As filed with the Securities and Exchange Commission on March 23, 2006
Registration No. 333- 131605
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUPERCONDUCTIVE COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
OHIO 2899 31-1210318
(State or other jurisdiction (Primary standard (IRS employer
of incorporation or industrial classification identification
organization) number) number)
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2839 Charter Street
Columbus, Ohio 43228
(614) 486-0261
(Address and telephone number of principal executive offices)
2839 Charter Street
Columbus, Ohio 43228
(Address of principal place of business)
Daniel Rooney, Chief Executive Officer
Superconductive Components, Inc.
2839 Charter Street
Columbus, Ohio 43228
(614) 486-0261
(Name, address and telephone number of agent for service)
Copies to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Telephone No. (614) 227-2000
Telecopier No. (614) 227-2100
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said section 8(a), may determine.
SUBJECT TO COMPLETION, DATED MARCH 23, 2006.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING SHAREHOLDERS NAMED IN THIS PROSPECTUS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUPERCONDUCTIVE COMPONENTS, INC.
2,281,253 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 2,281,253 shares of our common stock by persons who have purchased shares of our common stock or who may purchase shares of our common stock through the exercise of warrants as more fully described herein. The aforementioned persons are sometimes referred to in this prospectus as the Selling Shareholders. The prices at which the Selling Shareholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive proceeds from the sale of our shares by the Selling Shareholders.
Our common stock is quoted on the Over-The-Counter Bulletin Board under the symbol SCCI. On March 22, 2006, the last reported sale price for our common stock as reported on the Over-The-Counter Bulletin Board was $4.50 per share.
The mailing address for the Company's principal executive offices is 2839 Charter Street, Columbus, Ohio 43228. The phone number for Company's principal executive offices is (614) 486-0261.
Each selling shareholder may be considered an "underwriter" within the meaning of the Securities Act of 1933, as amended.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE RISK FACTORS BEGINNING ON PAGE 4 BEFORE PURCHASING OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is [March __, 2006.]
TABLE OF CONTENTS
Prospectus Summary........................................................ 2 Risk Factors.............................................................. 4 Use of Proceeds........................................................... 7 Cautionary Note Regarding Forward-Looking Statements...................... 7 Selling Shareholders...................................................... 8 Plan of Distribution...................................................... 11 Our Management............................................................ 12 Security Ownership of Certain Beneficial Owners and Management............ 14 Description of Securities................................................. 16 Interest of Named Experts and Counsel..................................... 18 Disclosure of Commission Position on Indemnification...................... 18 Description of Business................................................... 20 Additional Information.................................................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 25 Description of Property................................................... 31 Certain Relationships and Related Transactions............................ 31 Market for Common Equity and Related Shareholder Matters.................. 33 Executive Compensation.................................................... 34 Legal Opinion............................................................. 35 Experts................................................................... 36 Index to Financial Statements............................................. F-1 |
UNLESS OTHERWISE SPECIFIED, THE INFORMATION IN THIS PROSPECTUS IS SET FORTH AS OF MARCH 23, 2006, AND WE ANTICIPATE THAT CHANGES IN OUR AFFAIRS WILL OCCUR AFTER SUCH DATE. WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS. IF ANY PERSON GIVES YOU ANY INFORMATION OR MAKES REPRESENTATIONS IN CONNECTION WITH THIS OFFER, DO NOT RELY ON IT AS INFORMATION WE HAVE AUTHORIZED. THIS PROSPECTUS IS NOT AN OFFER TO SELL OUR COMMON STOCK IN ANY STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus and may not contain all the information that is important to you. To understand our business and this offering fully, you should read this entire prospectus carefully, including the financial statements and the related notes beginning on page F-1. When we refer in this prospectus to the "company," "we," "us," and "our," we mean Superconductive Components, Inc., an Ohio corporation. This prospectus contains forward-looking statements and information relating to Superconductive Components, Inc. See Cautionary Note Regarding Forward Looking Statements on page 7.
OUR COMPANY
Our company was incorporated on May 29, 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive ("HTS") materials. HTS materials are complex metal oxides - ceramics of certain stoichiometries (chemical mixture ratios), which exhibit superconducting phenomena when cooled to at least -196(degrees) Centigrade.
The Company presents itself to the market as SCI Engineered Materials, an operating unit of Superconductive Components, Inc. We control the manufacturing process and measure performance in terms of sales, in two categories, Ceramics and Metals, as the products sold are easily separable into these categories. The performance measurements made in these two categories are, however, not conducive to segment reporting as there are many shared operating expenses relating to the production of both Ceramic and Metals that cannot be attributed solely to one or the other.
We view our business as supplying ceramic and metal materials to a variety of industrial applications including: HTS, Photonics/Optical, and Thin Film Batteries. The production and sale of High Temperature Superconducting (HTS) materials was the initial focus of our operations and these materials continue to be a part of our development efforts. We continue to work with private companies and government agencies to develop new and improved products for future applications of HTS Materials.
Optical/Photonics currently represents the largest market for our materials. Our customers are device manufacturers who are regularly identifying new materials that improve the utility of optical/photonics coating. This includes materials that improve the ability of optical/photonics coatings to focus or filter light, and coatings that improve wear and chemical attack resistance, all of which increases the potential demand for the types and amounts of materials that we sell in this market. Photonic applications continue to expand as new methods are found to manipulate light waves to enhance the various properties of light the device manufacturers are seeking.
Thin Film Battery materials is a developing market where manufacturers of batteries use these materials to produce very small power supplies, with small quantities of stored energy. A typical Thin Film Battery would be produced via Physical Vapor Deposition (PVD) with five or more thin layers. These batteries are often one centimeter square but only 15 microns thick. Potential applications for these batteries include, but are not limited to: active RFID tags, battery on chip, portable electronics, and medical implant devices.
THE OFFERING
We have filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission with respect to the securities offered in this prospectus. Following the effective date of the Registration Statement, the Selling Shareholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their registered shares of common stock on any stock exchange, market or trading facility on which the registered shares are traded or in private transactions. These sales may be at fixed or negotiated prices. However, the Selling Stockholders listed in this prospectus may choose not to sell any of their registered shares, and may have no intention of selling any securities offered pursuant to this prospectus in the near future. Additionally, we have no reason to believe that any Selling Shareholder has entered into an agreement, or made a commitment to sell any securities offered in this prospectus.
Common stock offered by the
Selling Shareholders.......... 2,281,253 shares
Termination of the offering... The offering will conclude when all of the
2,281,253 shares of common stock have been
sold, the shares no longer need to be
registered or we decide to terminate the
registration of the shares.
Terms of the offering......... The Selling Shareholders will determine when
and how they will sell the common stock
offered in this prospectus.
Common stock outstanding
as of March 23, 2006.......... 3,425,915 shares
Use of Proceeds............... We will not receive any proceeds from the sale
of the common stock.
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AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 4.
RISK FACTORS
An investment in our common stock is highly speculative, involves a high degree of risk, and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors, together with the other information in this prospectus, including our financial statements and the related notes, before you decide to buy our common stock. Our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein.
WE HAVE EXPERIENCED SIGNIFICANT OPERATING LOSSES IN THE PAST AND MAY CONTINUE TO DO SO IN THE FUTURE.
We commenced business in May of 1987. Our accumulated deficit since inception was $8,161,355 at December 31, 2005.
We have financed the losses primarily from additional investments and loans by our major shareholders and private offerings of common stock and warrants to purchase common stock in 2004 and 2005. We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations.
WE HAVE LIMITED MARKETING AND SALES CAPABILITIES.
To successfully market our products, we must continue to develop appropriate marketing, sales, technical, customer service and distribution capabilities, or enter into agreements with third parties to provide these services. Our failure to develop these capabilities or obtain third-party agreements could adversely affect us.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN KEY MANAGEMENT PERSONNEL.
Our success depends in large part on our ability to attract and retain highly qualified management, administrative, manufacturing, sales, and research and development personnel. Due to the specialized nature of our business, it may be difficult to locate and hire qualified personnel. The loss of the services of one of our executive officers or other key personnel, or our failure to attract and retain other executive officers or key personnel, could have a material adverse effect on our business, operating results and financial condition. Although we have been successful in planning for and retaining highly capable and qualified successor management in the past, there can be no assurance that we will be able to do so in the future.
WE MAY NEED TO SEEK ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY REDUCE THE VALUE OF OUR COMMON STOCK.
We have incurred substantial operating losses through December 31, 2005, which could require us to seek additional capital in the future. There is no assurance that new capital will be available or that it will be available on terms that will not result in substantial dilution or reduction in value of our common stock.
OUR COMPETITORS HAVE FAR GREATER FINANCIAL AND OTHER RESOURCES THAN WE HAVE.
The market for Thin Film Materials is a substantial market with significant competition in both ceramic and metal materials. While we believe that our products enjoy certain competitive advantages in design, function, quality, and availability, considerable competition exists from well-established firms, which have more resources than we have.
In addition, a significant portion of our business is in the very competitive market for sputtering targets made of ceramics, metals, and alloys. We face substantial competition in this area from companies with far greater financial and other resources than we have. We cannot assure you that developments by others will not render our products or technologies obsolete or less competitive.
GOVERNMENT CONTRACTS MAY BE TERMINATED OR SUSPENDED FOR NONCOMPLIANCE OR OTHER EVENTS BEYOND OUR CONTROL.
The government may cancel virtually all of our government contracts, which are terminable at the option of the government. While we have complied with applicable government rules and regulations and contract provisions in the past, we could fail to comply in the future. Noncompliance with government
procurement regulations or contract provisions could result in the termination of government contracts. The termination of our significant government contracts or the adoption of new or modified procurement regulations or practices could adversely affect us.
Inventions conceived or actually reduced to practice under a government contract generally result in the government obtaining a royalty-free, non-exclusive license to practice the invention. Similarly, technologies developed in whole or in part at government expense generally result in the government obtaining unlimited rights to use, duplicate or disclose technical data produced under the contract. These licenses and rights may result in a loss of potential revenues or the disclosure of our proprietary information, either of which could adversely affect us.
OUR REVENUES DEPEND ON PATENTS AND PROPRIETARY RIGHTS THAT MAY NOT BE ENFORCEABLE.
We rely on a combination of patent and trademark law, license agreements, internal procedures and nondisclosure agreements to protect our intellectual property. These may be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which our products may be produced or sold do not protect our intellectual property rights to the same extent as the laws of the United States. Our failure to protect our proprietary information could adversely affect us.
RIGHTS WE HAVE TO PATENTS AND PENDING PATENT APPLICATIONS MAY BE CHALLENGED.
We have received from the United States Patent and Trademark Office a patent for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity made by a Chemical Precipitation and Low-Pressure Calcination method, and have also received a patent for a process to join two individual strongly linked super-conductors utilizing a melt processing technique. In the future, we may submit additional patent applications covering various applications. The patent application we filed and patent applications that we may file in the future may not result in patents being issued, and any patents issued may not afford meaningful protection against competitors with similar technology, and may be challenged by third parties. Because U.S. patent applications are maintained in secret until patents are issued, and because publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, we may not be the first creator of inventions covered by issued patents or pending patent applications or the first to file patent applications for such inventions. Moreover, other parties may independently develop similar technologies, duplicate our technologies or, if patents are issued to us or rights licensed by us, design around the patented aspects of any technologies we developed or licensed. We may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions, which could result in substantial costs. Litigation may also be necessary to enforce any patents held by or issued to us or to determine the scope and validity of others' proprietary rights, which could result in substantial costs.
THE RAPID RATE OF INVENTIONS AND DISCOVERIES IN THE SUPERCONDUCTIVITY FIELD HAS RAISED MANY UNRESOLVED PATENT ISSUES THAT MAY NEGATIVELY AFFECT OUR BUSINESS.
The claims in granted patents often overlap and there are disputes involving rights to inventions claimed in pending patent applications. As a result, the patent situation in the high temperature superconductor field is unusually complex. It is possible that there will be patents held by third parties relating to our products or technology. We may need to acquire licenses to design around or successfully contest the validity or enforceability of those patents. It is also possible that because of the number and scope of patents pending or issued, we may be required to obtain multiple licenses in order to use a single material. If we are required to obtain multiple licenses, our costs will increase. Furthermore, licenses may not be available on commercially reasonable terms or at all. The likelihood of successfully contesting the validity or enforceability of those patents is also uncertain; and, in any event, we could incur substantial costs in defending the validity or scope of our patents or challenging the patents of others.
THE RAPID TECHNOLOGICAL CHANGES OF OUR INDUSTRY MAY ADVERSELY AFFECT US IF WE DO NOT KEEP PACE WITH ADVANCING TECHNOLOGY.
The thin film market is characterized by rapidly advancing technology. Our success depends on our ability to keep pace with advancing technology and processes and industry standards. To date, we have focused our development efforts on powders and targets. We intend to continue to develop and integrate advances in the thin film coatings industry. However, our development efforts may be rendered obsolete by research efforts and technological advances made by others, and materials other than those we currently use may prove more advantageous.
DEVELOPMENT STAGE OF OUR PRODUCTS AND UNCERTAINTY REGARDING DEVELOPMENT OF MARKETS.
Some of our products are in the early stages of commercialization and we believe that it will be several years before products will have significant commercial end-use applications, and that significant additional development work may be necessary to improve the commercial feasibility and acceptance of its products. There can be no assurance that we will be able to commercialize any of the products currently under development.
To date, there has been no widespread commercial use of High Temperature Superconductive (HTS) products. Additionally, the market for the Thin Film Battery materials is still in its nascent stages.
THE MARKET FOR OUR COMMON STOCK IS LIMITED, AND AS SUCH OUR SHAREHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES WHEN DESIRED OR AT ATTRACTIVE MARKET PRICES.
Our stock price and our listing may make it more difficult for our shareholders to resell shares when desired or at attractive prices. In 2001, our stock began trading on The Over the Counter Bulletin Board ("OTC Bulletin Board"). Nevertheless, our common stock has continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks. This has the effect of limiting the pool of potential purchases of our common stock at present price levels. Shareholders may find greater percentage spreads between bid and asked prices, and more difficulty in completing transactions and higher transaction costs when buying or selling our common stock than they would if our stock were listed on a major stock exchange, such as The New York Stock Exchange or The Nasdaq National Market.
Additionally, the market prices for securities of superconductive material companies have been volatile throughout our existence. Historical trading characteristics for public companies in this industry include limited market support, low trading volume, and wide spreads (on a percentage basis) between the bid and ask prices. Announcements regarding product developments, technological advances, significant customer orders, and financial results significantly influence per share prices.
OUR COMMON STOCK IS SUBJECT TO THE SECURITIES AND EXCHANGE COMMISSION'S "PENNY STOCK" REGULATIONS, WHICH LIMITS THE LIQUIDITY OF COMMON STOCK HELD BY OUR SHAREHOLDERS.
Based on its trading price, our common stock is considered a "penny stock" for purposes of federal securities laws, and therefore is subject to regulations which affect the ability of broker-dealers to sell the Company's securities. Broker-dealers who recommend a "penny stock" to persons (other than established customers and accredited investors) must make a special written suitability determination and receive the purchaser's written agreement to a transaction prior to sale.
As long as the penny stock regulations apply to our common stock, it may be difficult to trade such stock because compliance with the regulations can delay and/or preclude certain trading transactions. Broker-dealers may be discouraged from effecting transactions in our common stock because of the sales practice and disclosure requirements for penny stock. This could adversely effect the liquidity and/or price of our common stock, and impede the sale of our common stock in the secondary market.
OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE ADDITIONAL SHARES OF STOCK.
We are authorized to issue up to 15,000,000 shares of common stock, which may be issued by our board of directors for such consideration as they may consider sufficient without seeking shareholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current shareholders.
Our Articles of Incorporation authorize us to issue up to 260,000 shares of preferred stock. The issuance of preferred stock in the future could create additional securities which would have dividend and liquidation preferences prior in right to the outstanding shares of common stock. These provisions could also impede a non-negotiated change in control.
WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK IN THE PAST AND DO NOT EXPECT TO DO SO IN THE FUTURE.
We cannot assure you that our operations will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flow sufficient to pay dividends. We have never paid dividends on our common shares in the past and do not expect to do so in the foreseeable future.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Shareholders. We will receive no proceeds from the sale of shares of common stock in this offering.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. In this
prospectus, we use words such as "anticipates," "believes," "plans," "expects,"
"future," "intends," and similar expressions to identify forward-looking
statements. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including, among other things:
- general economic and business conditions, both nationally and in our markets,
- our history of losses,
- our expectations and estimates concerning future financial performance, financing plans and the impact of competition,
- our ability to implement our growth strategy,
- anticipated trends in our business,
- advances in technologies, and
- other risk factors set forth under "Risk Factors" in this prospectus.
We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
SELLING SHAREHOLDERS
The following table presents information regarding the Selling Shareholders and the shares that may be sold by them pursuant to this prospectus. See also Security Ownership of Certain Beneficial Owners and Management.
PERCENTAGE
OF
PERCENTAGE OF OUTSTANDING
SHARES OUTSTANDING SHARES
OWNED SHARES SHARES TO OWNED
SELLING BEFORE OWNED BEFORE BE SOLD IN AFTER
SHAREHOLDERS OFFERING OFFERING (1) THE OFFERING OFFERING (1)
------------ -------- ------------- ------------ ------------
Windcom Investments SA (2) 335,205 9.7% 335,205 0%
Lake Street Fund L.P.(3) 312,500 9.0% 312,500 0%
Berlin Capital Growth L.P.(4) 281,250 8.1% 281,250 0%
Mid South Investor Fund L.P. (5) 250,000 7.2% 250,000 0%
Robert Peitz (6) 301,790 8.6% 252,016 1.4%
Thomas Berlin (7) 406,250 11.6% 125,000 0%
Daniel Funk (8) 150,125 4.3% 119,716 *
Laura Shunk (9) 158,255 4.6% 119,716 1.1%
The Estate of Edward R. Funk (10) 437,256 12.3% 117,500 8.8%
James Chapman (11) 67,250 2.0% 67,250 0%
The Estate of Ingeborg V. Funk (12) 462,852 13.2% 62,500 11.4%
Lyman O. Heidtke (13) 62,500 1.8% 62,500 0%
Porter Wright Morris & Arthur, LLP (14) 56,250 1.6% 56,250 0%
Michael Harrington (15) 40,250 1.2% 40,250 0%
Richard Gambs (16) 37,500 1.1% 37,500 0%
Robert Lentz (17) 17,500 * 17,500 0%
Walter Henry Hauser (18) 7,500 * 7,500 0%
Brenda M. Hauser(19) 7,500 * 7,500 0%
Eugene J. Burksa & Renee J. Burksa JTTEN (20) 4,800 * 4,800 0%
Christopher Forte (21) 4,800 * 4,800 0%
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(1) The number of shares listed in these columns include all shares beneficially owned and all options or warrants to purchase shares held, whether or not deemed to be beneficially owned, by each selling shareholder. The ownership percentages listed in these columns include only shares beneficially owned by the listed selling shareholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the percentage of shares beneficially owned by a selling shareholder, shares of common stock subject to options or warrants held by that selling shareholder that were exercisable on or within 60 days after March 10, 2006, were deemed outstanding for the purpose of computing the percentage ownership of that selling shareholder. The ownership percentages are calculated assuming that 3,425,915 shares of common stock were outstanding on March 10, 2006.
(2) Prior to giving effect to the offering, Windcom Investments SA held 314,919 shares of our common stock and exercisable warrants to purchase 20,286 shares of our common stock. Following the offering, Windcom Investment SA will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(3) Prior to giving effect to the offering, Lake Street Fund L.P. held 250,000 shares of our common stock and exercisable warrants to purchase 62,500 shares of our common stock. Following the offering, Lake Street Fund L.P. will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(4) Prior to giving effect to the offering, Berlin Capital Growth L.P. held 229,167 shares of our common stock and exercisable warrants to purchase 52,083 shares of our common stock. Following the offering, Berlin Capital Growth L.P. will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(5) Prior to giving effect to the offering, Mid South Investor Fund L.P. held 200,000 shares of our common stock and exercisable warrants to purchase 50,000 shares of our common stock. Following the offering, Mid South Investor Fund L.P. will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(6) Prior to giving effect to the offering, Robert Peitz, a member of the Company's Board of Directors, held 200,828 shares of our common stock and exercisable options and warrants to purchase 100,962 shares of our common stock. Following the offering, Robert Peitz will hold 24,400 shares of our common stock and warrants to purchase 25,374 shares of our common stock.
(7) Prior to giving effect to the offering, Thomas Berlin held 333,334 shares of our common stock and exercisable warrants to purchase 72,916 shares of our common stock. Following the offering, Thomas Berlin will not hold any shares of our common stock or warrants to purchase shares of our common stock. Mr. Berlin's ownership includes 281,250 shares of common stock beneficially owned by Berlin Capital Growth L.P., of which 52,083 shares of common stock can be acquired under stock purchase warrants exercisable within 60 days of March 10, 2006. Mr. Berlin has shared voting and dispositive power over the shares of common stock in this limited partnership as the controlling principal of Berlin Capital Growth L.P. Mr. Berlin's ownership also includes 20,833 shares of common stock, which can be acquired by Mr. Berlin under stock purchase warrants exercisable within 60 days of March 10, 2006.
(8) Prior to giving effect to the offering, Daniel Funk held 103,264 shares of our common stock and exercisable warrants to purchase 46,861 shares of our common stock. Following the offering, Daniel Funk will hold 3,500 shares of our common stock and warrants to purchase 26,909 shares of our common stock.
(9) Prior to giving effect to the offering, Laura Shunk held 111,394 shares of our common stock and exercisable warrants to purchase 46,861 shares of our common stock. Following the offering, Laura Shunk will hold 11,630 shares of our common stock and warrants to purchase 26,909 shares of our common stock.
(10) Prior to giving effect to the offering, The Estate of Edward R. Funk held 309,356 shares of our common stock and exercisable warrants and options to purchase 127,900 shares of our common stock. Following the offering, The Estate of Edward R. Funk will hold 215,356 shares of our common stock and warrants and options to purchase 104,400 shares of our common stock.
(11) Prior to giving effect to the offering, James Chapman held 55,000 shares of our common stock and exercisable warrants to purchase 12,250 shares of our common stock. Following the offering, James Chapman will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(12) Prior to giving effect to the offering, The Estate of Ingeborg V. Funk held 375,352 shares of our common stock and exercisable warrants and options to purchase 87,500 shares of our common stock. Following the offering, The Estate of Ingeborg V. Funk will hold 325,352 shares of our common stock and warrants and options to purchase 75,000 shares of our common stock.
(13) Prior to giving effect to the offering, Lyman O. Heidtke held 50,000 shares of our common stock and exercisable warrants to purchase 12,500 shares of our common stock. Following the offering, Lyman O. Heidtke will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(14) Prior to giving effect to the offering, Porter, Wright, Morris & Arthur, LLP held 45,000 shares of our common stock and exercisable warrants to purchase 11,250 shares of our common stock. Following the offering, Porter, Wright, Morris & Arthur, LLP will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(15) Prior to giving effect to the offering, Michael Harrington held 33,000 shares of our common stock and exercisable warrants to purchase 7,250 shares of our common stock. Following the offering, Michael Harrington will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(16) Prior to giving effect to the offering, Richard Gambs held 30,000 shares of our common stock and exercisable warrants to purchase 7,500 shares of our common stock. Following the offering, Richard Gambs will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(17) Prior to giving effect to the offering, Robert Lentz held exercisable warrants to purchase 17,500 shares of our common stock. Following the offering, Robert Lentz will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(18) Prior to giving effect to the offering, Walter Henry Hauser held 5,000 shares of our common stock and exercisable warrants to purchase 2,500 shares of our common stock. Following the offering, Walter Henry Hauser will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(19) Prior to giving effect to the offering, Brenda M. Hauser held 7,500 shares of our common stock. Following the offering, Brenda M. Hauser will not hold any shares of our common stock.
(20) Prior to giving effect to the offering, Eugene J. Burksa & Renee J. Burksa JTTEN held 4,000 shares of our common stock and exercisable warrants to purchase 800 shares of our common stock. Following the offering, Eugene J. Burksa & Renee J. Burksa JTTEN will not hold any shares of our common stock or warrants to purchase shares of our common stock.
(21) Prior to giving effect to the offering, Christopher Forte held 4,000 shares of our common stock and exercisable warrants to purchase 800 shares of our common stock. Following the offering, Christopher Forte will not hold any shares of our common stock or warrants to purchase shares of our common stock.
PLAN OF DISTRIBUTION
We have filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission with respect to the securities offered in this prospectus. Following the effective date of the Registration Statement, the Selling Shareholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their registered shares of common stock on any stock exchange, market or trading facility on which the registered shares are traded or in private transactions. These sales may be at fixed or negotiated prices. However, the Selling Stockholders listed in this prospectus may choose not to sell any of their registered shares, and may have no intention of selling any securities offered pursuant to this prospectus in the near future. Additionally, we have no reason to believe that any Selling Shareholder has entered into an agreement, or made a commitment to sell any securities offered in this prospectus. If Selling Shareholders choose to sell securities offered in this prospectus, they may use any one or more of the following methods when selling shares:
- ordinary brokerage transactions and transactions in which the broker-dealer solicits investors;
- block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
- an exchange distribution in accordance with the rules of the applicable exchange;
- privately negotiated transactions;
- to cover short sales made after the date that this Registration Statement is declared effective by the Commission;
- broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The Selling Shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The Selling Shareholders may from time to time pledge or grant a security interest in some or all of the Shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus.
Upon the Company being notified in writing by a Selling Shareholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Shareholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v)
that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the Company being notified in writing by a Selling Shareholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The Selling Shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The Selling Shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the Selling Shareholder and/or the purchasers. Each Selling Shareholder has represented and warranted to the Company that it acquired the securities subject to this Registration Statement in the ordinary course of such Selling Shareholder's business and, at the time of its purchase of such securities such Selling Shareholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.
The Company has advised each Selling Shareholder that it may not use shares registered on this Registration Statement to cover short sales of Common Stock made prior to the date on which this Registration Statement shall have been declared effective by the Securities and Exchange Commission. If a Selling Shareholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Shareholders will be responsible to comply with the applicable provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such Selling Shareholders in connection with resales of their respective shares under this Registration Statement.
The Company is required to pay all fees and expenses incident to the registration of the shares, but the Company will not receive any proceeds from the sale of the common stock. The Company is not required to pay any brokerage fee or other fees in connection with the sale of securities by the Selling Shareholders listed in this prospectus.
OUR MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS
Our directors each serve for one-year terms, which expire at the next Annual Meeting of Shareholders. The following table sets forth for each director of the Company, such person's name, age, and his position with the Company:
NAME AGE POSITION
---- --- --------
Daniel Rooney 52 President, Chief Executive Officer and
Chairman of the Board of Directors
Robert J. Baker, Jr. 65 Director
Walter J. Doyle 70 Director
Robert H. Peitz 44 Director
Edward W. Ungar 68 Director
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Daniel Rooney has served as a Director of the Company since joining the Company in March 2002 as President and Chief Executive Officer. Mr. Rooney was elected as the Chairman of the Board of Directors of the Company on January 8, 2003. Prior to joining the Company, Mr. Rooney was General Manager for Johnson Matthey, Color and Coatings Division, Structural Ceramics Sector North America from 1994 to 2001. Prior to that, Mr. Rooney held various management positions at TAM Ceramics, Inc., a Cookson Group Company.
Robert J. Baker, Jr., Ph.D. has served as a Director of the Company since 1992. Dr. Baker is the president and founder of Venture Resources International and the co-founder of Business Owners Consulting Group, which assist companies in the development of growth strategies, including marketing positions and competitive strategies. Dr. Baker is currently a visiting member of the Capital University faculty serving the MBA program.
Edward W. Ungar has been a Director of the Company since 1990. Mr. Ungar is the President and founder of Taratec Corporation, a technology business consulting firm in Columbus, Ohio. Prior to forming Taratec Corporation in 1986, Mr. Ungar was an executive with Battelle Memorial Institute.
Walter J. Doyle has served as a Director of the Company since 2004. Mr. Doyle is the President of Forest Capital, an angel capital firm. Previously, Mr. Doyle was President and CEO of Industrial Data Technologies Corp. for 21 years. Mr. Doyle earned an Electrical Engineering degree from City College of New York (CCNY) and an MBA from the Harvard Business School.
Robert H. Peitz has served as a Director of the Company since 2004. Prior to being appointed as a director of the Company, Mr. Peitz was a managing director and head of financial markets for PB Capital. Mr. Peitz's 15 years of experience at PB Capital include 10 years as Treasurer. Mr. Peitz is a graduate of the University of Cincinnati with a Bachelor of Arts Economics and has an MBA from the American Graduate School of International Management. He also attended the European Business School and completed the Executive Development Program at the Kellogg School of Management at Northwestern University.
EXECUTIVE OFFICERS
In addition to Mr. Rooney, the following persons are executive officers of the Company:
Gerald S. Blaskie, age 48, has served as the Company's Chief Financial Officer since April 2001. On March 2, 2006, the Board of Directors of the Company appointed Mr. Blaskie to the position of Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Blaskie was the Controller at Cable Link, Inc. from February 2000 to March 2001. From 1997 to 2000, he was the Plant Manager at Central Ohio Plastics Corporation, where he also served as Controller from 1993 to 1997.
Scott Campbell, Ph.D., age 48, has served as the Company's Vice President of Technology since March 2005. Dr. Campbell served as the Company's Vice President of Research and Engineering from July 2004 to March 2005. Dr. Campbell joined the Company in July 2002 as the Company's Technical Director. Prior to joining the Company, he was Senior Research Manager at Oxynet, Inc. for five years.
Officers are elected annually by the Board of Directors and serve at its discretion.
FAMILY RELATIONSHIPS
There are no family relationships among the directors and executive officers of the Company.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Messrs. Doyle and Ungar qualify as "audit committee financial experts" as that term is defined in Item 401(e) of Regulation S-B. Messrs. Doyle and Ungar are both "independent," as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 10, 2006, the beneficial ownership of the Company's common stock by each of the Company's directors, each executive officer named in the Summary Compensation Table, and by all directors and executive officers as a group.
Number of Shares
Beneficially Percentage of
Name of Beneficial Owner(1) Owned(2) Class(3)
--------------------------- ---------------- -------------
Daniel Rooney(4) 132,300 3.7%
Robert J. Baker, Jr.(5) 63,744 1.8%
Walter J. Doyle(6) 96,600 2.8%
Robert H. Peitz(7) 301,790 8.6%
Edward W. Ungar(8) 42,550 1.2%
All directors and executive officers as
a group (7 persons)(9) 747,984 19.4%
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(2) For purposes of the above table, a person is considered to "beneficially own" any shares with respect to which he exercises sole or shared voting or investment power or as to which he has the right to acquire the beneficial ownership within 60 days of March 10, 2006. Unless otherwise indicated, voting power and investment power are exercised solely by the person named above or shared with members of his or her household.
(3) "Percentage of Class" is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of the Company on March 10, 2006, plus the number of shares such person has the right to acquire within 60 days of March 10, 2006.
(4) Includes 125,000 common shares, which may be acquired by Mr. Rooney under stock options exercisable within 60 days of March 10, 2006.
(5) Includes 41,000 common shares, which may be acquired by Dr. Baker under stock options exercisable within 60 days of March 10, 2006, and 18,394 shares which are held in Dr. Baker's IRA.
(6) Includes 14,250 common shares, which may be acquired by Mr. Doyle under stock purchase warrants exercisable within 60 days of March 10, 2006.
(7) Includes 100,962 common shares, which may be acquired by Mr. Peitz under stock options and stock purchase warrants exercisable within 60 days of March 10, 2006.
(8) Includes 41,000 common shares, which may be acquired by Mr. Ungar under stock options exercisable within 60 days of March 10, 2006.
(9) Includes 433,212 common shares, which may be acquired under stock options and stock purchase warrants exercisable within 60 days of March 10, 2006.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 10, 2006, relating to the beneficial ownership of common stock by each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock of the Company.
Number of Shares
Beneficially Percentage of
Name of Beneficial Owner(1) Owned(2) Class(3)
--------------------------- ---------------- -------------
Curtis A. Loveland (4) 1,240,064 33.9%
The Estate of Ingeborg V. Funk (5) 462,852 13.2%
The Estate of Edward R. Funk (6) 437,256 12.3%
Thomas G. Berlin (7) 406,250 11.6%
Windcom Investments SA(8) 335,205 9.7%
Lake Street Fund L.P. (9) 312,500 9.0%
Robert H. Peitz (10) 301,790 8.6%
Berlin Capital Growth L.P. (11) 281,250 8.1%
Mid South Investor Fund L.P. (12) 250,000 7.2%
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(2) For purposes of this table, a person is considered to "beneficially own" any shares with respect to which he or she exercises sole or shared voting or investment power or as to which he or she has the right to acquire the beneficial ownership within 60 days of March 10, 2006. Unless otherwise indicated, voting power and investment power are exercised solely by the person named above or shared with members of his or her household.
(3) "Percentage of Class" is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of the Company on March 10, 2006, plus the number of shares such person has the right to acquire within 60 days of March 10, 2006.
(4) Includes (i) 41,000 shares of common stock, which can be acquired by Mr.
Loveland under stock options exercisable within 60 days of March 10, 2006;
(ii) 437,256 shares of common stock beneficially owned as the executor of
the Estate of Edward R. Funk, of which 127,900 shares of common stock can
be acquired by Mr. Loveland on behalf of the estate under stock options and
warrants exercisable within 60 days of March 10, 2006; (iii) 462,852 shares
of common stock beneficially owned by Mr. Loveland as the executor of the
Estate of Ingeborg V. Funk, of which 87,500 shares of common stock can be
acquired by Mr. Loveland on behalf of the estate under stock options and
warrants exercisable within 60 days of March 10, 2006; and (iv) 283,756
shares beneficially owned by Mr. Loveland as the trustee of
generation-skipping irrevocable trusts established by Edward R. and
Ingeborg V. Funk.
(5) Includes 87,500 shares of common stock, which can be acquired by The Estate of Ingeborg V. Funk under stock options and warrants exercisable within 60 days of March 10, 2006. Mr. Loveland holds the voting and investment power for the shares of common stock owned by the Estate of Ingeborg V. Funk.
(6) Includes 127,900 shares of common stock, which can be acquired by The Estate of Edward R. Funk under stock options and warrants exercisable within 60 days of March 10, 2006. Mr. Loveland holds the voting and investment power for the shares of common stock owned by the Estate of Edward V. Funk.
(7) Mr. Berlin's ownership includes 281,250 shares of common stock beneficially owned by Berlin Capital Growth L.P., of which 52,083 shares of common stock can be acquired under stock purchase warrants exercisable within 60 days of March 10, 2006. Mr. Berlin has shared voting and dispositive power over the shares of common stock in this limited partnership as the controlling principal of Berlin Capital Growth L.P. Mr. Berlin's ownership also includes 20,833 shares of common stock, which can be acquired by Mr. Berlin under stock purchase warrants exercisable within 60 days of March 10, 2006.
(8) Based on the Schedule 13G/A filed on February 14, 2005, Dr. Karl Kohlbrenner, CEO of Windcom Investments SA, has voting and dispositive power over the shares of common stock on behalf of the Company. Windcom Investments SA's ownership includes 20,286 shares of common stock, which can be acquired by Windcom Investments SA under stock purchase warrants exercisable within 60 days of March 10, 2006.
(9) Includes 62,500 shares of common stock, which can be acquired by Lake Street Fund L.P. under stock purchase warrants exercisable within 60 days of March 10, 2006.
(10) Includes 100,962 shares of common stock, which can be acquired by Mr. Peitz under stock options and stock purchase warrants exercisable within 60 days of March 10, 2006.
(11) Includes 52,083 shares of common stock, which can be acquired by Berlin Capital Growth L.P. under stock purchase warrants exercisable within 60 days of March 10, 2006.
(12) Includes 50,000 shares of common stock, which can be acquired by Mid South Investor Fund L.P. under stock purchase warrants exercisable within 60 days of March 10, 2006.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock is 15,260,000 shares, consisting of 15,000,000 common shares, without par value, 125,000 shares of Voting Preferred Shares, without par value and 125,000 shares of Non-Voting Preferred Shares, without par value (collectively, the "Preferred Shares"), of which 100,000 shares are designated as Series B Preferred Shares and 10,000 shares of 10% Cumulative Convertible Preferred Shares, without par value (the "10% Preferred Shares").
COMMON SHARES
Holders of the common shares have no redemption or conversion rights, participate ratably in any distribution of assets to shareholders in liquidation and have no preemptive or other subscription rights. Holders of common shares are entitled to receive such dividends as may be declared by the board of directors. Holders of common shares are entitled to one vote for each share held on all matters on which shareholders are entitled to vote, and are not entitled to vote cumulatively for the election of directors. The outstanding common shares are fully paid and non-assessable. As of March 10, 2006, the Company had 3,425,915 common shares, without par value, outstanding. Of these shares, 596,068 shares are held by nonaffiliates and are freely tradable without restriction or further registration under the Securities Act of 1933 or eligible for resale under an exemption from registration. The holders of the remaining 2,829,847 shares are entitled to resell them only pursuant to a Registration Statement under the Securities Act of 1933 or an applicable exemption from registration thereunder.
PREFERRED SHARES
The Articles of Incorporation of the Company authorize the Board of Directors to adopt amendments to the Articles of Incorporation to provide for the issuance of one or more series of Non-Voting Preferred Shares or Voting Preferred Shares, and to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof (the "Blank Check Preferred Stock"). The Company currently has authorized, issued and outstanding Series B Preferred Shares.
The issuance of Preferred Shares could be used, under certain circumstances, as a method of delaying or preventing a change in control of the Company and could permit the Board of Directors, without any action by holders of the Series B Preferred Shares, or the common shares, to issue Preferred Stock which could have a detrimental effect on the rights of holders of Series B Preferred Shares, or the common shares. In certain circumstances, this could have the effect of decreasing the market price for the common shares.
SERIES B PREFERRED SHARES
The Series B Preferred Shares were authorized under the Blank-Check Preferred Stock provisions of the Company's Articles of Incorporation. Each Series B Preferred Share has a stated value of $10. Except as otherwise provided by Ohio law, the holders of the Series B Preferred Shares have no voting rights. The Series B Preferred Shares are convertible into common shares at the rate of $5.00 per each common share, subject to adjustment for stock splits, stock dividends or any other stock divisions. The Company will pay cash in lieu of fractional shares.
Holders of the Series B Preferred Shares are entitled to receive dividends at the rate of 10% of the stated value per annum per share. Dividends will be payable on each anniversary of the issue date, defined as the date on which the Series B Preferred Shares are first issued by the Company. Dividends could be paid in either shares of Series B Preferred Shares or cash, at the Company's option, for the initial three years that the Series B Preferred Shares were outstanding, and thereafter in cash to the extent funds are then legally available for the payment of such cash dividends. The right of the holders of the Series B Preferred Shares to receive such dividends is cumulative, and accrues from the date of issuance of the Series B Preferred Shares.
If, at any time, the aggregate amount of cash dividends to be paid by the Company on the Series B Preferred Shares is insufficient to permit the payment of the full amount of cash dividend, then accrued on all issued and outstanding Series B Preferred Shares, then such cash dividends, to the extent payable, will be distributed to the holders of all outstanding Series B Preferred Shares ratably in proportion to the respective amounts of cash dividends then accrued and unpaid on such Series B Preferred Shares. As long as any Series B Preferred Shares will remain outstanding, no cash dividends can be declared or paid on any junior stock or parity stock until all accrued and unpaid cash dividends on the Series B Preferred Shares have been paid to the holders thereof. In the event that any of the Series B Preferred Shares were converted to common shares, prior to a dividend payment date, no payment of or adjustment for dividends yet due will be made on the Series B Preferred Shares converted.
In the event of any liquidation, dissolution, or winding up of the Company, the holders of the Series B Preferred Shares then outstanding will be entitled to receive out of the assets of the Company, before any distribution or payment is made to the holders of any junior stock, including the common shares, an amount equal to the stated value per share plus any accrued and unpaid cumulative dividends thereon. If upon any liquidation, dissolution, or winding up, amounts distributable to the holders of all Series B Preferred Shares and any parity stock is insufficient to permit the payment of the full liquidation amounts on all issued and outstanding Series B Preferred Shares and parity stock, then the entire assets of the Company available for distribution to the holders of Series B Preferred Shares and parity stock will be distributed to holders of all Series B Preferred Shares and parity stock ratably in proportion to the full preferential amounts to which such holders are respectively entitled. A consolidation merger of the Company with or into any other company or companies, or a sale or transfer of all, or substantially all, of its property shall not be deemed to be a liquidation, dissolution, or winding up of the Company.
After the third anniversary of the issue date, the Company is entitled, at its option, to redeem the Series B Preferred Shares, in whole or in part, at redemption price equal to 103% of the stated value, plus the amount of any accrued and unpaid cash dividends thereon, to the date of such redemption. In case of the redemption of only a part of the Series B Preferred Shares, the Series B Preferred Shares to be redeemed will be selected by whatever means the Board of Directors, in its sole discretion, determines.
The Company is not obligated to pay to any holder of the Series B Preferred Shares the redemption price for any Series B Preferred Shares to be redeemed until such holder has surrendered to the Company certificates representing such Series B Preferred Shares.
The holders of the Series B Preferred Shares have the right and option to convert all or part of the Series B Preferred Shares then owned by them, at any time, into Common Shares.
If the Series B Preferred Shares, in whole or in part, are called for redemption, the right to convert such Series B Preferred Shares into common shares shall cease at the close of business on the day prior to the Redemption Date set forth in the notice of redemption.
As of March 10, 2006, 25,185 Series B Preferred Shares remained issued and outstanding and had not been converted to shares of common stock. As of March 10, 2006, 2006, the Series B Preferred Shares had accrued and unpaid dividends in the amount of $75,555.
INTEREST OF NAMED EXPERTS AND COUNSEL
The validity of the securities being registered by this Registration Statement are being passed on for the Company by Porter, Wright, Morris & Arthur LLP. As of the date of this Registration Statement, Porter, Wright, Morris & Arthur LLP owned 45,000 shares of the Company's common stock, all of which shares have been registered for resale under this Registration Statement. These shares were issued and delivered prior to the filing of this Registration Statement. Porter, Wright, Morris & Arthur LLP also holds warrants to purchase an additional 11,250 shares of our common stock. The shares of common stock issuable upon the exercise of these warrants have also been registered for resale under this Registration Statement. Curtis A. Loveland, a partner of Porter, Wright, Morris & Arthur LLP, serves as secretary of the Company.
No "expert," as that term is defined pursuant to the Regulation Section 220.509(a) of Regulation S-B, or "counsel," as that term is defined pursuant to Regulation Section 220.509(b) of Regulation S-B, was hired on a contingent basis, or will receive a direct or indirect interest in the Company, or was a promoter, underwriter, director or employee of the Company at any time prior to the filing of this Registration Statement.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section 1701.13(E) of the Ohio Revised Code gives a corporation incorporated under the laws of Ohio power to indemnify any person who is or has been a director, officer or employee of that corporation, or of another corporation at the request of that corporation, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, criminal or civil, to which he is or may be made a party because of being or having been such director, officer, employee or agent, provided that in connection therewith, such person is determined to have acted in good faith in what he reasonably believed to be in or not opposed to the best interest of the corporation of which he is a director, officer, employee or agent and without reasonable cause, in the case of a criminal matter, to believe that his conduct was unlawful. The determination as to the conditions precedent to the permitted indemnification of such person is made by the directors of the indemnifying corporation acting at a meeting at which, for the purpose, any director who is a party to or threatened with any such action, suit or proceeding may not be counted in determining the existence of a quorum and may not vote. If, because of the foregoing limitations, the directors are unable to act in this regard, such determination may be made by the majority vote of the corporation's voting shareholders (or without a meeting upon two-thirds written consent of such shareholders), by judicial proceeding or by written opinion of legal counsel not retained by the corporation or any person to be indemnified during the five years preceding the date of determination.
Section 1701.13(E) of the Ohio Revised Code further provides that the indemnification thereby permitted shall not be exclusive of, and shall be in addition to, any other rights that directors, officers, employees or agents have, including rights under insurance purchased by the corporation.
Article 5 of the Company's Restated Code of Regulations contains extensive provisions related to indemnification of officers, directors, employees and agents. The Company is required to indemnify its directors against expenses, including attorney fees, judgments, fines and amounts paid in settlement of civil, criminal, administrative, and investigative proceedings, if the director acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company. When criminal proceedings are involved, indemnification is further conditioned upon the director having no reasonable cause to believe that his conduct was unlawful.
Entitlement of a director to indemnification shall be made by vote of the disinterested directors of the Company. If there are an insufficient number of such directors to constitute a quorum, the determination to indemnify directors shall be made by one of the following methods: (1) a written opinion of independent legal counsel, (2) vote by the shareholders, or (3) by the court in which the action, suit or proceeding was brought.
The Company may pay the expenses, including attorney fees of any director, as incurred, in advance of a final disposition of such action, suit or proceeding, upon receipt by the Company of an undertaking by the affected director(s) in which he (they) agree(s) to cooperate with the Company concerning the action, suit or proceeding, and agree(s) to repay the Company in the event that a court determines that the director's action, or failure to act, involved an act, or omission, undertaken with reckless disregard for the best interests of the Company.
The indemnification provisions of the Articles of Incorporation relating to officers, employees and agents of the Company are similar to those relating to directors, but are not mandatory in nature. On a case-by-case basis, the Company may elect to indemnify them, and may elect to pay their expenses, including attorney fees, in advance of a final disposition of the action, suit, or proceeding, upon the same conditions and subject to legal standards as relate to directors. These indemnification provisions are also applicable to actions brought against directors, officers, employees and agents in the right of the Company. However, no indemnification shall be made to any person adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless, and only to the extent that a court determines, that despite the adjudication of liability, but in view of all of the circumstances of the case, such person is reasonably entitled to indemnity for such expenses as the court shall deem proper. The Company currently carries directors and officers insurance in the amount of one million dollars.
The above discussion of the Company's Restated Code of Regulations and of
Section 1701.13(E) of the Ohio Revised Code is not intended to be exhaustive and
is respectively qualified in its entirety by such documents and statutes.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
DESCRIPTION OF BUSINESS
INTRODUCTION
The Company was incorporated on May 29, 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive ("HTS") materials. HTS materials are complex metal oxides - ceramics of certain stoichiometries (chemical mixture ratios), which exhibit superconducting phenomena when cooled to at least -196(degrees) Centigrade. These complex metal oxides are identified as members of the Perovskite family of ceramic materials. Perovskites are a large family of crystalline ceramics that derive their name from the perovskite mineral. The perovskite minerals are the most abundant minerals on earth and have approximately a 2:3 metal-to-oxygen ratio. Copper-oxide superconductors are layered perovskites.
The Company presents itself to the market as SCI Engineered Materials, an operating unit of Superconductive Components, Inc. The Company controls the manufacturing process and measures performance in terms of sales, in two categories, Ceramics and Metals, as the products sold are easily separable into these categories. The performance measurements made in these two categories are, however, not conducive to segment reporting as there are many shared operating expenses relating to the production of both Ceramic and Metals that cannot be attributed solely to one or the other.
HISTORY OF THE COMPANY
The Company was founded in 1987 by Dr. Edward R. Funk and his wife Ingeborg Funk to develop, manufacture, and market High Temperature Superconductive materials (HTS materials), including sputtering targets and ceramic powders for commercial applications of the newly discovered superconducting ceramics. The Company's initial efforts were directed toward mastering the manufacturing process for making high temperature superconducting ceramic powders. During this period, the market for high temperature superconductors was very small, estimated at $1 million a year or less, consisting primarily of demonstration kits and small amounts of HTS powder for research purposes. Sales, though relatively small, covered a wide range of superconducting products, including ceramic powders. The Company sold ceramic powders as finished products and in other forms, such as pressed pills or pellets, which were achieved by sintering the ceramic powders, and solid shapes. Products sold in such forms were used primarily in research applications.
Subsequently, the Company began to develop other forms of HTS materials. The Company began to focus on the market for superconducting thin-film materials, made from the Company's sputtering targets. A sputtering target is a metal, alloy or sintered ceramic. The targets are specially sized to fit into a special coating device called a sputtering system; in general, the sputtering targets are rectangular or cylindrical in geometry.
These HTS Physical Vapor Deposition materials are used by customers of the Company in a vapor deposition process to make thin films of the source materials. This process operates in vacuum, hence, the frequently heard term, vacuum deposition or Physical Vapor Deposition (PVD). HTS thin films are then patterned, using techniques similar to those in the semiconductor industry, to manufacture sensors, circuits and other devices, which in turn can be used in medical diagnostics, geological exploration, advanced radar, wireless communication and other niche applications.
Despite our efforts, a broad market for HTS had not developed, and therefore, in 1992, the Company established the TMI Division and began marketing sputtering targets of materials other than HTS materials for thin film deposition. This division was located within the headquarters of the Company in Columbus, Ohio, and shared facilities and staff with the SCI Division. In 2002, the Company abandoned the separate TMI Division designation, and combined its marketing efforts with SCI Engineered Materials as a single operating unit of Superconductive Components, Inc. The purpose of the reorganization was to develop a more market driven business focused in three primary areas: High Temperature Superconductive (HTS) Materials, Photonic/Optical Materials and Thin Film Battery materials. These three market areas are connected in that the applications use Physical Vapor Deposition (PVD) as a manufacturing technique to produce their products. The Company now sells approximately 90% of its products into PVD applications.
During early 2002, Mr. Daniel Rooney was brought in as the President and Chief Executive Officer of the Company as successor management to Dr. Funk. In December 2002, Dr. Edward Funk, Chairman of the Board, passed away from complications associated with cancer. In January 2003, Mr. Rooney succeeded Dr. Funk as Chairman of the Company.
BUSINESS
The Company views its business as supplying ceramic and metal materials to a variety of industrial applications including: HTS, Photonics/Optical, and Thin Film Batteries.
The production and sale of HTS materials was the initial focus of the Company's operations and these materials continue to be part of the Company's development efforts. The Company continues to work with private companies and government agencies to develop new and improved products for future applications.
Photonics/Optical currently represents the Company's largest market for its materials. The Company's customers are continually identifying new materials that improve the utility of optical coating. This includes improvements in their ability to focus or filter light, and coatings that improve wear and chemical attack resistance, all of which increase the potential demand for the types and amounts of materials the Company sells in this market. Photonic applications continue to expand as new methods are found to manipulate light waves to enhance the various properties of light the device manufacturers are seeking.
Thin Film Battery materials is a developing market where manufacturers of batteries use these materials to produce very small power supplies, with small quantities of stored energy. A typical Thin Film Battery would be produced via Physical Vapor Deposition (PVD) with five or more thin layers. These batteries are often one centimeter square but only 15 microns thick. Potential applications for these batteries include, but are not limited to, active RFID tags, battery on chip, portable electronics, and medical implant devices.
The Company achieved ISO 9001:2000 certification during the second quarter of 2005. This immediately resulted in the return of a major customer and the addition of a major customer and helped to increase the Company's customer base in 2005. Orders received in 2005 were $3,459,083, an increase of $1,441,023, or 71.4% over 2004.
The Company had total annual revenues of $3,457,182, $2,172,864, and $2,268,488 in the fiscal years ended December 31, 2005, 2004, and 2003, respectively. During early 2004 the Company relocated to a modern facility, which caused a decrease in production. The Company also intentionally withdrew from low margin products.
Principal suppliers to the Company in 2005 were Lattice Materials Corporation, Engelhard Corporation and Johnson Matthey. In every case, the Company believes that suitable substitute vendors can be found. As the Company's volume grows, the Company may make alliances or purchasing contracts with these or other vendors.
The Company's largest customer represented over 20% percent of total revenues in 2005. The Company had $289,439 and $257,132 in contract research revenue, representing 8.4% and 11.8%, for the years ending December 31, 2005 and 2004, respectively.
MARKETING AND SALES
Most of the Company's orders are in response to requests for quotations. The Company distributes a catalogue of its products and attends several relevant tradeshows. The Company's catalogue lists 115 products. The Company also has an operating website www.sciengineeredmaterials.com.
The Company uses various distribution channels to reach end user markets including: direct sales, manufacturers representatives and international distributors. The Internet provides tremendous reach for new customers to be able to identify the Company as a source of their product needs. In 2005 the Company sold product to 262 customers.
CERAMICS
The Company is capable of producing ceramic powders via several different processing routes including solid state, precipitation and combustion synthesis. Ceramic Targets can also be produced in a variety of ways depending on the end user applications. Production routes include sintering, cold isostatic pressing and hot pressing.
Most of the Company's products are manufactured from component chemicals and metals supplied by various vendors. Production of HTS is dependent upon high purity Yttrium to manufacture its superconducting products. Several suppliers currently satisfy the Company's requirements for this material. If the Company suddenly lost the services of such suppliers, there could be a disruption in its manufacturing process until the suppliers were replaced. The Company has identified several other firms as potential back-up suppliers who would be capable of supplying this material to the Company as necessary. To date, the Company has not experienced an interruption of raw material supplies. Ceramic shipments were approximately 18% and 58% of product revenues in 2005 and 2004, respectively.
METALS
In addition to the ceramic targets mentioned above the Company produces metal sputtering targets, and backing plates and bonds the targets to the backing plates for application in the Physical Vapor Deposition Industry. These targets can be produced by casting, hot pressing and machining of metals and metal alloys depending on the application.
Applications for metal targets are highly varied from applying decorative coatings for end uses such as sink faucets to the production of various electronic and photonic products.
The Company purchases various metals of reasonably high purity for its applications; the Company is not dependent on a single source for these metals and does not believe losing a vendor would materially affect the business.
The Company has regularly added production processes and testing equipment for the many product compositions that can be used as Physical Vapor Deposition materials. Metal shipments were approximately 82% and 42% of product revenues in 2005 and 2004, respectively.
COMPETITION
The Company has a number of domestic and international competitors in both the ceramic and metal fields, many of which have resources far in excess of the Company's resources. With respect to ceramics specifically, Cerac provides both powders and thin film deposition products. Kurt Lesker is another supplier of targets and Dowa Chemicals of Japan supplies HTS materials. With regard to metal targets, Tosoh, Williams Advanced Materials, Kurt Lesker and Plasmaterials are competing suppliers of these materials.
RESEARCH AND DEVELOPMENT
The Company is developing sputtering targets which could be used to produce high K dielectric films via PVD processing. These materials could find applications in semiconductors. The Company focuses its research and development efforts in areas that build on its expertise in multi-component ceramic oxides.
In June 2005, the Company received notification from the Department of Energy of a Notice of Financial Assistance Award that will provide support for Phase I of a Small Business Innovation Research (SBIR) grant entitled "Feasibility of Cost Effective, Long Length, BSCCO 2212 Round Wires, for Very High Field Magnets Beyond 12 Tesla at 4.2 Kelvin." The award, in an amount of $99,793, is for the nine months ending March 26, 2006. Revenues of $57,700 were recognized during 2005 for this award.
During 2003 the Company successfully completed the development work on a Department of Energy SBIR Phase I sponsored project for optimizing BSCCO 2-2-1-2 ceramic powders for use in the production of long length HTS wires for high energy physics applications with potential for medical MRI imaging. The success of the project enabled the Company to obtain a $600,000 Phase II grant for pre-commercialization process development of the powder production process. The Company's partners in
this two-year effort are Oxford Superconducting Technologies and Los Alamos National Lab. Revenues of $231,739 and $224,488 were recognized in 2005 and 2004, respectively. The Company has been awarded a no cost extension until March 31, 2006 to allow the Company's partners to complete their work.
The Company became a member of a team led by Oxford Instrument Superconducting Technology in 2004, which was awarded a grant from the Department of Energy Superconductivity Partnership Initiative (SPI) Program. Revenues of $17,684 were generated in 2004. A member of the team determined that the technology is not as suitable for the MRI market segment as originally projected in 2001. In 2004, this member decided to withdraw from the program. Due to the unexpected change in market potential, the Company also removed itself from this Department of Energy SPI.
All of the sponsored research and development contracts can be cancelled at the sponsor's option, with accrued costs being paid. The Company currently has $42,092 of funding from government sponsored research and development programs that could be cancelled at any time.
The Company intends to continue to seek such funding as this funding maintains and expands the technical understanding within the Company.
The Company has certain proprietary knowledge and trade secrets related to the manufacture of ceramic oxide PVD materials and patents covering some HTS products.
NEW PRODUCT INITIATIVES
During 2005, the Company improved its production processes related to the manufacturing of ruthenium targets. These improvements have led to increased revenues.
The Company has undertaken research and development opportunities with respect to new and innovative materials and processes to be used in connection with the production of Thin Film Batteries and Fuel Cells. Thin Film Battery materials is a developing market. Manufacturers of batteries use these materials to produce very small power supplies with small quantities of stored energy. A typical Thin Film Battery is produced via PVD sputtering targets with five or more thin layers. These batteries are often one centimeter square but only 15 microns thick.
Presently, there are approximately five manufacturers of Thin Film Batteries in the country, each in various stages of development from prototype to small scale production. In addition there are several firms and research institutes conducting tests on Thin Film Batteries. Management believes this market may potentially become very large with significant growth expected during the next two years. There are numerous applications for Thin Film Batteries, including, but not limited to, active RFID tags, battery on chip, portable electronics, and medical implant devices. Given the many potential uses for Thin Film Batteries, the Company anticipates that the market for materials necessary to produce Thin Film Batteries will grow in direct correlation to the Thin Film Battery market itself.
The Company currently faces competition from other producers of materials used in connection with the manufacture of Thin Film Batteries. The Company believes that it has certain competitive advantages in terms of quality, but acknowledges that it is currently at a disadvantage in terms of funding. The Company intends to actively market its materials to Thin Film Battery producers in the upcoming year in order to gain a strong presence in this market.
At present, the Company has several customers for the materials it produces for Thin Film Batteries. Since we have begun producing materials for the Thin Film Battery market, we have experienced no problems securing the supplies we need to produce the materials. We do not anticipate supply problems in the near future. However, changes in production methods and advancing technologies could render our current products obsolete and the new production protocols may require supplies that are less available in the marketplace, which may cause a slowing or complete halt to production as well as expanding costs which we may or may not be able to pass on to our customers.
In October of 2003, the Company was awarded a $1.2 million grant from the State of Ohio's Third Frontier Action Fund. The Company has teamed with Lithchem Inc. to produce raw materials for the Company's
Lithium Thin Film Battery sputtering target manufacturing process. The funds were used to procure capital equipment required to commercialize the manufacturing process for target manufacturing. In addition, three manufacturers of Lithium Thin Film Batteries have agreed to participate in the program and will provide testing and manufacturing qualification evaluations of targets produced using the commercial scale processes developed during the grant period. The term of the grant was two years. An extension has been approved and the program is expected to be completed by December 31, 2006. The Company has received and installed its equipment funded by this grant.
INTELLECTUAL PROPERTY
The Company has received a patent for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity made by a Chemical Precipitation and Low-Pressure Calcination method from the United States Patent and Trademark Office. The Company has also received a patent for a new process to join two individual strongly linked super-conductors utilizing a melt processing technique.
In the future, the Company may submit additional patent applications covering various applications, which have been developed by the Company. Because U.S. patent applications are maintained in secret until patents are issued, and because publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, the Company may not be the first creator of inventions covered by issued patents or pending patent applications or the first to file patent applications for such inventions. Additionally, other parties may independently develop similar technologies, duplicate our technologies or, if patents are issued to us or rights licensed by us, design around the patented aspects of any technologies we developed or licensed.
The Company relies on a combination of patent and trademark law, license agreements, internal procedures and nondisclosure agreements to protect its intellectual property. Unfortunately, these may be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which our products may be produced or sold do not protect our intellectual property rights to the same extent as the laws of the United States.
EMPLOYEES
The Company had 20 full-time employees as of December 31, 2005. Of these employees, one held a PhD in Material Science. The Company has never experienced work stoppage and considers its relations with employees to be good. The employees do not have a bargaining unit.
ENVIRONMENTAL MATTERS
The Company handles all materials according to federal, state and local environmental regulations and includes Material Safety Data Sheets (MSDS) with all shipments to customers. The Company maintains a collection of MSDS sheets for all raw materials used in the manufacture of products and maintenance of equipment and insures that all personnel follow the handling instructions contained in the MSDS for each material. The Company contracts with a reputable fully permitted hazardous waste disposal company to dispose of the small amount of hazardous waste materials generated by the Company.
COLLECTIONS AND WRITE-OFFS
The Company collected its receivables in an average of 35 days in 2005. The Company has occasionally been forced to write-off a few small invoices as uncollectible. The Company considers credit management critical to its success.
SEASONAL TRENDS
The Company has not experienced and does not in the future expect to experience seasonal trends in its business operations.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file reports, proxy statements and other information with the Securities and Exchange Commission. These reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549 and at the Securities and Exchange Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 233 Broadway, New York, New York 10279. You can obtain copies of these materials from the Public Reference Section of the Securities and Exchange Commission upon payment of fees prescribed by the Securities and Exchange Commission. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission's Web site contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of that site is http://www.sec.gov.
We have filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission under the Securities Act with respect to the securities offered in this prospectus. This prospectus, which is filed as part of a Registration Statement, does not contain all of the information set forth in the Registration Statement, some portions of which have been omitted in accordance with the Securities and Exchange Commission's rules and regulations. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to in this prospectus are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document which is filed as an exhibit to the Registration Statement. The Registration Statement may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission, and copies of such materials can be obtained from the Public Reference Section of the Securities and Exchange Commission at prescribed rates. You may also obtain additional information regarding the Company on our website, located at http://www.superconductivecomp.com
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our Financial Statements and the Notes related to those statements, as well as the other financial information included in the Form SB-2 Registration Statement, of which this prospectus is a part. For information regarding risk factors that could have a material adverse effect on our business, refer to the Risk Factors section of this prospectus beginning on page 4.
The following section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical fact and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in other documents filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. Actual results could differ materially from the forward-looking statements made. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time and it is not possible for management to predict all factors, nor can it
assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
OVERVIEW
Superconductive Components, Inc. ("SCI" or the "Company"), an Ohio corporation,
was incorporated in 1987, to develop, manufacture and market products based on
or incorporating high temperature superconductive ("HTS") materials. The Company
presents itself to the market as SCI Engineered Materials, an operating unit of
Superconductive Components, Inc. The Company views its business as supplying
ceramic and metal materials to a variety of industrial applications including:
HTS, Photonics/Optical, and Thin Film Batteries. The production and sale of HTS
materials was the initial focus of the Company's operations and these materials
continue to be a part of the Company's development efforts. Photonics/Optical
currently represents the Company's largest market for its materials. Thin Film
Battery materials is a developing market where manufacturers of batteries use
these materials to produce very small power supplies, with small quantities of
stored energy.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the Financial statements and accompanying notes. Note 2 to the Financial Statements in the Annual Report on Form 10-KSB for the year ended December 31, 2005 describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates.
The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected.
Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will provide benefit to our Company. Changes in circumstances related to a change in our business, change in technology or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.
YEARS ENDED DECEMBER 31, 2005 AND 2004
Revenues
Revenues increased by 59.1% in fiscal 2005 to $3,457,182 from the fiscal 2004 level of $2,172,864.
Product sales increased to $3,167,743 in 2005 from $1,915,732 in 2004 or an increase of 65.4%. The increase in revenues was due to the return of a major customer and the addition of another major customer as a direct result of the ISO 9001:2000 certification, as well as the addition of other new customers.
In 2005, total contract research revenues were $289,439 as compared to $257,132 in 2004. Government development contract revenue was $289,439, or 8.4% of total revenues in 2005 and $239,448 or 11.0% of total revenues in 2004. The increase is due to a Phase II SBIR grant from the Department of Energy that began in 2003. The Department of Energy was the Company's largest contract customer in 2005
and 2004, accounting for 8.4% and 11.0% of the Company's revenues, respectively. Significant loss of government funding would have a material adverse effect on the Company's financial condition and results of operations.
During 2005, the Company received notification from the Department of Energy of a Notice of Financial Assistance Award that provides support for Phase I of an SBIR entitled "Feasibility of Cost Effective, Long Length, BSCCO 2212 Round Wires, for Very High Field Magnets Beyond 12 Tesla at 4.2 Kelvin." The award, in an amount of $99,793, is for the nine months ending March 26, 2006. Revenues of $57,700 were recognized during 2005 for this award.
During 2003 the Company was awarded a Phase II Small Business Innovation Research grant for $523,612 from the Department of Energy. This award was to develop an advanced method to manufacture continuous reacted lengths of High Tc Superconductor: Bismuth Strontium Calcium Copper Oxide - 2212 Wire. This contract generated $231,739 and $239,448 in revenues in 2005 and 2004, respectively.
The Company became a member of a team led by Oxford Instruments Superconducting Technology, which was awarded a grant from the Department of Energy Superconductivity Partnership Initiative (SPI) Program. This program recognized $17,684 in revenues in 2004. A member of the team determined that the technology is not as suitable for the future Magnetic Resonance Imaging market segment as originally projected in 2001. As a result, in 2004, this member withdrew from the program. Due to the unexpected change in market potential the Company also removed itself from this SPI.
Gross Margin
Total gross margin in 2005 was $741,310 or 21.4% of total revenue as compared to $226,372 or 10.4% in 2004. The primary reason for the increase was due to higher sales, which resulted from increased production that led to improved operating efficiencies.
Gross margin on product revenue was 23.5% in 2005 versus 12.5% in 2004, primarily due to the increase in product sales. Gross margin on contract research revenue was -0.6% for 2005 compared to -5.3% in 2004. The higher negative gross margin in 2004 was due to the Company's cost share of a contract that was reimbursed at 50%, which ended in 2004.
Gross margin on the Company's products vary widely and are impacted from period to period by sales mix and utilization of production capacity. The Company expects that gross margin will improve as sales grow. The Company expects improved volume in 2006 as the efforts of the Sales Manager led to new sales opportunities with new customers. This added volume is expected to improve manufacturing overhead absorption yielding improved gross margins. In addition, increased sales to the Thin Film Battery market in 2006 are expected to improve the gross margin mix, leading to improved gross margins.
Inventory reserves are established for obsolete inventory, excess inventory quantities based on management's estimate of net realizable value and for lower-of-cost or market. Reductions in this reserve were $26,269 and $28,923 for the years ended December 31, 2005, and 2004, respectively. Management deems the inventory reserve, after its assessment of obsolete inventory, at December 31, 2005, of $89,261 to be adequate for excess inventory and a lower of cost-or-market analysis. The decrease in the reserve for 2005 is a result of the reduction of a portion of obsolete inventory sold at reduced prices.
Selling Expense
Selling expense in fiscal 2005 increased to $237,569 from $236,235 in fiscal 2004, an increase of $1,334, or 0.6%. This slight increase was due to an increase in wages, which was primarily offset by a reduction in travel expense.
General and Administrative Expense
General and administrative expense in fiscal 2005 decreased to $770,600, from $884,000 in fiscal 2004, a decrease of $113,400, or 12.8%. The decrease in these costs was due primarily to the relocation of the Company's facility in 2004, of which $80,863 was expensed for this purpose. Also, in 2004, non-employee stock warrants were granted as compensation for consulting services, for which $26,690 was expensed.
Research and Development Expenses
Research and development costs for 2005 were $187,818 compared to $149,411 in 2004, an increase of 25.7%. This is due to an increase in wages, which includes non-cash compensation expense of $7,060 for the acceleration of stock options and Ruthenium and High K dielectric material and process developments.
Interest Expense
Interest expense was $75,624, or 2.2% of Company revenues in 2005, an increase of 161.9% from $28,877 in 2004. Interest expense for 2005 includes $70,684 for related party interest expense. The increase was due to the interest incurred as a result of the notes payable to a director.
LOSS APPLICABLE TO COMMON SHARES
Net loss per common share based on the loss applicable to common shares was $0.13 and $0.51 per common share for the years ended December 31, 2005 and 2004, respectively. The loss applicable to common shares includes the net loss from operations and the accretion of Series B preferred stock dividends. The net loss per common share before dividends on preferred stock was $0.13 and $0.50 for the years ended December 31, 2005 and 2004, respectively. The difference between the net loss from operations and the loss applicable to common shares of $(0.01) is a result of the preferred position that the preferred shareholders have in comparison to the common shareholders.
Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Annual Dividends on the Series B preferred stock were $25,185 in, 2005 and 2004.
LIQUIDITY AND WORKING CAPITAL
At December 31, 2005, working capital was $1,443,380 compared to $(282,782) at December 31, 2004. The Company utilized cash from operations for the year ended December 31, 2005, of $365,357. The Company utilized cash from operations for the year ended December 31, 2004, of $413,516. Significant non-cash items, including depreciation, inventory reserve on excess and obsolete inventory, warrants issued from consulting and debt, acceleration of stock options, debt conversion expense, and allowance for doubtful accounts, were approximately $248,000 and $371,000 for the years ended December 31, 2005 and 2004, respectively. Accounts receivable, inventory and prepaids increased by approximately $172,000 while there was a decrease in accounts payable and accrued expenses by approximately $106,000 for the year ended December 31, 2005. Accounts payable and accrued expenses increased in excess of accounts receivable, inventory, and prepaids by approximately $314,000 as a result of an increase in accrued contract expenses and deferred contract revenue for the year ended December 31, 2004.
For investing activities, the Company used cash of approximately $75,000 and $436,000 for the years ended December 31, 2005, and 2004, respectively. The amounts invested in 2005 and 2004 were used to purchase machinery and equipment for increased production capacity, new product lines and for leasehold improvements for the new facility. Proceeds on sale of equipment totaled $2,250 and $1,602 for the years ended December 31, 2005 and 2004, respectively.
For financing activities for the year ended December 31, 2005, the Company provided cash of approximately $1,412,000. Cash payments to third parties for principal payments on capital lease obligations approximated $37,000. Proceeds from notes payable to shareholders totaled $300,000. Principal payments on notes payable to shareholders totaled $200,000. Net proceeds from sale of common stock were approximately $1,349,000.
For financing activities for the year ended December 31, 2004, the Company provided cash of approximately $773,000. Cash payments to third parties for principal payments on capital lease obligations approximated $38,000. Proceeds from notes payable to shareholders totaled $250,000. Principal payments on notes payable to shareholders totaled $150,000. Proceeds from exercise of common stock options were $3,500. Net proceeds from sale of common stock were approximately $707,000.
While certain major shareholders of the Company have advanced funds in the form of subordinated debt, accounts payable and guaranteeing bank debt in the past, there is no commitment by these individuals to continue funding the Company or guaranteeing bank debt in the future. The Company will continue to seek new financing or equity financing arrangements. However, the Company cannot be certain that it will be successful in efforts to raise additional new funds.
During 2003, the Company completed two private financing transactions, which included the following: (i) in exchange for $600,000 of cash from accredited investors, the Company issued convertible promissory notes in the aggregate amount of $600,000 and 122,000 warrants to purchase shares of common stock at $1.00 per share exercisable until June 30, 2008; and (ii) in exchange for the redemption of the Company's entire issuance of Series A redeemable convertible preferred stock held by the Estate of Edward R. Funk, the Company issued a convertible promissory note in the aggregate amount of $129,355 and 26,302 warrants to purchase shares of common stock at $1.00 per share exercisable until June 30, 2008. The terms of the promissory notes provided that the notes would automatically convert to common stock if the Company completed additional equity financing of more than $500,000 prior to June 30, 2004, with conversion on the same terms as the new equity financing. The Company used $100,000 of the financing proceeds to pay off its bank line of credit, which terminated on June 30, 2003, and the remainder to finance its move to the new facility and general corporate purposes.
In May 2004, the Company received $720,202 in a private equity placement to accredited investors in exchange for 300,084 shares of its common stock ($2.40 per share) and warrants to purchase 60,017 shares of the Company's common stock at a purchase price of $2.88 per share exercisable until May 31, 2009. Because this completed an equity financing of more than $500,000 prior to June 30, 2004, $754,846 of principal and accrued interest on the convertible promissory notes issued in 2003 (as described in the preceding paragraph) converted to equity on the same terms as the May 2004 financing. Thus, the promissory notes converted to 314,519 shares of common stock at a rate of $2.40 per share and 62,904 warrants to purchase shares of commons stock at $2.88 per share exercisable until May 31, 2009.
In November 2004, a director agreed to loan the Company up to $200,000 for working capital, to be drawn by the Company in increments of $50,000. The interest rate was Huntington National Bank's prime rate plus 2%, accruing and compounding monthly. The loan was secured by a first lien on substantially all of the Company's assets. For each $50,000 increment drawn on the loan, the director received 5,000 warrants to purchase the Company's common stock at a purchase price of $2.50 per share exercisable until November 1, 2009. The loan was drawn based on the following schedule: November 3, 2004, $100,000, January 7, 2005, $50,000; and April 1, 2005, $50,000. The entire loan balance (principal and accrued interest) was repaid in October 2005.
In April 2005, the same director who agreed to provide a secured loan for $200,000 to the Company in November 2004, agreed to provide an additional $200,000 secured loan to the Company for working capital. The interest rate was 10%, accruing and compounding monthly. On April 14, 2005, $100,000 was drawn on this loan. $100,000 was also drawn on the loan on May 20, 2005. By the terms of the loan, because the Company completed an equity financing of at least $500,000 during 2005, the principal and accrued interest on this loan totaling $209,110 automatically converted on the same basis as the new financing to 104,555 shares of common stock ($2.00 per share) and warrants to purchase an aggregate of 26,139 shares of the Company's common stock at a purchase price of $3.00 per share exercisable until October 2010.
In the fourth quarter of 2005, the Company completed a private placement to accredited investors. The investors purchased 986,555 shares of common stock at a price of $2.00 per share and warrants to purchase an additional 246,639 shares of common stock at $3.00 per share until October 14, 2010. The
Company received $1,386,000 in cash from certain investors for 693,000 shares of common stock and warrants to purchase 173,250 shares of Common Stock. Three other investors cancelled indebtedness owed by the Company in the aggregate amount of $587,110 in exchange for 293,555 shares of common stock and warrants to purchase 73,389 shares of common stock. The indebtedness cancelled was as follows: (i) the Estate of Edward R. Funk cancelled indebtedness of $188,411.71 in exchange for 94,000 shares of common stock, warrants to purchase 23,500 shares of common stock at $3.00 per share exercisable until October 2010, and payment of $411.71; (ii) the Estate of Ingeborg V. Funk cancelled $100,000 of indebtedness in exchange for 50,000 shares of common stock, warrants to purchase 12,500 shares of common stock at $3.00 per share exercisable until October 2010, and payment of $980.21; (iii) Porter, Wright, Morris & Arthur LLP (PWMA) cancelled $90,000 of indebtedness for legal fees in exchange for 45,000 shares of common stock and warrants to purchase an additional 11,250 shares of common stock at $3.00 per share exercisable until October 2010; and (iv) a director cancelled $209,110 of a secured loan in exchange for 104,555 shares of common stock and warrants to purchase an additional 26,139 shares of common stock at $3.00 per share exercisable until October 2010 (as described in preceding paragraph).
INFLATION
The Company believes that there has not been a significant impact from inflation on the Company's operations during the past three fiscal years.
FUTURE OPERATING RESULTS
The Company plans to place some of its larger purchase commitments on an annualized basis for raw materials that can be purchased in larger quantities at reduced prices. In general, the Company attempts to limit inventory price increases by making an annual commitment, and drawing the material either as required, or on a monthly or quarterly basis. Such annual commitments may reach $500,000 in 2006 and greater in 2007 depending on sales volume increases. The terms of payment for such commitments are worked out with the vendor on a case-by-case basis, but in all cases are cancelable at the Company's discretion without penalty to the Company. The Company has purchased manufacturing equipment from the funds received from the State of Ohio Third Frontier Grant, which totals approximately $518,000.
During 2004 and 2005, the Company used cash to purchase production equipment. The Company relocated its operations to a new facility in March of 2004. The relocation will provide the Company with the space to expand its production facilities and improve productivity.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains forward-looking statements that reflect the views of management with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. See "Risk Factors" above. These uncertainties and other factors include, but are not limited to, the words "anticipates," "believes," "estimates," "expects," "plans," "projects," "targets" and similar expressions which identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date the statements were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
DESCRIPTION OF PROPERTY
The Company's current office and manufacturing facilities are located at 2839 Charter Street, Columbus, Ohio, where it occupies approximately 32,000 square feet. The Company moved its operations into this facility in March 2004. The Company's lease on the property expires on August 16, 2014.
The Company is current on all operating lease liabilities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONVERTIBLE PROMISSORY NOTES AND STOCK PURCHASE WARRANTS
On January 7, 2000, the Company issued common stock purchase warrants at $2.50 (fair market value at date of grant) per common share for 150,000 shares of common stock related to the subordinated notes payable to Edward R. and Ingeborg V. Funk. The warrants are 100% vested and expire ten years from the date of grant of January 7, 2000. The Estate of Edward R. Funk and the Estate of Ingeborg V. Funk are both greater than 5% beneficial owners of the Company.
On June 30, 2003, the Company issued a $100,000 convertible promissory note payable to Windcom Investments SA, a greater than 5% beneficial owner of the Company. The interest on the convertible promissory note was determined by the Prime Commercial Rate in effect at Bank One, N.A., Columbus, Ohio. In addition, the Company issued to Windcom Investments SA, warrants to purchase 20,333 shares of the Company's common stock at $1.00 per share. The warrants vested according to the following schedule: (1) 8,333 vested on the date of grant; and (2) 12,000 vested at a rate of 333 per month for 32 months, then 336 per month for 4 months. On May 13, 2004, in accordance with the terms of the convertible promissory note, the balance and accrued and unpaid interest owed automatically converted to 43,119 shares of common stock after the Company raised over $500,000 in private equity financing. As of May 13, 2004, the vested warrants were fixed at 11,633, which expire in June 2008; no additional warrants will vest. In connection with the private equity financing, the Company also issued to Windcom Investments SA 8,623 warrants to purchase shares of common stock at $2.88 per share, which will expire in May 2009.
On June 30, 2003, the Company issued to the Estate of Edward R. Funk, warrants to purchase 10,000 shares of common stock at $1.00 per share in connection with a lease guarantee. The warrants vest according to the following schedule: (1) 4,600 vest on the date of grant; and (2) 5,400 vest at a rate of 150 per month for 36 months. As of December 31, 2005, the vested warrants totaled 9,100, which will expire in June 2008.
On June 30, 2003, the Company issued three $166,666.67 convertible promissory notes payable to Laura F. Shunk, Daniel A. Funk and Robert H. Peitz, respectively. Mr. Peitz is a greater than 5% beneficial owners of the Company. Mr. Peitz also currently serves as a director on the Company's Board of Directors. The interest on the convertible promissory notes was determined by the Prime Commercial Rate in effect at Bank One, N.A., Columbus, Ohio. In addition, the Company issued to each of Messrs. Funk and Peitz, and Ms. Shunk warrants to purchase 33,889 shares of the Company's common stock at $1.00 per share. The warrants vested according to the following schedule: (1) 13,889 vested on the date of grant; and (2) 20,000 vested at a rate of 556 per month for 32 months, then 552 per month for four months. On May 13, 2004, in accordance with the terms of the convertible promissory notes, the balance and accrued and unpaid interest owed on each note automatically converted to 71,873 shares of common stock after the Company raised over $500,000 in private equity financing. As of May 13, 2004, the vested warrants were fixed at 19,449, which expire in June 2009; no additional warrants will vest. In connection with the private equity financing, the Company also issued to each Messrs. Funk and Peitz, and Ms. Shunk 14,374 warrants to purchase shares of common stock at $2.88 per share, which expire in May 2009.
In November of 2004, Robert Peitz, a member of the Company's Board of Directors, agreed to loan the Company up to $200,000 for working capital, to be drawn by the Company in increments of $50,000. The interest rate was Huntington National Bank's prime rate plus 2%, which accrued and compounded monthly. The loan was secured by the Company's assets and perfected by the filing of a UCC-1 financing statement. For each $50,000 increment drawn on the loan the director received 5,000 warrants to purchase the Company's common stock, without par value, at a purchase price of $2.50 per share and
exercisable until November 1, 2009. On November 3, 2004, $100,000 was drawn on the loan. An additional $50,000 was drawn on the loan on January 7, 2005 and also on April 1, 2005. The loan balance (principal and accrued interest) was repaid in October 2005.
In April of 2005, Robert Peitz, the same director of the Company who agreed to provide a secured loan for $200,000 to the Company in November 2004, agreed to provide an additional $200,000 secured loan to the Company for working capital. The interest rate of 10% per annum accrued and compounded monthly. On April 14, 2005, $100,000 was drawn on this loan. $100,000 was also drawn on the loan on May 20, 2005. Because the Company completed equity financing of at least $500,000 during the fourth quarter of 2005, the principal and accrued interest totaling $209,110 automatically converted to 104,555 shares of common stock, without par value, at a conversion rate of $2.00 per share. As part of the conversion, the director also received warrants to purchase an aggregate of 26,139 shares of the Company's common stock, without par value, at a purchase price of $3.00 per share, which expire in October 2010.
CONVERSION AGREEMENTS
During October 2005, the Company entered into an agreement with the Estate of Edward R. Funk. the Company was indebted to the estate in the amount of $188,411.71. The estate agreed to cancel $188,000 of the indebtedness in exchange for 94,000 shares of common stock and warrants to purchase an additional 23,500 shares of common stock at $3.00 per share exercisable until October 2010. The Company transferred to the estate $411.71 in full satisfaction of the remaining amount of the indebtedness.
Also, during October 2005, the Company entered into an agreement with the Estate of Ingeborg V. Funk. The Company was indebted to the estate in the amount of $100,980.21. The estate agreed to cancel $100,000 of the indebtedness in exchange for 50,000 shares of common stock and warrants to purchase an additional 12,500 shares of common stock at $3.00 per share exercisable until October 2010. The Company transferred to the estate $980.21 in full satisfaction of the remaining amount of the indebtedness.
LEGAL SERVICES
Curtis A. Loveland is the Secretary of the Company and is the beneficial owner
of greater than 5% of the outstanding common stock of the Company, which
ownership Includes (i) 41,000 shares of common stock, which can be acquired by
Mr. Loveland under stock options exercisable within 60 days of March 10, 2006;
(ii) 435,956 shares of common stock beneficially owned as the executor of the
Estate of Edward R. Funk, of which 127,600 shares of common stock can be
acquired by Mr. Loveland on behalf of the estate under stock options and
warrants exercisable within 60 days of March 10, 2006; (iii) 477,852 shares of
common stock beneficially owned by Mr. Loveland as the executor of the Estate of
Ingeborg V. Funk, of which 102,500 shares of common stock can be acquired by Mr.
Loveland on behalf of the estate under stock options and warrants exercisable
within 60 days of March 10, 2006; and (iv) 283,756 shares beneficially owned
by Mr. Loveland as the trustee of generation-skipping irrevocable trusts
established by Edward R. and Ingeborg V. Funk. Mr. Loveland is also a partner
with Porter, Wright, Morris & Arthur LLP, the Company's legal counsel. For the
year ended December 31, 2005, the Company incurred fees to Porter, Wright,
Morris & Arthur LLP in the amount of $98,308.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET FOR COMMON STOCK
The Company's common stock currently trades on the OTC Bulletin Board under the symbol "SCCI" The following table sets forth for the periods indicated the high and low bid prices for the Company's common stock.
HIGH LOW
----- -----
FISCAL 2004
Quarter Ended March 31, 2004 $4.05 $2.30
Quarter Ended June 30, 2004 3.00 2.30
Quarter Ended September 30, 2004 2.90 2.43
Quarter Ended December 31, 2004 2.90 2.40
FISCAL 2005
Quarter Ended March 31, 2005 2.50 1.75
Quarter Ended June 30, 2005 3.12 1.75
Quarter Ended September 30, 2005 2.95 2.25
Quarter Ended December 31, 2005 5.50 2.25
FISCAL 2006
First Quarter through March 22, 2006 5.50 3.75
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The quotations provided herein may reflect inter-dealer prices without retail mark-up, markdown, or commissions, and may not represent actual transactions.
As discussed above, at the present time, the Company's common stock trades on the OTC Bulletin Board. Based on its trading price, the Company's common stock is considered a "penny stock" for purposes of federal securities laws, and therefore is subject to certain regulations, which are summarized below.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires special disclosure relating to the market for penny stocks in connection with trades in any stock defined as a "penny stock." Specifically, Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act") impose sales practice and disclosure requirements on NASD broker-dealers who make a market in a "penny stock." Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share and that is not listed on The NASDAQ SmallCap Stock Market or a major stock exchange. These regulations affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers of the Company's common stock to sell their shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor," generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse, must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock
market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
As long as the penny stock regulations apply to the Company's stock, it may be difficult to trade such stock because compliance with the regulations can delay and/or preclude certain trading transactions. Broker-dealers may be discouraged from effecting transactions in the Company's stock because of the sales practice and disclosure requirements for penny stock. This could adversely effect the liquidity and/or price of the Company's common stock, and impede the sale of the Company's stock in the secondary market.
HOLDERS OF RECORD
As of December 31, 2005, there were approximately 468 holders of record of the common stock of the Company and 3,425,915 shares outstanding. There were approximately 46 holders of Series B Preferred and as of December 31, 2005 there were 25,052 shares outstanding.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does not expect to pay any dividends in the foreseeable future. The Company intends to retain future earnings for use in the business.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth information regarding compensation paid each of the Company's last three fiscal years to the Company's Chief Executive Officer, who is the Company's only executive officer whose combined salary and bonus exceeded $100,000 for the year ended December 31, 2005 (the "Named Executive Officer"). Mr. Rooney has an employment contract that entitles him to 100% of his compensation for six months following his termination without cause. Following the initial six month period after his termination, Mr. Rooney is also entitled to receive six months of pay at a rate of 50% of his compensation at the time of his termination.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -----------------------
COMPENSATION RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARD OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
--------------------------- ---- -------- ------ ---------- ---------- ------------
DANIEL ROONEY 2005 $140,000 $5,000 -- 15,000 --
President, Chief Executive Officer and 2004 $137,172 -- -- 10,000 --
Chairman of the Board of Directors 2003 $133,218 -- -- -- --
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows grants of options to purchase the Company's common stock to the Company's Named Executive Officer during fiscal 2005.
NUMBER OF SECURITIES UNDERLYING % OF TOTAL OPTIONS GRANTED TO EXERCISE PRICE
NAME OPTIONS GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) EXPIRATION DATE
------------- ------------------------------- ----------------------------- -------------- ---------------
Daniel Rooney 15,000 37.5% $2.40 3/8/15
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AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2005 AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides certain information regarding the number and value of stock options held by the Company's Named Executive Officer at December 31, 2005.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
EXERCISE REALIZED ------------------------------- ---------------------------
NAME (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- ----------- -------- ----------- ------------- ----------- -------------
Daniel Rooney -- -- 125,000 -- $470,500 --
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(2) If shares were acquired on exercise, the value realized would be calculated based on the number of shares exercised multiplied by the excess of the fair market value of a share of the Company's common stock on the date of exercise over the exercise price of the stock option.
LEGAL OPINION
The validity of the shares offered hereby has been passed upon for us by Porter, Wright, Morris & Arthur LLP, 41 South High Street, Columbus, Ohio 43215.
EXPERTS
The financial statements of Superconductive Components, Inc. as of December 31, 2004 and 2005, and for the years then ended, have been included herein and in the Registration Statement in reliance upon the report of Hausser + Taylor LLC, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
SUPERCONDUCTIVE COMPONENTS, INC.
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements of Superconductive Components, Inc.
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet as of December 31, 2005 F-3
Statements of Operations for the years ended
December 31, 2005, and December 31, 2004 F-5
Statements of Shareholders' Equity for the years ended
December 31, 2005, and December 31, 2004 F-7
Statements of Cash Flows for the years ended
December 31, 2005, and December 31, 2004 F-8
Notes to the Financial Statements F-10
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To the Board of Directors and Shareholders
Superconductive Components, Inc.
Columbus, Ohio
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheet of Superconductive Components, Inc. as of December 31, 2005, and the related statements of operations, shareholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2005. 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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. 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 audits provide 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 Superconductive Components, Inc. as of December 31, 2005, and the results of its operations and its cash flows for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ HAUSSER + TAYLOR LLC
Columbus, Ohio
February 8, 2006
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SUPERCONDUCTIVE COMPONENTS, INC.
BALANCE SHEET AS OF DECEMBER 31, 2005
ASSETS
DECEMBER 31,
2005
------------
CURRENT ASSETS
Cash $ 1,161,369
Accounts Receivable
Trade, less allowance for doubtful accounts of $25,000 243,130
Contract 50,710
Employees 290
Other 13,459
Inventories 584,140
Prepaid expenses 11,748
-----------
Total Current Assets 2,064,846
-----------
PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,221,298
Furniture and fixtures 23,643
Leasehold improvements 284,072
Construction in progress 101,075
-----------
2,630,088
Less accumulated depreciation (1,814,959)
-----------
815,129
-----------
OTHER ASSETS
Deposits 10,765
Intangibles 33,982
-----------
Total other assets 44,747
TOTAL ASSETS $ 2,924,722
===========
|
CONTINUED
The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
BALANCE SHEET AS OF DECEMBER 31, 2005 (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
2005
------------
CURRENT LIABILITIES
Capital lease obligation, current portion $ 39,949
Accounts payable 295,640
Accrued contract expenses 145,104
Accrued personal property taxes 35,000
Accrued expenses 105,773
-----------
Total current liabilities 621,466
-----------
CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 71,381
-----------
COMMITMENTS AND CONTINGENCIES --
-----------
SHAREHOLDERS' EQUITY
Convertible preferred stock, Series B, 10% cumulative,
nonvoting, no par value, $10 stated value, optional
redemption at 103%; 25,185 shares issued and outstanding 334,961
Common stock, no par value, authorized 15,000,000 shares;
3,425,915 shares issued and outstanding 9,047,550
Additional paid-in capital 1,010,719
Accumulated deficit (8,161,355)
-----------
2,231,875
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,924,722
===========
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2005, AND 2004
2005 2004
---------- -----------
SALES REVENUE $3,167,743 $ 1,915,732
CONTRACT RESEARCH REVENUE 289,439 257,132
---------- -----------
3,457,182 2,172,864
---------- -----------
COST OF SALES REVENUE 2,424,554 1,675,729
COST OF CONTRACT RESEARCH 291,318 270,763
---------- -----------
2,715,872 1,946,492
---------- -----------
GROSS MARGIN 741,310 226,372
GENERAL AND ADMINISTRATIVE EXPENSES 770,600 884,000
SALES AND PROMOTIONAL EXPENSES 237,569 236,235
---------- -----------
LOSS FROM OPERATIONS (266,859) (893,863)
---------- -----------
OTHER INCOME (EXPENSE)
Interest income 9,843 2,299
Interest expense (75,624) (28,877)
Debt conversion expense (note 6) -- (175,362)
Gain/(loss) on disposal of equipment (2,250) (2,140)
Miscellaneous, net (2,830) (1,879)
---------- -----------
(66,361) (205,959)
---------- -----------
LOSS BEFORE PROVISION FOR INCOME TAX (333,220) (1,099,822)
INCOME TAX EXPENSE -- --
---------- -----------
NET LOSS (333,220) (1,099,822)
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CONTINUED
The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2005, AND 2004 (CONTINUED)
2005 2004
---------- -----------
DIVIDENDS ON PREFERRED STOCK $ (25,185) $ (25,185)
---------- -----------
LOSS APPLICABLE TO COMMON SHARES $ (358,405) $(1,125,007)
========== ===========
EARNINGS PER SHARE - BASIC AND DILUTED
(Note 2)
NET LOSS PER COMMON SHARE BEFORE
DIVIDENDS ON PREFERRED STOCK
Basic $ (0.13) $ (0.50)
========== ===========
Diluted $ (0.13) $ (0.50)
========== ===========
NET LOSS PER COMMON SHARE AFTER
DIVIDENDS ON PREFERRED STOCK
Basic $ (0.13) $ (0.51)
========== ===========
Diluted $ (0.13) $ (0.51)
========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,665,078 2,212,884
========== ===========
Diluted 2,665,078 2,212,884
========== ===========
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See accompanying notes to consolidated financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY FOR YEARS ENDED DECEMBER 31, 2005, AND 2004
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK, SERIES B STOCK CAPITAL DEFICIT TOTAL
--------------- ---------- ----------- ----------- -----------
BALANCE 12/31/03 $284,591 $6,378,216 $ 59,893 $(6,728,313) $ (5,613)
Accretion of cumulative dividends 25,185 -- (25,185) -- --
Proceeds from exercise of common stock options -- 3,500 -- -- 3,500
Proceeds from sale of common stock(net)(Note 6) -- 596,207 110,908 -- 707,115
Conversion of debt to common stock (Note 6) -- 563,730 366,478 -- 930,208
Common stock warrants issued with debt (Note 5) -- -- 19,890 -- 19,890
Common stock warrants issued for consulting
services (Note 6) -- -- 26,690 -- 26,690
Net loss -- -- -- (1,099,822) (1,099,822)
-------- ---------- ---------- ----------- -----------
BALANCE 12/31/04 $309,766 $7,541,653 $ 558,674 $(7,828,135) $ 581,968
-------- ---------- ---------- ----------- -----------
Accretion of cumulative dividends 25,185 -- (25,185) -- --
Common stock warrants issued with debt (Note 5) -- -- 19,890 -- 19,890
Conversion of debt to common stock (Note 6) -- 461,469 125,641 -- 587,110
Stock option acceleration (Note 7) -- -- 27,215 -- 27,215
Proceeds from sale of common stock(net)(Note 6) -- 1,044,428 304,484 -- 1,348,912
Net Loss -- -- -- (333,220) (333,220)
-------- ---------- ---------- ----------- -----------
BALANCE 12/31/05 $334,961 $9,047,550 $1,010,719 $(8,161,355) $ 2,231,875
======== ========== ========== =========== ===========
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See accompanying notes to consolidated financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
2005 2004
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (333,220) $(1,099,822)
---------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 199,415 199,283
Amortization and accretion 3,088 3,088
Warrants issued for consulting and debt 36,465 30,005
Acceleration of stock options 27,215 --
Debt conversion expense -- 175,362
(Gain) Loss on sale of equipment (2,250) 2,141
Decrease in Inventory reserve (26,269) (28,923)
Change in allowance for doubtful accounts (8,176) 8,176
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (131,919) (48,990)
Inventories (22,700) (5,716)
Prepaid expenses 878 17,572
Other assets (2,010) (892)
Increase (decrease) in liabilities:
Accounts payable 155,543 7,980
Accrued expenses (261,417) 327,220
---------- -----------
Total adjustments (32,137) 686,306
---------- -----------
Net cash used in operating activities (365,357) (413,516)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 2,250 1,602
Purchases of property and equipment (77,472) (437,820)
---------- -----------
Net cash used in investing activities (75,222) (436,218)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, shareholders 300,000 250,000
Principal payments on notes payable, shareholders (200,000) (150,000)
Proceeds from exercise of common stock options -- 3,500
Proceeds from sale of common stock (net) 1,348,911 707,115
Principal payments on capital lease obligations (37,026) (37,758)
---------- -----------
Net cash provided by financing activities 1,411,855 772,857
---------- -----------
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CONTINUED
The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
2005 2004
---------- ---------
NET INCREASE (DECREASE) IN CASH $ 971,306 $ (76,877)
CASH - Beginning of period 190,063 266,940
---------- ---------
CASH - End of period $1,161,369 $ 190,063
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest, net $ 19,749 $ 6,749
Income taxes $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Property and equipment was purchased by capital lease $ 75,900 $ 46,494
Note payable converted to equity $ 488,000 $ 729,700
Accrued interest converted to equity $ 9,110 $ 25,491
Accounts payable converted to equity $ 90,000 --
Machinery & Equipment and accrued asset retirement
obligation $ 2,410 $ 12,330
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See accompanying notes to consolidated financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS ORGANIZATION AND PURPOSE
Superconductive Components, Inc. (the Company) is an Ohio corporation that was incorporated in May 1987. The Company was formed to develop, manufacture and sell materials using superconductive principles. Operations have since been expanded to include the manufacture and sale of non-superconductive materials. The Company's domestic and international customer base is primarily in the thin film battery, high temperature superconductor, photonics and optical coatings industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Inventories - Inventories are stated at the lower of cost or market on an acquired or internally produced lot basis, and consist of raw materials, work-in-process and finished goods. Cost includes material, labor, freight and applied overhead. Inventory reserves are established for obsolete inventory and excess inventory quantities based on management's estimate of net realizable value. The inventory reserve decreased $26,269 and $28,923 during 2005 and 2004, respectively. The decrease in the reserve is a result of a portion of obsolete inventory sold at reduced prices.
The Company enters into cancelable purchase commitment arrangements with some suppliers. Estimated purchase commitments to these suppliers approximate $241,000 at December 31, 2005. The Company can cancel these commitments at the Company's discretion without penalty.
B. Property and Equipment - Property and equipment are carried at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the assets for financial reporting purposes and allowable accelerated methods for tax purposes. Useful lives range from ten years on certain furniture and fixtures and leasehold improvements to three years on computer equipment. Expenditures for renewals and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. There have been no such impairment adjustments.
C. Research and Development - Internal research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2005 and 2004 were $187,818 and $149,411, respectively. The increase is due to an increase in wages, which includes non-cash compensation expense of $7,060 for the acceleration of stock options and Ruthenium and High K dielectric material and process developments.
D. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. These contracts vary from six months to three years in duration. The terms of the contracts, which are fixed price, require the Company to submit final reports and/or progress reports to the sponsor. While the contracts are subject to cancellation, management believes that the Company will comply with all terms of the contracts and that all of the amounts awarded to the Company will be collected.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research revenue and expenses associated to third parties are separately identified in the Statements of Operations.
During 2005 and 2004, the Company earned $289,439 and $257,132, respectively, in contract revenue. There is accounts receivable-contract of $50,710 at December 31, 2005.
During 2003 the Company was awarded a twenty-four month contract in the amount of $523,612 that began June 27, 2003. This contract was granted a no cost extension until March 31, 2006.
During 2005, the Company was awarded a nine-month contract in the amount of $99,793 that ends March 26, 2006.
E. Equipment - In 2004, the Company received funds of $517,935 from the Ohio Department of Development's Third Frontier Action Fund (TFAF) for the purpose of equipment related to the grant's purpose. Additionally, the Company received $27,500 as part of its contract with the Department of Energy for the purchase of equipment related to the contract's purpose. The Company has elected to record the funds disbursed as a contra asset; therefore, the assets are not reflected in the Company's financial statements. As assets are purchased, the liability initially created when the cash was received was reduced with no revenue recognized or fixed asset recorded on the balance sheet. As of December 31, 2005, the Company had disbursed the entire amount received. The Company has purchased equipment in the amount of $25,945 that has not been reimbursed by TFAF. This amount is included in current assets at December 31, 2005. The grant and contract both provide that as long as the Company performs in compliance with the grant/contract, the Company retains the rights to the equipment. Management states that the Company will be in compliance with the requirements and, therefore, will retain the equipment at the end of the grant/contract.
F. Licenses - The Company has secured licenses to produce various superconductive materials for periods up to the expiration of the applicable patents. The license fees, included in "Other Assets" on the balance sheet, are being amortized over the expected life of the agreement or applicable patent, which is seventeen years. Cost and accumulated amortization of licenses at December 31, 2005 are $21,000 and $12,713, respectively. Amortization expense was $1,259 for the years ended December 31, 2005 and 2004. Amortization expense is estimated to be $1,259 for each of the next five years.
G. Patent - The Company has secured patents for manufacturing processes used in its operations. Costs incurred to secure the patents have been capitalized, included in "Other Assets" on the balance sheet, and are being amortized over the life of the patents. Cost and accumulated amortization of the patent at December 31, 2005 are $36,473 and $10,777, respectively. Amortization expense was $1,830 for the years ended December 31, 2005 and December 31, 2004. Amortization expense is estimated to be $1,830 for each of the next five years.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Income Taxes - Income taxes are provided for by utilizing the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using presently enacted tax rates. Deferred tax assets are recognized for net operating loss carryforwards, reduced by a valuation allowance which is established when "it is more likely than not" that some portion or all of the deferred tax assets will not be recognized.
I. Stock Based Compensation - The Company utilizes the provisions of Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees" which utilized a fair value based method. The Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation", utilized a fair value based method. The FASB requires disclosure for new employee stock options of the impact to the financial statements of utilizing the intrinsic value versus the fair value based method. For stock based compensation other than employees, the Company utilizes the fair value method as provided for in FASB #123.
The Company's pro forma information for the years ended December 31, 2005 and 2004 in accordance with the provisions of FASB #123 is provided below. For purposes of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting period. The following table compares 2005 and 2004 results as reported to the results had the Company adopted the expense recognition provisions of FASB #123.
2005 2004
--------- -----------
Net loss applicable to
common shares:
As reported $(358,405) $(1,125,007)
Stock-based compensation, net of
Tax for pro forma (22,068) (6,237)
--------- -----------
Pro forma net loss under SFAS #123 $(380,473) $(1,131,244)
Basic and diluted loss per share:
As reported $ (0.13) $ (0.51)
Pro forma under SFAS #123 (0.14) $ (0.51)
|
For the years ended December 31, 2005 and 2004, there was $27,215 and $0, respectively, of stock-based employee compensation cost included in the determination of net loss as reported.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. Income (Loss) Per Common Share - Income (loss) per common share amounts are based on the weighted average number of shares outstanding. Due to the net loss in 2005 and 2004, the assumed conversion of preferred stock and exercise of stock options and warrants are anti-dilutive and have not been considered in the calculation of per share amounts.
K. Statements of Cash Flows - For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with maturity of three months or less to be cash. No such investments were purchased.
L. Concentrations of Credit Risk - The Company's cash balances, which are at times in excess of federally insured levels, are maintained at a large regional bank and a global investment banking group, and are continually monitored to minimize the risk of loss. The Company grants credit to its customers, who are varied in terms of size, geographic location and financial strength. Customer balances are continually monitored to minimize the risk of loss.
The Company had three major customers in 2005 and 2004, which accounted for approximately $1,375,000 and $243,000, respectively, of the total revenue and $106,000 of the trade accounts receivable at December 31, 2005.
M. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
N. Fair Value - The estimated fair value of amounts reported in the financial statements have been determined using available market information and valuation methodologies, as applicable (see Note 11).
O. Revenue Recognition - Revenue from product sales is recognized upon shipment to customers. Provisions for discounts and rework costs for returns are established when products are shipped based on historical experience. Deferred revenues represents cash received in advance of the contract revenues earned. Revenue from contract research provided for third parties is recognized on the percentage of completion method.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
P. Accounts Receivable - The Company extends unsecured credit to customers under normal trade agreements, which require payment within 30 days. Accounts greater than 90 days past due, which amounted to $17,665 and $0 of net receivables for the years ended December 31, 2005 and 2004, respectively are considered delinquent. The Company does not charge interest on delinquent trade accounts receivable. Accounts greater than one year past due, which amount to $0 of net receivables for the years ended December 31, 2005 and 2004 are placed on non-accrual status. Unless specified by the customer, payments are applied to the oldest unpaid invoice. Accounts receivable are presented at the amount billed.
Management estimates an allowance for doubtful accounts, which was $25,000 and $33,176 as of December 31, 2005 and 2004, respectively. The estimate is based upon management's review of delinquent accounts and an assessment of the Company's historical evidence of collections. Bad debt expense of $2,337 and $26,498 was recognized for the years ended December 31, 2005 and 2004, respectively as a result of this estimate. Specific accounts are charged directly to the reserve when management obtains evidence of a customer's insolvency or otherwise determines that the account is uncollectible. Charge-offs of specific accounts for the years ended December 31, 2005 and 2004 totaled $11,000 and $18,000 respectively. $6,000 in 2004 was for a former employee.
Q. Intangible Assets - In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires certain intangible assets to be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards required. There were no impairment adjustments for the years ended December 31, 2005 and 2004.
R. Recently Issued Accounting Standards - In December 2004, the FASB issued SFAS No. 123 (Revised), Shared Based Payment. SFAS No. 123R replaces SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires compensation costs related to share-based payment transactions to be recognized in the financial statements. Compensation costs will be recognized over the vesting period of the award. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The impact of SFAS No. 123R is to record the additional compensation expenses on the financial statements that is currently disclosed in Note 2H. There was $27,215 of additional compensation expense included in 2005 as a result of the acceleration of employee incentive stock options.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVENTORIES
Inventories consist of the following at December 31, 2005:
Raw materials $286,089
Work-in-process 201,441
Finished goods 185,871
--------
673,401
Less reserve for obsolete inventory 89,261
--------
$584,140
========
|
NOTE 4. LEASE OBLIGATIONS
OPERATING
The Company leases its facilities and certain office equipment under agreements classified as operating leases expiring through 2014. Rent expense which includes various monthly rentals for the years ended December 31, 2005 and 2004, totaled $151,920 and $138,910, respectively. Future minimum lease payments at December 31, 2005 are as follows:
2006 $100,138
2007 94,362
2008 94,362
2009 106,635
2010 108,484
2011 and beyond 393,402
--------
$897,383
========
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SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4. LEASE OBLIGATIONS (CONTINUED)
CAPITAL
The Company also leases certain equipment under capital leases. The future minimum lease payments, by year, with the present value of such payments, as of December 31, 2005 is as follows:
2006 $ 47,676
2007 33,416
2008 31,683
2009 24,683
--------
Total minimum lease payments 137,458
Less amount representing interest 26,128
--------
Present value of minimum lease payments 111,330
Less current portion 39,949
--------
Long-term capital lease obligations $ 71,381
========
|
The equipment under capital lease at December 31, 2005 is included in the accompanying balance sheet under the following captions:
Machinery and equipment $220,306
Less accumulated depreciation 76,360
--------
Net book value $143,946
========
|
These assets are amortized over three to seven years using the straight-line method and amortization is included in depreciation expense.
Depreciation expense totaled $23,322 and $18,070 for the years ended December 31, 2005 and 2004, respectively.
NOTE 5. RELATED PARTY NOTES PAYABLE
During 2005, the Company entered into an agreement with the Estates of Edward R. Funk and Ingeborg V. Funk. The Company was indebted to the Estates in the amount of $289,391.92. The Estate agreed to cancel $288,000 of the indebtedness in exchange for 144,000 shares of common stock and warrants to purchase an additional 36,000 shares of common stock at $3.00 per share exercisable until October 2010. The Company transferred to the Estates $1,391.92 in full satisfaction of the remaining amount of the indebtedness.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5. RELATED PARTY NOTES PAYABLE (CONTINUED)
The Company completed two private financing transactions in 2003 including (i) the issuance of convertible promissory notes in the aggregate amount of $600,000 and 122,000 warrants to purchase shares of common stock in exchange for $600,000 in cash and (ii) the redemption of the Company's entire $129,770 obligation on its Series A redeemable convertible preferred stock in exchange for convertible promissory notes in the aggregate amount of $129,770, which represented the face amount of the preferred stock plus accrued and unpaid dividends and interest, and 26,302 warrants to purchase shares of common stock at $1.00 per share, above market value.
Prior to June 30, 2004, the Company completed equity financing of at least $500,000, thereby requiring the principal and accrued interest on the convertible promissory notes totaling $754,846 to convert to equity. Pursuant to the terms of the promissory notes the promissory notes converted to common stock, without par value, at a rate of $2.40 per share. As a result of the conversion of the promissory notes on May 13, 2004, no additional vesting of warrants occurred and the holders of the notes received 84,930 warrants to purchase the Company's common stock, without par value, at a purchase price of $1.00 and exercisable until June 2008.
Therefore, the Company recorded the debt conversion in accordance with SFAS #84 - "Induced Conversions of Convertible Debt" which requires recognition of an expense equal to the fair value of the additional securities issued with conversion. The Company expensed $175,362 of debt conversion expense in 2004.
In November of 2004 a director agreed to loan the Company up to $200,000 for working capital, to be drawn by the Company in increments of $50,000. The interest rate was Huntington National Bank's prime rate plus 2%, which accrued and compounded monthly. The loan was secured by the Company's assets and perfected by the filing of a UCC-1 financing statement. For each $50,000 increment drawn on the loan the director received 5,000 warrants to purchase the Company's common stock, without par value, at a purchase price of $2.50 per share and exercisable until November 1, 2009. The loan was drawn on the following schedule: November 3, 2004, $100,000; January 7, 2005, $50,000; and April 1, 2005, $50,000. The loan balance (principal and accrued interest) was repaid in October 2005 and the UCC-1 financing statement was terminated.
In April of 2005, the same director who agreed to provide a loan to the Company in November 2004, agreed to provide an additional $200,000 convertible secured loan to the Company for working capital. The interest rate of 10% accrued and compounded monthly. The loan was drawn on the following schedule: April 14, 2005, $100,000; and May 20, 2005, $100,000. Because the Company completed equity financing of at least $500,000 during the fourth quarter of 2005, the principal and accrued interest totaling $209,110 automatically converted on the same basis as the new financing to 104,555 shares of common stock ($2.00 per share) and warrants to purchase an aggregate of 26,139 shares of the Company's common stock at a purchase price of $3.00 per share exercisable until October 2010.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. COMMON AND PREFERRED STOCK
COMMON STOCK
In 2005, the Company, in a private placement to seven accredited investors sold 693,000 shares of its common stock, without par value, at a purchase price of $2.00 per share. As part of the private placement, the accredited investors also received warrants to purchase 173,250 shares of the Company's common stock, without par value, at a purchase price of $3.00 per share exercisable until October 2010. The net proceeds received from the sale of common stock were $1,348,912. Of the net proceeds, the warrants were valued at $304,484, which was recorded as additional paid-in capital.
In April of 2005, as mentioned in note 5, a director agreed to provide a $200,000 convertible secured loan to the Company for working capital. Because the Company completed equity financing of at least $500,000 during 2005, the principal and accrued interest totaling $209,110 automatically converted on the same basis as the new financing to 104,555 shares of common stock ($2.00 per share) and warrants to purchase 26,139 shares of the Company's common stock at a purchase price of $3.00 per share exercisable until October 2010.
During 2005, the Company entered into an agreement with the Estate of Edward R. Funk. The Company was indebted to the Estate in the amount of $188,411.71. The Estate agreed to cancel $188,000 of the indebtedness in exchange for 94,000 shares of common stock and warrants to purchase an additional 23,500 shares of common stock at $3.00 per share exercisable until October 2010. The Company transferred to the Estate $411.71 in full satisfaction of the remaining amount of the indebtedness.
Also, during 2005, the Company entered into an agreement with the Estate of Ingeborg V. Funk. The Company was indebted to the Estate in the amount of $100,980.21. The Estate agreed to cancel $100,000 of the indebtedness in exchange for 50,000 shares of common stock and warrants to purchase an additional 12,500 shares of common stock at $3.00 per share exercisable until October 2010. The Company transferred to the Estate $980.21 in full satisfaction of the remaining amount of the indebtedness.
In addition, during 2005, the Company entered into an agreement with Porter, Wright, Morris & Arthur LLP (PWMA). The Company was indebted to PWMA for legal services rendered to the Company. PWMA agreed to cancel $90,000 of the indebtedness in exchange for 45,000 shares of common stock and warrants to purchase an additional 11,250 shares of common stock at $3.00 per share exercisable until October 2010.
In 2004, the Company, in a private placement to eight accredited investors sold 300,084 shares of its common stock, without par value, at a purchase price of $2.40 per share. The total offering price paid in cash was $720,000. As part of the private placement, the accredited investors also received warrants to purchase 60,017 shares of the Company's common stock, without par value, at a purchase price of $2.88 per share exercisable until May 2009.
The related party debt described in Note 5 had a conversion feature if the Company completed an equity financing of $500,000. With the above sale of units, debt and accrued interest totaling $754,846 was converted to equity during 2004. Pursuant to the terms of the promissory notes the promissory notes converted to common stock, without
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. COMMON AND PREFERRED STOCK (CONTINUED)
par value, at a rate of $2.40 per share and entitled the holders of the promissory notes to receive warrants under the same terms as provided in the 2004 private equity financing.
With the change in terms of the debt when converted to equity, the Company recorded the debt conversion in accordance with SFAS #84 - "Induced Conversions of Convertible Debt" which required recognition of an expense equal to the fair value of the additional securities issued with conversion, which totaled $175,363. Of the total debt converted as repriced for the conversion, $563,730 was allocated to common stock and $366,478 was allocated to additional paid-in capital. 314,520 shares of common stock and 62,900 common stock warrants valued at $2.88 were issued for the debt and accrued interest. These warrants expire May 2009.
During 2004, 17,500 warrants valued at $2.88 were issued to a third party consultant for services rendered during the year. The warrants were valued at $35,586 and expire May 2009. Of the total value, $26,690 was allocated to additional paid-in capital for consulting services rendered during 2004 and $8,896 was netted against the proceeds raised in the sale of the units in 2004.
During 2004, 1,500 stock options were exercised resulting in proceeds of $3,500. The exercise price for these options ranged from $2.00 to $2.50.
PREFERRED STOCK
Shares of preferred stock authorized and outstanding at December 31, 2005 are as follows:
SHARES SHARES
AUTHORIZED OUTSTANDING
---------- -----------
Cumulative Preferred Stock 10,000 --
Voting Preferred Stock 125,000 --
Non-Voting Preferred Stock 125,000(a) 25,185(b)
|
(a) Includes 700 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock authorized for issuance.
(b) Includes 25,185 shares of Series B Preferred Stock outstanding at December 31, 2005.
In June 1995, the Company completed an offering of 215 shares of $1,000 stated value 1995 Series A 10% non-voting convertible preferred stock. In January 1996, the Company completed an offering of 70,000 shares of $10 stated value 1995 Series B 10% non-voting convertible preferred stock. The Series A shares are convertible to common shares at the rate of $6.00 per share and Series B shares at the rate of $5.00 per share. At the Company's option, Series A and Series B shares are redeemable at 103% after the respective third anniversary dates.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. COMMON AND PREFERRED STOCK (CONTINUED)
The Company redeemed the Series A preferred stock in 2003 (see note
5). During 2005 and 2004, no Series B cash dividends were paid. At
December 31, 2005 the Company has accrued dividends on Series B
preferred stock of $75,555, which is included in convertible preferred
stock, Series B on the balance sheet at December 31, 2005.
EARNINGS PER SHARE
At December 31, 2005 and 2004, all outstanding common stock equivalents which include preferred stock, Series B, employee and director stock options and warrants are antidilutive due to the net loss.
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
Options 590,250 475,250
Warrants 651,987 392,648
Preferred Series B 50,370 50,370
--------- -------
1,292,607 918,268
--------- -------
|
The following data show the amounts used in computing income (loss) per share (EPS) and the effect on income and the weighted average number of shares of dilutive potential common stock.
2005 2004
---------- -----------
Loss applicable to common shareholders
used in basic EPS and diluted EPS $ (358,405) $(1,125,007)
========== ===========
Weighted average number of common shares used in EPS 2,665,078 2,212,884
Effect of dilutive securities:
Stock options and warrants -- --
---------- -----------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 2,665,078 2,212,884
========== ===========
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NOTE 7. STOCK OPTION PLANS
On September 29, 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan) as incentive to key employees, directors and consultants under which options to purchase up to 900,000 shares of the Company's common stock may be granted, subject to the execution of stock option agreements. Incentive stock options may be granted to key associates of the Company and non-statutory options may be granted to directors who are not employees and to consultants and advisors who render services to the Company. Options may be exercised for periods up to 10 years from the date of grant at prices not less than 100% of fair market value on the date of grant.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCK OPTION PLANS (CONTINUED)
The Company elected to accelerate the vesting of incentive stock options on 149,500 shares of its common stock. The decision to accelerate vesting of these stock options was made primarily to allow the Company to avoid recognizing compensation cost on future financial statements, as required by a new accounting rule. Because these options had exercise prices below the market value at the time of acceleration the Company recognized non-compensation expense of $27,215 in 2005.
The cumulative status at December 31, 2005 and 2004 of options granted and outstanding, as well as options which became exercisable in connection with the Stock Option Plans is summarized as follows:
EMPLOYEE STOCK OPTIONS
WEIGHTED
AVERAGE
STOCK OPTIONS EXERCISE PRICE
------------- --------------
Outstanding at December 31, 2003 258,500 $1.67
Granted 70,000 2.78
Exercised -- --
Expired -- --
Forfeited (17,250) 2.17
------- -----
Outstanding at December 31, 2004 311,250 1.89
Granted 40,000 2.40
Exercised -- --
Expired (23,000) 2.00
Forfeited -- --
------- -----
Outstanding at December 31, 2005 328,250 $1.95
======= =====
Shares exercisable at December 31, 2004 149,100 $1.73
Shares exercisable at December 31, 2005 328,250 $1.95
|
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCK OPTION PLANS (CONTINUED)
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
WEIGHTED
AVERAGE
STOCK OPTIONS EXERCISE PRICE
------------- --------------
Outstanding at December 31, 2003 137,000 $1.89
Granted 30,000 2.60
Exercised (1,500) 2.33
Expired (1,500) 2.50
Forfeited -- --
------- -----
Outstanding at December 31, 2004 164,000 2.01
Granted 100,000 3.20
Exercised -- --
Expired (17,000) 2.11
Forfeited -- --
------- -----
Outstanding at December 31, 2005 247,000 $2.48
======= =====
Shares exercisable at December 31, 2004 131,000 $1.87
Shares exercisable at December 31, 2005 197,000 $2.10
|
Exercise prices for options range from $1.00 to $4.00 for options at December 31, 2005. The weighted average option price for all options outstanding is $2.18 with a weighted average remaining contractual life of 7.0 years.
The weighted average fair values at date of grant for options granted during 2005 and 2004 were $2.75 and $2.73, respectively, and were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
2005 2004
------ ------
Expected life in years 7.0 6.9
Interest rate 5% 5%
Volatility 110.77% 106.27%
Dividend yield 0% 0%
|
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8. WARRANTS ISSUED AND VESTED
The cumulative status at December 31, 2005 of warrants issued and vested is summarized as follows:
Issue Expiration Warrant
Issued Vested Consideration Date Date Price
------ ------ ------------- ---- ---------- -------
150,000 150,000 Subordinated Notes Payable Jan-00 Jan-10 $2.50(c)
148,302(a) 84,930 Convertible Promissory Note Jun-03 Jun-08 $1.00(d)
10,000(b) 9,100 Lease Guarantee Jun-03 Jun-08 $1.00(d)
122,918 122,918 Private Equity Offering May-04 May-09 $2.88(d)
17,500 17,500 Consulting Services May-04 May-09 $2.88(d)
20,000 20,000 Revolving Promissory Note Nov-04 Nov-09 $2.50(d)
246,639 246,639 Private Equity Offering Oct-05 Oct-10 $3.00(d)
|
(a) - The Company issued 148,302 warrants to purchase common stock of the Company subject to vesting. As a result of the conversion of the promissory notes on May 13, 2004, no additional vesting accrues and the number of shares of common stock issuable under the warrants is fixed at 84,930.
(b) - The Company issued 10,000 warrants to purchase common stock of the Company subject to vesting. The warrants vested according to the following schedule: (i) 4,600 on the date of grant; and (ii) up to 5,400 vesting at a rate of 150 per month for up to 36 months. As of December 31, 2005, 9,100 shares of common stock had vested.
(c) - At fair market value.
(d) - Above fair market value.
NOTE 9. INCOME TAXES
Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. Significant components of the Company's deferred tax assets and liabilities are as follows at December 31:
2005
----------
Deferred tax assets
NOL Carryforward $2,465,000
UNICAP 29,000
Allowance for doubtful accounts 10,000
Reserve for obsolete inventory 34,000
Property and equipment (21,000)
----------
2,517,000
Valuation allowance 2,517,000
----------
Net $ --
==========
|
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES (CONTINUED)
A valuation allowance has been recorded against the realizability of the net deferred tax asset, such that no value is recorded for the asset in the accompanying financial statements. The valuation allowance totaled $2,517,000 and $2,652,000 at December 31, 2005 and 2004, respectively.
The Company has net operating loss carryovers available for federal and state tax purposes of approximately $6,486,000, which expire in varying amounts through 2025.
For the years ended December 31, 2005 and 2004, a reconciliation of the statutory rate and effective rate for the provisions for income taxes consists of the following:
PERCENTAGE
-------------
2005 2004
----- -----
Federal statutory rate (34.0) (34.0)
Valuation allowance 34.0 34.0
---- ----
Effective rate --% --%
==== ====
|
The expense (benefit) for income taxes consists of the following:
2005 2004
---- ----
Current expense $-- $--
Deferred expense -- --
--- ---
Total $-- $--
=== ===
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NOTE 10. RELATED PARTY TRANSACTIONS
The Company had trade payables, shareholders of $7,920 at December 31, 2004, pertaining to reimbursement for purchase of goods and services obtained for Company purposes. The Estate of the shareholder agreed to cancel the indebtedness in exchange for 3,960 shares of common stock and warrants to purchase an additional 990 shares of common stock at $3.00 per share exercisable until October 2010.
Interest expense, shareholders was $70,684 and $22,407 for the years ended December 31, 2005 and 2004, respectively.
For additional information regarding related party transactions, see Notes 5, 6 and 8.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
- Cash and cash equivalents, short-term debt and current maturities of long-term debt: Amounts reported in the balance sheet approximate fair market value due to the short maturity of these instruments.
- Long-term capital lease obligations: Amounts reported in the balance sheet approximate fair value as the interest rates on these obligations range from 4.5% to 11.4%.
NOTE 12. ASSET RETIREMENT OBLIGATION
Included in machinery and equipment is various production equipment, which per the Company's building lease, is required to be removed upon termination of the lease. Included in accrued expenses in the accompanying balance sheet is the asset retirement obligation that represents the expected present value of the liability to remove this equipment. There are no assets that are legally restricted for purposes of settling this asset retirement obligation.
The Company recorded a cumulative effect of a change in accounting as a charge to loss from operations of $15,866 on January 1, 2003 for amortization of the related asset recorded for these costs. Following is a reconciliation of the aggregate retirement liability associated with the Company's obligation to dismantle and remove the machinery and equipment associated with its lease of its previous facility and the current facility. The Company moved to its current facility in first quarter 2004.
Balance at December 31, 2004 $ 12,330
Increase in present value of the obligation (accretion expense
in the corresponding amount charged against earnings) 3,312
Liabilities settled (13,232)
--------
Balance at December 31, 2005 $ 2,410
========
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio Revised Code gives a corporation incorporated under the laws of Ohio power to indemnify any person who is or has been a director, officer or employee of that corporation, or of another corporation at the request of that corporation, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, criminal or civil, to which he is or may be made a party because of being or having been such director, officer, employee or agent, provided that in connection therewith, such person is determined to have acted in good faith in what he reasonably believed to be in or not opposed to the best interest of the corporation of which he is a director, officer, employee or agent and without reasonable cause, in the case of a criminal matter, to believe that his conduct was unlawful. The determination as to the conditions precedent to the permitted indemnification of such person is made by the directors of the indemnifying corporation acting at a meeting at which, for the purpose, any director who is a party to or threatened with any such action, suit or proceeding may not be counted in determining the existence of a quorum and may not vote. If, because of the foregoing limitations, the directors are unable to act in this regard, such determination may be made by the majority vote of the corporation's voting shareholders (or without a meeting upon two-thirds written consent of such shareholders), by judicial proceeding or by written opinion of legal counsel not retained by the corporation or any person to be indemnified during the five years preceding the date of determination.
Section 1701.13(E) of the Ohio Revised Code further provides that the indemnification thereby permitted shall not be exclusive of, and shall be in addition to, any other rights that directors, officers, employees or agents have, including rights under insurance purchased by the corporation.
Article 5 of the Company's Restated Code of Regulations contains extensive provisions related to indemnification of officers, directors, employees and agents. The Company is required to indemnify its directors against expenses, including attorney fees, judgments, fines and amounts paid in settlement of civil, criminal, administrative, and investigative proceedings, if the director acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company. When criminal proceedings are involved, indemnification is further conditional upon the director having no reasonable cause to believe that his conduct was unlawful.
Entitlement of a director to indemnification shall be made by vote of the disinterested directors of the Company. If there are an insufficient number of such directors to constitute a quorum, the determination to indemnify directors shall be made by one of the following methods: (1) a written opinion of independent legal counsel, (2) vote by the shareholders, or (3) by the Court in which the action, suit or proceeding was brought.
The Company may pay the expenses, including attorney fees of any director, as incurred, in advance of a final disposition of such action, suit or proceeding, upon receipt by the Company of an undertaking by the affected director(s) in which he (they) agree to cooperate with the Company concerning the action, suit or proceeding, and agree(s) to repay the Company in the event that a Court determines that the director(s) action, or failure to act, involved an act, or omission, undertaken with reckless disregard for the best interests of the Company.
The indemnification provisions of the Articles of Incorporation relating to officers, employees and agents of the Company are similar to those relating to directors, but are not mandatory in nature. On a case-by-case basis, the Company may elect to indemnify them, and may elect to pay their expenses, including attorney fees, in advance of a final disposition of the action, suit, or proceeding, upon the same conditions and subject to legal standards as relate to directors. These indemnification provisions are also applicable to actions brought against directors, officers, employees and agents in the right of the Company. However, no indemnification shall be made to any person adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless, and only to the extent that a Court determines, that despite the adjudication of liability, but in view of all of the circumstances of the case,
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such persons reasonably entitled to indemnify for such expenses as the Court shall deem proper. The Company currently carries directors and officers insurance in the amount of one million dollars.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in connection with the issuance and distribution of the securities being registered.
SEC Registration.......... $ 915.36 Legal Fees and Expenses*.. $ 29,000 Accounting Fees*.......... $ 17,500 Miscellaneous*............ $ 1,700 Total..................... $49,115.36 |
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
To obtain funding for the payment of debt and other payables, and for capital equipment and general working capital, the Company entered into Subscription Agreements with various accredited investors from August 2, 2005 to October 14, 2005, for the sale of investment units (the "Units"), with each Unit consisting of (i) 1,000 shares of the Company's common stock without par value (the "Common Stock"), and (ii) a warrant to purchase 250 shares of Common Stock at $3.00 per share until October 14, 2010 (the "Warrants"). The Company offered the Units to accredited investors as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"), at a price of $2,000 per Unit.
The investors purchased an aggregate of $1,973,110 in Units representing 986,555 shares of Common Stock at a price of $2.00 per share, and warrants to purchase an additional 246,639 shares of Common Stock at $3.00 per share until October 14, 2010. The Company received $1,386,000 in cash from the investors in exchange for the purchase of 693 Units representing (i) 693,000 shares of Common Stock, and (ii) warrants to purchase an additional 173,250 shares of Common Stock. The Company sold an additional 293.6 Units representing (i) 293,555 shares of Common Stock, and (ii) warrants to purchase an additional 73,389 shares of Common Stock, in exchange for the cancellation of an aggregate $587,110 of indebtedness of the Company held by four investors.
The Company granted the investors registration rights with respect to the Common Stock and the shares of Common Stock underlying the Warrants. Pursuant to the terms of the Subscription Agreements, the Company must prepare and file with the Securities and Exchange Commission a Registration Statement covering the shares of Common Stock and the shares of Common Stock underlying the Warrants. The Company also granted the investors piggyback registration rights with respect to the Common Stock and shares of Common Stock underlying the Warrants.
The Company offered and sold the securities to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Act and Rule 506 promulgated thereunder. Each of the investors is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Act.
During the second quarter ending June 30, 2004, the Company, in a private placement to four accredited investors sold units consisting of 1,000 shares of the Company's common stock without par value and warrants to purchase 200 shares of common stock. The total offering price paid in cash by accredited investors was $620,000 for an aggregate of 258,334 shares of the Company's common stock and warrants an aggregate of 51,666 shares of the Company's common stock, without par value, at a purchase price of $2.88 per share.
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In our opinion, the issuance of these shares was exempt from registration pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder due to the fact the shares were sold to less than 35 purchasers all of whom were accredited investors. The Company did not use a placement agent or underwriter for the transaction.
ITEM 27. EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
3(a) Certificate of Second Amended and Restated Articles of Incorporation
of Superconductive Components, Inc. (Incorporated by reference to
Exhibit 3(a) to the Company's initial Form 10-SB, filed on September
28, 2000)
3(b) Restated Code of Regulations of Superconductive Components, Inc.
(Incorporated by reference to Exhibit 3(b) to the Company's initial
Form 10-SB, filed on September 28, 2000)
5 Opinion of Porter, Wright, Morris & Arthur LLP (Previously filed with
the Company's Registration Statement on Form SB-2, dated February 6,
2006, Registration file No. 333-131605)
10(a) Employment Agreement entered into as of February 26, 2002, between
Daniel Rooney and the Company (Incorporated by reference to Exhibit
10(a) to the Company's Registration Statement on Form SB-2, dated
February 6, 2006, Registration file No. 333-131605)
10(b) Lease Agreement between Superconductive Components, Inc. and Duke
Realty Ohio dated as of September 29, 2003, with Letter of
Understanding dated February 17, 2004 (Incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report on Form 10-QSB, filed
on March 31, 2004)
10(c) Subcontract Agreement between Superconductive Components, Inc. and
The Ohio State University effective as of April 1, 2000 (Incorporated
by reference to Exhibit 10(b) to the Company's initial Form 10-SB,
filed on September 28, 2000)
10(d) Fourth Amended and Restated 1995 Stock Option Plan (Incorporated by
reference to Exhibit 4(a) to the Company's Registration Statement on
Form S-8 (Registration No. 333-97583), filed on August 2, 2002)
10(e) License Agreement with Sandia Corporation dated February 26, 1996
(Incorporated by reference to Exhibit 10(f) to the Company's Form
10-SB Amendment No. 1, filed on January 3, 2001)
10(f) Nonexclusive License with The University of Chicago (as Operator of
Argonne National Laboratory) dated October 12, 1995 (Incorporated by
reference to Exhibit 10(g) to the Company's Form 10-SB Amendment No.
1, filed on January 3, 2001)
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10(g) Nonexclusive License with The University of Chicago (as Operator of
Argonne National Laboratory) dated October 12, 1995 (Incorporated by
reference to Exhibit 10(h) to the Company's Form 10-SB Amendment No.
1, filed on January 3, 2001)
10(h) Department of Energy Award dated January 17, 2003 (Incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form
10-QSB, filed on November 12, 2003)
10(i) Department of Energy Award dated June 24, 2003 (Incorporated by
reference to Exhibit 10(b) to the Company's Quarterly Report on Form
10-QSB, filed on November 12, 2003)
10(j) Department of Energy Award dated September 29, 2003 (Incorporated by
reference to Exhibit 10(c) to the Company's Quarterly Report on Form
10-QSB, filed on November 12, 2003)
10(k) Department of Energy Award dated July 21, 2005 (Incorporated by
reference to Exhibit 10(k) to the Company's Registration Statement on
Form SB-2, dated February 6, 2006, Registration file No. 333-131605)
10(l) Ohio Department of Development Third Frontier Action Fund Award dated
February 20, 2004 (Incorporated by reference to Exhibit 10(o) to the
Company's Annual Report on Form 10-KSB, filed on March 30, 2004)
10(m) Description of the Material Terms of the Superconductive Components,
Inc. 2005 Executive Bonus Plan (Incorporated by reference to Exhibit
10 to the Company's Current Report on Form 8-K, filed on April 20,
2005)
10(n) Form of Non-Statutory Stock Option Agreement Under the Superconductive
Components, Inc. Fourth Amended and Restated 1995 Stock Option Plan
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K, filed on December 22, 2005)
10(o) * Subscription Agreement between the Company and the Estate of Edward R.
Funk, dated October 14, 2005
10(p) * Subscription Agreement between the Company and the Estate of Ingeborg
V. Funk, dated October 14, 2005
10(q) * Subscription Agreement between the Company and Robert H. Peitz, dated
October 14, 2005
10(r) * Warrant to purchase common stock of Superconductive Components, Inc.
issued to the Estate of Edward R. Funk, dated October 19, 2005
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10(s) * Warrant to purchase common stock of Superconductive Components, Inc.
issued to the Estate of Ingeborg V. Funk, dated October 19, 2005
10(t) * Warrant to purchase common stock of Superconductive Components, Inc.
issued to Robert H. Peitz, dated October 19, 2005
10(u) * Conversion Agreement between the Company and the Estate of Edward R.
Funk, dated October 14, 2005
10(v) * Conversion Agreement between the Company and the Estate of Ingeborg V.
Funk, dated October 14, 2005
23.1 * Consent of Independent Registered Accounting Firm
23.2 * Consent of Porter, Wright, Morris & Arthur LLP (included in Exhibit 5
herein)
24 * Powers of Attorney
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ITEM 28. UNDERTAKINGS.
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; and
(iii) To include any additional or changed material information on the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
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Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the registrant's directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a directors, officers or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing this Pre-effective Amendment No. 1 on Form SB-2, and has authorized this Pre-effective Amendment No. 1 on Form SB-2 to be signed on its behalf by the undersigned in the City of Columbus, Ohio, on March 22, 2006.
SUPERCONDUCTIVE COMPONENTS, INC.
By: /s/ Daniel Rooney
------------------------------------
Daniel Rooney, President and
Chief Executive Officer
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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 indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Daniel Rooney President, Chief Executive Officer March 22, 2006
------------------------------------- and Chairman of the Board of Directors
Daniel Rooney (principal executive officer)
/s/ Gerald S. Blaskie* Vice President and Chief Financial
------------------------------------- Officer (principal financial officer March 22, 2006
Gerald S. Blaskie and principal accounting officer)
/s/ Robert J. Baker, Jr.* Director March 22, 2006
-------------------------------------
Robert J. Baker, Jr.
/s/ Walter J. Doyle* Director March 22, 2006
-------------------------------------
Walter J. Doyle
/s/ Robert H. Peitz
------------------------------------- Director March 22, 2006
Robert H. Peitz
/s/ Edward W. Ungar* Director March 22, 2006
-------------------------------------
Edward W. Ungar
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*By: /s/ Daniel Rooney
--------------------------------
Daniel Rooney, Attorney-in fact
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Exhibit 10(o)
THE UNITS, CONSISTING OF SHARES OF COMMON STOCK AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK (THE "SECURITIES") REPRESENTED BY THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH PROPOSED SALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION.
SUPERCONDUCTIVE COMPONENTS, INC.
SUBSCRIPTION AGREEMENT
This is a Subscription Agreement (the "Agreement"), dated as of the date specified below, between Superconductive Components, Inc., an Ohio corporation (the "Company"), and the person named below as the subscriber ("Subscriber").
RECITALS
A. The Company is offering to sell up to 1,200 Units (the "Units"), each Unit consisting of 1,000 shares of the Company's common stock without par value (the "Common Stock") and a warrant to purchase 250 shares of Common Stock at $3.00 per share until October 14, 2010 (the "Offering"), as more fully described in the Private Placement Memorandum dated October 14, 2005, of which this Subscription Agreement forms a part.
B. The Units are being offered to accredited investors as defined in Rule 501(a) of Regulation D, at a price of $2,000 per Unit.
C. This Agreement confirms the understanding between the Company and the Subscriber with respect to the Subscriber's subscription for the number of Units specified below.
STATEMENT OF AGREEMENT
In consideration of their mutual promises, the Company and the Subscriber agree as follows:
Section 1. Subscription for Units. Subscriber hereby subscribes for the number of Units set forth below and the Company agrees to promptly issue the requisite number of shares of Common Stock and warrants underlying such Units upon payment of $2,000 per Unit.
Section 2. Effectiveness of Agreement. The Company reserves the right to reject this Agreement, in whole or in part, for any reason. This Agreement will not become effective until this Agreement has been duly accepted by the Company in the space provided below.
Section 3. Representations and Warranties of Subscriber. In connection with this subscription for Units, the Subscriber hereby represents and warrants to the Company as provided in this Section 3. It is understood that the Company will rely upon these representations and warranties in accepting this Agreement and that such representations and warranties will survive delivery and acceptance of this Agreement.
(a) The Subscriber has received copies of the Company's filings with the Securities and Exchange Commission (the "Commission") which outline the terms of the Common Stock underlying the Units, has reviewed the same and consents to all of the conditions and terms described therein.
(b) The Subscriber acknowledges that he has received copies of or has been afforded the opportunity to examine and copy all desired documents, books and records relating to the Company. The Subscriber acknowledges that: (i) he has received and read the Company's Commission filings, (ii) he understands the information included therein, (iii) he is aware that there are economic variables and risks that could adversely affect an investment in the Units, (iv) he, or his business, tax and legal advisers, if any, have reviewed the documents and information relating to his subscription for the Units and they have advised him as to the merits of the Units, (v) he, or his advisers, have had ready access to any and all documents which the Subscriber or they deem relevant to the purchase of such Units and no requested information, oral or written, has been withheld, (vi) the Company has made available to the Subscriber, during the course of the transaction and prior to sale, the opportunity to ask questions of, and receive answers from, the Company or any person acting on its behalf concerning the terms and conditions of this offering of Units and the Company, and to obtain any additional information, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense, (vii) he has relied primarily on independent analysis to make an investment decision with respect to the Units, and (viii) he has not relied on any representations or warranties other than as set forth herein or in the terms of the Units.
(c) The Subscriber understands that (i) in reliance upon the Subscriber's representations, neither the Units, nor the underlying shares of Common Stock, warrants, or shares of Common Stock issuable upon the exercise of such warrants have been registered under the Act or any state securities laws, (ii) since the Units, the underlying shares of Common Stock, warrants, and shares of Common Stock issuable upon the exercise of such warrants have not been registered, the Subscriber must bear the economic risk of holding such shares of Common Stock until Rule 144 is available to Subscriber, (iii) the Company will note the restrictions on resale set forth above on its transfer records and any certificates of ownership or common stock purchase warrants, (iv) neither the Company nor anyone else has undertaken to register for resale any of the warrants or shares of Common Stock underlying the Units under the Act, and (v) there is no guarantee that a trading or resale market for the shares of Common Stock will exist in the future.
(d) The Subscriber is acquiring the Units and the underlying shares of Common Stock and warrants for his own account, for investment only, and not with a view to or for the sale, distribution or fractionalization thereof.
(e) The Subscriber's overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and his investment in the Units will not cause such overall commitment to become excessive.
(f) The Subscriber has adequate means of providing for his current needs and personal contingencies, and has no need for current income or liquidity in his investment in the Units.
(g) The Subscriber is able to bear the economic risks of this investment in the Units and can afford a complete loss of such investment.
(h) The Subscriber has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Units.
(i) The Subscriber received the terms of the Units and first learned of the offering of Units in the State which is listed as the residence or principal office address of the Subscriber below.
(j) With respect to the legal aspects of the investment, the Subscriber has relied solely upon the advice of the Subscriber's own legal advisors.
Section 4. Covenants of the Subscriber. The Subscriber will furnish to the Company such information or additional verifications as the Company may reasonably request and will cooperate with the Company in obtaining such additional information or verifications from third parties as the Company may reasonably request for the purpose of confirming the representations and warranties of the Subscriber set forth in Section 3 of this Agreement and perfecting the exemption from registration under the federal and state securities laws.
Section 5. Sale of Shares. The Subscriber agrees that he will not sell, pledge, fractionalize or otherwise dispose of any of the shares of Common Stock underlying the Units or shares of Common Stock obtained from the exercise of warrants underlying the Units, unless counsel, satisfactory to the Company, shall have advised the Company, in a written opinion satisfactory to it, that no registration under the Act or any state securities act would be required in connection with the proposed sale, pledge or other disposition and the proposed sale, pledge or other disposition is consummated as contemplated by such opinion.
Section 6. Registration Rights
(a) Registrable Securities. As used herein the terms "Registrable Securities" and "Registrable Security" means the shares of Common Stock underlying a Unit or issued upon the exercise of warrants underlying a Unit (collectively, the "Unit Shares") and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Unit Shares; provided, however, that with respect to any Registrable Security, such security shall cease to be a Registrable Security after October 14, 2010, or when, as of the date of determination, (i) it has been effectively registered under the Securities Act, (ii) it is freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"), or (iii) it has ceased to be outstanding.
(b) Resale Registration Statement. If, at any time after the date hereof and prior to close of the Offering, two or more investors (or related parties) each purchase at least 250 Units (representing $500,000 of the Registrable Securities), then within ten days of the consummation of the purchase of the second allotment of 250 Units the Company shall begin the process of preparing and filing with the Securities and Exchange Commission a registration statement covering the Subscriber's Registrable Securities (the "Resale Registration Statement"), and shall use reasonable efforts to have the Resale Registration Statement declared effective under the Act by the Securities and Exchange Commission. Upon the effectiveness of the Resale Registration Statement, the Company will use commercially reasonable efforts to keep the Resale Registration Statement open until such time as all of the Registrable Securities have been sold, or such time as all of the Registrable Securities are freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Act. The Company shall bear all of the expense of the Resale Registration.
(c) Piggyback Registrations. If, at any time after the date hereof and
before October 14, 2010 the Subscriber owns any of the Registrable
Securities, the Company proposes to prepare and file with the Securities
and Exchange Commission one or more registration statements covering equity
or debt securities of the Company with a value exceeding $1,000,000 (in any
such case, other than on Form S-8 or S-4 or successor forms), it will give
Subscriber at least 15 days' prior written notice via overnight courier or
certified mail (the "Notice"). Upon written request of Subscriber, made
within 10 days after mailing of the Notice, that the Company include any of
the Subscriber's Registrable Securities in the proposed registration
statement, the Company shall use reasonable efforts to effect the
registration under the Act, and any underwriting involved therein, of the
Registrable Securities which it has been so requested to register but only
to the extent that such inclusion does not diminish the number of
securities included by a holder of Common Stock who has demanded such
registration (the "Piggyback Registration"); provided, however, that if in
the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered
by the Company, will exceed the maximum amount of the Company's securities
which can be marketed (i) at a price reasonably related to their then
current market value, or (ii) without otherwise materially adversely
affecting the entire offering, then the Company may exclude from such
offering all or a portion of the Registrable Securities which it has been
requested to register. The Company shall bear all of the expense of the
Piggyback Registration, except for the pro rata portion of brokerage or
underwriters' discounts or commissions relating to the shares sold on
behalf of the Subscriber. All of Subscriber's Piggyback Registration rights
under this Agreement shall expire on October 14, 2010. Notwithstanding
anything to the contrary herein, the Company shall have the right at any
and all times after it shall have given written notice pursuant to this
Section to elect not to file any such proposed registration statement, or
to withdraw the same after the filing but prior to the effective date
thereof.
(d) Subscriber Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 6 that the Subscriber shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended methods of disposition of such securities as shall be required to timely effect the registration of its Registrable Securities.
(e) Holdback Agreement. As long as Subscriber holds any Registrable Securities, Subscriber hereby agrees that it shall not sell or otherwise transfer any securities of the Company during the period of time as the managing underwriter and the Company shall agree (but not less than 90 days nor more than 180 days) beginning on the effective date of any registration statement, other than the Registrable Securities to be sold pursuant to such registration statement.
Section 7. Successors and Assigns. This Agreement, upon its effectiveness as provided for in Section 2 of this Agreement, shall be binding upon the heirs, executors, administrators and successors of the Subscriber, and shall inure to the benefit of the Company and its successors and assigns. This Agreement is not transferable or assignable by the Subscriber.
Section 8. Interpretation. Words used herein, regardless of the gender specifically used, shall be deemed and construed to include any other gender, masculine, feminine, or neuter, as the context requires.
Section 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior and contemporaneous agreements, representations and understandings of the parties, express or implied, oral or written with respect to the subject matter hereof. This Agreement may not be amended or modified in any way except in a writing signed by each of the parties hereto.
Section 10. Governing Law. This Agreement shall be construed in accordance with and governed in all respects by the laws of Ohio, without regard to its conflicts of laws rules.
[the rest of this page is intentionally left blank]
The Subscriber has executed this Agreement as of the date written below.
THE SUBSCRIBER MUST COMPLETE THE FOLLOWING (PLEASE PRINT):
INSTRUCTIONS:
1. PART I - All Subscribers must complete PART I.
2. PART II must be reviewed by all Subscribers. Initial any item in PART II that is applicable, and sign and date the Agreement.
PART I - General Information (all Subscribers)
Total Subscription Price ($2,000 x Number of Units Subscribed for) $188,000
Form of Subscriber (check one): Individual ___ Corporation ___ Other (specify): Estate
If an Entity, Names of Individual Equity Owners ________________________________
Address of Residence
(or principal office 41 S. High Street
_________________________________________________________
if an entity) Street or P.O. Box Number
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Telephone number (614) 227-2000
Mailing Address _________________________ (if different) Street or P.O. Box Number ________________________________________________________________________________ City State Zip |
Attention: ________________________________________________________________
PART II - Accredited Investors
The Subscriber is an accredited investor under Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (the "Act") for the following reasons. (Please initial each of the statements below which are applicable to the Subscriber named above):
---------- The Subscriber is a natural person whose individual net worth,
or joint net worth with that person's spouse at the time of
his/her purchase, exceeds $1,000,000.
---------- The Subscriber is a natural person who had an individual income
in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in
each of those years and who reasonably expects the same or
greater income level in the current year.
--------- The Subscriber is a bank, savings and loan association,
registered broker-dealer, insurance company, investment
company, private business development company, or licensed
small business investment company.
--------- The Subscriber is an employee benefit plan established and
maintained by a state, its political subdivision, or their
agencies if such plan has total assets in excess of $5,000,000.
--------- The Subscriber is a self-directed employee benefit or pension
plan, with investment decisions made solely by persons who are
accredited investors.
--------- The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the purpose of acquiring the
securities offered hereby, whose total purchase is directed by
a financially sophisticated person.
--------- The Subscriber is a director or executive officer of the
Company.
--------- The Subscriber is a charitable or other organization described
in 501(c)(3) of the Internal Revenue Code, or any corporation,
partnership, or business trust, not formed for the purpose of
acquiring the securities offered, with total assets in excess
of $5,000,000.
X
--------- The Subscriber is an entity in which all of the equity owners
are accredited investors.
|
To the best of my knowledge and belief, the above information supplied by me is true and correct in all respects, and I am aware and intend that Superconductive Components, Inc, may rely upon such information to determine the Subscriber's suitability as an investor in the Units.
Date: October 14, 2005 /s/ Curtis A. Loveland, Executor
----------------------------------------
Signature of Subscriber
(indicate title, if applicable)
Date: __________, 2005 ----------------------------------------
Signature of Subscriber
(indicate title, if applicable)
|
ACCEPTANCE
The Company hereby accepts the foregoing Subscription as to 94 Units as of the date set forth immediately below.
SUPERCONDUCTIVE COMPONENTS, INC.
Date: October 14, 2005 By: /s/ Daniel Rooney
------------------------------------
Its: President
|
Exhibit 10(p)
THE UNITS, CONSISTING OF SHARES OF COMMON STOCK AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK (THE "SECURITIES") REPRESENTED BY THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH PROPOSED SALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION.
SUPERCONDUCTIVE COMPONENTS, INC.
SUBSCRIPTION AGREEMENT
This is a Subscription Agreement (the "Agreement"), dated as of the date specified below, between Superconductive Components, Inc., an Ohio corporation (the "Company"), and the person named below as the subscriber ("Subscriber").
RECITALS
A. The Company is offering to sell up to 1,200 Units (the "Units"), each Unit consisting of 1,000 shares of the Company's common stock without par value (the "Common Stock") and a warrant to purchase 250 shares of Common Stock at $3.00 per share until October 14, 2010 (the "Offering"), as more fully described in the Private Placement Memorandum dated October 14, 2005, of which this Subscription Agreement forms a part.
B. The Units are being offered to accredited investors as defined in Rule 501(a) of Regulation D, at a price of $2,000 per Unit.
C. This Agreement confirms the understanding between the Company and the Subscriber with respect to the Subscriber's subscription for the number of Units specified below.
STATEMENT OF AGREEMENT
In consideration of their mutual promises, the Company and the Subscriber agree as follows:
Section 1. Subscription for Units. Subscriber hereby subscribes for the number of Units set forth below and the Company agrees to promptly issue the requisite number of shares of Common Stock and warrants underlying such Units upon payment of $2,000 per Unit.
Section 2. Effectiveness of Agreement. The Company reserves the right to reject this Agreement, in whole or in part, for any reason. This Agreement will not become effective until this Agreement has been duly accepted by the Company in the space provided below.
Section 3. Representations and Warranties of Subscriber. In connection with this subscription for Units, the Subscriber hereby represents and warrants to the Company as provided in this Section 3. It is understood that the Company will rely upon these representations and warranties in accepting this Agreement and that such representations and warranties will survive delivery and acceptance of this Agreement.
(a) The Subscriber has received copies of the Company's filings with the Securities and Exchange Commission (the "Commission") which outline the terms of the Common Stock underlying the Units, has reviewed the same and consents to all of the conditions and terms described therein.
(b) The Subscriber acknowledges that he has received copies of or has been afforded the opportunity to examine and copy all desired documents, books and records relating to the Company. The Subscriber acknowledges that: (i) he has received and read the Company's Commission filings, (ii) he understands the
information included therein, (iii) he is aware that there are economic
variables and risks that could adversely affect an investment in the Units,
(iv) he, or his business, tax and legal advisers, if any, have reviewed the
documents and information relating to his subscription for the Units and
they have advised him as to the merits of the Units, (v) he, or his
advisers, have had ready access to any and all documents which the
Subscriber or they deem relevant to the purchase of such Units and no
requested information, oral or written, has been withheld, (vi) the Company
has made available to the Subscriber, during the course of the transaction
and prior to sale, the opportunity to ask questions of, and receive answers
from, the Company or any person acting on its behalf concerning the terms
and conditions of this offering of Units and the Company, and to obtain any
additional information, to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense, (vii)
he has relied primarily on independent analysis to make an investment
decision with respect to the Units, and (viii) he has not relied on any
representations or warranties other than as set forth herein or in the
terms of the Units.
(c) The Subscriber understands that (i) in reliance upon the Subscriber's representations, neither the Units, nor the underlying shares of Common Stock, warrants, or shares of Common Stock issuable upon the exercise of such warrants have been registered under the Act or any state securities laws, (ii) since the Units, the underlying shares of Common Stock, warrants, and shares of Common Stock issuable upon the exercise of such warrants have not been registered, the Subscriber must bear the economic risk of holding such shares of Common Stock until Rule 144 is available to Subscriber, (iii) the Company will note the restrictions on resale set forth above on its transfer records and any certificates of ownership or common stock purchase warrants, (iv) neither the Company nor anyone else has undertaken to register for resale any of the warrants or shares of Common Stock underlying the Units under the Act, and (v) there is no guarantee that a trading or resale market for the shares of Common Stock will exist in the future.
(d) The Subscriber is acquiring the Units and the underlying shares of Common Stock and warrants for his own account, for investment only, and not with a view to or for the sale, distribution or fractionalization thereof.
(e) The Subscriber's overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and his investment in the Units will not cause such overall commitment to become excessive.
(f) The Subscriber has adequate means of providing for his current needs and personal contingencies, and has no need for current income or liquidity in his investment in the Units.
(g) The Subscriber is able to bear the economic risks of this investment in the Units and can afford a complete loss of such investment.
(h) The Subscriber has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Units.
(i) The Subscriber received the terms of the Units and first learned of the offering of Units in the State which is listed as the residence or principal office address of the Subscriber below.
(j) With respect to the legal aspects of the investment, the Subscriber has relied solely upon the advice of the Subscriber's own legal advisors.
Section 4. Covenants of the Subscriber. The Subscriber will furnish to the Company such information or additional verifications as the Company may reasonably request and will cooperate with the Company in obtaining such additional information or verifications from third parties as the Company may reasonably request for the purpose of confirming the representations and warranties of the Subscriber set forth in Section 3 of this Agreement and perfecting the exemption from registration under the federal and state securities laws.
Section 5. Sale of Shares. The Subscriber agrees that he will not sell, pledge, fractionalize or otherwise dispose of any of the shares of Common Stock underlying the Units or shares of Common Stock obtained from the exercise of warrants underlying the Units, unless counsel, satisfactory to the Company, shall have advised the Company, in a written opinion satisfactory to it, that no registration under the Act or any state securities act would be required in connection with the proposed sale, pledge or other disposition and the proposed sale, pledge or other disposition is consummated as contemplated by such opinion.
Section 6. Registration Rights
(a) Registrable Securities. As used herein the terms "Registrable Securities" and "Registrable Security" means the shares of Common Stock underlying a Unit or issued upon the exercise of warrants underlying a Unit (collectively, the "Unit Shares") and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Unit Shares; provided, however, that with respect to any Registrable Security, such security shall cease to be a Registrable Security after October 14, 2010, or when, as of the date of determination, (i) it has been effectively registered under the Securities Act, (ii) it is freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"), or (iii) it has ceased to be outstanding.
(b) Resale Registration Statement. If, at any time after the date hereof and prior to close of the Offering, two or more investors (or related parties) each purchase at least 250 Units (representing $500,000 of the Registrable Securities), then within ten days of the consummation of the purchase of the second allotment of 250 Units the Company shall begin the process of preparing and filing with the Securities and Exchange Commission a registration statement covering the Subscriber's Registrable Securities (the "Resale Registration Statement"), and shall use reasonable efforts to have the Resale Registration Statement declared effective under the Act by the Securities and Exchange Commission. Upon the effectiveness of the Resale Registration Statement, the Company will use commercially reasonable efforts to keep the Resale Registration Statement open until such time as all of the Registrable Securities have been sold, or such time as all of the Registrable Securities are freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Act. The Company shall bear all of the expense of the Resale Registration.
(c) Piggyback Registrations. If, at any time after the date hereof and before October 14, 2010 the Subscriber owns any of the Registrable Securities, the Company proposes to prepare and file with the Securities and Exchange Commission one or more registration statements covering equity or debt securities of the Company with a value exceeding $1,000,000 (in any such case, other than on Form S-8 or S-4 or successor forms), it will give Subscriber at least 15 days' prior written notice via overnight courier or certified mail (the "Notice"). Upon written request of Subscriber, made within 10 days after mailing of the Notice, that the Company include any of the Subscriber's Registrable Securities in the proposed registration statement, the Company shall use reasonable efforts to effect the registration under the Act, and any underwriting involved therein, of the Registrable Securities which it has been so requested to register but only to the extent that such inclusion does not diminish the number of securities included by a holder of Common Stock who has demanded such registration (the "Piggyback Registration"); provided, however, that if in the written opinion of the Company's managing underwriter, if any, for such offering, the inclusion of all or a portion of the Registrable Securities requested to be registered, when added to the securities being registered by the Company, will exceed the maximum amount of the Company's securities which can be marketed (i) at a price reasonably related to their then current market value, or (ii) without otherwise materially adversely affecting the entire offering, then the Company may exclude from such offering all or a portion of the Registrable Securities which it has been requested to register. The Company shall bear all of the expense of the Piggyback Registration, except for the pro rata portion of brokerage or underwriters' discounts or commissions relating to the shares sold on behalf of the Subscriber. All of Subscriber's Piggyback Registration rights under this Agreement shall expire on October 14, 2010. Notwithstanding anything to the contrary herein, the Company shall have the right at any and all times after it shall have given written notice
pursuant to this Section to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof.
(d) Subscriber Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 6 that the Subscriber shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended methods of disposition of such securities as shall be required to timely effect the registration of its Registrable Securities.
(e) Holdback Agreement. As long as Subscriber holds any Registrable Securities, Subscriber hereby agrees that it shall not sell or otherwise transfer any securities of the Company during the period of time as the managing underwriter and the Company shall agree (but not less than 90 days nor more than 180 days) beginning on the effective date of any registration statement, other than the Registrable Securities to be sold pursuant to such registration statement.
Section 7. Successors and Assigns. This Agreement, upon its effectiveness as provided for in Section 2 of this Agreement, shall be binding upon the heirs, executors, administrators and successors of the Subscriber, and shall inure to the benefit of the Company and its successors and assigns. This Agreement is not transferable or assignable by the Subscriber.
Section 8. Interpretation. Words used herein, regardless of the gender specifically used, shall be deemed and construed to include any other gender, masculine, feminine, or neuter, as the context requires.
Section 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior and contemporaneous agreements, representations and understandings of the parties, express or implied, oral or written with respect to the subject matter hereof. This Agreement may not be amended or modified in any way except in a writing signed by each of the parties hereto.
Section 10. Governing Law. This Agreement shall be construed in accordance with and governed in all respects by the laws of Ohio, without regard to its conflicts of laws rules.
[the rest of this page is intentionally left blank]
The Subscriber has executed this Agreement as of the date written below.
THE SUBSCRIBER MUST COMPLETE THE FOLLOWING (PLEASE PRINT):
INSTRUCTIONS:
1. PART I - All Subscribers must complete PART I.
2. PART II must be reviewed by all Subscribers. Initial any item in PART II that is applicable, and sign and date the Agreement.
PART I - General Information (all Subscribers)
If an Entity, Names of Individual Equity Owners ________________________________
Address of Residence 41 S. High Street
_________________________________________________________
(or principal office Street or P.O. Box Number
if an entity)
|
Mailing Address ______________________________________________
(if different) Street or P.O. Box Number
________________________________________________________________________________
City State Zip
Attention:
________________________________________________________________
|
PART II - Accredited Investors
The Subscriber is an accredited investor under Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (the "Act") for the following reasons. (Please initial each of the statements below which are applicable to the Subscriber named above):
--------- The Subscriber is a natural person whose individual net worth,
or joint net worth with that person's spouse at the time of
his/her purchase, exceeds $1,000,000.
--------- The Subscriber is a natural person who had an individual income
in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in
each of those years and who reasonably expects the same or
greater income level in the current year.
--------- The Subscriber is a bank, savings and loan association,
registered broker-dealer, insurance company, investment
company, private business development company, or licensed
small business investment company.
--------- The Subscriber is an employee benefit plan established and
maintained by a state, its political subdivision, or their
agencies if such plan has total assets in excess of $5,000,000.
--------- The Subscriber is a self-directed employee benefit or pension
plan, with investment decisions made solely by persons who are
accredited investors.
--------- The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the purpose of acquiring the
securities offered hereby, whose total purchase is directed by
a financially sophisticated person.
--------- The Subscriber is a director or executive officer of the
Company.
--------- The Subscriber is a charitable or other organization described
in 501(c)(3) of the Internal Revenue Code, or any corporation,
partnership, or business trust, not formed for the purpose of
acquiring the securities offered, with total assets in excess
of $5,000,000.
X
--------- The Subscriber is an entity in which all of the equity owners
are accredited investors.
|
To the best of my knowledge and belief, the above information supplied by me is true and correct in all respects, and I am aware and intend that Superconductive Components, Inc, may rely upon such information to determine the Subscriber's suitability as an investor in the Units.
Date: October 14, 2005 /s/ Curtis A. Loveland, Executor
----------------------------------------
Signature of Subscriber (indicate title,
if applicable)
Date: ___________, 2005 ----------------------------------------
Signature of Subscriber (indicate title,
if applicable)
|
ACCEPTANCE
The Company hereby accepts the foregoing Subscription as to 50 Units as of the date set forth immediately below.
SUPERCONDUCTIVE COMPONENTS, INC.
Date: October 14, 2005 By: /s/ Daniel Rooney
------------------------------------
Its: President
|
Exhibit 10(q)
THE UNITS, CONSISTING OF SHARES OF COMMON STOCK AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK (THE "SECURITIES") REPRESENTED BY THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH PROPOSED SALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION.
SUPERCONDUCTIVE COMPONENTS, INC.
SUBSCRIPTION AGREEMENT
This is a Subscription Agreement (the "Agreement"), dated as of the date specified below, between Superconductive Components, Inc., an Ohio corporation (the "Company"), and the person named below as the subscriber ("Subscriber").
RECITALS
A. The Company is offering to sell up to 1,200 Units (the "Units"), each Unit consisting of 1,000 shares of the Company's common stock without par value (the "Common Stock") and a warrant to purchase 250 shares of Common Stock at $3.00 per share until October 14, 2010 (the "Offering"), as more fully described in the Private Placement Memorandum dated October 14, 2005, of which this Subscription Agreement forms a part.
B. The Units are being offered to accredited investors as defined in Rule 501(a) of Regulation D, at a price of $2,000 per Unit.
C. This Agreement confirms the understanding between the Company and the Subscriber with respect to the Subscriber's subscription for the number of Units specified below.
STATEMENT OF AGREEMENT
In consideration of their mutual promises, the Company and the Subscriber agree as follows:
Section 1. Subscription for Units. Subscriber hereby subscribes for the number of Units set forth below and the Company agrees to promptly issue the requisite number of shares of Common Stock and warrants underlying such Units upon payment of $2,000 per Unit.
Section 2. Effectiveness of Agreement. The Company reserves the right to reject this Agreement, in whole or in part, for any reason. This Agreement will not become effective until this Agreement has been duly accepted by the Company in the space provided below.
Section 3. Representations and Warranties of Subscriber. In connection with this subscription for Units, the Subscriber hereby represents and warrants to the Company as provided in this Section 3. It is understood that the Company will rely upon these representations and warranties in accepting this Agreement and that such representations and warranties will survive delivery and acceptance of this Agreement.
(a) The Subscriber has received copies of the Company's filings with the Securities and Exchange Commission (the "Commission") which outline the terms of the Common Stock underlying the Units, has reviewed the same and consents to all of the conditions and terms described therein.
(b) The Subscriber acknowledges that he has received copies of or has been afforded the opportunity to examine and copy all desired documents, books and records relating to the Company. The Subscriber acknowledges that: (i) he has received and read the Company's Commission filings, (ii) he understands the
information included therein, (iii) he is aware that there are economic
variables and risks that could adversely affect an investment in the Units,
(iv) he, or his business, tax and legal advisers, if any, have reviewed the
documents and information relating to his subscription for the Units and
they have advised him as to the merits of the Units, (v) he, or his
advisers, have had ready access to any and all documents which the
Subscriber or they deem relevant to the purchase of such Units and no
requested information, oral or written, has been withheld, (vi) the Company
has made available to the Subscriber, during the course of the transaction
and prior to sale, the opportunity to ask questions of, and receive answers
from, the Company or any person acting on its behalf concerning the terms
and conditions of this offering of Units and the Company, and to obtain any
additional information, to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense, (vii)
he has relied primarily on independent analysis to make an investment
decision with respect to the Units, and (viii) he has not relied on any
representations or warranties other than as set forth herein or in the
terms of the Units.
(c) The Subscriber understands that (i) in reliance upon the Subscriber's representations, neither the Units, nor the underlying shares of Common Stock, warrants, or shares of Common Stock issuable upon the exercise of such warrants have been registered under the Act or any state securities laws, (ii) since the Units, the underlying shares of Common Stock, warrants, and shares of Common Stock issuable upon the exercise of such warrants have not been registered, the Subscriber must bear the economic risk of holding such shares of Common Stock until Rule 144 is available to Subscriber, (iii) the Company will note the restrictions on resale set forth above on its transfer records and any certificates of ownership or common stock purchase warrants, (iv) neither the Company nor anyone else has undertaken to register for resale any of the warrants or shares of Common Stock underlying the Units under the Act, and (v) there is no guarantee that a trading or resale market for the shares of Common Stock will exist in the future.
(d) The Subscriber is acquiring the Units and the underlying shares of Common Stock and warrants for his own account, for investment only, and not with a view to or for the sale, distribution or fractionalization thereof.
(e) The Subscriber's overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and his investment in the Units will not cause such overall commitment to become excessive.
(f) The Subscriber has adequate means of providing for his current needs and personal contingencies, and has no need for current income or liquidity in his investment in the Units.
(g) The Subscriber is able to bear the economic risks of this investment in the Units and can afford a complete loss of such investment.
(h) The Subscriber has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Units.
(i) The Subscriber received the terms of the Units and first learned of the offering of Units in the State which is listed as the residence or principal office address of the Subscriber below.
(j) With respect to the legal aspects of the investment, the Subscriber has relied solely upon the advice of the Subscriber's own legal advisors.
Section 4. Covenants of the Subscriber. The Subscriber will furnish to the Company such information or additional verifications as the Company may reasonably request and will cooperate with the Company in obtaining such additional information or verifications from third parties as the Company may reasonably request for the purpose of confirming the representations and warranties of the Subscriber set forth in Section 3 of this Agreement and perfecting the exemption from registration under the federal and state securities laws.
Section 5. Sale of Shares. The Subscriber agrees that he will not sell, pledge, fractionalize or otherwise dispose of any of the shares of Common Stock underlying the Units or shares of Common Stock obtained from the exercise of warrants underlying the Units, unless counsel, satisfactory to the Company, shall have advised the Company, in a written opinion satisfactory to it, that no registration under the Act or any state securities act would be required in connection with the proposed sale, pledge or other disposition and the proposed sale, pledge or other disposition is consummated as contemplated by such opinion.
Section 6. Registration Rights
(a) Registrable Securities. As used herein the terms "Registrable Securities" and "Registrable Security" means the shares of Common Stock underlying a Unit or issued upon the exercise of warrants underlying a Unit (collectively, the "Unit Shares") and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Unit Shares; provided, however, that with respect to any Registrable Security, such security shall cease to be a Registrable Security after October 14, 2010, or when, as of the date of determination, (i) it has been effectively registered under the Securities Act, (ii) it is freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"), or (iii) it has ceased to be outstanding.
(b) Resale Registration Statement. If, at any time after the date hereof and prior to close of the Offering, two or more investors (or related parties) each purchase at least 250 Units (representing $500,000 of the Registrable Securities), then within ten days of the consummation of the purchase of the second allotment of 250 Units the Company shall begin the process of preparing and filing with the Securities and Exchange Commission a registration statement covering the Subscriber's Registrable Securities (the "Resale Registration Statement"), and shall use reasonable efforts to have the Resale Registration Statement declared effective under the Act by the Securities and Exchange Commission. Upon the effectiveness of the Resale Registration Statement, the Company will use commercially reasonable efforts to keep the Resale Registration Statement open until such time as all of the Registrable Securities have been sold, or such time as all of the Registrable Securities are freely tradeable without limitation on the number of Shares transferable by the holder thereof pursuant to an exemption from registration provided by Rule 144 promulgated under the Act. The Company shall bear all of the expense of the Resale Registration.
(c) Piggyback Registrations. If, at any time after the date hereof and before October 14, 2010 the Subscriber owns any of the Registrable Securities, the Company proposes to prepare and file with the Securities and Exchange Commission one or more registration statements covering equity or debt securities of the Company with a value exceeding $1,000,000 (in any such case, other than on Form S-8 or S-4 or successor forms), it will give Subscriber at least 15 days' prior written notice via overnight courier or certified mail (the "Notice"). Upon written request of Subscriber, made within 10 days after mailing of the Notice, that the Company include any of the Subscriber's Registrable Securities in the proposed registration statement, the Company shall use reasonable efforts to effect the registration under the Act, and any underwriting involved therein, of the Registrable Securities which it has been so requested to register but only to the extent that such inclusion does not diminish the number of securities included by a holder of Common Stock who has demanded such registration (the "Piggyback Registration"); provided, however, that if in the written opinion of the Company's managing underwriter, if any, for such offering, the inclusion of all or a portion of the Registrable Securities requested to be registered, when added to the securities being registered by the Company, will exceed the maximum amount of the Company's securities which can be marketed (i) at a price reasonably related to their then current market value, or (ii) without otherwise materially adversely affecting the entire offering, then the Company may exclude from such offering all or a portion of the Registrable Securities which it has been requested to register. The Company shall bear all of the expense of the Piggyback Registration, except for the pro rata portion of brokerage or underwriters' discounts or commissions relating to the shares sold on behalf of the Subscriber. All of Subscriber's Piggyback Registration rights under this Agreement shall expire on October 14, 2010. Notwithstanding anything to the contrary herein, the Company shall have the right at any and all times after it shall have given written notice
pursuant to this Section to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof.
(d) Subscriber Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 6 that the Subscriber shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended methods of disposition of such securities as shall be required to timely effect the registration of its Registrable Securities.
(e) Holdback Agreement. As long as Subscriber holds any Registrable Securities, Subscriber hereby agrees that it shall not sell or otherwise transfer any securities of the Company during the period of time as the managing underwriter and the Company shall agree (but not less than 90 days nor more than 180 days) beginning on the effective date of any registration statement, other than the Registrable Securities to be sold pursuant to such registration statement.
Section 7. Successors and Assigns. This Agreement, upon its effectiveness as provided for in Section 2 of this Agreement, shall be binding upon the heirs, executors, administrators and successors of the Subscriber, and shall inure to the benefit of the Company and its successors and assigns. This Agreement is not transferable or assignable by the Subscriber.
Section 8. Interpretation. Words used herein, regardless of the gender specifically used, shall be deemed and construed to include any other gender, masculine, feminine, or neuter, as the context requires.
Section 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior and contemporaneous agreements, representations and understandings of the parties, express or implied, oral or written with respect to the subject matter hereof. This Agreement may not be amended or modified in any way except in a writing signed by each of the parties hereto.
Section 10. Governing Law. This Agreement shall be construed in accordance with and governed in all respects by the laws of Ohio, without regard to its conflicts of laws rules.
[the rest of this page is intentionally left blank]
The Subscriber has executed this Agreement as of the date written below.
THE SUBSCRIBER MUST COMPLETE THE FOLLOWING (PLEASE PRINT):
INSTRUCTIONS:
1. PART I - All Subscribers must complete PART I.
2. PART II must be reviewed by all Subscribers. Initial any item in PART II that is applicable, and sign and date the Agreement.
PART I - General Information (all Subscribers)
Name of Subscriber (Print) Robert H. Peitz
Total Subscription Price ($2,000 x Number of Units Subscribed for) $209,110
If an Entity, Names of Individual Equity Owners ________________________
Address of Residence ___________________________________________________________ (or principal office Street or P.O. Box Number if an entity)
Telephone number (614) ________________
Mailing Address _______________________________________________ (if different) Street or P.O. Box Number
Attention: ______________________________
Social Security Number or Tax Identification Number _____________________
PART II - Accredited Investors
The Subscriber is an accredited investor under Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (the "Act") for the following reasons. (Please initial each of the statements below which are applicable to the Subscriber named above):
X The Subscriber is a natural person whose individual net worth,
--------- or joint net worth with that person's spouse at the time of
his/her purchase, exceeds $1,000,000.
--------- The Subscriber is a natural person who had an individual income
in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in
each of those years and who reasonably expects the same or
greater income level in the current year.
--------- The Subscriber is a bank, savings and loan association,
registered broker-dealer, insurance company, investment
company, private business development company, or licensed
small business investment company.
--------- The Subscriber is an employee benefit plan established and
maintained by a state, its political subdivision, or their
agencies if such plan has total assets in excess of $5,000,000.
--------- The Subscriber is a self-directed employee benefit or pension
plan, with investment decisions made solely by persons who are
accredited investors.
--------- The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the purpose of acquiring the
securities offered hereby, whose total purchase is directed by
a financially sophisticated person.
The Subscriber is a director or executive officer of the
--------- Company. The Subscriber is a charitable or other organization
described in 501(c)(3) of the Internal Revenue Code, or any
corporation, partnership, or business trust, not formed for the
purpose of acquiring the securities offered, with total assets
in excess of $5,000,000.
--------- The Subscriber is an entity in which all of the equity owners
are accredited investors.
|
To the best of my knowledge and belief, the above information supplied by me is true and correct in all respects, and I am aware and intend that Superconductive Components, Inc, may rely upon such information to determine the Subscriber's suitability as an investor in the Units.
Date: October 14, 2005 /s/ Robert Peitz
----------------------------------------
Signature of Subscriber (indicate title,
if applicable)
Date: __________________, 2005 ----------------------------------------
Signature of Subscriber (indicate title,
if applicable)
|
ACCEPTANCE
The Company hereby accepts the foregoing Subscription as to 104.55 Units as of the date set forth immediately below.
SUPERCONDUCTIVE COMPONENTS, INC.
Date: October 14, 2005 By: /s/ Daniel Rooney
------------------------------------
Its: President
|
EXHIBIT 10(r)
THIS COMMON STOCK PURCHASE WARRANT (THE "WARRANT") AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW. THE WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THE WARRANT NOR ANY SHARES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD OR OFFERED FOR SALE, IN WHOLE OR IN PART, UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITY UNDER THE ACT AND QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW, (2) SUCH TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND PURSUANT TO QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR EXEMPTION THEREFROM, OR (3) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO SAID TRANSFER, SALE OR OFFER.
SUPERCONDUCTIVE COMPONENTS, INC.
COMMON STOCK PURCHASE WARRANT
Issuance Date: October 19, 2005
SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation (the "Company"), 2839 Charter Street, Columbus, Ohio 43228, hereby certifies that, for value received, The Estate of Edward R. Funk, or its transferee (the "Holder") is entitled to purchase from the Company 23,500 shares of the Company's common stock without par value (the "Shares"), for the price of $3.00 per Share (the "Conversion Price"), which right to purchase the Shares shall be exercisable until October 14, 2010. The number and exercise price of such Shares shall be subject to adjustment as provided below.
1. Exchange of Warrants. This Warrant, at any time prior to the exercise hereof, upon presentation and surrender to the Company, may be exchanged, alone or with other Warrants of like tenor registered in the name of Holder, for another Warrant or several Warrants in the name of Holder, which shall each provide for the purchase of the number of Shares as requested by Holder thereof, so long as the aggregate number of Shares purchasable under the new Warrant or Warrants equals the aggregate number of Shares purchasable under the Warrant or Warrants surrendered.
2. Exercise of Warrant. If the Holder shall desire to exercise the purchase right evidenced by this Warrant, the Holder shall surrender this Warrant with the form of subscription attached hereto, duly executed by Holder, to the Company at 2839 Charter Street, Columbus, Ohio 43228, or such other address as the Company shall inform Holder hereof by written notice, accompanied by payment of the Conversion Price. This Warrant may be exercised in whole or in part. In case of the exercise hereof in part only, the Company will deliver to Holder a new Warrant of like tenor in the name of the Holder evidencing the right to purchase the number of Shares as to which this Warrant has not been exercised. Each certificate for Shares issued
hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion from its counsel as to any such certificate that such a legend is not required in order to assure compliance with the Securities Act of 1933):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
3. Adjustments to Number of Shares and Conversion Price. Prior to the expiration of this Warrant by exercise or by its terms, it shall be subject to the following further provisions:
(a) If the Company shall issue any of its Shares as a share dividend or subdivide the number of outstanding Shares into a greater number of shares, then, in either of such cases, the Conversion Price shall be proportionately reduced and the number of Shares at the time purchasable pursuant to this Warrant shall be proportionately increased; and conversely, in the event the Company shall contract the number of outstanding Shares by combining the Shares into a smaller number of Shares, then, in such case, the exercise price shall be proportionately increased and the number of Shares at that time purchasable pursuant to this Warrant shall be proportionately decreased. If the Company shall, at any time during the life of this Warrant, declare a dividend payable in cash on its Shares and shall at substantially the same time offer to its shareholders a right to purchase new Shares from the proceeds of such dividend or for an amount substantially equal to the dividend, all Shares so issued shall, for the purpose of this Warrant, be deemed to have been issued as a share dividend. Any dividend paid or distributed upon the Shares in shares of any other class or securities convertible into Shares shall be treated as a dividend paid in Shares to the extent that Shares are issuable upon the conversion thereof.
(b) If the Company shall be recapitalized by reclassifying its outstanding Shares into shares with a different par value, or the Company or a successor corporation shall consolidate or merge with or convey all or substantially all of its or any successor corporation's property and assets to any other corporation or corporations (any such corporation being included within the meaning of the term "successor corporation" hereinbefore used in the event of any consolidation or merger of any such corporation with, or the sale of all or substantially all of the property of any such corporation to, another corporation or corporations), the Holder shall thereafter have the right to purchase the number of shares of the Company, or of any successor corporation, to which the Holder would have been entitled had the Holder owned the number of shares represented by this Warrant at the time of such recapitalization, consolidation, merger or conveyance of all or substantially all of the property or assets, upon the basis and on the terms and conditions and during the time specified in this Warrant in lieu of the Shares of the Company theretofore purchasable upon the exercise of this Warrant had such recapitalization, consolidation, merger, or conveyance not taken place; and in any such event, the rights of the Holder to an adjustment in the number of Shares purchasable upon the exercise of this Warrant
as herein provided shall continue and be preserved in respect of any shares, securities or assets which the holder of this Warrant becomes entitled to purchase.
(c) In case:
(i) the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend payable otherwise than in cash, or any other distribution in respect of the Shares (including cash), pursuant to, without limitation, any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Shares for the purpose of entitling them to subscribe for or purchase any shares of any class or to receive any other rights; or
(iii) of any classification, reclassification or other reorganization of the shares which the Company is authorized to issue, consolidation or merger of the Company with or into another corporation, or conveyance of all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at least 20 days prior thereto, a notice stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date on which such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, as the case may be. Such notice shall also specify the date or expected date, if any is to be fixed, as of which holders of Shares of record shall be entitled to exchange their Shares for securities or other property deliverable upon such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, as the case may be.
(d) In case the Company at any time while this Warrant shall remain unexpired and unexercised shall sell all or substantially all of its property or dissolve, liquidate or wind up its affairs, the Holder may thereafter receive upon exercise hereof in lieu of each Share of the Company which it would have been entitled to receive the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation or winding up with respect to each Share of the Company.
4. Reservation of Shares Issuable on Exercise of Warrants. The Company will at all times reserve and keep available out of its authorized shares, solely for issuance upon the exercise of this Warrant and other similar Warrants, such number of Shares and other shares as from time to time shall be issuable upon the exercise of this Warrant and all other similar Warrants at the time outstanding.
5. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) of an indemnity satisfactory to it (in the exercise of its reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.
6. Warrant Holder Not a Shareholder. The Holder, as such, shall not be entitled by reason of this warrant to any rights whatsoever of a shareholder of the Company.
7. Transfer. This Warrant is transferable only on the books of the Company by the Holder in person or by attorney, on surrender of this Warrant, properly endorsed. The Holder agrees to provide the Company with any evidence necessary to demonstrate that any such transfer will not be a violation of the Securities Act of 1933, as amended.
8. Recognition of Holder. Prior to due presentment for registration of transfer of this Warrant, the Company may treat the Holder as the person exclusively entitled to receive notices and otherwise to exercise rights hereunder.
9. Taxes and Expenses. The Company will pay any applicable transfer taxes and other expenses incurred with respect to the issue of this Warrant or the Shares issuable upon exercise thereof.
10. Mailing of Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class, registered mail, postage prepaid, to the address furnished to the Company in writing by the Holder of this Warrant.
11. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Ohio.
SUPERCONDUCTIVE COMPONENTS, INC.
Dated: October 19, 2005 By: /s/ Daniel Rooney
------------------------------------
Name: Daniel Rooney
Its: President & CEO
|
EXHIBIT 10(s)
THIS COMMON STOCK PURCHASE WARRANT (THE "WARRANT") AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW. THE WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THE WARRANT NOR ANY SHARES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD OR OFFERED FOR SALE, IN WHOLE OR IN PART, UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITY UNDER THE ACT AND QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW, (2) SUCH TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND PURSUANT TO QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR EXEMPTION THEREFROM, OR (3) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO SAID TRANSFER, SALE OR OFFER.
SUPERCONDUCTIVE COMPONENTS, INC.
COMMON STOCK PURCHASE WARRANT
Issuance Date: October 19, 2005
SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation (the "Company"), 2839 Charter Street, Columbus, Ohio 43228, hereby certifies that, for value received, The Estate of Ingeborg V. Funk, or its transferee (the "Holder") is entitled to purchase from the Company 12,500 shares of the Company's common stock without par value (the "Shares"), for the price of $3.00 per Share (the "Conversion Price"), which right to purchase the Shares shall be exercisable until October 14, 2010. The number and exercise price of such Shares shall be subject to adjustment as provided below.
1. Exchange of Warrants. This Warrant, at any time prior to the exercise hereof, upon presentation and surrender to the Company, may be exchanged, alone or with other Warrants of like tenor registered in the name of Holder, for another Warrant or several Warrants in the name of Holder, which shall each provide for the purchase of the number of Shares as requested by Holder thereof, so long as the aggregate number of Shares purchasable under the new Warrant or Warrants equals the aggregate number of Shares purchasable under the Warrant or Warrants surrendered.
2. Exercise of Warrant. If the Holder shall desire to exercise the purchase right evidenced by this Warrant, the Holder shall surrender this Warrant with the form of subscription attached hereto, duly executed by Holder, to the Company at 2839 Charter Street, Columbus, Ohio 43228, or such other address as the Company shall inform Holder hereof by written notice, accompanied by payment of the Conversion Price. This Warrant may be exercised in whole or in part. In case of the exercise hereof in part only, the Company will deliver to Holder a new Warrant of like tenor in the name of the Holder evidencing the right to purchase the number of Shares as to which this Warrant has not been exercised. Each certificate for Shares issued
hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion from its counsel as to any such certificate that such a legend is not required in order to assure compliance with the Securities Act of 1933):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
3. Adjustments to Number of Shares and Conversion Price. Prior to the expiration of this Warrant by exercise or by its terms, it shall be subject to the following further provisions:
(a) If the Company shall issue any of its Shares as a share dividend or subdivide the number of outstanding Shares into a greater number of shares, then, in either of such cases, the Conversion Price shall be proportionately reduced and the number of Shares at the time purchasable pursuant to this Warrant shall be proportionately increased; and conversely, in the event the Company shall contract the number of outstanding Shares by combining the Shares into a smaller number of Shares, then, in such case, the exercise price shall be proportionately increased and the number of Shares at that time purchasable pursuant to this Warrant shall be proportionately decreased. If the Company shall, at any time during the life of this Warrant, declare a dividend payable in cash on its Shares and shall at substantially the same time offer to its shareholders a right to purchase new Shares from the proceeds of such dividend or for an amount substantially equal to the dividend, all Shares so issued shall, for the purpose of this Warrant, be deemed to have been issued as a share dividend. Any dividend paid or distributed upon the Shares in shares of any other class or securities convertible into Shares shall be treated as a dividend paid in Shares to the extent that Shares are issuable upon the conversion thereof.
(b) If the Company shall be recapitalized by reclassifying its outstanding Shares into shares with a different par value, or the Company or a successor corporation shall consolidate or merge with or convey all or substantially all of its or any successor corporation's property and assets to any other corporation or corporations (any such corporation being included within the meaning of the term "successor corporation" hereinbefore used in the event of any consolidation or merger of any such corporation with, or the sale of all or substantially all of the property of any such corporation to, another corporation or corporations), the Holder shall thereafter have the right to purchase the number of shares of the Company, or of any successor corporation, to which the Holder would have been entitled had the Holder owned the number of shares represented by this Warrant at the time of such recapitalization, consolidation, merger or conveyance of all or substantially all of the property or assets, upon the basis and on the terms and conditions and during the time specified in this Warrant in lieu of the Shares of the Company theretofore purchasable upon the exercise of this Warrant had such recapitalization, consolidation, merger, or conveyance not taken place; and in any such event, the rights of the Holder to an adjustment in the number of Shares purchasable upon the exercise of this Warrant
as herein provided shall continue and be preserved in respect of any shares, securities or assets which the holder of this Warrant becomes entitled to purchase.
(c) In case:
(i) the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend payable otherwise than in cash, or any other distribution in respect of the Shares (including cash), pursuant to, without limitation, any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Shares for the purpose of entitling them to subscribe for or purchase any shares of any class or to receive any other rights; or
(iii) of any classification, reclassification or other reorganization of the shares which the Company is authorized to issue, consolidation or merger of the Company with or into another corporation, or conveyance of all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at least 20 days prior thereto, a notice stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date on which such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, as the case may be. Such notice shall also specify the date or expected date, if any is to be fixed, as of which holders of Shares of record shall be entitled to exchange their Shares for securities or other property deliverable upon such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, as the case may be.
(d) In case the Company at any time while this Warrant shall remain unexpired and unexercised shall sell all or substantially all of its property or dissolve, liquidate or wind up its affairs, the Holder may thereafter receive upon exercise hereof in lieu of each Share of the Company which it would have been entitled to receive the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation or winding up with respect to each Share of the Company.
4. Reservation of Shares Issuable on Exercise of Warrants. The Company will at all times reserve and keep available out of its authorized shares, solely for issuance upon the exercise of this Warrant and other similar Warrants, such number of Shares and other shares as from time to time shall be issuable upon the exercise of this Warrant and all other similar Warrants at the time outstanding.
5. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) of an indemnity satisfactory to it (in the exercise of its reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.
6. Warrant Holder Not a Shareholder. The Holder, as such, shall not be entitled by reason of this warrant to any rights whatsoever of a shareholder of the Company.
7. Transfer. This Warrant is transferable only on the books of the Company by the Holder in person or by attorney, on surrender of this Warrant, properly endorsed. The Holder agrees to provide the Company with any evidence necessary to demonstrate that any such transfer will not be a violation of the Securities Act of 1933, as amended.
8. Recognition of Holder. Prior to due presentment for registration of transfer of this Warrant, the Company may treat the Holder as the person exclusively entitled to receive notices and otherwise to exercise rights hereunder.
9. Taxes and Expenses. The Company will pay any applicable transfer taxes and other expenses incurred with respect to the issue of this Warrant or the Shares issuable upon exercise thereof.
10. Mailing of Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class, registered mail, postage prepaid, to the address furnished to the Company in writing by the Holder of this Warrant.
11. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Ohio.
SUPERCONDUCTIVE COMPONENTS, INC.
Dated: October 19, 2005 By: /s/ Daniel Rooney
------------------------------------
Name: Daniel Rooney
Its: President & CEO
|
EXHIBIT 10(t)
THIS COMMON STOCK PURCHASE WARRANT (THE "WARRANT") AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW. THE WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THE WARRANT NOR ANY SHARES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD OR OFFERED FOR SALE, IN WHOLE OR IN PART, UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITY UNDER THE ACT AND QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW, (2) SUCH TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND PURSUANT TO QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR EXEMPTION THEREFROM, OR (3) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO SAID TRANSFER, SALE OR OFFER.
SUPERCONDUCTIVE COMPONENTS, INC.
COMMON STOCK PURCHASE WARRANT
Issuance Date: October 19, 2005
SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation (the "Company"), 2839 Charter Street, Columbus, Ohio 43228, hereby certifies that, for value received, Robert Peitz, or his transferee (the "Holder") is entitled to purchase from the Company 26,139 shares of the Company's common stock without par value (the "Shares"), for the price of $3.00 per Share (the "Conversion Price"), which right to purchase the Shares shall be exercisable until October 14, 2010. The number and exercise price of such Shares shall be subject to adjustment as provided below.
1. Exchange of Warrants. This Warrant, at any time prior to the exercise hereof, upon presentation and surrender to the Company, may be exchanged, alone or with other Warrants of like tenor registered in the name of Holder, for another Warrant or several Warrants in the name of Holder, which shall each provide for the purchase of the number of Shares as requested by Holder thereof, so long as the aggregate number of Shares purchasable under the new Warrant or Warrants equals the aggregate number of Shares purchasable under the Warrant or Warrants surrendered.
2. Exercise of Warrant. If the Holder shall desire to exercise the purchase right evidenced by this Warrant, the Holder shall surrender this Warrant with the form of subscription attached hereto, duly executed by Holder, to the Company at 2839 Charter Street, Columbus, Ohio 43228, or such other address as the Company shall inform Holder hereof by written notice, accompanied by payment of the Conversion Price. This Warrant may be exercised in whole or in part. In case of the exercise hereof in part only, the Company will deliver to Holder a new Warrant of like tenor in the name of the Holder evidencing the right to purchase the number of Shares as to which this Warrant has not been exercised. Each certificate for Shares issued
hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion from its counsel as to any such certificate that such a legend is not required in order to assure compliance with the Securities Act of 1933):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
3. Adjustments to Number of Shares and Conversion Price. Prior to the expiration of this Warrant by exercise or by its terms, it shall be subject to the following further provisions:
(a) If the Company shall issue any of its Shares as a share dividend or subdivide the number of outstanding Shares into a greater number of shares, then, in either of such cases, the Conversion Price shall be proportionately reduced and the number of Shares at the time purchasable pursuant to this Warrant shall be proportionately increased; and conversely, in the event the Company shall contract the number of outstanding Shares by combining the Shares into a smaller number of Shares, then, in such case, the exercise price shall be proportionately increased and the number of Shares at that time purchasable pursuant to this Warrant shall be proportionately decreased. If the Company shall, at any time during the life of this Warrant, declare a dividend payable in cash on its Shares and shall at substantially the same time offer to its shareholders a right to purchase new Shares from the proceeds of such dividend or for an amount substantially equal to the dividend, all Shares so issued shall, for the purpose of this Warrant, be deemed to have been issued as a share dividend. Any dividend paid or distributed upon the Shares in shares of any other class or securities convertible into Shares shall be treated as a dividend paid in Shares to the extent that Shares are issuable upon the conversion thereof.
(b) If the Company shall be recapitalized by reclassifying its outstanding Shares into shares with a different par value, or the Company or a successor corporation shall consolidate or merge with or convey all or substantially all of its or any successor corporation's property and assets to any other corporation or corporations (any such corporation being included within the meaning of the term "successor corporation" hereinbefore used in the event of any consolidation or merger of any such corporation with, or the sale of all or substantially all of the property of any such corporation to, another corporation or corporations), the Holder shall thereafter have the right to purchase the number of shares of the Company, or of any successor corporation, to which the Holder would have been entitled had the Holder owned the number of shares represented by this Warrant at the time of such recapitalization, consolidation, merger or conveyance of all or substantially all of the property or assets, upon the basis and on the terms and conditions and during the time specified in this Warrant in lieu of the Shares of the Company theretofore purchasable upon the exercise of this Warrant had such recapitalization, consolidation, merger, or conveyance not taken place; and in any such event, the rights of the Holder to an adjustment in the number of Shares purchasable upon the exercise of this Warrant
as herein provided shall continue and be preserved in respect of any shares, securities or assets which the holder of this Warrant becomes entitled to purchase.
(c) In case:
(i) the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend payable otherwise than in cash, or any other distribution in respect of the Shares (including cash), pursuant to, without limitation, any spin-off, split-off or distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its Shares for the purpose of entitling them to subscribe for or purchase any shares of any class or to receive any other rights; or
(iii) of any classification, reclassification or other reorganization of the shares which the Company is authorized to issue, consolidation or merger of the Company with or into another corporation, or conveyance of all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at least 20 days prior thereto, a notice stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date on which such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, as the case may be. Such notice shall also specify the date or expected date, if any is to be fixed, as of which holders of Shares of record shall be entitled to exchange their Shares for securities or other property deliverable upon such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, as the case may be.
(d) In case the Company at any time while this Warrant shall remain unexpired and unexercised shall sell all or substantially all of its property or dissolve, liquidate or wind up its affairs, the Holder may thereafter receive upon exercise hereof in lieu of each Share of the Company which it would have been entitled to receive the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation or winding up with respect to each Share of the Company.
4. Reservation of Shares Issuable on Exercise of Warrants. The Company will at all times reserve and keep available out of its authorized shares, solely for issuance upon the exercise of this Warrant and other similar Warrants, such number of Shares and other shares as from time to time shall be issuable upon the exercise of this Warrant and all other similar Warrants at the time outstanding.
5. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) of an indemnity satisfactory to it (in the exercise of its reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.
6. Warrant Holder Not a Shareholder. The Holder, as such, shall not be entitled by reason of this warrant to any rights whatsoever of a shareholder of the Company.
7. Transfer. This Warrant is transferable only on the books of the Company by the Holder in person or by attorney, on surrender of this Warrant, properly endorsed. The Holder agrees to provide the Company with any evidence necessary to demonstrate that any such transfer will not be a violation of the Securities Act of 1933, as amended.
8. Recognition of Holder. Prior to due presentment for registration of transfer of this Warrant, the Company may treat the Holder as the person exclusively entitled to receive notices and otherwise to exercise rights hereunder.
9. Taxes and Expenses. The Company will pay any applicable transfer taxes and other expenses incurred with respect to the issue of this Warrant or the Shares issuable upon exercise thereof.
10. Mailing of Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class, registered mail, postage prepaid, to the address furnished to the Company in writing by the Holder of this Warrant.
11. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Ohio.
SUPERCONDUCTIVE COMPONENTS, INC.
Dated: October 19, 2005 By: /s/ Daniel Rooney
------------------------------------
Name: Daniel Rooney
Its: President & CEO
|
EXHIBIT 10(u)
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (the "Agreement") is made and entered into effective as of this 14th day of October, 2005, by and between the Estate of Edward R. Funk (the "Estate") and Superconductive Components, Inc., an Ohio corporation (the "Company").
Recitals
A. WHEREAS, on March 18, 2002, the Company executed a Promissory Note in the amount of $168,270.00 payable to Edward R. Funk and Ingeborg V. Funk as joint tenants, which Promissory Note represents the Company's indebtedness to the Estate in the amount of $84,134.86 (the "Note"), and which Note is currently outstanding.
B. WHEREAS, the Company is indebted to the Estate for additional sums advanced by Edward R. Funk to the Company in the aggregate amount of $104,276.85 (together with the indebtedness represented by the Note, the "Indebtedness").
C. WHEREAS, the Estate has agreed to cancel $188,000 of the Indebtedness (the "Indebtedness Portion") in exchange for shares of common stock of the Company, without par value, and warrants to purchase additional shares of common stock of the Company, pursuant to the terms and conditions set forth in: (1) the Confidential Private Placement Memorandum attached hereto as Exhibit A (the "Confidential Private Placement Memorandum"); and (2) the Subscription Agreement attached hereto as Exhibit B (the "Subscription Agreement").
NOW, THEREFORE, in consideration of the mutual agreements and covenants hereinafter contained, the parties hereto agree as follows:
Agreement
1. PAYMENT. Upon receipt of originally executed copies of (a) this Agreement and (b) the Subscription Agreement, the Company shall transfer to the Estate a stock certificate representing 94,000 shares of common stock of the Company (the "Shares"), and a warrant to purchase an additional 23,500 shares of common stock of the Company at $3.00 per share until October 14, 2010. Furthermore, upon the conversion of the Indebtedness Portion as set forth above, the Company shall transfer to the Estate a check in the amount of $411.71, in full satisfaction of the remaining amount of the Indebtedness.
2. CANCELLATION OF INDEBTEDNESS. In consideration and upon receipt of the payment recited in Section 1 of this Agreement, the adequacy of which is expressly acknowledged, the Estate, for itself and its heirs, successors and assigns, hereby shall cancel the Indebtedness and release and forever discharge the Company, and future parent and subsidiary corporations, divisions, affiliates, predecessors, successors, and assigns, all past, present, and future officers,
directors, shareholders, employees, and agents of the Company, individually and in their representative capacities, and their respective heirs, successors, and assigns, of and from any and every action, cause of action, complaint, claim, demand, administrative charge, legal right, compensation, obligation, damages (including exemplary and punitive damages), liability, cost and/or expense whatsoever, of every name and nature, whether known or unknown, in law, equity, or otherwise, which arise directly or indirectly out of, or are related in any way to, the Indebtedness including, but not limited to, any accrued but unpaid interest thereon.
3. TRANSFERABILITY OF SHARES. (a) The Estate acknowledges that the Estate
has been advised by the Company that the Shares issued pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), that the Shares are being issued on the basis of the
statutory exemption provided by Section 4(2) of the Securities Act or Regulation
D promulgated thereunder, or both, relating to the transactions by an issuer not
involving a public offering, and that the Company's reliance hereon is based in
part upon the representations made by the Estate in the Subscription Agreement.
The Estate acknowledges that the Estate has been informed by the Company of, or
is otherwise familiar with, the nature of the limitations imposed by the
Securities Act and the rules and regulations hereunder on the transfer of
securities. In particular, the Estate agrees that no sale, assignment or
transfer of the Shares shall be valid or effective, and the Company shall not be
required to give effect to any such sale, assignment or transfer, unless (i) the
sale, assignment or transfer of Shares is registered under the Securities Act,
it being understood that the Shares are not currently registered for sale, or
(ii) the Shares are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Securities Act, it being
understood that Rule 144 is not available at the time of the original issuance
of the Shares for the sale of the Shares and that there can be no assurance that
Rule 144 sales will be available at any subsequent time, or (iii) that the
Company has received an opinion of counsel satisfactory to the Company and its
counsel that such sale, assignment or transfer is otherwise exempt from
registration under the Securities Act.
(b) Unless registered pursuant to the provisions of the Securities Act, the certificate(s) evidencing the Shares issued pursuant to this Agreement shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
4. BINDING EFFECT. This Agreement shall bind the parties hereto, their respective heirs, representatives, successors, and assigns.
5. AMENDMENT. This Agreement may not be amended, altered, or modified except by written instrument signed by all the parties hereto.
6. GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be interpreted in accordance with the laws of the State of Ohio, without reference to its choice of law rules.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first set forth above.
THE ESTATE OF EDWARD R. FUNK: SUPERCONDUCTIVE COMPONENTS, INC. /s/ Curtis A. Loveland By: /s/ Daniel Rooney ------------------------------------- ------------------------------------ Curtis A. Loveland, Executor Its.: President & CEO |
Exhibit 10(v)
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (the "Agreement") is made and entered into effective as of this 14th day of October, 2005, by and between the Estate of Ingeborg V. Funk (the "Estate") and Superconductive Components, Inc., an Ohio corporation (the "Company").
Recitals
A. WHEREAS, on March 18, 2002, the Company executed a Promissory Note in the amount of $168,270.00 payable to Edward R. Funk and Ingeborg V. Funk as joint tenants, which Promissory Note represents the Company's indebtedness to the Estate in the amount of $84,134.86 (the "Note"), and which Note is currently outstanding.
B. WHEREAS, the Company is indebted to the Estate for additional sums advanced by Ingeborg V. Funk to the Company in the amount of $16,845.35 (together with the indebtedness represented by the Note, the "Indebtedness").
C. WHEREAS, the Estate has agreed to cancel $100,000 of the Indebtedness (the "Indebtedness Portion") in exchange for shares of common stock of the Company, without par value, and warrants to purchase additional shares of common stock of the Company, pursuant to the terms and conditions set forth in: (1) the Confidential Private Placement Memorandum attached hereto as Exhibit A (the "Confidential Private Placement Memorandum"); and (2) the Subscription Agreement attached hereto as Exhibit B (the "Subscription Agreement").
NOW, THEREFORE, in consideration of the mutual agreements and covenants hereinafter contained, the parties hereto agree as follows:
Agreement
1. PAYMENT. Upon receipt of originally executed copies of (a) this Agreement and (b) the Subscription Agreement, the Company shall transfer to the Estate a stock certificate representing 50,000 shares of common stock of the Company (the "Shares"), and a warrant to purchase an additional 12,500 shares of common stock of the Company at $3.00 per share until October 14, 2010. Furthermore, upon the conversion of the Indebtedness Portion as set forth above, the Company shall transfer to the Estate a check in the amount of $980.21, in full satisfaction of the remaining amount of the Indebtedness.
2. CANCELLATION OF INDEBTEDNESS. In consideration and upon receipt of the payment recited in Section 1 of this Agreement, the adequacy of which is expressly acknowledged, the Estate, for itself and its heirs, successors and assigns, hereby shall cancel the Indebtedness and release and forever discharge the Company, and future parent and subsidiary corporations, divisions, affiliates, predecessors, successors, and assigns, all past, present, and future officers,
directors, shareholders, employees, and agents of the Company, individually and in their representative capacities, and their respective heirs, successors, and assigns, of and from any and every action, cause of action, complaint, claim, demand, administrative charge, legal right, compensation, obligation, damages (including exemplary and punitive damages), liability, cost and/or expense whatsoever, of every name and nature, whether known or unknown, in law, equity, or otherwise, which arise directly or indirectly out of, or are related in any way to, the Indebtedness including, but not limited to, any accrued but unpaid interest thereon.
3. TRANSFERABILITY OF SHARES. (a) The Estate acknowledges that the Estate
has been advised by the Company that the Shares issued pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), that the Shares are being issued on the basis of the
statutory exemption provided by Section 4(2) of the Securities Act or Regulation
D promulgated thereunder, or both, relating to the transactions by an issuer not
involving a public offering, and that the Company's reliance hereon is based in
part upon the representations made by the Estate in the Subscription Agreement.
The Estate acknowledges that the Estate has been informed by the Company of, or
is otherwise familiar with, the nature of the limitations imposed by the
Securities Act and the rules and regulations hereunder on the transfer of
securities. In particular, the Estate agrees that no sale, assignment or
transfer of the Shares shall be valid or effective, and the Company shall not be
required to give effect to any such sale, assignment or transfer, unless (i) the
sale, assignment or transfer of Shares is registered under the Securities Act,
it being understood that the Shares are not currently registered for sale, or
(ii) the Shares are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Securities Act, it being
understood that Rule 144 is not available at the time of the original issuance
of the Shares for the sale of the Shares and that there can be no assurance that
Rule 144 sales will be available at any subsequent time, or (iii) that the
Company has received an opinion of counsel satisfactory to the Company and its
counsel that such sale, assignment or transfer is otherwise exempt from
registration under the Securities Act.
(b) Unless registered pursuant to the provisions of the Securities Act, the certificate(s) evidencing the Shares issued pursuant to this Agreement shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
4. BINDING EFFECT. This Agreement shall bind the parties hereto, their respective heirs, representatives, successors, and assigns.
5. AMENDMENT. This Agreement may not be amended, altered, or modified except by written instrument signed by all the parties hereto.
6. GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be interpreted in accordance with the laws of the State of Ohio, without reference to its choice of law rules.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first set forth above.
THE ESTATE OF INGEBORG V. FUNK: SUPERCONDUCTIVE COMPONENTS, INC. /s/ Curtis A. Loveland By: /s/ Daniel Rooney ------------------------------------- ------------------------------------ Curtis A. Loveland, Executor Its.: President & CEO |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Superconductive Components, Inc. Form SB-2 Registration Statement, for the registration of 2,281,253 common shares of Superconductive Components, Inc., of our report dated February 8, 2006 relating to the balance sheet of Superconductive Components, Inc. as of December 31, 2005, and the related statements of operations, shareholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 2005, which report appears in the December 31, 2005 annual report Form 10-KSB of Superconductive Components, Inc.
/s/ Hausser + Taylor LLC
Columbus, Ohio
March 22, 2006
|
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of Superconductive Components, Inc., an Ohio corporation (the "Company"), hereby appoints Daniel Rooney and Gerald S. Blaskie as the undersigned's attorney-in-fact, or either of them individually as the undersigned's attorney-in-fact, in his or her name and on his or her behalf, and in any and all capacities stated below, to sign or cause to be filed with the Securities and Exchange Commission (the "Commission"), the Company's registration statement on Form SB-2 (the "Registration Statement") to register under the Securities Act of 1933, as amended, the sale of up to 2,281,253 shares of Common Stock, no par value, of the Company, including shares which may be issued upon the exercise of warrants, and any and all amendments, including post-effective amendments, to the Registration Statement, hereby granting unto such attorneys-in-fact, and to each of them, full power and authority to do and perform in the name of and on behalf of the undersigned, in any and all such capacities, every act and thing whatsoever necessary to be done in and about the premises as fully as the undersigned could or might do in person, hereby granting to each such attorney-in-fact full power of substitution and revocation, and hereby ratifying all that any such attorney-in-fact or his substitute may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Power of Attorney has been signed on this 13th day of January, 2006.
SIGNATURE TITLE
----------- -------
/s/ Daniel Rooney President, Chief Executive
---------------------------------- Officer and Chairman of the Board
Daniel Rooney of Directors (principal executive
officer)
/s/ Gerald S. Blaskie Chief Financial Officer
---------------------------------- (Principal financial officer and
Gerald S. Blaskie principal accounting officer)
/s/ Robert J. Baker Director
----------------------------------
Robert J. Baker, Jr.
/s/ Walter J. Doyle Director
----------------------------------
Walter J. Doyle
/s/ Robert H. Peitz Director
----------------------------------
Robert H. Peitz
/s/ Edward W. Ungar Director
----------------------------------
Edward W. Ungar
|