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 SCI Engineered Materials, Inc., an Ohio corporation. This
prospectus contains forward-looking statements and information relating
to SCI
Engineered Materials, Inc. See Cautionary Note Regarding Forward Looking
Statements
on
page
6.
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.
We
recently amended our Articles of Incorporation to SCI Engineered Materials,
Inc.
from Superconductive Components, Inc. which is the name that we have used
for
business purposes for several years. 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: Semiconductor, Photonics/Optical, Solar 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 seek funded research
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. During late 2007, we added a sales engineer
to focus
on the expanding demand for Thin Film Solar materials. In late 2006, we
added a
marketing manager to sell our product to the semiconductor
industry.
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. The
Registration Statement became effective April 4, 2006 and continues to
be
effective. The Registration Statement allows 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 31, 2008
|
|
3,501,966
shares
|
|
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any proceeds from the sale of the common
stock.
|
An
investment in our common stock is highly speculative and involves a high
degree
of risk. See Risk Factors beginning on page
3.
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. We reported net
income
applicable to common shares of $277,083 for the year ended December 31,
2006,
and $307,682 for the year ended December 31, 2007
.
There
can be no assurance that we will continue to be profitable. Our accumulated
deficit since inception was $
7,526,426
at
De
cembe
r
31,
2007.
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.
We
hired
a full time sales engineer in 2007 and a full time marketing manager in
2006, to
expand our marketing activities, especially in the solar area of the photonics
market and in the semiconductor market. 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
reported net income of $277,083 for 2006 and $307,682 for 2007. We incurred
substantial operating losses prior to 2006. There is no assurance that
our
profitable operations will continue and we could be required to seek additional
capital in the future for growth and working capital purposes as well.
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 Physical Vapor Deposition 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, such as Williams Advanced Materials, Kurt Lesker and Tosoh, all
of which
have more resources than we have. We cannot provide assurance that developments
by others will not render our products or technologies obsolete or less
competitive.
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 technological changes of our industry may adversely affect us if
we do not
keep pace with advancing technology.
The
Physical Vapor Deposition 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 early stages. Some of our materials are in early stages of
development for Thin Film Solar applications. Thin Film Solar is expected
to
gain significant market share during the next few years.
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.
Prior
to the fourth quarter of 2006, our common stock was 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 prior to the fourth quarter of 2006, our common stock was considered
a “penny stock” for purposes of federal securities laws, and therefore was
subject to regulations which affected the ability of broker-dealers to
sell our
securities. During 2007 our stock traded above the penny stock threshold
but has
recently once again slipped below the threshold. 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. There can be no
assurance that our common stock will once again rise above the penny stock
threshold or follow below the threshold in the future.
During
times when the penny stock regulations apply to our 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 affect 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
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.
[Remainder
of page intentionally left blank]
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.
|
Selling
Shareholders
|
|
Shares
Owned
Before
Offering
|
|
Percentage of
Outstanding
Shares
Owned Before
Offering (1)
|
|
Shares to
be Sold in
the Offering
|
|
Percentage
of
Outstanding
Shares
Owned
After
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
|
%
|
*
Represents beneficial ownership of less than 1% of our outstanding common
stock.
|
(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
prior to the
effective date of the offering. The ownership percentages listed
in these
columns include only shares beneficially owned by the listed
selling
shareholder as of March 10, 2006. 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 Shares and options or warrants
acquired
by a selling shareholder subsequent to March 10, 2006 are not
reflected in
the columns set forth above and may continue to be held by such
shareholder following the close of the
offering.
|
|
(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 Investments
SA
will not hold any shares of common stock or warrants to purchase
shares of
common stock held by it prior to the effective date of the
offering.
|
|
(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 common stock or warrants to purchase
shares of
common stock held by it prior to the effective date of the
offering.
|
|
(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 common stock or warrants to
purchase
shares of common stock held by it prior to the effective date
of the
offering.
|
|
(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 common stock or
warrants to
purchase shares of common stock held by it prior to the effective
date of
the offering.
|
|
(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 continue to
hold 24,400
shares of common stock and warrants to purchase 25,374 shares
of common
stock held by him prior to the effective date of the offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the offering. Mr. Berlin’s ownership
as of the date of the offering included 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.
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 included 20,833 shares of common
stock, which can be acquired by Mr. Berlin under stock purchase
warrants.
|
|
(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 continue
to hold
3,500 shares of common stock and warrants to purchase 26,909
shares of
common stock held by him prior to the effective date of the offering.
|
|
(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 continue
to hold
11,630 shares of common stock and warrants to purchase 26,909
shares of
common stock held by her prior to the effective date of the
offering.
|
|
(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 continue to hold 215,356 shares
of common
stock and warrants and options to purchase 104,400 shares of
common stock
held by it prior to the effective date of the
offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the
offering.
|
|
(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 continue to hold 325,352 shares
of common
stock and warrants and options to purchase 75,000 shares of common
stock
held by it prior to the effective date of the
offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the
offering.
|
|
(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
common stock or warrants to purchase shares of common stock held
by it
prior to the effective date of the
offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the
offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the
offering.
|
|
(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 common stock or warrants
to
purchase shares of common stock held by him prior to the effective
date of
the offering.
|
|
(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 common stock or warrants to purchase shares of
common stock
held by him prior to the effective date of the
offering.
|
|
(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 common stock held by her prior to the effective
date of the
offering.
|
|
(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 common
stock or warrants to purchase shares of common stock held by
them prior to
the effective date of the offering.
|
|
(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 common stock or warrants to purchase shares of common
stock held
by him prior to the effective date of the
offering.
|
PLAN
OF DISTRIBUTION
We
filed
a Registration Statement on Form SB
-
2,
as
amended,
with the
Securities and Exchange Commission with respect to the securities offered
in
this prospectus. That Registration Statement was declared effective on
April 4,
2006 and enables 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
|
|
54
|
|
President,
Chief Executive Officer and
|
|
|
|
|
|
Chairman
of the Board of Directors
|
|
|
|
|
|
|
|
Robert
J. Baker, Jr.
|
|
68
|
|
Director
|
|
|
|
|
|
|
|
Edward
W. Ungar
|
|
71
|
|
Director
|
|
|
|
|
|
|
|
Walter
J. Doyle
|
|
73
|
|
Director
|
|
|
|
|
|
|
|
Robert
H. Peitz
|
|
47
|
|
Director
|
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. Mr. Rooney has a Bachelor of Science degree in Ceramic
Engineering from Rutgers College of Engineering and a MBA from Niagara
University.
Robert
J. Baker, Jr., Ph.D.
has
served as a Director of our Company since 1992. Dr. Baker is the President
and
founder of Venture Resources International and the co-founder of Business
Owners
Consulting Group, which assists companies in the development of growth
strategies, including marketing position and competitive strategies. Dr.
Baker
graduated from the University of Illinois with B.S., M.S., and Ph. D. degrees
in
Ceramic Engineering. In addition, he is a Sloan Fellow at MIT where he
earned a
Management Science degree.
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. Mr. Ungar earned Ph.D. and M.S. degrees in
Mechanical Engineering from The Ohio State University and a B.M.E. in Mechanical
Engineering from City College of New York.
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. Mr. Peitz is the former
Managing
Director and Head of Financial Markets for PB Capital in New York, New
York.
Previously, Mr. Peitz was a Managing Director at BHF Capital, Treasurer
of
BHF-Bank New York Branch and an Associate at Morgan Stanley in International
Operations. Mr. Peitz graduated from the University of Cincinnati with
a
Bachelor of Arts in Economics and has an MBA from the Thunderbird School
of
Global Management.
The
Board
of Directors is seeking individual(s) to strengthen the Company’s
board.
Executive
Officers
In
addition to Mr. Rooney, the following persons are executive officers of
the
Company:
Gerald
S. Blaskie
,
age 50,
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.
Mr.
Blaskie earned a B.S. degree in Accounting from Central Michigan University
and
passed the CPA exam in the State of Ohio.
Scott
Campbell
,
Ph.D
.,
age
50,
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. Dr. Campbell earned his
Ph.D.,
Metallurgy, from the University of Illinois of Chicago. In addition, he
earned
M.S. and B.S. degrees in Ceramic Engineering from The Ohio State University.
He
is a member of the American Vacuum Society and the Materials Research Society.
Michael
K. Barna
,
age 51,
has served as Vice President, Sales-Photonics, since March 2, 2006. Mr.
Barna
joined the Company as Director of Sales and Marketing in January 2004.
Prior to
joining the Company, Mr. Barna had more than 20 years of experience in
thin film
sales, including major account sales of Physical Vapor Deposition equipment,
high purity targets and evaporation materials for these systems, hybrid
microelectronic, telecommunications, and commercial glass coating markets.
Mr.
Barna earned a B.S. degree in Mechanical Engineering from the University
of
Kentucky.
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
Mr.
Ungar
is Chairman of our Audit Committee, and the members are Messrs. Baker and
Doyle.
Our Board of Directors has determined that Messrs. Ungar and Doyle qualify
as
“audit committee financial experts” as that term is defined in Item 401(e) of
Regulation S-B. Messrs. Ungar and Doyle and Dr. Baker each meet the criteria
for
audit committee independence as defined in NASDAQ Rule 4350, and Rule 10A-3
promulgated under the Exchange Act.
Ownership
of Common Stock by Directors and Executive Officers
The
following table sets forth, as of March 31, 2008, 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.
|
Name of Beneficial Owner
(1)
|
|
Number of Shares
Beneficially
Owned
(2)
|
|
Percentage of
Class
(3)
|
|
|
Robert
H. Peitz
(4)
|
|
|
714,953
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Daniel
Rooney
(5)
|
|
|
141,152
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Walter
J. Doyle
(6)
|
|
|
120,238
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Baker, Jr.
(7)
|
|
|
75,051
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Scott
Campbell
(8)
|
|
|
66,000
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Edward
W. Ungar
(9)
|
|
|
56,188
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Michael
K. Barna
(10)
|
|
|
55,000
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (8 persons)
(11)
|
|
|
1,284,582
|
|
|
31.1
|
%
|
(1)
The
address of all directors and executive officers is c/o SCI Engineered Materials,
Inc., 2839 Charter Street, Columbus, Ohio 43228.
(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 31, 2008. 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 31, 2008,
plus
the number of shares such person has the right to acquire within 60 days
of
March 31, 2008.
(4)
Mr.
Peitz’ ownership includes 199,162 shares of common stock beneficially owned by
Park National Bank (Trustee for the Ingeborg Funk Children’s Trust), of which
43,750 shares of common stock can be acquired under stock purchase warrants
exercisable within 60 days of March 31, 2008. Mr. Peitz’ ownership also includes
154,712 shares of common stock, which can be acquired by Mr. Peitz under
stock
options and purchase warrants exercisable within 60 days of March 31,
2008.
(5)
Includes
128,000 common shares, which may be acquired by Mr. Rooney under stock
options
exercisable within 60 days of March 31, 2008 and 11,300 shares which are
held in
Mr. Rooney’s IRA.
(6)
Includes
24,250 common shares, which may be acquired by Mr. Doyle under stock purchase
warrants exercisable within 60 days of March 31, 2008.
(7)
Includes
51,000 common shares, which may be acquired by Dr. Baker under stock options
exercisable within 60 days of March 31, 2008, and 16,063 shares which are
held
in Dr. Baker’s IRA.
(8)
Includes
66,000 common shares, which may be acquired by Dr. Campbell under stock
options
exercisable within 60 days of March 31, 2008.
(9)
Includes
51,000 common shares, which may be acquired by Mr. Ungar under stock options
exercisable within 60 days of March 31, 2008.
(10)
Includes
52,000 common shares, which may be acquired by Mr. Barna under stock options
exercisable within 60 days of March 31, 2008.
(11)
Includes
626,712 common shares, which may be acquired under stock options and stock
purchase warrants exercisable within 60 days of March 31, 2008.
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth information as of March 31, 2008, 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.
|
Name of Beneficial Owner
(1)
|
|
Number of Shares
Beneficially
Owned
(2)
|
|
Percentage of
Class
(3)
|
|
|
Robert
H. Peitz
(4)
|
|
|
714,953
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Thomas
G. Berlin
(5)
|
|
|
408,197
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Laura
Shunk
(6)
|
|
|
403,328
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Daniel
Funk
(7)
|
|
|
401,129
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Curtis
A. Loveland
(8)
|
|
|
334,956
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Windcom
Investments SA
(9)
|
|
|
332,810
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Lake
Street Fund L.P.
(10)
|
|
|
310,300
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Berlin
Capital Growth L.P.
(11)
|
|
|
290,497
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Mid
South Investor Fund L.P.
(12)
|
|
|
250,000
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Ingeborg
Funk Children’s Trust
(13)
|
|
|
199,162
|
|
|
5.6
|
%
|
(1)
The
address of Robert H. Peitz is c/o SCI Engineered Materials, Inc., 2839
Charter
Street, Columbus, Ohio 43228. The address of Thomas G. Berlin is c/o Berlin
Financial Ltd., 1325 Carnegie Avenue, Cleveland, Ohio 44115. The address
of
Laura Shunk is PO Box 490, Chesterland, Ohio 44026. The address of Daniel
Funk
is 2123 Auburn Avenue, Suite 322, Cincinnati, Ohio 45219. The address of
Curtis
A. Loveland is c/o Porter, Wright, Morris & Arthur LLP, 41 South High
Street, Columbus, Ohio 43215. The address of Windcom Investments SA is
Corso
Elvezia 25, 6900 Lugan, CH. The address of Lake Street Fund L.P. is 600
South
Lake Avenue, Suite 100, Pasadena, California 91106. The address of Berlin
Capital Fund, L.P. is c/o Thomas G. Berlin, Berlin Financial Ltd., 1325
Carnegie
Avenue, Cleveland, Ohio 44115. The address of Mid South Investor Fund L.P.
is
1776 Peachtree St. NW, Suite 412 North, Atlanta, Georgia 30309. The address
of
the Ingeborg Funk Children’s Trust is c/o Tom Comisky, Park National Bank, 50 N.
3
rd
Street,
Newark, Ohio 43058.
(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 31, 2008. 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 31, 2008,
plus
the number of shares such person has the right to acquire within 60 days
of
March 31, 2008.
(4)
Mr.
Peitz’ ownership includes 199,162 shares of common stock beneficially owned by
Park National Bank (Trustee for the Ingeborg Funk Children’s Trust), of which
43,750 shares of common stock can be acquired under stock purchase warrants
exercisable within 60 days of March 31, 2008. Mr. Peitz’ ownership also includes
154,712 shares of common stock, which can be acquired by Mr. Peitz under
stock
options and purchase warrants exercisable within 60 days of March 31,
2008.
(5)
Mr.
Berlin’s ownership includes 290,497 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
31,
2008. 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 31, 2008.
(6)
Includes
98,611 common shares, which may be acquired by Ms. Shunk under stock options
and
stock purchase warrants exercisable within 60 days of March 31,
2008.
(7)
Includes
79,202 common shares, which may be acquired by Dr. Funk under stock options
and
stock purchase warrants exercisable within 60 days of March 31,
2008.
(8)
Includes
51,000 shares of common stock, which can be acquired by Mr. Loveland under
stock
options exercisable within 60 days of March 31, 2008.
(9)
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
31, 2008.
(10)
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 31, 2008.
(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
31,
2008.
(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
31,
2008.
(13)
Includes
43,750 shares of common stock, which can be acquired by the Ingeborg Funk
Children’s Trust under stock purchase warrants exercisable within 60 days of
March 31, 2008.
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
31, 2008
,
the
Company had
3,501,
966
common
shares, without par value, outstanding. Of these shares,
1,879,671
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
1,622,295
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
December 31, 2007, 24,566 Series B Preferred Shares remained issued and
outstanding and had not been converted to shares of common stock. As of
December
31, 2007, the Series B Preferred Shares had accrued and unpaid dividends
in the
amount of $122,830.
INTEREST
OF NAMED EXPERTS AND COUNSEL
The
validity of the securities being registered by this Registration Statement
is
being passed on for the Company by Carlile Patchen & Murphy LLP. As of the
date of this Registration Statement, Carlile Patchen & Murphy LLP owned no
shares of the Company’s common stock. Michael A. Smith, a partner of Carlile
Patchen & Murphy 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
SCI
Engineered Materials, Inc. (“SCI” or the “Company”), formerly Superconductive
Components, Inc., an Ohio corporation, was incorporated in 1987.
We
manufacture ceramic and metal sputtering targets for a variety of industrial
applications including Photonics, Semiconductor, Thin Film Battery, and,
to a
lesser extent High Temperature Superconductive (“HTS”) materials. Photonics
currently represents our largest market for our targets. Thin Film Battery
is a
developing market where manufacturers of batteries use our targets to produce
very small power supplies with small quantities of stored energy. Semiconductor
is a developing market for us.
History
of the Company
The
late
Dr. Edward Funk, Sc.D., and his late wife Ingeborg founded SCI in 1987.
Dr.
Funk, formerly a Professor of Metallurgy at The Ohio State University and
a
successful entrepreneur, envisioned significant market potential for the
newly
discovered High Temperature Superconductivity (HTS) material YBCO (T
c
of
90
o
K). Our
first product was a 99.999% pure, co-precipitated YBCO 1-2-3 powder. Over
the
years we expanded our product line by adding other High T
c
Powders,
sintered shapes, single crystal substrates, and non-superconducting sputtering
targets.
We
opened
a subdivision, Target Materials Inc. (TMI), in 1991 to supply the increasing
worldwide demand for sputtering and laser ablation targets. We became a
full
service manufacturer of high performance thin film materials, providing
a wide
selection of metals, ceramics, and alloys for sputtering targets, evaporation
sources, and other PVD applications. We served the R&D market as well as the
Industrial and Decorative Coating markets. During this time, we began to
manufacture targets for the Photovoltaic, Flat Panel Display, and Semiconductor
industries.
SCI
and
TMI were merged in 2002. We continued to manufacture complex ceramic, metal,
and
alloy products for the thin film battery, photovoltaic, media storage,
flat
panel display, semiconductor, electronic, and photonic industries.
In
May of
2005, we received ISO 9001:2000 registration, an internationally recognized
milestone in our pursuit of quality. This registration enabled us to increase
our customer base which has benefited sales since the second quarter of
2005.
Over
the
past two decades, we have developed considerable expertise in the development
and ramp-up of manufacturing of novel materials, such as Bismuth Strontium
Calcium Copper Oxide (a superconductor), and battery and solar physical
vapor
deposition targets. Today, we serve a diverse base of domestic and
multi-national corporations, universities, and leading research institutions.
We
actively seek to partner with organizations to provide solutions for difficult
material challenges.
Throughout
our history, we have conducted funded research primarily under grants from
entities such as the Department of Energy, the National Science Foundation,
NASA, and the Ohio Department of Development. These activities are generally
limited to funded research that is consistent with our focus on commercial
applications in our principal markets.
Business
We
are a
supplier of materials to the Physical Vapor Deposition (“PVD”) industry. Our
customers need our materials to produce nano layers of metals and oxides
for
advanced material systems. PVD coatings range from every day items to complex
computer processors. For example, every day applications include transparent
anti-scratch coatings on eyeglasses, shiny coatings on kitchen and bathroom
faucets, as well as low emissivity glass for household windows. More technically
advanced applications include semiconductors, flat panel displays and an
emerging technology - Thin Film Battery.
We
are
focused on three distinct markets within the PVD industry. These markets
are
Photonics, Semiconductor and Thin Film Battery. During the past 18 months,
the
Company began to pursue niche opportunities, specifically applications
for Solar
in the Photonics market and Hard Disk Drive (“HDD”) in the semiconductor market.
We receive requests from potential customers in other markets within the
PVD
industry; however, at this time we have chosen not to pursue them. This
disciplined approach enables us to focus on those opportunities that are
the
best fit for our capabilities and also offer the greatest long-term return.
Considerations include our core strengths, resource requirements, and
time-to-market issues.
The
production and sale of HTS materials was the initial focus of our operations
and
these materials continue to be part of our development efforts. We continue
to
work with private companies and government agencies to develop new and
improved
products for future applications; however, our principal business focus
is on
products positioned for commercialization.
Photonics
currently represents the largest market for our materials. Our customers
are
continually identifying new materials that improve the utility of optical
coating. This includes improvements in their ability to focus, filter or
reflect
light, all of which increase the potential demand for the types and amounts
of
materials 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. Currently, these include optic devices, reflective
coatings
and solar products.
We
have
developed new products for the growing Thin Film Solar (“TFS”) market. We are
well positioned in the TFS area having supplied materials to that market
for
about 10 years while the processes were being developed. In 2007, we added
over
$300,000 of new manufacturing equipment, as well as Engineering and Sales
staff
to develop new materials to support the anticipated growth of Solar. Our
new
materials are Transparent Conductive Oxides (“TCO”). Every square foot of a TFS
panel is coated with up to 3 layers of TCO, about 1 micron thick. We increased
our visibility in the global arena by attending the Photovoltaic International
Trade Fair in Milan, Italy held in September of 2007, where we introduced
new
products for this rapidly expanding market.
Thin
Film
Battery materials is a developing market where manufacturers of batteries
use
our targets, especially lithium orthophosphate (Li3PO4) and lithium cobalt
oxide
(LiCoO) as key elements to produce 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. We are
the
leading provider of Li3PO4 and LiCoO to the emerging Thin Film Battery
market.
Following several years of industry developments, some Thin Film Battery
customers announced the batteries were commercially available. Our customers
anticipate the unique properties of these batteries to be used in applications
in medical devices, integrated circuits, RFID, smart cards, hand held
electronics and many other applications.
We
had
total annual revenues of $10.8 million, $8.0 million and $3.5 million in
the
years ended December 31, 2007, 2006, and 2005, respectively.
Principal
suppliers in 2007 were Cabot Supermetals, Lattice Materials and Johnson
Matthey.
In every case, we believe that suitable alternate vendors can be used to
ensure
availability of required materials. As volume grows, we may enter into
alliances
or purchasing contracts with these or other vendors.