mazuma
Corp.
Common
400,000
1/22/2007
20,000
Mazuma
Corp.
Common
400,000
2/2/2007
30,000
Mazuma
Corp.
Common
400,000
2/12/2007
27,500
Mazuma
Corp.
Common
800,000
3/5/2007
40,000
Mazuma
Corp.
Common
457,143
3/27/2007
20,000
Mazuma
Corp.
Common
800,000
4/25/2007
26,000
Prye
Funding Corp.
Common
789,091
5/3/2007
25,000
*Arun
Govil
Common
20,000,000
4/19/2007
750,000
Mazuma
Corp.
Common
1,777,778
5/16/2007
40,000
The
transactions described above (other than the transaction marked with an “*”)
were exempt from registration pursuant to Section 3(b) of the Securities Act
of
1933, as amended, and Rule 504 of Regulation D promulgated thereunder.
The
transaction marked with an “*” to Mr. Govil, the Company’s President, Chief
Executive Officer, Treasurer, and Chairman of the Board of Directors, was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 by
reason that: (i) no commissions were paid for the issuance of security; (ii)
the
issuance of such security by the Company did not involve a "public offering";
(iii) the purchaser was sophisticated and accredited investors; (iv) the
offerings were not a "public offering" as defined in Section 4(2) due to the
insubstantial numbers of persons involved in such sales, size of the offering,
manner of the offering and number of securities offered; and (v) in addition,
the purchaser had the necessary investment intent as required by Section 4(2)
since the purchaser agreed to and received security bearing a legend stating
that such security is restricted pursuant to Rule 144 of the 1933 Securities
Act. (These restrictions ensure that this security would not be immediately
redistributed into the market and therefore not be part of a "public
offering").
ITEM
11 DESCRIPTION
OF REGISTRANT’S SECURITIES TO BE REGISTERED
Authorized
Capital Stock
On
August21, 2007the Company completed a 1:25 reverse split of our common stock.
The Company is authorized to issue 60,000,000 shares of common stock, $0.001
par
value per share. On October 31, 2008, there were 34,327,862 shares of common
stock issued and outstanding and no shares of preferred stock issued or
outstanding.
Our
Common Stock
Holders
of our common stock are entitled to one vote for each share held of record
on
all matters to be submitted to a vote of the stockholders and do not have
pre-emptive rights. Cumulative voting is not permitted. This means that the
holders of shares entitled to exercise more than 50% of the voting rights in
the
election of directors, for example, will be able to elect all of our directors.
The
holders of our common stock are entitled to dividends and other distributions
as
and if declared by our board of directors out of funds legally available
therefor. All outstanding shares of our common stock are, and the shares to
be
issued in the merger will be, when issued pursuant to the merger agreement,
fully paid and nonassessable. Upon our liquidation, dissolution or winding
up,
the holders of our common stock would be entitled to share pro rata in the
distribution of all of our assets, if any, remaining after payment or provision
for payment of all our debts and obligations and preferred liquidation payments,
if any, to holders of any outstanding shares of preferred stock. Shares of
our
common stock are not subject to any redemption provisions and are not
convertible into any other security or other property of us. No share of our
common stock is subject to any call or assessment.
Delaware
Takeover Statute.
We are
subject to Section 203 of the Delaware
General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations
with
any “interested stockholder” for a period of three years following the date that
such stockholder became an interested stockholder, unless:
•
before
that date, our board of directors has approved either the business
combination or the transaction which resulted in the stockholder
becoming
an interested stockholder;
•
upon
consummation of the transaction which resulted in the stockholder
becoming
an “interested stockholder,” the interested stockholder owned at least 85%
of our voting stock outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding
those shares owned:
•
by
persons who are directors and also officers;
and
•
by
employee stock plans in which employee participants do not have
the right
to determine confidentially whether shares held subject to the
plan will
be tendered in a tender or exchange offer;
or
•
on
or after such date, the business combination is approved by our
board of
directors and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least
66-2/3% of
the outstanding voting stock which is not owned by the interested
stockholder.
An
“interested stockholder” is defined as any person that is (a) the owner of
15% or more of the outstanding voting stock of the corporation or (b) an
affiliate or associate of the corporation and was the owner of 15% or more
of
our outstanding voting stock at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is First American Stock
Transfer Company, 706 E. Bell Road, Suite 202, Phoenix, AZ85022. Telephone
number: (602)485-1346.
ITEM
12 INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Cemtrex,
as a Delaware corporation, are empowered by the Delaware General Corporation
Law
(“DGCL”), subject to the procedures and limitations stated therein, to indemnify
any person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person
in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his being or having been
our
director, officer, employee or agent. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. Cemtrex pursuant to
the
DGCL indemnifies a director, provided that such indemnity shall not apply on
account of:
(a)
any
breach of the director's duty of loyalty to us or our stockholders;
(b)
acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; or
(c) unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in the DGCL.
Our
Bylaws provide that we will indemnify our officers and directors for costs
and
expenses incurred in connection with the defense of actions, suits, or
proceedings against them on account of their being or having been directors
or
officers of Cemtrex, absent a finding of negligence or misconduct in office.
Our
Bylaws also permit us to maintain insurance on behalf of our officers,
directors, employees and agents against any liability asserted against and
incurred by that person whether or not we have the power to indemnify such
person against liability for any of those acts.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers, or persons controlling us pursuant to
the
foregoing provisions, we have been informed that, in the opinion of the SEC,
that type of indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
22
ITEM
13
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements required to be included in this registration statement
appear at the end of the registration statement beginning on page F-1.
ITEM
14 CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
There
have been no changes in and/or disagreements withGruber
& Company, LLC, our independent registered public accountants, on accounting
and financial disclosure matters.
ITEM
15 FINANCIAL
STATEMENTS AND EXHIBITS
Report
of Independent Registered Public Accounting Firm – September
2007
Consolidated
Statements of Operations for the Nine Months Ended June 30, 2008
and
2007
2
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended
June 30, 2008 and 2007
3
Consolidated
Statements of Cash Flows for the Nine Months Ended June 30, 2008
and
2007
4
Notes
to Consolidated Financial Statements
5
23
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE
BOARD OF CEMTREX, INC.
We
have
audited the accompanying consolidated balance sheet of Cemtrex, Inc. and
Subsidiary as of September 30, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity and cash flows for the periods
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Cemtrex, Inc. and Subsidiary
at
September 30, 2007 and 2006 and the results of its’ consolidated operations and
its’ stockholders equity and cash flows for the periods then ended in conformity
with accounting principles generally accepted in the United States of
America.
As
referred to in Note 13 to the financial statements, the company has restated
these financial statements for a correction of an error.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. The Company's viability is
dependent upon its ability to obtain future financing and the success of
its
future operations. These factors raise substantial doubt as to the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Adjustments
to reconcile net loss to net cash used in operating
activities:
Depreciation
& Amortization
12,708
7,186
Changes
in operating assets and liabilities:
Accounts
Receivable
(200,713
)
(116,555
)
Inventory
(52,498
)
233,234
Prepaid
Expenses & Other Assets
10,999
(8,038
)
Other
Assets
(22,024
)
-
Accounts
Payable
643,862
109,167
Accrued
Expenses
448,640
-
Customer
Deposits
85,516
-
Net
Cash Used in Operating Activities
802,925
399,884
Cash
Flows from Investing Activities
Sale
(Purchase) of Property and Equipment
(13,923
)
6,130
Cash
Paid for Purchase of Griffin Filters
(700,000
)
-
Net
Cash Used in Investing Activities
(713,923
)
6,130
Cash
Flows from Financing Activities
Net
Loans from Shareholders
(354,017
)
(510,154
)
Common
Stock Issued for Cash
378,500
50,000
Net
Cash Provided by Financing Activities
24,483
(460,154
)
Net
Increase (Decrease) in Cash
113,485
(54,140
)
Cash
Beginning of Period
30,345
84,485
Cash
End of Year
$
143,830
$
30,345
Supplemental
Disclosure of Cash Flow Information:
Cash
Paid during the period for interest
$
-
$
-
Cash
Paid during the period for income taxes
-
432
The
accompanying notes are an integral part of these financial
statements
Page
5 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
Note
1 – Organization, Business & Operations
Cemtrex,
Inc. and its Subsidiary, is engaged in manufacturing and selling the most
advanced instruments for emission monitoring of particulate, opacity, mercury,
sulfur dioxide, nitrogen oxides, etc. Cemtrex also provides turnkey services
for
carbon creation projects from abatement of greenhouse gases pursuant to Kyoto
protocol and assists project owners in selling of carbon credits globally.
Company's
products are sold to power plants, refineries, chemical plants, cement plants
& other industries including federal and state Governmental agencies.
Through its wholly-owned subsidiary Griffin Filters, Company designs,
manufactures and sells air filtration equipment and systems to control
particulate emissions from a variety of industries.
Cemtrex,
Inc. was incorporated as Diversified American Holding, Inc. on April 27,1998.
On December 16, 2004the Company changed its name to Cemtrex, Inc. On April30,2007, Cemtrex, Inc. purchased, though a business combination, Griffin Filters,
LLC (see Note 6 Business Combination and Related party
Transactions).
Note
2 - Going Concern and Management's Plans
The
Company's primary source of operating funds since inception has been provided
through note and equity financing. The company intends to raise additional
capital through private debt and equity investors. At September 30, 2007,
the
Company had a stockholders' deficit of $1,493,327 and a working capital deficit
of $277,074. In addition, the Company incurred a net loss of $123,565 during
the
year ended September 30, 2007.
Management
has taken steps to improve the Company's liquidity by raising funds and seeking
revenue sources through the development of products through which the Company
may generate revenue. There can be no assurance that the Company will be
successful in these endeavors and therefore may have to consider other
alternatives.
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. However, the above matters
raise
substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities
that
might be necessary should the Company be unable to continue as a going
concern.
Note
3 - Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Cemtrex,
Inc. and its wholly subsidiary Griffin Filters, LLC (collectively the
“Company”). All significant inter-company accounts and transactions have been
eliminated in consolidation.
The
acquisition of Griffin Filters, LLC by Cemtrex, Inc. was treated as a business
combination due to the fact that the acquired entity and purchased entity
were
owned by the same individual. Therefore, these consolidated financial statements
have been retrospectively adjusted for all periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three
months
or less when purchased to be cash equivalents.
Page
6 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
Concentrations
of Credit Risk - Cash
The
Company maintains its cash with various financial institutions, which may
exceed
federally insured limits throughout the period.
Marketable
Securities Available for Sale
The
Company evaluates its investment policies and the appropriate classification
of
securities at the time of purchase consistent with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain investments
in
Debt and Equity Securities," at each balance sheet date and determined that
all
of its investment securities are to be classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in stockholders' deficiency under
the
caption "Accumulated Other Comprehensive Loss". Realized gains and losses
and
declines in value judged to be other than-temporary on available-for-sale
securities are included in net gain on sale of marketable securities. The
cost
of securities sold is based on the specific identification method.
Inventories
Inventories
are comprised of replacement parts, system components and finished systems,
which are stated at lower of cost or market. Cost is determined on a first-in,
first-out (FIFO) basis.
Property
and Equipment
Property
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives, generally five to seven years.
Leasehold improvements are amortized over the shorter of the useful life
or the
remaining lease term. Upon retirement or other disposition of these assets,
the
cost and related accumulated depreciation are removed from the accounts and
the
resulting gains or losses are reflected in operations. Expenditures for
maintenance and repairs are charged to operations as incurred. Renewals and
betterments are capitalized.
Impairment
of long-lived assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS
144"), which addresses financial accounting and reporting for the impairment
or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for
the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to
be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event,
a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to
be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal.
Basic
and Diluted Net Income per Share
Basic
earnings per share is calculated using the weighted-average number of common
shares outstanding during the period without consideration of the dilutive
effect of stock warrants and convertible notes. Diluted earnings per share
is
calculated using the weighted-average number of common shares outstanding
during
the period after consideration of the dilutive effect of stock warrants and
convertible notes.
Revenue
recognition
Sales
of
products and related costs of products sold are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) the
price
is fixed or determinable and (iv) collectability is reasonably assured. These
terms are typically met upon shipment of finished goods to the customer.
Page
7 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
Allowance
for doubtful accounts
We
provide an allowance for estimated uncollectible accounts receivable balances
based on historical experience and the aging of the related accounts receivable.
As of September 30, 2007 and 2006the Company has reserved $100,000 and $0
for
doubtful accounts, respectively
Advertising
The
Company expenses advertising costs as incurred. There were no advertising
costs
for the years ended September 30, 2007 and 2006.
Income
Taxes
The
Company accounts for income taxes using the liability method as required
by
Statement of Financial Accounting Standards ("FASB") No. 109, Accounting
for
Income Taxes ("SFAS 109"). Under this method, deferred tax assets and
liabilities are determined based on differences between their financial
reporting and tax basis of assets and liabilities. The Company was not required
to provide for a provision for income taxes for the periods ended September30,2007 and 2006, as a result of net operating losses incurred during the periods.
As of September 30, 2007, the Company has available approximately $268,000
of
net operating losses ("NOL") available for income tax purposes that may be
carried forward to offset future taxable income, if any. These carryforwards
expire in various years through 2026. At September 30, 2007 and 2006, the
Company has a deferred tax asset of approximately $111,000 and $60,000, relating
to the Company's net operating losses, respectively. The Company's deferred
tax
asset has been fully reserved by a valuation allowance since realization
of its
benefit is uncertain. The Company's ability to utilize its NOL carryforwards
may
be subject to an annual limitation in future periods pursuant to Section
382 of
the Internal Revenue Code of 1986, as amended.
The
provision for income taxes using the federal and state tax rates as compared
to
the Company's effective tax rate is summarized as follows:
In
accordance with FASB Interpretation No. 45 ("Fin 45"), the Company recognizes,
at the inception of a guarantee, the cost of the fair value of the obligation
undertaken in issuing the guarantee.
Page
8 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
Research
and development costs
Expenditures
for research & development are expensed as incurred. Such costs are required
to be expensed until the point that technological feasibility is established.
The Company incurred no research and development costs for the years ended
September 30, 2007 and 2006.
Fair
Value of Financial Instruments
The
reported amounts of the Company's financial instruments, including accounts
payable and accrued liabilities, approximate their fair value due to their
short
maturities. The carrying amounts of debt approximate fair value since the
debt
agreements provide for interest rates that approximate market.
Stock-based
compensation
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No.
123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting
for Stock-Based Compensation , and supersedes APB Opinion No. 25, Accounting
for
Stock Issued to Employees . SFAS No. 123(R) requires that companies account
for
awards of equity instruments issued to employees under the fair value method
of
accounting and recognize such amounts in their statements of operations.
Under
SFAS No. 123(R), we are required to measure compensation cost for all
stock-based awards at fair value on the date of grant and recognize compensation
expense in our consolidated statements of operations over the service period
that the awards are expected to vest.
The
Company accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provisions of SFAS 123(R) and the Emerging
Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting
for
Equity Instruments that are Issued to Other Than Employees for Acquiring
or in
Conjunction with Selling, Goods or Services". Common stock issued to
non-employees in exchange for services is accounted for based on the fair
value
of the services received.
Reclassifications
Certain
items in the prior year financial statements have been reclassified for
comparative purposes to conform to the presentation in the current period’s
presentation. These reclassifications have no effect on the previously reported
income (loss).
Recently
Issued Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS
141(R)). This statement provides greater consistency in the accounting and
financial reporting of business combinations. It requires the acquiring entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value as
the
measurement objective for all assets acquired and liabilities assumed, and
requires the acquirer to disclose the nature and financial effect of the
business combination. FAS 141(R) is effective for fiscal years beginning
after
December 15, 2008. We will adopt FAS 141(R) no later than the first quarter
of
fiscal 2010 and are currently assessing the impact the adoption will have
on our
financial position and results of operations.
In
December 2007, the FASB issued SFAS No. 160. Noncontrolling Interests in
Consolidated Financial Statements (FAS 160). This Statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective
for
fiscal years beginning after December 15, 2008. We will adopt FAS 160 no
later
than the first quarter of fiscal 2010 and are currently assessing the impact
the
adoption will have on our financial position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities , which permits entities to choose to measure
at fair value eligible financial instruments and certain other items that
are
not currently required to be measured at fair value. This statement requires
that unrealized gains and losses on items for which the fair value option
has
been elected be reported in earnings at each subsequent reporting date. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007. We will
adopt SFAS No. 159 no later than the first quarter of fiscal 2009. We are
currently assessing the impact the adoption of SFAS No. 159 will have on
our
financial position and results of operations.
Page
9 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R) . SFAS No. 158 requires company plan sponsors
to
display the net over or under-funded position of a defined benefit
postretirement plan as an asset or liability, with any unrecognized prior
service costs, transition obligations or actuarial gains/losses reported
as a
component of other comprehensive income in shareholders’ equity. SFAS No. 158 is
effective for fiscal years ending after December 15, 2006. We adopted the
recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The
adoption of SFAS No. 158 did not have an effect on the Company’s financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS
No.
157 establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new
fair value measurements. However, the application of SFAS No. 157 may change
current practice for some entities. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We will adopt SFAS No. 157 in
the
first quarter of fiscal 2009. We are currently assessing the impact that
the
adoption of SFAS No. 157 will have on our financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the application of SFAS No. 109, Accounting for
Income
Taxes , by defining a criterion that an individual tax position must meet
for
any part of the benefit of that position to be recognized in an enterprise’s
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning
after
December 15, 2006, but earlier adoption is permitted. The Company is in the
process of evaluating the impact of the application of the Interpretation
to its
financial statements.
Note
4 - Inventory
The
Company values its inventory under the FIFO method of costing under the lower
of
cost or market pricing module. The Company reviews its product for old and
or
obsolete items and adjusts accordingly. The Company’s inventory consists of
finished and raw material product.
Depreciation
for the year ended September 30, 2007 and 2006 was $12,708 and $7,186,
respectively.
Page
10 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
Note
6 – Business Combination and Related Party
Transactions
On
April30, 2007, the Company purchased, though a business combination, all of the
issued and outstanding membership interests of Griffin Filters LLC, (“Griffin”)
a company established since 1971 and engaged in the design, engineering &
supplying of industrial air filtration equipment from its President. Aron
Govil,
the Chairman, Chief Executive Officer, Treasurer and President of the Company,
was the owner of 100% of the issued and outstanding membership interests
of
Griffin. The Company purchased 100% ownership in Griffin for a purchase price
of
$ 2,750,000.00. The Company completed the Griffin purchase by (i) paying
cash of
$700,000.00, (ii) issuing 20,000,000 shares of common stock valued at
$750,000.00 and (iii) issuing a four year convertible debenture in the amount
of
$1,300,000.00, paying interest of 8.0% per year and convertible into 30,000,000
shares of common stock. Griffin had sales and net income of $3,297,409 and
$145,
981 respectively for fiscal year ended September 30, 2006. Griffin is now
a
wholly-owned subsidiary of the Company.
The
Company recorded the combination of Griffin Filters, LLC as a “As is Pooling”
because of the related party interest as follows:
Accounts
Receivable
$
530,506
Inventory
49,668
Property
& Equipment, Net
67,018
Other
Assets
4,225
Accounts
Payable
(600,348
)
Additional
Paid-in-Capital
2,698,931
Total
$
2,750,000
These
consolidated financial statements have been retrospectively adjusted for
all
periods presented.
Note
7 –
Customer Deposits
The
Company accounts for payments received prior to shipment as a liability and
recognizes revenue when the products are shipped.
Note
8 –
Note Payable Shareholder
A
Note
Payable to a shareholder is due within the next year and accrues interest
at
5%.
Note
9 – Convertible Debenture-Related Party
On
April30, 2007, the Company issued a $1,300,000 Convertible Debenture to an Officer
of
the Company in conjunction with the Purchase of Griffin Filters, Inc. The
debenture caries an 8% annual interest rate with interest payable semiannually
in arrears on the first business day of January and July each year. The
debenture principle is due and payable on April 30, 2011.
The
debenture has the right of conversion into non-assessable shares of common
stock
of the Company at $0.001 (par value) per share. Conversion is not exercisable
prior to December 31, 2007. Commencing December 31, 2007 and continuing to
April30, 2011, the Debenture Holder shall have the right of conversion subject
to the
terms and conditions of the debenture. In the event the face amount of the
debenture is not fully converted on or before April 30, 2011, the conversion
rights will lapse.
Note
10 – Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, $0.001
par
value. As of September 30, 2007 and 2006, there were no shares issued and
outstanding.
Common
Stock
The
Company is authorized to issue 60,000,000 shares of common stock, $0.001
par
value. As of September 30, 2007 and 2006, there were 34,327,862 and 6,880,213
shares issued and outstanding, respectively.
2006
For
the
year ended September 30, 2006, the Company issued 600,000 shares of Common
Stock
to investors for cash totaling $50,000.
Page
11 of 16
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
2007
For
the
year ended September 30, 2007, the Company issued 7,447,649 shares of Common
Stock to investors for cash totaling $378,500.
In
addition, the Company issued 20,000,000 shares of Common Stock to an Officer
in
conjunction with the acquisition of Griffin Filters totaling $750,000. These
consolidated financial statements have been retrospectively adjusted for
this
transaction for all periods presented.
Note
11 –
Commitments & Contingencies
Lease
Obligations
The
Company leases its principal office at Farmingdale, New York, 4000 square
feet
of office and warehouse/shop space in a single story commercial structure
on a
month to month lease from Ducon Technologies Inc., at a monthly rental of
2,157.
The
Company’s subsidiary Griffin Filters LLC leases approx. 10,000 sq. ft. of office
and warehouse space in Liverpool, New York from a third party in a five year
lease at a monthly rent of $4,225 expiring on March 30, 2012.
Legal
Proceedings
The
Company is not currently involved in any lawsuits or litigation.
Note
12
- Subsequent Events
There
are
no material subsequent events.
Note
13 - Restatement
The
previously issued financial statements have been restated to reflect the
combination with Griffin Filters, LLC (see Note 6), as a “As is Pooling”. This
was required as both entities were under common ownership. The following
details
the effect of this restatement on the financial statements for each period
presented:
Adjustments
to reconcile net loss to net cash used in operating
activities:
Depreciation
& Amortization
13,578
9,531
Changes
in operating assets and liabilities:
Accounts
Receivable
80,128
(315,544
)
Inventory
(121,718
)
105,169
Prepaid
Expenses & Other Assets
4,225
15,224
Other
Assets
(7,540
)
(26,249
)
Accounts
Payable
(186,050
)
662,613
Accrued
Expenses
(354,965
)
448,640
Customer
Deposits
(85,516
)
692
Net
Cash Used in Operating Activities
(312,958
)
832,240
Cash
Flows from Investing Activities
Purchase
of Property and Equipment
(151,939
)
(13,923
)
Cash
Paid for Purchase of Griffin Filters
-
(700,000
)
Net
Cash Used in Investing Activities
(151,939
)
(713,923
)
Cash
Flows from Financing Activities
Net
Loans from Shareholders
539,728
(363,000
)
Common
Stock Issued for Cash
-
378,500
Net
Cash Provided by Financing Activities
539,728
15,500
Net
Increase (Decrease) in Cash
74,831
133,817
Cash
Beginning of Period
143,830
30,345
Cash
at End of Period
$
218,661
$
164,162
Supplemental
Disclosure of Cash Flow Information:
Cash
Paid during the period for interest
$
-
$
-
Cash
Paid during the period for income taxes
-
-
The
accompanying notes are an integral part of these financial
statements
Page
4 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO FINANCIAL STATEMENTS
UNAUDITED
Note
1 – Organization, Business & Operations
Cemtrex,
Inc. and its Subsidiary, is engaged in manufacturing and selling the most
advanced instruments for emission monitoring of particulate, opacity, mercury,
sulfur dioxide, nitrogen oxides, etc. Cemtrex also provides turnkey services
for
carbon creation projects from abatement of greenhouse gases pursuant to
Kyoto
protocol and assists project owners in selling of carbon credits globally.
Company's
products are sold to power plants, refineries, chemical plants, cement
plants
& other industries including federal and state Governmental agencies.
Through its wholly-owned subsidiary Griffin Filters, Company designs,
manufactures and sells air filtration equipment and systems to control
particulate emissions from a variety of industries.
Cemtrex,
Inc. was incorporated as Diversified American Holding, Inc. on April 27,1998.
On December 16, 2004the Company changed its name to Cemtrex, Inc. On April30,2007, Cemtrex, Inc. purchased, though a business combination, Griffin Filters,
LLC (see Note 6 Business Combination and Related party
Transactions).
Note
2 - Going Concern and Management's Plans
The
Company's primary source of operating funds since inception has been provided
through note and equity financing. The company intends to raise additional
capital through private debt and equity investors. At June 30, 2008, the
Company
had a stockholders' deficit of $1,148,427 and a working capital deficit
of
$78,075.
Management
has taken steps to improve the Company's liquidity by raising funds and
seeking
revenue sources through the development of products through which the Company
may generate revenue. There can be no assurance that the Company will be
successful in these endeavors and therefore may have to consider other
alternatives.
The
accompanying consolidated financial statements have been prepared on a
going
concern basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. However, the above matters
raise
substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities
that
might be necessary should the Company be unable to continue as a going
concern.
Note
3 - Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of
Cemtrex,
Inc. and its wholly subsidiary Griffin Filters, LLC (collectively the
“Company”). All significant inter-company accounts and transactions have been
eliminated in consolidation.
The
acquisition of Griffin Filters, LLC by Cemtrex, Inc. was treated as a business
combination due to the fact that the acquired entity and purchased entity
were
owned by the same individual. Therefore, these consolidated financial statements
have been retrospectively adjusted for all periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from
those
estimates.
Page
5 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three
months
or less when purchased to be cash equivalents.
Concentrations
of Credit Risk - Cash
The
Company maintains its cash with various financial institutions, which may
exceed
federally insured limits throughout the period.
Marketable
Securities Available for Sale
The
Company evaluates its investment policies and the appropriate classification
of
securities at the time of purchase consistent with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain investments
in
Debt and Equity Securities," at each balance sheet date and determined
that all
of its investment securities are to be classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in stockholders' deficiency under
the
caption "Accumulated Other Comprehensive Loss". Realized gains and losses
and
declines in value judged to be other than-temporary on available-for-sale
securities are included in net gain on sale of marketable securities. The
cost
of securities sold is based on the specific identification method.
Inventories
Inventories
are comprised of replacement parts, system components and finished systems,
which are stated at lower of cost or market. Cost is determined on a first-in,
first-out (FIFO) basis.
Property
and Equipment
Property
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives, generally five to seven years.
Leasehold improvements are amortized over the shorter of the useful life
or the
remaining lease term. Upon retirement or other disposition of these assets,
the
cost and related accumulated depreciation are removed from the accounts
and the
resulting gains or losses are reflected in operations. Expenditures for
maintenance and repairs are charged to operations as incurred. Renewals
and
betterments are capitalized.
Impairment
of long-lived assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS
144"), which addresses financial accounting and reporting for the impairment
or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting
for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets
to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment
losses
to be recorded on long-lived assets used in operations when indicators
of
impairment are present and the undiscounted cash flows estimated to be
generated
by those assets are less than the assets' carrying amounts. In that event,
a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to
be
disposed of is determined in a similar manner, except that fair market
values
are reduced for the cost of disposal.
Basic
and Diluted Net Income per Share
Basic
earnings per share is calculated using the weighted-average number of common
shares outstanding during the period without consideration of the dilutive
effect of stock warrants and convertible notes. Diluted earnings per share
is
calculated using the weighted-average number of common shares outstanding
during
the period after consideration of the dilutive effect of stock warrants
and
convertible notes.
Revenue
recognition
Sales
of
products and related costs of products sold are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) the
price
is fixed or determinable and (iv) collectability is reasonably assured.
These
terms are typically met upon shipment of finished goods to the customer.
Page
6 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Allowance
for doubtful accounts
We
provide an allowance for estimated uncollectible accounts receivable balances
based on historical experience and the aging of the related accounts receivable.
As of June 30, 2008 and September 30, 2007the Company has reserved $100,000
for
doubtful accounts.
Advertising
The
Company expenses advertising costs as incurred. There were no advertising
costs
for the periods ended June 30, 2008 and 2007, respectively.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes.” Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences,
and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets
and liabilities and their tax bases. Deferred tax assets are reduced by
a
valuation allowance when, in the opinion of management, it is more likely
than
not that some portion or all of the deferred tax assets will be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes
in
tax laws and rates on the date of enactment.
Guarantee
Expense
In
accordance with FASB Interpretation No. 45 ("Fin 45"), the Company recognizes,
at the inception of a guarantee, the cost of the fair value of the obligation
undertaken in issuing the guarantee.
Research
and development costs
Expenditures
for research & development are expensed as incurred. Such costs are required
to be expensed until the point that technological feasibility is established.
The Company incurred no research and development costs for the periods
ended
June 30, 2008 and September 30, 2007.
Fair
Value of Financial Instruments
The
reported amounts of the Company's financial instruments, including accounts
payable and accrued liabilities, approximate their fair value due to their
short
maturities. The carrying amounts of debt approximate fair value since the
debt
agreements provide for interest rates that approximate market.
Stock-based
compensation
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No.
123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting
for Stock-Based Compensation , and supersedes APB Opinion No. 25, Accounting
for
Stock Issued to Employees . SFAS No. 123(R) requires that companies account
for
awards of equity instruments issued to employees under the fair value method
of
accounting and recognize such amounts in their statements of operations.
Under
SFAS No. 123(R), we are required to measure compensation cost for all
stock-based awards at fair value on the date of grant and recognize compensation
expense in our consolidated statements of operations over the service period
that the awards are expected to vest.
The
Company accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provisions of SFAS 123(R) and the Emerging
Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting
for
Equity Instruments that are Issued to Other Than Employees for Acquiring
or in
Conjunction with Selling, Goods or Services". Common stock issued to
non-employees in exchange for services is accounted for based on the fair
value
of the services received.
Page
7 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Reclassifications
Certain
items in the prior year financial statements have been reclassified for
comparative purposes to conform to the presentation in the current period’s
presentation. These reclassifications have no effect on the previously
reported
income (loss).
Recently
Issued Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS
141(R)). This statement provides greater consistency in the accounting
and
financial reporting of business combinations. It requires the acquiring
entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value
as the
measurement objective for all assets acquired and liabilities assumed,
and
requires the acquirer to disclose the nature and financial effect of the
business combination. FAS 141(R) is effective for fiscal years beginning
after
December 15, 2008. We will adopt FAS 141(R) no later than the first quarter
of
fiscal 2010 and are currently assessing the impact the adoption will have
on our
financial position and results of operations.
In
December 2007, the FASB issued SFAS No. 160. Noncontrolling Interests in
Consolidated Financial Statements (FAS 160). This Statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective
for
fiscal years beginning after December 15, 2008. We will adopt FAS 160 no
later
than the first quarter of fiscal 2010 and are currently assessing the impact
the
adoption will have on our financial position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial
Assets and Financial Liabilities , which permits entities to choose to
measure
at fair value eligible financial instruments and certain other items that
are
not currently required to be measured at fair value. This statement requires
that unrealized gains and losses on items for which the fair value option
has
been elected be reported in earnings at each subsequent reporting date.
SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. We
will
adopt SFAS No. 159 no later than the first quarter of fiscal 2009. We are
currently assessing the impact the adoption of SFAS No. 159 will have on
our
financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R) . SFAS No. 158 requires company plan sponsors
to
display the net over or under-funded position of a defined benefit
postretirement plan as an asset or liability, with any unrecognized prior
service costs, transition obligations or actuarial gains/losses reported
as a
component of other comprehensive income in shareholders’ equity. SFAS No. 158 is
effective for fiscal years ending after December 15, 2006. We adopted the
recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The
adoption of SFAS No. 158 did not have an effect on the Company’s financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements .
SFAS No.
157 establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new
fair value measurements. However, the application of SFAS No. 157 may change
current practice for some entities. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We will adopt SFAS No. 157 in
the
first quarter of fiscal 2009. We are currently assessing the impact that
the
adoption of SFAS No. 157 will have on our financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the application of SFAS No. 109, Accounting for
Income
Taxes , by defining a criterion that an individual tax position must meet
for
any part of the benefit of that position to be recognized in an enterprise’s
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning
after
December 15, 2006, but earlier adoption is permitted. The Company is in
the
process of evaluating the impact of the application of the Interpretation to its
financial statements.
Page
8 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Note
4 - Inventory
The
Company values its inventory under the FIFO method of costing under the
lower of
cost or market pricing module. The Company reviews its product for old
and or
obsolete items and adjusts accordingly. The Company’s inventory consists of
finished and raw material product.
Depreciation
for the periods ended June 30, 2008 and 2007 was $13,578 and $12,708,
respectively.
Note
6 – Business Combination and Related Party Transactions
On
April30, 2007, the Company purchased, though a business combination, all of
the
issued and outstanding membership interests of Griffin Filters LLC, (“Griffin”)
a company established since 1971 and engaged in the design, engineering
&
supplying of industrial air filtration equipment from its President. Aron
Govil,
the Chairman, Chief Executive Officer, Treasurer and President of the Company,
was the owner of 100% of the issued and outstanding membership interests
of
Griffin. The Company purchased 100% ownership in Griffin for a purchase
price of
$ 2,750,000.00. The Company completed the Griffin purchase by (i) paying
cash of
$700,000.00, (ii) issuing 20,000,000 shares of common stock valued at
$750,000.00 and (iii) issuing a four year convertible debenture in the
amount of
$1,300,000.00, paying interest of 8.0% per year and convertible into 30,000,000
shares of common stock. Griffin had sales and net income of $3,297,409
and $145,
981 respectively for fiscal year ended September 30, 2006. Griffin is now
a
wholly-owned subsidiary of the Company.
The
Company recorded the combination of Griffin Filters, LLC as a “As is Pooling”
because of the related party interest as follows:
Accounts
Receivable
$
530,506
Inventory
49,668
Property
& Equipment, Net
67,018
Other
Assets
4,225
Accounts
Payable
(600,348
)
Additional
Paid-in-Capital
2,698,931
Total
$
2,750,000
These
consolidated financial statements have been retrospectively adjusted for
all
periods presented.
Note
7 – Customer Deposits
The
Company accounts for payments received prior to shipment as a liability
and
recognizes revenue when the products are shipped.
Page
9 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Note
8 – Note Payable Shareholder
A
Note
Payable to a shareholder is due within the next year and accrues interest
at
5%.
Note
9 – Convertible Debenture-Related Party
On
April30, 2007, the Company issued a $1,300,000 Convertible Debenture to an Officer
of
the Company in conjunction with the Purchase of Griffin Filters, Inc. The
debenture caries an 8% annual interest rate with interest payable semiannually
in arrears on the first business day of January and July each year. The
debenture principle is due and payable on April 30, 2011.
The
debenture has the right of conversion into non-assessable shares of common
stock
of the Company at $0.001 (par value) per share. Conversion is not exercisable
prior to December 31, 2007. Commencing December 31, 2007 and continuing
to April30, 2011, the Debenture Holder shall have the right of conversion subject
o the
terms and conditions of the debenture. In the event the face amount of
the
debenture is not fully converted on or before April 30, 2011, the conversion
rights will lapse.
Note
10 – Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, $0.001
par
value. As of September 30, 2007 and 2006, there were no shares issued and
outstanding.
Common
Stock
The
Company is authorized to issue 60,000,000 shares of common stock, $0.001
par
value. As of June 30, 2008 and September 30, 2007, there were 34,327,862
shares
issued and outstanding.
2008
There
were no common stock transactions during the nine months ended June 30,2008.
2007
For
the
year ended September 30, 2007, the Company issued 7,447,649 shares of Common
Stock to investors for cash totaling $378,500.
In
addition, the Company issued 20,000,000 shares of Common Stock to an Officer
in
conjunction with the acquisition of Griffin Filters totaling $750,000.
These
consolidated financial statements have been retrospectively adjusted for
this
transaction for all periods presented.
Note
11 – Commitments & Contingencies
Lease
Obligations
The
Company leases its principal office at Farmingdale, New York, 4000 square
feet
of office and warehouse/shop space in a single story commercial structure
on a
month to month lease from Ducon Technologies Inc., at a monthly rental
of 2,157.
The
Company’s subsidiary Griffin Filters LLC leases approx. 10,000 sq. ft. of office
and warehouse space in Liverpool, New York from a third party in a five
year
lease at a monthly rent of $4,225 expiring on March 30, 2012.
Legal
Proceedings
The
Company is not currently involved in any lawsuits or litigation.
Note
12 - Subsequent Events
There
are
no material subsequent events.
Page
10 of 15
CEMTREX,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
and RESTATED
Note
13 - Restatement
The
previously issued financial statements have been restated to reflect the
combination with Griffin Filters, LLC (see Note 6), as a “As is Pooling”. This
was required as both entities were under common ownership. The following
details
the effect of this restatement on the financial statements for each period
presented:
Adjustments
to reconcile net loss to net cash used in operating
activities:
Depreciation
& Amortization
2,118
7,413
9,531
Changes
in operating assets and liabilities:
Accounts
Receivable
(682,287
)
366,743
(315,544
)
Inventory
(19,845
)
125,014
105,169
Prepaid
Expenses & Other Assets
15,224
-
15,224
Other
Assets
(26,249
)
-
(26,249
)
Accounts
Payable
801,875
(139,262
)
662,613
Accrued
Expenses
448,640
-
448,640
Customer
Deposits
692
-
692
Net
Cash Used in Operating Activities
472,332
359,908
832,240
Cash
Flows from Investing Activities
Sale
(Purchase) of Property and Equipment
(67,018
)
53,095
(13,923
)
Purchase
of Griffin Filters
(506,430
)
(193,570
)
(700,000
)
Goodwill
from Ducon
(142,501
)
142,501
-
Net
Cash Used in Investing Activities
(715,949
)
2,026
(713,923
)
Cash
Flows from Financing Activities
Net
Loans from Shareholders
-
(363,000
)
(363,000
)
Common
Stock Issued for Cash
378,500
-
378,500
Net
Cash Provided by Financing Activities
378,500
(363,000
)
15,500
Net
Increase (Decrease) in Cash
134,883
(1,066
)
133,817
Cash
Beginning of Period
29,279
1,066
30,345
Cash
End of Year
$
164,162
$
-
$
164,162
Supplemental
Disclosure of Cash Flow Information:
Cash
Paid during the period for interest
$
-
$
-
$
-
Cash
Paid during the period for income taxes
-
-
-
Supplemental
Disclosure of Non-Cash Items:
Convertible
Debentures issued for Griffin Purchase
$
1,300,000
$
(1,300,000
)
$
-
Griffin
Filters Acquisition-"As is Pooling"
750,000
(750,000
)
-
Page
15 of 15
REPORTS
TO SECURITIES HOLDERS
We
have
filed with the SEC a registration statement on Form 10 under the Securities
Act
with respect to the issuance of shares of our common stock being offered by
this
registration statement. We are not currently subject to the informational
requirements of the Securities Exchange Act of 1934. As a result of the offering
of the shares of our common stock, we will become subject to the informational
requirements of the Exchange Act, and, in accordance therewith, will file
quarterly and annual reports and other information with the SEC; and send a
copy
of our annual report together with audited consolidated financial statements
to
each of our shareholders. The registration statement, such reports and other
information can be inspected and copied at the Public Reference Room of the
SEC
located at 100 F Street N.E., Washington D.C. 20549. Copies of such materials,
including copies of all or any portion of the registration statement, can be
obtained from the Public Reference Room of the SEC at prescribed rates. You
can
call the SEC at 1-800-SEC-0330 to obtain information on the operation of the
Public Reference Room. Such materials may also be accessed electronically by
means of the SEC's home page on the internet (http://www.sec.gov).
24
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, Cemtrex, Inc.
certifies that we have reasonable grounds to believe that we meets all of the
requirements for filing on Form 10 and authorized this registration statement
to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, United States of America on November 25,2008.
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated.