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:
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·
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general
economic and business conditions, both nationally and in our
markets,
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·
|
our
expectations and estimates concerning future financial performance,
financing plans and the impact of
competition,
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·
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our
ability to implement our growth
strategy,
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·
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anticipated
trends in our business,
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·
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advances
in technologies, and
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|
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·
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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)
|
|
|