As
filed with the Securities and Exchange Commission on April 7, 2010
File
No: 333-______
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
SMG
INDIUM RESOURCES LTD.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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1090
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51-0662991
|
||
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
41
University Drive, Suite 400
Newtown,
Pennsylvania 18940
(215)
809-2039
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Alan
Benjamin, CEO
41
University Drive, Suite 400
Newtown,
Pennsylvania 18940
(215)
809-2039
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
Copies
to:
|
Barry
I. Grossman, Esq.
David
Selengut, Esq.
Ellenoff
Grossman & Schole LLP
150
East 42
nd
Street
New
York, New York 10017
(212)
370-1300
(212)
370-7889 – Facsimile
|
Kenneth
R. Koch, Esq.
Jeffrey
P. Schultz, Esq.
Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
The
Chrysler Center
666
Third Avenue
New
York, New York 10017
(212)
935-3000
(212)
983-3115 - Facsimile
|
Approximate date of commencement of
proposed sale to the public:
As soon as practicable after the effective
date of the registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
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|||
CALCULATION
OF REGISTRATION FEE
|
Title of Each Class of Securities
to Be Registered
|
Amount to Be
Registered
(1)
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Proposed
Maximum
Offering
Price per
Unit
(1)
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Proposed
Maximum
Aggregate
Offering Unit
(1)
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Amount of
Registration
Fee
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|||||||||||
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Units,
each consisting of one share of Common Stock, $.001 par value, and one
Warrant (2)
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5,750,000
Units
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$ | 5.00 | $ | 28,750,000 | $ | 2,049.88 | |||||||||
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Shares
of Common Stock included as part of the Units
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5,750,000
Shares
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— | — | — | (6) | |||||||||||
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Warrants
included as part of the Units (6)
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5,750,000
Warrants
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— | — | — | (6) | |||||||||||
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Shares
of Common Stock issuable upon exercise of the Warrants included in the
Units (3)
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5,750,000
Shares
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$ | 5.75 | $ | 33,062,500 | $ | 2,357.36 | |||||||||
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Representative’s
Unit Purchase Option
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1
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$ | 100 | $ | 100 | — | (6) | |||||||||
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Units
underlying the Representative's Unit Purchase Option (“Representative's
Units”)
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250,000
Units
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$ | 5.50 | $ | 1,375,000 | $ | 98.04 | |||||||||
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Shares
of Common Stock included as part of the Representative's
Units
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250,000
Shares
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— | — | — | (6) | |||||||||||
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Warrants
included as part of the Representative's Units (3)
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250,000
Warrants
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— | — | — | (6) | |||||||||||
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Shares
of Common Stock underlying the Warrants included in the Representative's
Units (3)
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250,000
Shares
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$ | 5.75 | $ | 1,437,500 | $ | 102.49 | |||||||||
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Shares
of Common Stock issuable upon automatic conversion of the Class A Common
Stock issued in private placement
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1,279,960
Shares
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$ | 5.00 | $ | 6,399,800 | $ | 456.31 | |||||||||
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Shares
of Common Stock issuable upon exercise of the Warrants issued in private
placement (3)
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1,201,400
Shares
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$ | 5.75 | $ | 6,908,050 | $ | 492.54 | |||||||||
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Additional
Warrants to be issued upon completion of this offering to investors in
private placement
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116,360
Warrants
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— | — | — | (6) | |||||||||||
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Shares
of Common Stock issuable upon the exercise of Warrants to be issued upon
completion of this Offering to investors in private placement
(3)
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116,360
Shares
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$ | 5.75 | $ | 669,070 | $ | 47.70 | |||||||||
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Total
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$ | 78,601,920 | $ | 5,604.32 | (5) | |||||||||||
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(1)
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Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as
amended.
|
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(2)
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Includes
750,000 units, 750,000 shares of the Registrant’s Common Stock and 750,000
warrants underlying such units, which may be issued upon exercise of a
45-day option granted to the underwriters to cover over-allotments, if
any.
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(3)
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Pursuant
to Rule 416, there are also being registered such indeterminable
additional securities as may be issued to prevent dilution as a result of
stock splits, stock dividends or similar
transactions.
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(4)
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Calculated
pursuant to Rule 457(o) based on an estimate of the proposed maximum
aggregate offering price.
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(5)
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Offered
pursuant to the Registrant’s initial public
offering.
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(6)
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No
fee pursuant to Rule 457(g).
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(7)
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Represents
shares of the Registrant’s Common Stock being registered for resale that
will be issued to the selling security holders upon the automatic
conversion of the Class A Common
Stock.
|
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(8)
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$5,730.00
has been previously paid.
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The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY
NOTE
This registration statement contains
two prospectuses. One prospectus (the “Prospectus”) is to be used in
connection with an initial public offering of 5,000,000 units. The
other prospectus (the “Selling Securityholder Prospectus”) is to be used in
connection with the potential resale by certain selling securityholders of an
aggregate of 1,279,960 shares of our common stock issuable upon conversion of
our outstanding Class A Common Stock, the exercise of 1,201,400 warrants issued
in a private placement of our securities that closed on January 8, 2010, or the
2009 Private Placement, and the exercise of 116,360 warrants to be issued to
investors in the 2009 Private Placement upon closing of this
offering. The Prospectus and the Selling Securityholder Prospectus
will be identical in all respects except for the alternative pages for the
Selling Securityholder Prospectus included herein which are each labeled
“Alternative Page for Selling Securityholder Prospectus.”
The information in this prospectus is
not complete and may be changed. We may not sell these securities until the
Securities and Exchange Commission declares our registration statement
effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
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PRELIMINARY
PROSPECTUS
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SUBJECT TO COMPLETION, DATED April
7, 2010
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SMG
INDIUM RESOURCES LTD.
5,000,000
Units
This is
an initial public offering of our securities. Each unit has an offering price of
$5.00 and consists of:
|
|
•
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one share of our common stock;
and
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|
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•
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one
warrant.
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Each
warrant entitles the holder to purchase one share of our common stock at a price
of $5.75. Each warrant will become exercisable upon the date of this prospectus,
and will expire on _______, 2015
[five years from the date of this
prospectus]
, or earlier upon redemption.
We have
granted to the underwriters a 45-day option to purchase up to 750,000 additional
units solely to cover over-allotments, if any (over and above the 5,000,000
units referred to above). The over-allotment will be used only to
cover the net syndicate short position resulting from the initial
distribution.
There is
presently no public market for our units, common stock or warrants. We intend to
apply for each of the units, common stock and warrants to be listed on the
NASDAQ Capital Market under the symbols ___.U, ___ and ___.WS, respectively, and
we anticipate that the units will begin trading on the NASDAQ Capital Market
promptly after the date of this prospectus. Initially, only the units will
trade. Each of the common stock and warrants will begin trading separately
beginning on the 90
th
day
after the date of this prospectus unless the representatives of the underwriters
determine that an earlier date is acceptable. We cannot assure you,
however, that our securities will continue to be listed on the NASDAQ Capital
Market. In no event will the representatives of the underwriters permit separate
trading of the common stock and warrants until the business day following the
earlier to occur of the expiration of the underwriters’ over-allotment option or
its exercise in full.
We will
enter into an amendment to the Management Services Agreement with Specialty
Metals Group Advisors LLC (“Manager”), initially executed on November 24, 2009,
upon consummation of this offering regarding management of our company. As of
the date of this prospectus, our Manager has purchased on our behalf
approximately nine (9) metric tons of indium utilizing the proceeds from the
private placement offering completed on January 8, 2010. The price of
indium is volatile. In the past ten years, the price of indium has ranged from
as low as $70 per kilogram to as high as $1,070 per kilogram. On March 31, 2010,
the price of indium was quoted by Metal Bulletin on Bloomberg L.P. at $597.50
per kilogram.
Investing in our securities involves a
high degree of risk. See “Risk Factors” beginning on page 13
of this prospectus for a discussion of
information that should be considered in connection with an investment in our
securities.
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Per Share
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Total Proceeds
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|||||||
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Public
offering price
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$ | 5.00 | $ | 25,000,000 | ||||
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Underwriting
discounts and commissions(1)
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$ | 0.25 | $ | 1,250,000 | ||||
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Proceeds
to us (before expenses)
(2)
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$ | 4.75 | $ | 23,750,000 | ||||
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(1)
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Does not include a corporate
finance fee in the amount of 1% of gross proceeds, or $ 0.05 per share,
payable to the underwriters.
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(2)
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We estimate that the total
expenses of this offering, excluding the underwriters’ discount and the
non-accountable expense allowance, will be approximately
$480,000.
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Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
We are
offering the units for sale on a firm-commitment basis. The underwriters expect
to deliver our securities to investors in the offering on or about [•],
2010.
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Sunrise
Securities Corp.
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Rodman
& Renshaw, LLC
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The
date of this prospectus is April 7, 2010
You
should rely only on the information contained in this prospectus. We have not,
and the underwriters have not, authorized anyone to provide you with information
different from or in addition to that contained in this
prospectus. If anyone provides you with different or inconsistent
information, you should not rely on it. We are offering to sell, and
are seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of common stock. Our
business, financial conditions, results of operations and prospects may have
changed since that date.
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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7
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Risk
Factors
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13
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Use
of Proceeds
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31
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Dividend
Policy
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32
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Capitalization
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33
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Dilution
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34
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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36
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Business
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49
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Management
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69
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Management
Services Agreement
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73
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Executive
Compensation
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76
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Certain
Relationships and Related Party Transactions
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85
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Principal
Stockholders
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86
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Description
of Capital Securities
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88
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Shares
Eligible for Future Sale
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92
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Underwriting
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94
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Legal
Matters
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101
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Experts
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101
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Where
You Can Find Additional Information
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101
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Index
to Financial Statements
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F-1
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For investors outside the United
States:
Neither we nor any of the underwriters have done
anything that would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. You are required to inform yourselves about and to
observe any restrictions relating to this offering and the distribution of this
prospectus.
Industry
and Market Data
In this
prospectus, we rely on and refer to information and statistics regarding our
industry. We obtained this statistical, market and other industry
data and forecasts from publicly available information. While we
believe that the statistical data, market data and other industry data and
forecasts are reliable, we have not independently verified the
data.
PROSPECTUS
SUMMARY
This
summary highlights certain information appearing elsewhere in this prospectus.
As this is a summary, it does not contain all of the information that you should
consider in making an investment decision. You should read the entire prospectus
carefully, including the information under “Risk Factors” and our financial
statements and the related notes included in this prospectus, before investing.
We and the underwriters have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any jurisdiction
where the offer is not permitted.
Unless
otherwise stated in this prospectus:
|
|
·
|
references to “we,” “us” or
“our company” refer to SMG Indium Resources
Ltd.;
|
|
|
·
|
the term “Manager” refers to
Specialty Metals Group Advisors
LLC;
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|
|
·
|
the term “Management Services
Agreement” refers to that certain agreement entered into between us and
the Manager, dated as of November 24, 2009, regarding the management of
our company, which will be amended immediately prior to the consummation
of this offering; and
|
|
|
·
|
the term “2009 Private
Placement” refers to a private placement, which closed on January 8, 2010,
in which we sold an aggregate of 1,163,600 units to 61 accredited
investors, each unit consisting of (i) one share of Class A common stock,
par value $.001 per share, and (ii) one warrant to purchase one share of
common stock at an exercise price of $5.75 per share, for gross proceeds
of $5,818,000. Under the terms of the 2009 Private Placement, upon the
consummation of this offering, the Class A common stock will automatically
convert into shares of our common stock and we will issue
additional warrants to such
investors.
|
In
addition, unless we tell you otherwise, the information in this prospectus
assumes that the underwriters will not exercise their over-allotment
option.
Overview
We were
incorporated under the laws of the State of Delaware on January 7,
2008. On April 2, 2008, we changed our name from Specialty Metals
Group Indium Corp. to SMG Indium Resources Ltd. We were formed to
purchase and stockpile the metal indium, and we intend to use at least 85.0% of
the net proceeds of this offering to purchase and stockpile already processed
and mined indium ingots. Indium is an essential raw material for a number of
consumer electronics applications. The primary commercial application of indium
is in coatings for the flat panel display (“FPD”) industry and in the liquid
crystal display industry (“LCD”) on electronic devices such as television sets,
computers, cell phones and digital cameras. Indium is also increasingly being
used as an important raw material in the solar energy industry, where it is
mainly used for high-efficiency photovoltaic cells in the form of thin-film
photovoltaics. Other uses of indium are in high-speed semiconductors, light
emitting diodes ("LED"), electrical components, alloys and solders. Information
regarding the indium industry’s largest producers and users is limited and not
readily available to the public. Furthermore, we are not aware of the type of
information, if any, regarding the indium market that other indium market
participants may possess or have access to. Our inability to access this
information may place us at a potential competitive disadvantage as compared to
the other market participants who may have access to such
information.
Our
strategy is to achieve long-term appreciation in the value of our indium
stockpile, and not to actively speculate with regard to short-term fluctuations
in indium prices. We plan to achieve long-term appreciation in the value of our
indium stockpile primarily through price appreciation of the physical metal.
While it is not our current intention to do so in the short term, at our
discretion, we may subsequently lend or sell some or all of our indium stockpile
based on market conditions. Although the price of indium has declined
substantially since 2005, it is our belief that the long-term industry prospects
for indium are attractive and, over time, the price of the metal will
appreciate. To our knowledge, purchasing shares in our company is currently the
only way for investors to participate in the price appreciation of indium other
than physical delivery of the metal itself. The purpose of our company is to
permit a simple and efficient mechanism by which an investor may benefit from
the appreciation in the price of indium.
Our indium is and will be
physically stored in third-party facilities. Our Manager will use its best
efforts to fully insure the stockpile. There will be no custodial services
provided by the third-party storage facilities that we use.
Although there can be no
assurance that the price of indium or value of our company or our securities
will increase over time, our investors will have the ability to invest in a
company whose value may be tied to its interest in indium in a manner that does
not directly include the risks associated with ownership of companies that
explore for, mine or process indium.
Pursuant
to the Management Services Agreement, as amended, our Manager is entitled to a
2.0% management fee per annum, payable monthly, based on our net market value
(“NMV”), as compensation for services rendered to us. The per share NMV shall be
determined by (x) multiplying the number of kilograms of our indium holdings by
the last spot price for indium published by Metal Bulletin posted on Bloomberg
L.P. for the month, plus cash and any other assets, less any and all of our
outstanding payables, indebtedness and any other liabilities, (y) divided by our
total number of outstanding shares of our common stock. There may not be a
correlation between our NMV, the price of indium and the price of our common
stock. The management fee is determined by (x) multiplying the number of
kilograms of our indium holdings by the last spot price for indium published by
Metal Bulletin Inc. posted on Bloomberg L.P. for the month, plus cash and any
other assets, less all of our outstanding accounts payable, indebtedness and any
other liabilities, (y) multiplied by 1/6 of one (1.0%) percent. The Manager is
entitled to receive the 2.0% management fee regardless of its ability to
successfully purchase and stockpile the metal indium. In addition, we shall pay
to the Manager a transaction-based fee of $200,000 for services rendered in
connection with any offering of our equity or debt securities in which we raise
gross proceeds in excess of $25 million (excluding this offering). Such fee
shall be payable on or before the 10th day following the consummation of any
such transaction.
Our business model is designed to
capture the long-term appreciation of the price of indium. According to Metal
Bulletin as posted on Bloomberg L.P., over the last year, the price of indium
has appreciated approximately 66.0%, from $360 per kilogram in March 2009 to
$597.50 per kilogram in March 2010. Over the last five years, the price of
indium has depreciated approximately 42.5% (10.5% annualized), from $1040 per
kilogram in March 2005 to $597.50 per kilogram in March 2010. Over the last ten
years, the price of indium has appreciated approximately 231.9% (12.8%
annualized), from $180 per kilogram in March 2000 to $597.50 per kilogram in
March 2010. Over the last fifteen years, the price of indium has appreciated
approximately 39.0% (2.2% annualized) from $430 per kilogram in March 1995 to
$597.50 per kilogram in March 2010. According to the U.S. Geological Survey,
over the last twenty-five years, the price of indium has appreciated
approximately 602.9% (8.1% annualized), from $85 per kilogram in 1985 to $597.50
per kilogram in March 2010. Over the last fifty years, the price of indium has
appreciated approximately 729.9% (4.3% annualized), from $72 per kilogram in
1960 to $597.508 per kilogram in March 2010.
Our
stockpile of indium may decrease over time due to sales of indium necessary to
pay the expenses of this offering and our annual operating
expenses. Without increases in the price of indium sufficient to
compensate for such decreases, our NMV may also decline. Assuming that we are
able to utilize 85.0% of the net proceeds of this offering to purchase the
stockpile of indium at $597.50 per kilogram, the price of indium would need to
increase by approximately 12.2% within 12 months to offset the reduction in our
NMV because of our initial offering expenses of $1,980,000 and anticipated
annual operating expenses of $1,125,000. The price of indium would need to
increase approximately 16.6% within 24 months, or 8.3% on average per annum, to
offset the reduction in our NMV due to the expenses listed above. The price of
indium would need to increase by approximately 21.0% within 36 months, or 7.0%
per annum, to offset the reduction in our NMV due to the expenses listed
above.
Private
Placement
On
January 8, 2010, we completed a private placement offering of an aggregate of
1,163,600 units to 61 investors for gross proceeds of
$5,818,000. Each unit consisted of one share of Class A common stock,
par value $.001 per share, and one warrant to purchase one share of common stock
at an exercise price of $5.75 per share, which shall become exercisable upon the
closing of this offering. In accordance with the terms of the private
placement, upon the successful completion of this offering, each share of Class
A common stock shall automatically convert into one share of common stock,
subject to certain adjustments, including the purchase price of the private
placement unit compared to the purchase price of the units in this offering, the
amount of time elapsed between the private placement and successful completion
of this offering, and the change in our NMV between the closing of the private
placement and this offering, as more fully discussed elsewhere in this
prospectus. We will also issue additional warrants to the investors
in the 2009 Private Placement upon completion of this offering based on the same
pre-determined formula regarding conversion of the Class A common
stock.
Our
principal office is located at 41 University Drive, Suite 400, Newtown,
Pennsylvania 18940.
THE
OFFERING
|
Securities
offered:
|
5,000,000 units, at $5.00 per unit, each unit consisting of: | ||
|
•
|
one
share of common stock, par value $.001 per share; and
|
||
|
•
|
one
warrant.
|
||
|
Trading
commencement and separation of common stock and warrants:
|
The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless the representatives of the underwriters determine that an earlier date is acceptable. In no event will the representatives of the underwriters allow separate trading of the common stock and warrants until the underwriters’ over-allotment option has either expired or been exercised. The units will continue to trade along with the common stock and warrants after the units are separated. Holders will need to have their brokers contact our transfer agent in order to separate the units into common stock and warrants. | ||
|
Common
stock and Class A Common Stock:
(1)
|
|
|
|
|
Number
outstanding before this offering
|
155,000 shares of common stock | ||
| 1,163,600 shares of Class A common stock | |||
|
Number
to be outstanding after this offering
|
6,359,960 shares of common stock | ||
| 0 shares of Class A common stock | |||
|
Warrants:
(1)
|
|||
|
Number
outstanding before this offering
|
1,201,400 warrants | ||
|
Number
to be outstanding after this offering
|
6,317,760 warrants | ||
|
Exercisability
|
Each warrant is exercisable for one share of common stock. | ||
|
Exercise
price
|
$5.75 per share | ||
| The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. | |||
|
Management
|
We entered into a Management Services Agreement with our Manager, Specialty Metals Group Advisors LLC, on November 24, 2009. Prior to the consummation of this offering, the Management Services Agreement will be amended to provide for a new term of five years and to adjust certain fees and expenses. Pursuant to the Management Services Agreement, as amended, the Manager is responsible for: (i) the purchase and sale of indium, (ii) submission of written reports detailing the delivery and payment particulars regarding each purchase and sale to our board of directors, (iii) the arrangement of the storage of the indium and preparing a monthly report on the NMV of our common stock, (iv) preparing regulatory filing materials, reports to our stockholders and other reports to our board of directors and (v) generally managing our business and affairs. | ||
| The Management Services Agreement, as amended, will have an initial term of five years, with options to renew such Management Services Agreement on terms mutually acceptable to each party, and may be terminated by either party upon 90 days prior written notice. We are responsible for paying all costs and expenses incurred in connection with our business, except those expressly assumed by the Manager. We pay the Manager a fee equal to 2.0% per annum of our NMV, which fee shall be paid monthly. In addition, the Company shall pay to the Manager a transaction-based fee of $200,000 for services rendered in connection with any offering of equity or debt securities of the Company in which we raise gross proceeds in excess of $25 million (excluding this offering). The members of Specialty Metals Group Advisors LLC are as follows: Ailon Z. Grushkin, our President; Richard A. Biele, our Chief Operating Officer; and Alan Benjamin, our Chairman and Chief Executive Officer. Specialty Metals Group Advisors LLC is managed by Ailon Z. Grushkin. | |||
|
Use
of Proceeds
|
Our current estimate of the use of the net proceeds of this offering is as follows: (i) 85.0% to purchase and stockpile already processed and mined indium ingots, and (ii) the remaining 15.0% shall be used for general corporate purposes, including working capital. | ||
|
Risk
Factors
|
See “ Risk Factors ” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. | ||
(1)
Unless otherwise stated
in this prospectus, information in this prospectus:
|
|
·
|
Assumes that the underwriters’
over-allotment option will not be
exercised;
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|
|
·
|
Excludes
the securities underlying the underwriters’ unit purchase
option;
|
|
|
·
|
Reflects the automatic conversion
of the Class A common stock issued in the 2009 Private Placement into an
aggregate of 1,279,960 shares of common stock upon closing of this
offering, assuming no adjustments are
made;
|
|
|
·
|
Reflects the automatic conversion
of 75,000 shares of common stock owned by the Manager into options to
purchase 150,000 shares of common stock at $4.50 per share upon
consummation of this
offering;
|
|
|
·
|
Includes
the issuance of 116,360 additional warrants to the investors in the 2009
Private Placement upon completion of this
offering;
|
|
|
·
|
Excludes shares of common stock
issuable upon exercise of the warrants included in the units issued in the
2009 Private Placement;
|
|
|
·
|
Excludes 74,999 shares of common
stock issuable upon the exercise of outstanding options at a weighted
average exercise price of $7.50 per
share;
|
|
|
·
|
Excludes 425,001 shares of common
stock available for issuance under the 2008 Long-Term Incentive
Compensation Plan;
|
|
|
·
|
Excludes 155,000 shares of common
stock issuable upon the exercise of options granted to the Manager in
connection with the consummation of the 2009 Private Placement at a
weighted average exercise price of $4.50 per
share;
|
|
|
·
|
Excludes 150,000 shares of common
stock issuable upon the exercise of options granted to the Manager in
connection with the conversion of a note in the principal amount of
$265,000 payable by us to the Manager, at a weighted average exercise
price of $4.50 per share, upon consummation of this
offering;
|
|
|
·
|
Excludes 150,000 shares of common
stock issuable upon the exercise of outstanding options granted to the
Manager in connection with the conversion of 75,000 shares of common stock
by us to the Manager, at a weighted average exercise price of $4.50 per
share, upon consummation of this
offering;
|
|
|
·
|
Excludes 50,000 shares of common
stock issuable upon the exercise of outstanding options granted to members
of the board of directors and Chief Financial Officer at a weighted
average exercise price of $4.50 per
share;
|
|
|
·
|
Excludes shares of common stock
underlying the warrants issued in this offering as part of the
units;
|
|
|
·
|
Excludes shares of common stock
issuable upon exercise of the additional 116,360 warrants issued to the
investors in the 2009 Private Placement upon completion of this offering;
and
|
|
|
·
|
Assumes 1,279,960 shares of
common stock and 116,360 warrants that will be issued to the investors in
the 2009 Private Placement upon consummation of this
offering.
|
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider
the following risk factors and all other information contained in this
prospectus before making a decision to invest in our units. Additional risks and
uncertainties that we are unaware of may become important factors that affect
us. If any of the following events occur, our business, financial conditions and
operating results may be materially and adversely affected. In that event, the
trading price of our securities could decline, and you could lose all or part of
your investment.
Risks
Specific to Our Business
We
have an unproven business model and it is uncertain whether the purchase,
lending or sale of indium will generate sufficient revenues for us to be
profitable.
Our model
for conducting business and generating revenues is still new and unproven. Our
business model depends upon our ability to generate revenue streams from the
purchasing, lending and selling indium. It is uncertain whether the purchase,
lending and sale of indium can generate sufficient revenues for us to survive.
Accordingly, we are not certain that our business model will be viable or that
we can sustain revenue growth or be profitable.
We
address a new market which may not develop as we predict or in a way that will
justify our purchase of indium.
There is
no public market for the sale of indium. Since indium is a byproduct of zinc
mining, the supply does not vary directly with market price. Primary indium
production increases only if zinc miners increase zinc production. We may not,
and our Manager may not, be able to acquire indium, or once acquired, lend or
sell indium for a number of years. The pool of potential purchasers and sellers
is limited and each transaction may require the negotiation of specific
provisions. Accordingly, a purchase or sale cycle may take several years to
complete. In addition, the supply of indium is limited. World refinery
production of indium was estimated by the U.S. Geological Survey, or USGS
at 582 metric tons in 2006, 563 metric tons in 2007, 573 metric tons in
2008 and 597 metric tons in 2009. The total size of the primary indium market
was approximately $237.3 million in 2009 based on the USGS’s estimated
production figure and Metal Bulletin’s average price for indium of $397.55 per
kilogram in 2009 on Bloomberg L.P. We plan to utilize approximately
85.0% of the net proceeds of this offering to create a stockpile of indium which
may take an extended period of time, and which may require us to acquire indium
from several sources and at wide ranging prices. Based on the spot
indium price of $597.50 per kilogram on March 31, 2010, we would need to
purchase approximately 32.7 metric tons to utilize 85.0% of the net proceeds of
this offering. We may experience additional difficulties purchasing indium in
the event that we are a significant buyer. The inability to purchase and sell on
a timely basis in sufficient quantities could have a material adverse effect on
the share price of our common stock.
Information
regarding the indium market is not readily available. Information regarding the
indium industry’s largest producers and users is limited and not readily
available and there is no data provided by industry participants with regards to
exclusive long-term purchase or supply agreements. In addition, we are not aware
of the type of information, if any, regarding the indium market other market
participants may possess. Our inability to access this information places us at
a potential competitive disadvantage as compared to other market participants
who may have access to such information. This may adversely affect our ability
to purchase and stockpile indium in a timely manner as well as the ability for
investors to assess indium industry dynamics, our competition and various other
risks we face.
Indium
industry producers and users do not publicly disclose sufficient information to
determine with certainty the largest producers and users of indium.
Canadian-based Teck Resources Limited is known in the indium industry to be one
of the world’s largest suppliers of primary indium. Zhuzho Smelter Group Co.,
Ltd. was granted the largest government indium export quota in China for 29
metric tons in the first half of 2010. Japanese-based Dowa Mining Company Ltd.,
is known to be the world’s largest indium recycler. In addition,
company-specific indium usage is not information that is typically publicly
disclosed by industry participants. However, it is known in the industry that
Japan uses the largest amount of indium for the production of flat panel
displays (FPDs). This makes it difficult for investors to assess indium industry
dynamics, our competition, and various other risks we face.
Industry producers, recyclers,
secondary fabs, and end users do not reveal industry data quantifying the amount
of indium purchased or sold under long-term exclusive supply contracts. If
long-term exclusive contracts exist, this may hinder our ability to procure
sufficient quantities of indium on a timely basis or even at all. Since
information regarding the indium market is not readily available we may not be
able to determine if
certain suppliers have long-term supply
contracts with other parties, which may adversely affect our ability to obtain
indium from such supplier. The lack of industry information could hinder our
ability to purchase and stockpile indium.
In
addition, we are not aware of any additional information, if any, regarding the
indium market, or the type of market information other industry producers,
purchasers, suppliers and other market participants may possess. Our inability
to access this information, if any, places us at a potential relative
competitive disadvantage to other market participants who may have access to
such information. This may adversely affect our ability to purchase and
stockpile indium.
Investors
may face difficulty accessing the quoted price for indium on a daily, weekly or
monthly basis, which may negatively impact an investor's ability to assess the
value of their investment.
Indium's
market price is infrequently quoted and investors may have to pay for
subscriptions to various data service providers to access such information.
Investors in our common stock may not be able to readily access information
regarding the current market price for indium prior to making
an investment decision.
We
expect to rely on a limited number of potential suppliers and purchasers of
indium, which could affect our ability to buy and sell indium in a timely manner
and negatively influence market prices.
The
indium market is illiquid and considered small compared to the markets for base
metals. There are a limited number of suppliers and purchasers of indium. If new
companies are formed to purchase and stockpile indium, this would adversely
affect our ability to procure sufficient quantities of indium on a timely basis
or even at all.
Relying
on a limited number of potential suppliers of indium and potential customers who
purchase indium could (1) make it difficult to buy and sell indium in a timely
manner, (2) negatively influence market prices by potentially having to sell
indium to cover our operating expenses, or (3) drive up market prices if we are
a large purchaser of indium and there is an indium shortage. The limited number
of industry participants could result in our inability to fulfill our business
plan as described in this prospectus. As of the date of this prospectus, we have
purchased an aggregate of 9.2 tons of indium using the proceeds of the 2009
Private Placement from three regular indium suppliers at an average price of
$500.00 per kilogram. Except for purchasing the 9.2 tons of indium
from three suppliers, we have had limited discussion with other potential
suppliers of indium and no other contracts or negotiations have been entered
into with any other suppliers or purchasers of indium, and we cannot be certain
that we will be able to meet our required purchases of indium.
We
purchased 78.1% of our current indium stockpile utilizing the proceeds from the
2009 Private Placement from a current stockholder, Traxys North America LLC, and
future purchases may present a conflict of interest.
Traxys
Projects LP, a joint venture in which Traxys North America LLC has a 50%
interest, and Traxys Commodity Fund LP each invested $500,000 in our 2009
Private Placement. This represents beneficial ownership in our Company of
7.6% and 7.6%, respectively, prior to this offering and 1.7% and 1.7%,
respectively, if we successfully complete this offering. We purchased an
aggregate 7.2 tons of indium, approximately 78.1% of our stockpile, from Traxys
North America LLC utilizing proceeds from the 2009 Private Placement in which we
expended approximately $3.6 million between December 2009 and February 2010 in
19 separate purchase orders. We believe we paid the fair market price at the
time of each particular purchase order. Traxys North America LLC is an
established reputable indium supplier. We did not and do not have any
outstanding special agreements or arrangements with Traxys North America
LLC. We may attempt to purchase additional indium from Traxys North America
LLC in the future and we may not be able to negotiate similar or more favorable
pricing terms. Except for purchasing 2.0 tons of indium from two
other suppliers, we have had limited discussion with other potential suppliers
of indium and no other contracts or negotiations have been entered into with any
other suppliers or purchasers of indium, and we cannot be certain that we will
be able to meet our required purchases of indium.
The
substitution of other materials for indium may decrease demand for indium and
adversely affect the price of indium and, thus, our stock price.
Indium
has substitutes in many, perhaps most, of its uses. Silicon has largely replaced
indium in transistors. Gallium can be used in some applications as a substitute
for indium in several alloys. In glass-coating applications, silver-zinc oxides
or tin-oxides can be used. Zinc-tin oxides can be used in liquid crystal
displays (“LCDs”). Other possible substitutes for indium glass coating are
transparent carbon nanotubes and graphene. Indium phosphide can be substituted
by gallium arsenide in solar cells and in many semiconductor applications.
Hafnium can replace indium alloys in nuclear reactor control rods. The
substitutions of such materials for indium may decrease the overall demand for
indium, thereby lowering the price of indium and our common stock.
It
will take time to acquire our supply of indium and during such time the price of
indium may fluctuate and we may not purchase our stockpile at favorable
prices.
It may
take us several years to purchase our stockpile of indium. The price we pay for
99.97% purity indium and for higher grade indium ingots will fluctuate with the
spot price of indium. Therefore the price per kilogram of indium may increase
and we may not be able to purchase indium at favorable prices.
Our
operating results are subject to fluctuation in the price of indium, which is
subject to macroeconomic conditions that are largely outside of our
control.
Our
activities almost entirely will involve purchasing and stockpiling the metal
indium. Therefore, the principal factors affecting the price of our securities
are factors which affect the price of indium and are thus beyond our control. We
may engage in lending transactions involving our indium stockpile, so the value
of our securities will depend upon, and typically fluctuate with, fluctuations
in the price of indium. The market prices of indium are affected by rates of
reclaiming and recycling of indium, rates of production of indium from mining,
demand from end users of indium and indium-tin-oxide, and may be affected by a
variety of unpredictable international economic, monetary and political
considerations.
Macroeconomic
considerations that may affect the price of indium include expectations of
future rates of inflation, the strength of, and confidence in, the U.S. dollar,
the currency in which the price of indium is generally quoted, and other
currencies, interest rates and global or regional economic events. In addition
to changes in production costs, shifts in political and economic conditions
affecting indium producing countries may have a direct impact on their sales of
indium. The fluctuation of the prices of indium is illustrated by the following
table, which sets forth, for the periods indicated, the highs and lows of the
spot price for indium:
|
(1)
|
Source:
Metal Bulletin from Bloomberg L.P.
|
The price
of indium has declined substantially since it peaked in March 2005. The price
for indium has declined 44.2% from its high of $1,070 per kilogram in March 2005
to $597.50 per kilogram as of March 31, 2010. If we began operations in March
2005, and we purchased our stockpile at peak prices, the value of our stockpile
would have decreased by more than 44.2% in approximately five
years.
There
may be a lack of correlation between indium prices, our NMV and our stock
price.
Given the
fee structure with our Manager and our operational expenses, the trading price
of our common stock as listed on the NASDAQ Capital Market, or other quoted
exchange, may not correlate with the trading price of indium. Assuming that we
are able to utilize 85.0% of the net proceeds of this offering to purchase our
stockpile of indium at $597.50 per kilogram, the price of indium would need to
increase approximately 12.2% over the next 12 months to offset the reduction in
our NMV associated with our initial offering expenses of $1,980,000 and
estimated annual operating expenses of $1,125,000. The price of indium would
need to increase by approximately 16.6% within 24 months, or 8.3% on average per
annum, to offset the reduction in our NMV due to the expenses listed above. The
price of indium would need to increase by approximately 21.0% within 36 months,
or 7.0% on average per annum, to offset the reduction in our NMV due to the
expenses listed above. As a result, there may be a lack of correlation between
the trading price of indium, our NMV and our stock price.
Our
NMV is based on the price of 99.97% purity indium as quoted by Metal Bulletin
and posted on Bloomberg L.P. Other information service providers may quote
indium prices that differ from Metal Bulletin as posted on Bloomberg L.P., which
may affect investors’ ability to determine our NMV.
Metal
Bulletin quotes the price of 99.97% (known as “3N7”) purity indium in US Dollars
per kilogram in Rotterdam warehouse, the universally recognized standard for
location and industry-wide pricing for physical metals. Other services may quote
the price of indium differently from Metal Bulletin’s price as quoted on
Bloomberg L.P. for a variety of reasons such as variations in purity levels,
location of material, and source of origin. This may affect investors’ ability
to accurately determine our NMV.
99.97%
purity indium (3N7) may differ in price from 99.99% purity indium (4N) or even
99.999% purity indium (5N) based on market conditions.
There is
no fixed price ratio between 3N7, 4N or 5N material in the indium industry. All
purchases and sales of indium are individually negotiated. Typically, in a
regular indium market, balanced supply and demand, the higher the purity of the
indium, the more it costs. 4N indium is slightly more expensive than 3N7. 5N is
slightly more expensive than 4N. In a declining indium market, the price of 3N7
purity indium is often quoted at an even greater discount to indium with
purities of 4N or 5N. In some cases, the prices may be as much as 2.0% to 5.0%
lower. Typically, when the price of indium is appreciating, there is often no
difference in the price of 3N7 purity indium compared to 4N or 5N purity metal.
These variations in indium prices may affect investors’ ability to accurately
determine our NMV on an intra-monthly basis.
New
York Dealer price quotations may differ from European price quotations and Far
East price quotations due to a variety of factors, which differences may affect
investors’ ability to accurately determine our NMV.
At any
given time, there are varying price quotations between different regions in the
world. Some factors that may influence price variability include regional
natural disasters that may drive up the price within that certain region because
a local shortage of material may develop. At times, a surplus of indium may
develop in certain regions that drives down prices locally as compared to the
rest of the world. We will report to the stockholders our NMV on a monthly
basis. These changes in market conditions could negatively affect an investors’
ability to accurately determine our NMV on an intra-monthly basis.
There
has been no prior market for our units, our unit price may experience extreme
price and volume fluctuations and any volatility in our unit price could result
in claims against us.
Prior to
this offering, investors could not buy or sell our units publicly. An active
public market for our units may not develop or be sustained after the offering.
The initial public offering price will be determined by negotiations between the
underwriters’ representatives and us. The market price of our units may decline
below the initial public offering price after this offering.
The
market price of our units may fluctuate significantly in response to the
following factors, some of which are beyond our control:
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fluctuations
in the spot price of indium;
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supply
and demand for indium;
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variations
in our quarterly operating results;
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changes
in market valuations of specialty metals
companies;
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our
announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
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additions
or departures of key personnel;
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future
sales of securities; and
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changes
in financial estimates by securities
analysts.
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In the
past, securities class action litigation has been brought against a company
following periods of volatility in the market price of its securities. We may in
the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert management’s attention and
resources.
Due
to our size and the illiquid nature of the indium market, we may have a direct
impact on the price of indium. Furthermore, we only intend to report our NMV on
a monthly basis, which may affect investors’ ability to determine our NMV on a
more frequent basis.
We may
have a direct impact on the price of indium. Due to our size and the illiquid
nature of the indium market, we may inadvertently push prices up when deploying
our cash to build our stockpile or conversely negatively impact the price of
indium when and if we sell indium from our stockpile. This could have a
substantial negative impact on our NMV and would be expected to cause a decrease
in our stock price. Investors will also face difficulty determining our NMV on a
daily basis. We only intend to report our NMV on a monthly basis. Therefore,
intra-monthly fluctuations in the price of indium and the lag in the reported
size of our indium stockpile may affect investors’ ability to determine our NMV
on a timely basis.
Approximately
50% of the world’s refined indium production is controlled by China, which may
adversely affect our ability to purchase indium.
China
controls over 50% of the world’s refined indium production. There are a number
of major producers in China, but also numerous smaller producers, relying on
purchasing the concentrates, or unrefined ore, from the larger base-metal
refiners. China produces approximately 250 to 350 metric tons of indium per
year. The Chinese government restricts indium’s export with taxes. In December
2009, the Chinese Ministry of Commerce issued a quota allowing China to export
139.8 metric tons of indium in the first half of 2010. Most of China’s indium
output is exported, with domestic demand unable to sustain production. If the
Chinese government reduces export quotas or ceases all of its exports of indium,
it may affect the availability of indium and our ability to purchase indium in a
timely manner and may limit us to purchasing primary indium production from
countries outside of China.
Any
disruptions in the mining of zinc would have a direct impact on the production
and availability of indium, which may adversely affect our ability to purchase
indium.
Indium is
a byproduct of zinc mining. Zinc mines by their nature are subject to many
operational risks and factors that are completely outside of our control and
could impact our business, operating results and ability to purchase indium.
These operational risks and factors include, but are not limited
to:
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unanticipated ground and water
conditions and adverse claims to water
rights;
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geological problems, including
earthquakes and other natural
disasters;
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metallurgical and other
processing problems;
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lower than expected ore grades or
recovery rates;
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accidents;
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delays in the receipt of or
failure to receive necessary government
permits;
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the results of litigation,
including appeals of agency
decisions;
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uncertainty of exploration and
development;
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delays in
transportation;
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labor
disputes;
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inability to obtain satisfactory
insurance coverage;
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unavailability of materials and
equipment;
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·
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the
failure of equipment or processes to operate in accordance with
specifications or expectations;
and
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the
results of financing efforts and financial market
conditions.
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In May
2008, an earthquake in China completely halted ten zinc smelters in Sichuan
province’s Deyang, Hanyuan and Ganzi regions, as well as in nearby southern
regions of Shaanxi province and Gansu Province, due to damaged facilities and
power supply failures. It was estimated that 510,000 metric tons of zinc
smelting capacity was affected, or approximately 7.0% of China’s national total.
If those zinc smelters were refining indium and were shut down for one full
year, it is estimated that as much as 24.8 metric tons, or 4.2% of primary
indium production would have been lost. The lack of availability of indium could
hinder our ability to purchase and stockpile indium.
Any
disruptions in zinc metallurgical plants capable of processing indium would have
a direct impact on the production and availability of indium, which may
adversely affect our ability to purchase indium.
Indium is
a byproduct of zinc mining. Indium is processed in metallurgical plants that
specifically smelt, refine and extract indium from zinc. Metallurgical plants by
their nature are subject to many operational risks and economic factors that are
completely outside of our control and could impact our business, operating
results and ability to purchase indium. In December 2009, Xstrata Plc announced
that on May 1, 2010 it will permanently cease operation of its copper and zinc
metallurgical plants at the Kidd Metallurgical site in Timmins, Ontario, Canada.
According to Roskill, a service provider of information on international metals
and minerals markets, in its report titled "The Economics of Indium, 2003," the
Kidd Metallurgical Division was capable of refining up to 40 tons per year of
indium. All of the output from the Kidd Creek smelter was shipped to The Indium
Corp. of America for further refining. According to the USGS, Xstrata produced
11 tons of refined indium at Kidd Creek in 2007 and eight tons in 2008. If the
Kidd Metallurgical plant was operating at full capacity and is subsequently
shutdown, it is estimated that there will be a 6.7% decrease in the primary
supply of indium based on the USGS's 2009 yearly production figures. This
reduction in the supply of indium could hinder our ability to purchase and
stockpile indium.
The
shutdown of smelters due to excessive environmental pollution may hinder our
ability to purchase indium in a timely manner.
The
smelting process used to extract indium from zinc ore and to refine indium to
higher purities uses highly toxic chemicals like sulfuric acid. Heightened
global environmental concerns may lead to the closure of smelters that
excessively pollute the environment. The closure of smelters that extract and
refine indium may affect our ability to purchase indium in a timely
manner.
Technological
obsolescence may reduce demand for indium which would adversely impact our NMV
and our stock price.
It is
possible that the next generation TV or portable device market (“PDA”) screens
may render the use of indium-tin-oxide obsolete. Considering 84.0% of indium
demand currently comes from the FPD market, this would drastically reduce demand
for indium and cause a precipitous drop in the price of indium. This would have
a substantially negative impact on our NMV and our stock price.
Recycling
of indium has increased in recent years which may reduce the demand for newly
refined indium.
The
recycling of indium has increased in recent years. The indium recycling market
is now larger than primary refinery production. The USGS does not provide
specific data for the recycling market but stated in their 2008 indium summary
that global secondary indium production increased significantly during the past
several years and now accounts for a greater share of indium production than
primary production. The USGS also stated in their 2008 indium summary that this
trend is expected to continue in the future and several major secondary indium
producers in Japan and the Republic of Korea announced plans to further increase
their recycling capacity. It is not known when the supply of recycled material
from end products such as FPDs, LCDs or PDAs will re-circulate back into the
recycling market, which may increase indium supply and negatively affect indium
prices. If recycling activity continues to grow and becomes more efficient, this
may adversely impact the price of indium and therefore the value of our
stock.
We
may not be able to stockpile indium in a timely manner if we cannot purchase
indium from recyclers.
There is
little firm data provided by any of the indium recyclers. We do not expect that
we will be able to purchase any indium directly from the recycling market.
Industry insiders consider the recycling market a “closed loop.” End users
(i.e., FPD manufacturers) recapture residual indium scrap from Indium-Tin-Oxide
in an unusable form during the manufacturing process. The end user then
contracts with an indium recycler to specially reprocess and refine the scrap
indium back into 3N7 minimum purity indium metal ingot. The process is extremely
complex and can take in excess of 12 weeks from collection to re-fabrication
back into purified usable indium. This “closed loop,” from end user to recycler
back to end user, is performed under contract and will operate to limit our
purchases of indium to the primary refinery market, which is smaller than the
recycled market. This may impact our ability to stockpile indium in a timely
manner.
Our
stockpile of indium may decrease over time due to sales of indium necessary to
pay our annual operating expenses. Without increases in the price of indium
sufficient to compensate for such decreases, the price of our stock and our NMV
may also decline.
The
quantity of indium held in our stockpile may decrease over time due to sales of
indium necessary to pay our annual expenses. Without increases in the price of
indium sufficient to compensate for that decrease, the price of our stock and
our NMV will decline. Since we do not have any income, we need to sell indium to
cover our yearly operating expenses. We may also be subject to other liabilities
(for example, as a result of litigation) which have not been calculated into our
business plan. Our only current source of funds to cover those liabilities will
be sales of indium held in our stockpile.
Assuming
that we are able to utilize 85.0% of the net proceeds of this offering to
purchase our stockpile of indium at $597.50 per kilogram, the price of indium
would need to increase by approximately 12.2% within 12 months to offset the
depreciation in our NMV because of our initial offering expenses of $1,980,000
and anticipated annual operating expenses of $1,125,000. The price of indium
would need to increase by approximately 16.6% within 24 months, or 8.3% on
average per annum, to offset the depreciation in our NMV due to the expenses
listed above. The price of indium would need to increase by approximately 21.0%
within 36 months, or 7.0% on average per annum, to offset the depreciation in
our NMV due to the expenses listed above.
An
increase in our annual operating expenses, or the existence of unexpected
liabilities affecting us without any additional capital raising activities, will
force us to sell larger amounts of our indium stockpile, and will result in a
more rapid decrease in our NMV.
Potential
recessionary economic conditions may decrease demand for indium-based products
and therefore adversely affect the price of indium and lower our NMV and stock
price.
There is
a direct correlation between the price of indium and the NMV of our company.
Potential recessionary economic conditions in the United States and/or globally
could result in decreased demand for the products that are manufactured using
indium, such as FPDs, LCDs, and PDAs. This could cause the price of indium to
drop and reduce our NMV, negatively affecting our stock price.
The
Manager might have a conflict of interest insofar as the management fee to be
paid by us to our Manager will increase as we sell more stock in subsequent
offerings thereby increasing the NMV of the indium stockpile on which the
management fee is based.
The
management fee to be paid by us to the Manager is dependent on our NMV.
Therefore, if we raise additional capital, we will have more cash available for
the purchase of indium. In making the decision to raise additional capital and
negotiate the terms of future offerings, there is a risk that the Manager may
value its own interest in the management fee more than the interests of our
public stockholders, resulting in a conflict of interest, which may not
necessarily be resolved in the best interests of our public stockholders
(including that it may be more likely that we conclude to pursue subsequent
issuances of stock and increase our stockpile of indium, and therefore make an
effort to increase our NMV).
We
will issue a minimum of 6,279,960 additional shares of our common stock upon the
effectiveness of this offering, which would result in a dilution of our
stockholders.
Immediately
prior to the consummation of this offering, our certificate of incorporation, as
amended, will authorize the issuance of up to [__] shares of common stock, par
value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share. Immediately after this offering (assuming conversion of the
shares of Class A common stock offered in the 2009 Private Placement and no
exercise of the underwriters’ over-allotment option), there will be [__]
authorized but unissued shares of our common stock available for issuance (after
appropriate reservation for the issuance of shares of common stock upon full
exercise of 6,201,400 outstanding warrants resulting from this offering and the
2009 Private Placement, the exercise of an additional 116,360 warrants to be
issued to the investors in the 2009 Private Placement, the unit purchase option
granted to the representatives of the underwriters, 155,000 options granted to
the Manager in connection with the 2009 Private Placement, 150,000 options
granted to the Manager for conversion of the promissory note payable by us to
the Manager in the aggregate amount of $265,000 plus interest, 150,000 options
granted to the Manager for conversion of 75,000 common shares by the Manager, an
aggregate of 124,999 options granted to members of our board of directors and
Chief Financial Officer pursuant to our 2008 Long-Term Incentive Compensation
Plan) and all of the 1,000,000 shares of preferred stock available for issuance.
Although we have no commitment as of the date of this prospectus, we may issue a
substantial number of additional shares of our common or preferred stock, or a
combination of common and preferred stock, to obtain future financing. The
issuance of additional shares of our common stock or any number of shares of our
preferred stock:
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may
significantly reduce the equity interest of our
stockholders;
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may
subordinate the rights of holders of common stock if preferred stock is
issued with rights senior to those afforded to the holders of our common
stock;
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will
likely cause a change in control if a substantial number of our shares of
common stock are issued, which may, among other things, result in the
resignation or removal of our present officers and directors;
and
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may
adversely affect prevailing market prices for our common
stock.
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Our
NMV may be negatively or positively impacted by the number of common shares
issued to the 2009 Private Placement shareholders which includes an adjustment
factor determined by the change in our NMV.
The
number of common shares to be issued to the 2009 Private Placement shareholders
in connection with this offering is determined based on an adjustment factor
that reflects the change in the NMV of our company from the closing of the 2009
Private Placement to the consummation of this offering. To determine the final
adjustment factor, the closing NMV of our company is calculated based on the
valuation of our stockpile of indium held in inventory prior to this offering.
The price of indium used to calculate the NMV is determined by the mid-point of
the low and high monthly average price as published by the Metal Bulletin under
the category “Indium Ingots MB free market monthly average in warehouse $ per
Kg” for the three month period immediately preceding the closing date of the
IPO. If the price of indium at the closing of this offering is lower than the
average price for indium in the previous three month period, this may be
dilutive to the NMV at the time of this offering and result in the issuance of
additional shares of our common stock to the 2009 Private Placement
shareholders, which dilution will negatively impact new shareholders.
Conversely, if the price of indium at the closing of this offering is higher
than the average price for indium in the previous three month period, this may
be anti-dilutive to the NMV at the time of this offering and positively impact
new shareholders.
If
our NMV substantially decreases, the Manager may have an increased incentive to
liquidate our stockpile and return the proceeds to the
stockholders.
Pursuant
to the Management Services Agreement, our Manager is entitled to a 2.0%
management fee per annum based on our NMV. There is a direct correlation between
the management fee and our NMV. Since some members of our board of directors are
also members of our Manager, our board of directors may elect to liquidate our
business in the event there is a substantial reduction to our NMV in accordance
with the Manager’s wishes. Such liquidation may occur at an inopportune time,
when the disposition of indium could result in a loss to our
stockholders.
Our
officers and directors have limited experience in purchasing, stockpiling,
selling, storing, insuring and lending indium and our officers and directors
have limited experience in purchasing, selling, storing, insuring and lending
minor metals.
Our
officers and directors have only limited experience purchasing storing, and
insuring the metal indium. Our officers and directors have only limited
experience in purchasing, selling, storing, insuring and lending minor metals.
Only our Chief Executive Officer has experience purchasing, selling, storing,
insuring and lending precious metals, minor metals, base metals, non-exchange
metals and illiquid metals, but not indium. As a result they may not be able to
effectively manage our business.
We
may lend some of the indium that we acquire and the inability of the borrower to
return to us equivalent quantity and purity indium so loaned could have a
material adverse effect on the share price of our common stock.
We may
engage in lending indium from time to time. In such lending transaction, we will
physically deliver indium to the borrower. At the end of the loan term, the
borrower is required to return an equivalent quantity and purity level of
physical indium to us and pay us a fee based upon the value of the metal loaned
and the time duration of the loan. If the borrower is unable to return to us an
equivalent quantity and level of purity of indium, we may not be able to replace
the indium loaned from other sources at favorable prices. In such instances, we
may not be able to recoup our losses through litigation and we would incur a
loss which could have a material adverse effect on the share price of our common
stock.
We
will depend upon third parties to provide us with warehousing services, and
system failures or other problems at these third-party warehousing facilities
could cause us to lose revenues.
We
currently and will continue to store indium in secure facilities owned and
operated by third-party warehousing providers. If we are unable to continue to
rely on third parties to provide us with these services and warehousing space in
a timely fashion or if these services or warehousing space become impaired,
whether through labor shortage, slow down or stoppage, deteriorating financial
or business condition or other system failures, or if we face competition for
these services, or for any other reason, we would not be able, at least
temporarily or at competitive prices, to store or acquire indium. We also may be
unable to engage alternative warehousing services on a timely basis, which could
have a material adverse effect on our business.
We
will not engage a custodian to safeguard the indium held in third-party storage
facilities.
We have
not and will not retain a custodian to oversee our indium holdings stored at
third-party facilities. A custodian is responsible for safekeeping of the metal
and selecting direct subcustodians, if any. A custodian facilitates the transfer
of the metal in and out of the trust account, allocates specific bars of metal
to the trust allocated account and provides the trustee with regular reports
detailing the metal transfers in and out of the trust. The custodian is also a
market maker, clearer and approved weigher of such metal. If the third-party
storage facilities we engage cannot adequately provide such similar services as
provided by a custodian, then this could adversely affect the value, the
security, the quantity and our ability to keep track of our indium
holdings.
Potential
additional regulation of the purchase, sale or storage of indium may adversely
affect our operations and may increase our costs.
We may be
affected by changes in regulatory requirements, customs, duties or other taxes
regarding indium. Although we are not currently aware of any potential changes
in the regulatory requirements regarding indium, such changes could, depending
on their nature, adversely affect us by increasing our costs.
We
may distribute unused proceeds of this offering to our stockholders as a return
of capital and, in such event, our stock price may decrease in order to reflect
the lower NMV of our company.
If the Manager has not, within 18
months after the closing of this offering, purchased indium in sufficient
quantity to utilize at least 50% of the net proceeds of this offering that have
been allocated for the purchase of indium, our board of directors will have the
discretion to distribute such unused proceeds to our stockholders as a return of
capital. Any such distributions will lower the amount of cash available to
purchase additional indium which will, in turn, lower the NMV of our company.
Such decision by our board of directors to distribute the unused proceeds to the
stockholders may be based on numerous industry factors, including, but
not
limited to, whether or
not we have entered into any long-term supply contracts with suppliers or other
factors affecting market conditions at that time. In the event such proceeds are
returned to the stockholders, the stockholders may not recover their initial
investment due to the fact that a portion of such proceeds will be used to pay
expenses regarding this offering and other operational fees and
expenses.
The
proceeds of this offering will not be held in an escrow account.
The net
proceeds of this offering will not be held in an escrow account. Accordingly,
there is no restriction on our ability to use such funds for any corporate
purpose we deem necessary to accomplish our corporate objectives as described
herein. If the Manager has not, within 18 months after the closing of the
offering, purchased indium in sufficient quantity to utilize at least 50% of the
net proceeds of this offering that have been allocated for the purchase of
indium, our board of directors will have the discretion to distribute such
unused proceeds to our stockholders as a return of capital. In the event our
Board determines to distribute such unused proceeds to our stockholders, there
can be no assurance as to the amount of proceeds which will then be available
for such distribution resulting from losses, third-party claims, damages,
liabilities and any and all other costs and expenses associated with the
operation of our business.
Our
Manager will not be responsible for conducting any chemical assays or other
tests designed to verify that such indium meets the minimum 99.97% purity
requirements referred to in our prospectus. If the indium purchased is below
spec grade of 99.97% purity, the value of our indium stockpile will be worth
less than stated.
Our
Manager will be responsible for conducting limited inspections of the indium
delivered to us. Our Manager will not be responsible for conducting any chemical
assays or other tests designed to verify that such indium meets the minimum
99.97% purity requirements referred to in our prospectus. Our Manager will rely
on the good faith of its suppliers to provide indium that meets our
requirements. If the indium purchased is below spec grade of 99.97% purity, the
value of our indium stockpile will be worth less than stated, we would therefore
incur a write down, which would negatively impact the NMV of our company and
harm our reputation. If indium is purchased from or loaned to a third-party
supplier that is not known to be a regular industry supplier, our Manager, at
its discretion, may hire, at our expense, an independent lab to perform random
assay tests using glow-discharge mass spectrometry (GDMS) to verify the purity
of the indium. The Manager anticipates purchasing indium with a minimum purity
of 99.97% or better from regular industry suppliers. We do not intend to brand
specific companies and assayers. It is our intention to deal only with known
regular industry suppliers and participants. We consider the miners, refiners,
suppliers and trading houses listed in our “Competition” section to be a partial
list of known regular indium industry suppliers. We will use only reputable
assayers recommended by reliable third-party sources. It is possible that the
indium stockpile will contain ingots of a purity level below 99.97%. This would
decrease our NMV and negatively impact our share price.
We
are a development stage company with a limited operating history and,
accordingly, you will have a limited basis on which to evaluate our ability to
achieve our business objective.
We are a
development stage company with a limited operating history. Therefore, our
ability to scale operations is dependent upon obtaining financing through a
public offering of our securities. Since we have only limited operations and a
limited operating history, you will have a limited basis upon which to evaluate
our ability to achieve our business objective, which is to acquire and stockpile
indium. We will not generate any revenues or income until, at the earliest,
after lending or selling some or all of the indium that we acquired with the
proceeds from the 2009 Private Placement and/or with the proceeds from this
offering.
Our
ability to continue as a going concern is dependent on us raising funds in this
offering.
We have
no present revenue and will not generate any revenue until, at the earliest,
after the sale or lending of indium that we acquire with the offering proceeds.
We have a limited amount of available cash and working capital. The report of
our independent registered public accountants on our financial statements
includes an explanatory paragraph referring to conditions that raise substantial
doubt about our ability to continue as a going concern. Our ability to commence
operations and realize our business plan is dependent upon our ability to
complete this offering. There is no assurance that we will be able to complete
this offering or that the completion of this offering will lead to the
successful execution of our business plan. Further, should we be unable to
complete this offering by November 25, 2010, the terms of the Class A common
stock provide that, unless extended by the affirmative vote of a majority of the
Class A common stockholders, our existence shall be terminated and our affairs
shall be wound up and we shall liquidate. These factors, among others, raise
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
We
may suffer from losses as a result of our inability to obtain insurance to cover
loss or theft of our inventory.
We
currently store and expect to continue to store our inventory at third-party
warehouse facilities and will expect that the third-party facilities will
maintain an adequate level of insurance to protect us from loss due to theft,
damage or other events. We may, in the alternative, seek our own insurance
coverage for such potential losses. We may not be able to obtain such insurance,
or that the level of coverage will keep us fully insured due to the fluctuating
value of indium. Further, the cost of such insurance may impact our operating
expenses, whether obtained by us or through the third-party
facility.
We
may need to raise additional capital and may encounter unforeseen costs. If the
terms on which the additional capital is available are unsatisfactory or if the
additional capital is not available at all, we may not be able to pursue our
objective and strategy.
Our
expenses will be funded from cash on hand from the proceeds of the offering not
otherwise utilized for the purchase of indium. Once such cash available has been
expended, we will be required to generate cash resources from the sale or
lending of indium, debt incurrence or the sale of additional equity securities.
Our ability to obtain additional financing in the future will depend in part
upon the prevailing capital market conditions, as well as our business
performance and the value of indium. We may not be successful in our efforts to
arrange additional financing on terms satisfactory to us or at all. If
additional financing is raised by the issuance of common stock you may suffer
additional dilution and if additional financing is raised through debt
financing, it may involve significant restrictive covenants which could affect
our ability to operate our business. If adequate funds are not available, or are
not available on acceptable terms, we may not be able to continue our
operations, grow our business or take advantage of opportunities in connection
with the operation of our business.
We
may choose to redeem our outstanding warrants at a time that is disadvantageous
to our warrant holders.
Subject
to there being a current prospectus with respect to the common stock issuable
upon exercise of the warrants, we may redeem the warrants included in our units
at any time after six months following the effective date of this prospectus in
whole and not in part, at a price of $5.75 per warrant, upon a minimum of 30
days prior written notice of redemption, if and only if, the last sales price of
our common stock equals or exceeds $8.00 per share for any 20 trading days
within a 30-trading day period ending three business days before we send the
notice of redemption. In addition, we may not redeem the warrants unless the
warrants comprising the units sold in this offering and the shares of common
stock underlying those warrants are covered by an effective registration
statement from the beginning of the measurement period through the date fixed
for the redemption. Redemption of the warrants could force the warrant holders
(i) to exercise the warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, (ii) to sell the warrants at the then
current market price when they might otherwise wish to hold the warrants, or
(iii) to accept the nominal redemption price which, at the time the warrants are
called for redemption, is likely to be substantially less than the market value
of the warrants. We expect most purchasers of our warrants will hold their
securities through one or more intermediaries and consequently you are unlikely
to receive notice directly from us that the warrants are being redeemed. If you
fail to receive notice of redemption from a third-party and your warrants are
redeemed for nominal value, you will not have recourse to us.
We
are required to use our best efforts to have an effective registration statement
covering the issuance of the shares of common stock underlying the warrants at
the time that our warrant holders exercise their warrants. We cannot guarantee
that a registration statement will be effective, in which case our warrant
holders may not be able to exercise our warrants.
Holders
of our warrants will be able to exercise the warrants only if (i) a current
registration statement under the Securities Act of 1933 relating to the shares
of our common stock underlying the warrants is then effective and (ii) such
shares of common stock are qualified for sale or exempt from qualification under
the applicable securities laws of the states in which the various holders of
warrants reside. We will undertake in the underwriting agreement to be executed
between us and the underwriters, and therefore will have a contractual
obligation, to use our best efforts to maintain a current registration statement
covering the shares of common stock underlying the warrants following completion
of this offering to the extent required by federal securities laws, and we
intend to comply with our undertaking. We may not be able to comply with such
undertaking. In addition, we will agree to use our reasonable efforts to
register the shares of common stock underlying the warrants under the blue sky
laws of the states of residence of the existing warrant holders, to the extent
an exemption is not available. The value of the warrants may be greatly reduced
if a registration statement covering the shares of common stock issuable upon
the exercise of the warrants is not kept current or if the securities are not
qualified, or exempt from qualification, in the states in which the holders of
warrants reside. Holders of warrants who reside in jurisdictions in which the
shares of common stock underlying the warrants are not qualified and in which
there is no exemption will be unable to exercise their warrants and would either
have to sell their warrants in the open market or allow them to expire
unexercised. If and when the warrants become redeemable by us, we may exercise
our redemption right even if we are unable to qualify the underlying securities
for sale under all applicable state securities laws.
We
depend upon our senior management and their loss or unavailability could put us
at a competitive disadvantage.
We
currently depend upon the efforts and abilities of our senior executive
officers, particularly Alan Benjamin, our Chairman and Chief Executive Officer,
Ailon Grushkin, our President, and Richard Biele, our Chief Operating Officer,
each of whom is also a member of our Manager. The loss or unavailability of the
services of any of these individuals for any significant period of time would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
We
will depend on our Manager and the loss of our Manager could have a material
adverse impact on our business.
Our
Manager may terminate the Management Services Agreement, as amended, after the
initial term in accordance with the terms thereof. We may not be able to readily
secure similar services as those to be provided under the Management Services
Agreement and our operations will therefore be adversely affected if our
Management Services Agreement is terminated.
Members
of our Board of Directors have not worked together as a group for a significant
period of time and they each have only some or no experience as a director of a
public company. As a result, they may not be able to effectively manage our
business.
Our board
of directors consists of three executive directors and five independent
directors. Only one of our current independent directors has experience as a
director of a public company. As a result, our board of directors will lack a
history of working together as a group and currently lacks significant
experience in operating a public company. The lack of shared experience and lack
of significant experience of our board of directors in operating a public
company could have an adverse effect on its ability to quickly and efficiently
respond to problems and effectively manage our business and deal effectively
with the issues surrounding the operation of a public company.
Our
officers and directors may allocate their time to other businesses, thereby
causing conflicts of interest regarding the amount of time such officers and
directors will devote to our affairs, which could affect our
business.
Our
officers and directors are not required to commit their full time to our
affairs, which could create a conflict of interest when allocating their time
between our operations and their other commitments. Our Manager, officers and
board of directors will allocate, in the aggregate, approximately 120 hours per
week during the stockpiling phase of the business plan. Once the stockpiling
effort is complete, the number of hours allocated by the Manager, officers and
board of directors to our affairs in the aggregate will be approximately 60
hours per week. Our executive officers and directors are currently employed by
other entities and are not obligated to devote any specific number of hours to
our affairs. If other entities require them to devote more substantial amounts
of time to their business and affairs, it could limit their ability to devote
time to our affairs and could have a negative impact on our operations. These
conflicts may not be resolved in our favor.
Stockholders
will not have the protections associated with ownership of shares in an
investment company registered under the Investment Company Act of 1940, as
amended, or the protections afforded by the Commodity Exchange Act of 1936
(“Commodity Exchange Act” or “CEA”).
We are
not registered as an investment company under the Investment Company Act of
1940, as amended, and are not required to register under such act. Consequently,
stockholders will not have the regulatory protections provided to investors in
investment companies. We will not hold or trade in commodity futures contracts
regulated by the CEA, as administered by the Commodity Futures Trading
Commission (“CFTC”). Furthermore, we are not a commodity pool for purposes of
the CEA, and neither we nor the Manager is subject to regulation by the CFTC as
a commodity pool operator or a commodity trading advisor in connection with our
securities. Consequently, stockholders will not have the regulatory protections
provided to investors in CEA-regulated instruments or commodity
pools.
Geopolitical
and International Risks
International
and political events could adversely affect our results of operations and
financial condition.
A
significant portion of our revenue may be derived from non-United States
operations and our indium will be warehoused at locations outside the United
States, which exposes us to risks inherent in doing business in each of the
countries in which we transact business. The occurrence of any of the risks
described below could have a material adverse effect on our results of
operations and financial condition.
Operations
in countries other than the United States are subject to various risks peculiar
to each country. With respect to any particular country, these risks may
include:
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expropriation and nationalization
of our assets in that
country;
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political and economic
instability;
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civil unrest, acts of terrorism,
force majeure, war, or other armed
conflict;
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natural disasters, including
those related to earthquakes and
flooding;
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inflation;
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currency fluctuations,
devaluations, and conversion
restrictions;
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confiscatory taxation or other
adverse tax policies;
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governmental activities that
limit or disrupt markets, restrict payments, or limit the movement of
funds;
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governmental activities that may
result in the deprivation of contract rights;
and
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governmental activities that may
result in the inability to obtain or retain licenses required for
operation.
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We
could be subject to taxation in various jurisdictions with varying tax laws,
which could adversely affect our operations.
We may have operations in countries
other than the United States. Consequently, we could be subject to the
jurisdiction of a significant number of taxing authorities. The income earned in
these various jurisdictions is taxed on differing bases, including net income
actually earned, net income deemed earned, and revenue-based tax withholding.
The final determination of our tax liabilities involves the interpretation of
local tax
laws, tax
treaties, and related authorities in each jurisdiction, as well as the
significant use of estimates and assumptions regarding the scope of future
operations and results achieved and the timing and nature of income earned and
expenditures incurred. Changes in the operating environment, including changes
in tax law and currency/repatriation controls, could impact the determination of
our tax liabilities for a tax year.
Foreign
exchange and currency risks could adversely affect our revenues and operating
expenses.
A portion
of our revenue and operating expenses may be in foreign currencies. As a result,
we would be subject to significant risks, including:
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foreign exchange risks resulting
from changes in foreign exchange rates and the implementation of exchange
controls; and
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limitations on our ability to
reinvest earnings from operations in one country to fund the capital needs
of our operations in other
countries.
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We may
conduct business in countries that have nontraded or “soft” currencies which,
because of their restricted or limited trading markets, may be more difficult to
exchange for “hard” currency. We may accumulate cash in soft currencies, and we
may be limited in our ability to convert our profits into United States dollars
or to repatriate the profits from those countries.
We may
selectively use hedging transactions to limit our exposure to risks from doing
business in foreign currencies. For those currencies that are not readily
convertible, our ability to hedge our exposure would be limited because
financial hedge instruments for those currencies are nonexistent or limited. Our
ability to hedge would also be limited because pricing of hedging instruments,
where they exist, is often volatile and not necessarily efficient.
In
addition, the value of the derivative instruments could be impacted
by:
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adverse movements in foreign
exchange rates;
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interest
rates;
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commodity prices;
or
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the value and time period of the
derivative being different than the exposures or cash flows being
hedged.
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Risks
Related to Our Units and This Offering
We
do not anticipate paying cash dividends on our common stock in the foreseeable
future.
We are
not a mutual fund and an investment in our units shall not be redeemable. In
addition, our liquidity will rely principally on our ability to lend and sell
indium. Accordingly, we are unlikely to have resources to declare any dividends
or make other cash distributions unless and until a determination is made to
sell a portion of our indium holdings. Since our inception we have not declared
any dividends and we have no current intention to declare any
dividends.
Determination
of the NMV of our securities will materially impact the market price of our
securities.
Our
reported NMV per share is based on the spot prices of indium published by Metal
Bulletin as posted on Bloomberg L.P. The per share NMV shall be determined by
(x) multiplying the number of kilograms of our indium holdings by the last spot
price for indium published by Metal Bulletin posted on Bloomberg L.P. for the
month, plus cash and any other assets, less any and all of our outstanding
payables, indebtedness and any other liabilities, (y) divided by our total
number of outstanding shares of our common stock. Accordingly, the NMV is a
market value that may not necessarily reflect the actual “realizable value” upon
the sale of our indium holdings. The market price of our securities is expected
to vary based on the NMV. We cannot predict whether the units will trade above,
at or below our NMV.
Currently there is no liquid market for
indium. Indium is often quoted on various data service providers with a price
differential in excess of $100 per kilogram among providers. A price posted by
one data service
provider
may be higher or lower than the price at which we can actually sell or purchase
all or part of our indium stockpile. This will make it difficult for investors
to determine our exact NMV and therefore the value of our
stock.
If
we lend our stockpile of indium, we may sustain losses and our NMV may be
adversely affected.
If we
lend indium under an Unconditional Sale and Purchase Agreement (“USPA”) (see
section “Revenue Recognition – Accounting for Direct Sales and Lending
Transactions”) and the borrower defaults on the sale back to us of an equivalent
quantity and purity of physical indium owed, we may be negatively affected if
the price of indium rises and our replacement cost is then higher. This may
cause us to sustain losses or lost appreciation in the value of our indium
stockpile which will negatively affect our NMV.
If
an active, liquid trading market for our units does not develop, you may not be
able to sell your units quickly or at or above the initial offering
price.
Prior to
this offering, there has not been a public market for our units. An active and
liquid trading market for our units may not develop or be sustained following
this offering. You may not be able to sell your units quickly or at or above the
initial offering price if trading in our units is not active. The initial public
offering price may not be indicative of prices that will prevail in the trading
market. See “Underwriting” for more information regarding the factors that will
be considered in determining the initial public offering price.
Purchasers
in this offering will experience immediate dilution in the book value of their
investment.
The
initial public offering price of our units is higher than the net tangible book
value per share of our units immediately after this offering. Therefore, if you
purchase our units in this offering, you will incur an immediate dilution of
$0.50 per share (or 10.0%) in net tangible book value per unit from the price
you paid, based upon the initial public offering price of $5.00 per unit.
Conversion of the Class A common stock into shares of common stock and the
exercise of outstanding options, warrants issued in and pursuant to the 2009
Private Placement and warrants underlying the units will result in further
dilution of your investment. In addition, if we raise funds by issuing
additional securities, the newly issued securities may further dilute your
ownership interest.
Our
outstanding options, warrants and unit purchase option may have an adverse
effect on the market price of common stock and make it more difficult to obtain
future financing.
Prior to
this offering, as a result of the 2009 Private Placement, we had warrants to
purchase up to 1,201,400 shares of common stock issued and outstanding. Upon
completion of this offering, we will issue an additional 116,360 warrants to the
2009 Private Placement investors. In connection with this offering,
we will be issuing warrants to purchase up to [5,000,000] shares of common
stock, and have agreed to issue to the representatives of the underwriters of
this offering an option to purchase up to a total of 250,000 units. In
connection with the 2008 Long-Term Incentive Compensation Plan, we have agreed
to issue options to purchase 124,999 shares of common stock to our chief
financial officer and the independent members of our board of directors, which
will fully vest and will become exercisable only upon the completion of this
offering. Further, upon the closing of this offering, our Manager
will hold options to purchase up to an aggregate of 455,000 shares of common
stock, at an exercise price of $4.50 per share, resulting from compensation in
connection with the 2009 Private Placement, the conversion of promissory notes
issued pursuant to a revolving credit line in the principal amount of $265,000
plus interest and the conversion of 75,000 common shares into stock
options.
The sale
or even the possibility of sale of the shares of common stock underlying the
warrants and such options could have an adverse effect on the market price for
our securities or on our ability to obtain future financing. If and to the
extent these warrants and options are exercised, you may experience dilution to
your holdings.
The
determination for the offering price of our units is more arbitrary compared
with the pricing of securities for an operating company in a particular
industry.
The
public offering price of the units and the terms of the warrants were negotiated
between us and the representatives of the underwriters. Factors considered in
determining the prices and terms of the units, including the common stock and
warrants underlying the units, include:
|
|
·
|
the history and prospects of
companies whose principal business is the acquisition, storage and sale of
specialty metals;
|
|
·
|
prior offerings of those
companies;
|
|
·
|
our prospects for acquiring
indium;
|
|
·
|
our capital
structure;
|
|
·
|
an assessment of our management
and their experience in specialty
metals;
|
|
·
|
general conditions of the
securities markets at the time of the offering;
and
|
|
·
|
other factors as were deemed
relevant.
|
However,
the determination of our offering price is more arbitrary than the pricing of
securities for an operating company in a particular industry since we have no
historical operations or financial results to compare them to.
We
could issue “blank check” preferred stock without stockholder approval with the
effect of diluting then current stockholder interests and impairing their voting
rights.
Our
certificate of incorporation, as amended, authorizes the issuance of up to
1,000,000 shares of “blank check” preferred stock with designations, rights and
preferences as may be determined from time to time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue a series of preferred stock with dividend, liquidation, conversion,
voting or other rights which could dilute the interest of, or impair the voting
power of, our common stockholders. The issuance of a series of preferred stock
could be used as a method of discouraging, delaying or preventing a change in
control. For example, it would be possible for our board of directors to issue
preferred stock with voting or other rights or preferences that could impede the
success of any attempt to change control of our company.
If we cannot satisfy, or continue to
satisfy the NASDAQ Capital Market’s listing requirements and other applicable
regulatory rules, including
NASDAQ’s
director independence requirements,
our securities may not be listed or may be delisted, which could negatively
impact the price of our securities and your ability to sell
them.
We will
seek to have our securities approved for listing on the NASDAQ Capital Market
upon consummation of this offering. We cannot assure you that we will
be able to meet those initial listing requirements at that time. Even
if our securities are listed on the NASDAQ Capital Market, we cannot assure you
that our securities will continue to be listed on the NASDAQ Capital
Market.
We plan
to utilize the phase-in provisions afforded new public companies under Rule 5165
of the NASDAQ Marketplace Rules with respect to the director independence and
independent committee requirements of the NASDAQ Capital Market. As a
result, we will have 90 days from the date that our securities become listed on
the NASDAQ Capital Market to have a majority of independent members on our board
of directors and we will have one year from the date of such listing to have a
majority of independent directors and have fully independent board
committees. Therefore, during such phase-in period, there will be
times when we will not have a board of directors comprised of a majority of
independent directors or fully independent board committees, which will leave us
subject to the control of our existing non-independent
directors. Moreover, if we are unable to comply with the director
independence and independent committee requirements in the time period provided,
we could be delisted from the NASDAQ Capital Market.
In
addition, following this offering, in order to maintain our listing on the
NASDAQ Capital Market, we will be required to comply with certain NASDAQ Capital
Market rules, including those regarding minimum stockholders’ equity, minimum
share price and certain corporate governance requirements. Even if we
initially meet the listing requirements of the NASDAQ Capital Market and other
applicable NASDAQ Capital Market rules, we may not be able to continue to
satisfy these requirements and rules. If we are unable to satisfy the
NASDAQ Capital Market criteria for maintaining our listing, our securities could
be subject to delisting.
If the
NASDAQ Capital Market does not list our securities, or subsequently delists our
securities from trading, we could face significant consequences,
including:
|
·
|
a
limited availability for market quotations for our
securities;
|
|
·
|
reduced
liquidity with respect to our
securities;
|
|
·
|
a
determination that our common stock is a “penny stock,” which will require
brokers trading in our common stock to adhere to more stringent rules and
possibly result in a reduced level of trading activity in the secondary
trading market for our common
stock;
|
|
·
|
limited
amount of news and analyst coverage for our company;
and
|
|
·
|
a
decreased ability to issue additional securities or obtain additional
financing in the future.
|
In
addition, we would no longer be subject to the NASDAQ Capital Market rules,
including rules requiring us to have a certain number of independent directors
and to meet other corporate governance standards.
If
penny stock regulations impose restrictions on the marketability of our common
stock, the ability of our stockholders to sell shares of our common stock could
be impaired.
The
Securities and Exchange Commission, or the SEC, has adopted regulations that
generally define a “penny stock” to be an equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Exceptions include equity securities
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for more than three years, or (ii)
net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average revenue of at
least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require that prior to any transaction involving a
penny stock, a risk disclosure schedule must be delivered to the buyer
explaining the penny stock market and its risks.
You
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include:
|
|
·
|
Control of the market for the
security by one or a few
broker-dealers;
|
|
|
·
|
“Boiler room” practices involving
high-pressure sales tactics;
|
|
|
·
|
Manipulation of prices through
prearranged matching of purchases and
sales;
|
|
|
·
|
The release of misleading
information;
|
|
|
·
|
Excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers;
and
|
|
|
·
|
Dumping of securities by
broker-dealers after prices have been manipulated to a desired level,
which reduces the price of the stock and causes investors to suffer
loss.
|
We are
aware of the abuses that have occurred in the penny stock market. We do not
expect to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market. We will strive within the confines
of practical limitations to prevent such abuses with respect to our common
stock.
Provisions
in our charter documents and Delaware law may inhibit a takeover of us, which
could limit the price investors might be willing to pay in the future for our
common stock and could entrench management.
Our
charter and bylaws contain provisions that may discourage unsolicited takeover
proposals that stockholders may consider to be in their best interests. Our
board of directors is divided into two classes, each of which will generally
serve for a term of two years with only one class of directors being elected in
each year. As a result, at any annual meeting only a minority of the board of
directors will be considered for election. Since our “staggered board” would
prevent our stockholders from replacing a majority of our board of directors at
any annual meeting, it may entrench management and discourage unsolicited
stockholder proposals that may be in the best interests of
stockholders.
Moreover,
our board of directors has the ability to designate the terms of, and issue new
series of preferred stock.
We are
also subject to anti-takeover provisions under Delaware law, which could delay
or prevent a change of control. Together these provisions may make more
difficult the removal of management and may discourage transactions that
otherwise could involve payment of a premium over prevailing market prices for
our securities.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. The forward-looking statements
are contained principally in the sections entitled “Prospectus Summary,” “Risk
Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business.” These statements involve
risks, uncertainties, and other factors which may cause our actual results,
performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by the forward-looking
statements. Forward-looking statements include, but are not limited to,
statements about:
|
|
·
|
the
anticipated benefits and risks associated with our business
strategy;
|
|
|
·
|
fluctuations
in the spot price of indium;
|
|
|
·
|
supply
and demand for indium;
|
|
|
·
|
our
future operating results and the future value of our common
stock;
|
|
|
·
|
the
anticipated size or trends of the markets in which we compete and the
anticipated competition in those
markets;
|
|
|
·
|
our
ability to acquire, store and sell
indium;
|
|
|
·
|
our
ability to attract and retain qualified management
personnel;
|
|
|
·
|
our
future capital requirements and our ability to satisfy our capital
needs;
|
|
|
·
|
the
anticipated use of the proceeds realized from this offering;
and
|
|
|
·
|
acceptance
of our business model.
|
In some
cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects” and similar expressions intended to
identify forward-looking statements. Forward-looking statements reflect our
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. We discuss many of these risks in this
prospectus in greater detail under the heading “Risk Factors” beginning on page
13. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Also, forward looking statements represent our
estimates and assumptions only as of the date of this prospectus. You should
read this prospectus and the documents that we have filed as exhibits to the
registration statement, of which this prospectus is a part, completely and with
the understanding that our actual future results may be materially different
from what we expect.
Except as
required by law, we assume no obligation to update any forward-looking
statements publicly or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
We
estimate that our net proceeds from the sale of 5,000,000 units in this offering
at a price per unit of $5.00 will be approximately $23,020,000 after deducting
estimated offering expenses of $480,000, underwriting discounts and commissions
of $1,250,000, and a corporate finance fee of $250,000, and assuming an initial
public offering price of $5.00 per share. If the over-allotment option is
exercised in full, we estimate that our net proceeds will be approximately
$26,545,000.
We
currently intend to use the proceeds of this offering as follows:
|
Approximate
Allocation of
Net
Proceeds
|
Approximate
Percentage of
Net Proceeds
|
|||||||
|
Purchase
of Indium
(1)
(3)
|
$
|
19,567,000 |
85.0
|
%
|
||||
|
General
corporate purposes, including working capital
(2)
(3)
|
$
|
3,453,000 |
15.0
|
%
|
||||
|
Total
|
$
|
23,020,000 |
100.0
|
%
|
||||
|
(1)
|
The Manager has acquired and
intends to acquire on our behalf, indium with a minimum purity level
established by common industry practice of 99.97%. Furthermore, the
Manager expects that the stockpile will also contain higher grade indium
ingots such as, but not limited to, 99.99% and 99.999% purity
material.
|
|
(2)
|
We expect that general corporate
and working capital expenditures will include, among other potential uses:
(i) personnel costs; (ii) the payment of an annual cash management fee to
the Manager of 2.0% of the Net Market Value, which fee will be paid
monthly; (iii) the additional costs of being a public company, including
audit fees, legal fees and compliance with the Sarbanes-Oxley Act of 2002;
and (iv) the remainder, if any, for general working
capital.
|
|
(3)
|
If the over-allotment is
exercised, 85.0% of the net proceeds of the offering or $22,563,250, will
be used to purchase indium, the other 15.0% or $3,981,750, will be used
for general corporate purposes, including working
capital.
|
The
allocation of the net proceeds of the offering set forth above represents our
estimates based upon our current plans and assumptions regarding industry and
general economic conditions and our future revenues and
expenditures.
Investors
are cautioned, however, that expenditures may vary substantially from these
estimates. Investors will be relying on the judgment of our management, who will
have broad discretion regarding the application of the proceeds of this
offering. The amounts and timing of our actual expenditures will depend upon
numerous factors, including the amount of cash generated by our purchases and
sales and the amount of competition we face. We may find it necessary or
advisable to use portions of the proceeds from this offering for other
purposes.
Circumstances
that may give rise to a change in the use of proceeds include:
|
|
•
|
the existence of other
opportunities or the need to take advantage of changes in timing of our
existing activities;
|
|
|
•
|
the need or desire on our part to
accelerate, increase or eliminate existing initiatives due to, among other
things, changing market conditions and competitive developments;
and/or
|
|
|
•
|
if strategic opportunities of
which we are not currently aware present themselves (including
acquisitions, joint ventures, licensing and other similar
transactions).
|
From time
to time, we evaluate these and other factors and we anticipate continuing to
make such evaluations to determine if the existing allocation of resources,
including the proceeds of this offering, is being optimized. Pending such uses,
we intend to invest the net proceeds of this offering in direct and guaranteed
obligations of the United States, interest-bearing, investment-grade instruments
or certificates of deposit.
If the
Manager has not, within 18 months after the closing of the offering, invested in
indium at least 50% of the proceeds of the offering that have been allocated for
the purchase of indium, our board of directors will have the discretion to
distribute such unused proceeds to our shareholders as a return of capital. Any
such distributions will be subject to applicable law. Any interest earned on the
proceeds of this offering shall be utilized for general corporate and working
capital expenses and shall not be distributed to shareholders in the event that
the board of directors determines to distribute unused proceeds to
shareholders.
We have
never paid or declared any cash dividends on our common stock. We currently
intend to retain all available funds and any future earnings to fund the
purchase of indium and expansion of our business, and we do not anticipate
paying any cash dividends for the foreseeable future following this offering.
Any future determination to pay dividends will be at the discretion of our board
of directors and will depend on our financial condition, results of operations,
capital requirements and other factors that our board of directors deems
relevant. In addition, the terms of any future debt or credit facility may
preclude us from paying dividends.
CAPITALIZATION
The
following table sets forth the capitalization as of December 31, 2009, both
before and after giving effect to the sale of 5,000,000 units at the initial
public offering price of $5.00 per unit, conversion of the 2009 Private
Placement units, consisting of Class A Common Stock and warrants, after
deducting underwriting discounts, commissions, the corporate finance fee, and
estimated offering expenses payable by us:
|
As of December 31, 2009
|
||||||||||||
|
Actual
|
Pro Forma
|
Pro Forma, as
Adjusted
|
||||||||||
|
Cash
and cash equivalents
|
$ | 3,605,228 | $ | 4,405,228 | (1) | $ | 27,425,228 | (4) | ||||
|
Total
long term liabilities, including current maturities
|
$ | 294,658 | $ | — | (2) | $ | — | |||||
|
Stockholder
Equity:
|
||||||||||||
|
Preferred
Stock, $.001 par value, 1,000,000 shares authorized, no shares issued and
outstanding, actual, pro forma,
|
||||||||||||
|
and
pro forma as adjusted
|
— | — | — | |||||||||
|
Class
A Common Stock - $.001 par value; 2,000,000 shares authorized, 1,003,600
issued and outstanding, actual; no shares authorized,
|
||||||||||||
|
issued
and outstanding , pro
forma and pro forma as
adjusted
|
1,004 | — | — | |||||||||
|
Common
Stock, $.001 par value, 5,000,000 shares authorized, 155,000 shares issued
and outstanding, actual; 5,000,000 shares authorized,
1,359,960 shares
issued
and outstanding, pro
forma; and 7,000,000 shares authorized, 6,509,960 shares
issued
and
outstanding pro forma as adjusted
|
155 | 1,360 |
(1)
|
6,360 | ||||||||
|
Additional
paid in capital
|
4,829,341 | 5,918,798 |
(1)
|
28,933,798 |
(4)
|
|||||||
|
Deficit
accumulated during the development stage
|
(354,156 | ) | (354,156 | ) (2) | (354,156) |
(3)
|
||||||
|
Total
Stockholders Equity
|
$ | 4,476,344 | $ | 5,566,002 | $ | 28,586,002 | ||||||
|
Total
Capitalization
|
$ | 4,771,002 | $ | 5,566,002 | $ | 28,586,002 | (5)(6) | |||||
|
(1)
|
Assumes
the conversion of 1,003,600 private placement Class A Common Stock held at
December 31, 2009 at $5 per share, plus the conversion of an
additional 160,000 Class A Common Stock from the final closing of the
private placement on January 8, 2010 at $5 per share. The total Class
A Common Stock converted in connection with the private placement were
1,163,600 at $5 per share. Additionally this amount includes
the effect of the 10% accretion on the private placement shares
assuming that the IPO is completed by November 25, 2010. Also reflects the
75,000 reduction in common shares held by the Manager due to the
conversion into common stock options as stipulated in the agreement dated
February 8, 2010.
The
75,000 shares that the Company will receive back will be cancelled by the
Company.
|
|
(2)
|
Reflects
the extinguishment of the revolving line of credit and accrued interest
payable in the amount of $294,658 in exchange for 150,000 common
stock options as per the January 25, 2010 Debt Amendment upon consummation
of the IPO.
The
Capitalization Table above does not reflect the issuance of warrants and
options.
|
|
(3)
|
Amount
includes $1,980,000 of fees in connection with the Initial Public Offering
(IPO) comprised of (i) underwriting discounts and
commissions of 5% on the IPO closing or $1,250,000; (ii) corporate
finance fee of $250,000; and (iii) estimated IPO offering costs of
$480,000. This amount excludes the effect of the first year operating
expenses of $1,125,000.
|
|
(4)
|
Amount
includes the proceeds from the issuance of 5,000,000 shares of common
stock, par value $.001, issued at $5 per share in connection with the
Initial Public Offering (IPO) less the IPO expenses of $1,980,000 as noted
above.
|
|
(5)
|
The
table above does not consider the effect of various warrants and options
as described in this Form S-1 since it is not assumed that
the post IPO value will exceed the respective exercise prices for the
warrants and options and thus is not included in the Capitalization table
above.
|
|
(6)
|
If
all the warrants and options associated with this offering were exercised,
the Company would have a pro forma outstanding number of common stock
shares of approximately 14,633,000
shares.
|
DILUTION
The
difference between the public offering price per share of common stock, assuming
no value is attributed to the warrants included in the units, and the pro forma
net tangible book value per share of our common stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share is determined by dividing our net tangible book value, which is our
total tangible assets less total liabilities by the number of outstanding shares
of our common stock.
At
December 31, 2009, our net tangible book value was $4,476,344. Our pro forma
tangible net book value of $28,586,002 or $4.49 per share is comprised of the
following: (i) the effect of the sale of 1,163,600 private placement units on
January 8, 2010 at $5.00 per unit and the subsequent conversion of the shares of
Class A common stock issued in the 2009 Private Placement into shares of common
stock in this offering; (ii) 5,000,000 shares of common stock included in the
units at an initial public offering price of $5.00 per unit; (iii) the deduction
of underwriting discounts, the corporate finance fee and the estimated expenses
of this offering; and (iv) the conversion of the note payable to the Manager.
The pro forma net tangible book value of $4.49 per share represents an immediate
increase in net tangible book value of $0.49 per share to the existing
stockholders and an immediate dilution of $0.51 per share or 10.1% to new
investors.
The
following table illustrates the dilution to the new investors on a per-share
basis, assuming no value is attributed to the warrants included in the
units:
|
$
|
5.00
|
|||
|
Net tangible book
value before this offering
(5)
|
$
|
4.00
|
|
|
|
Increase
attributable to new investors
|
$
|
0.49
|
||
|
Pro forma net
tangible book value after this offering
(2) (3)
(4)
|
$
|
4.49
|
||
|
Dilution
to new investors
|
$
|
0.51
|
||
|
(1)
|
Before deduction of underwriters’
discounts and commissions, corporate finance fee and other estimated
offering expenses.
|
|
(2)
|
After deduction of underwriters’
discounts and commissions, corporate finance fee and other estimated
offering expenses.
|
|
|
(3
)
|
After
conversion of note payable to the
Manager.
|
|
(4)
|
After
conversion of 75,000 common shares owned by management into stock options
to purchase 150,000 shares of common stock at $4.50 per
share.
|
|
|
(5)
|
Includes
additional 160,000 units sold after December 31, 2009 for
$800,000.
|
The
following table sets forth information with respect to our existing stockholders
and the new investors:
|
Shares Purchased
|
Total Consideration
|
Average
Price Per
Share
|
||||||||||||||||||
|
Number
|
Percentage
|
Amount
|
Percentage
|
|||||||||||||||||
|
Founding
stockholders
|
80,000 | 1.26 | % | $ | 5,000 | 0.02 | % |
$
|
0.06 | |||||||||||
|
Private
Placement Shareholders
(2)
(3)
|
1,279,960 | 20.13 | % | $ | 5,818,000 | 18.88 | % |
$
|
4.55 | |||||||||||
|
New
investors
|
5,000,000 | 78.62 | % | $ | 25,000,000 | 81.10 | % |
$
|
5.00 | |||||||||||
| 6,359,960 | 100.0 | % | $ | 30,823,000 | 100.0 | % |
$
|
4.85 | ||||||||||||
The pro
forma net tangible book value after the offering is calculated as
follows:
|
Numerator:
|
||||
|
Net
tangible book value before this offering
(1)
|
$ | 5,276,344 | ||
|
Net
proceeds from this offering
(2)
|
23,020,000 | |||
|
Conversion
of Note Payable to Manager
|
289,658 | |||
|
Offering
costs paid in advance and excluded from net tangible book value before
this offering
|
||||
| $ | 28,586,002 | |||
|
Denominator:
(5) (6)
(7) (8)
|
||||
|
Shares
of common stock outstanding prior to private placement
|
155,000 | |||
|
Shares
of common stock converted to stock options upon closing of this
offering
|
(75,000 | ) | ||
|
Shares
of common stock issued to private placement shareholders upon conversion
of the Class A common stock
(3)
(4)
|
1,279,960 | |||
|
Shares
of common stock included in the units offered
|
5,000,000 | |||
|
Total
|
6,359,960 | |||
|
(1)
|
Includes
1,163,600 units sold in the 2009 Private
Placement.
|
|
(2)
|
Net
of underwriters’ discounts and commissions, corporate finance fee and
other estimated offering expenses.
|
|
(3)
|
This
includes the 10% additional shares of common stock to be issued to private
placement shareholders upon consummation of this offering pursuant to the
terms of the 2009 Private
Placement.
|
|
(4)
|
This
excludes the 10% additional warrants to be issued to private placement
shareholders upon consummation of this offering pursuant to the terms of
the 2009 Private Placement.
|
|
(5)
|
Excludes
the additional shares of common stock to be issued or shares of common
stock to be subtracted from the private placement shareholders pursuant to
the 2009 Private Placement adjustment
feature.
|
|
(6)
|
Excludes
the additional warrants to be issued or warrants to be subtracted from the
private placement shareholders pursuant to the 2009 Private Placement
adjustment feature.
|
|
(7)
|
Excludes
155,000 stock options granted to the Manager for the successful completion
of 2009 Private Placement.
|
|
(8)
|
Excludes
150,000 stock options issued to the Manager upon conversion of the note
payable.
|
|
(9)
|
Excludes
150,000 stock options issued to the Manager upon conversion of 75,000
shares of common stock.
|
|
(10)
|
Excludes
stock options granted to the members of our board of directors and our
Chief Financial Officer pursuant to the 2008 Long-Term Incentive
Compensation Plan.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety
by, our financial statements (and notes related thereto) and other more detailed
financial information appearing elsewhere in this prospectus. In addition to
historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Some of the information contained in this discussion and
analysis or set forth elsewhere in this prospectus, including information with
respect to our plans and strategy for our business, includes forward-looking
statements that involve risks and uncertainties. You should review
the “Risk Factors” section of this prospectus for a discussion of important
factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.
Overview
We were
formed to purchase and stockpile the metal indium. Our strategy is to achieve
long-term appreciation in the value of our indium stockpile, and not to actively
speculate with regard to short-term fluctuations in indium prices. We plan to
achieve long-term appreciation in the value of our indium stockpile primarily
through price appreciation of the physical metal. Although the price of indium
has declined 47.9% from its high in March 2005, it is our belief that the
long-term industry prospects for indium are attractive and over time the price
of the metal will appreciate. To our knowledge, this is currently the only
investment that allows potential stockholders to participate in the price
appreciation of indium other than physical delivery of the metal itself. Our
structure provides a simple and efficient mechanism by which a potential
stockholder may benefit from the appreciation in the price of
indium.
Our
business model is designed to capture the long-term appreciation of the price of
indium. According to Metal Bulletin as posted on Bloomberg L.P., over the last
year, the price of indium has appreciated 66.0% from $360 per kilogram in March
2009 to $597.50 per kilogram in March 2010. Over the last five years, the price
of indium has depreciated 42.5% (10.5% annualized) from $1,040 per kilogram in
March 2005 to $597.50 per kilogram in March 2010. Over the last ten years, the
price of indium has appreciated 231.9% (12.8% annualized) from $180 per kilogram
in March 2000 to $597.50 per kilogram in March 2010. Over the last fifteen
years, the price of indium has appreciated 39.0% (2.2% annualized) from $430 per
kilogram in March 1995 to $597.50 per kilogram in March 2010. According to the
USGS, over the last twenty-five years, the price of indium has appreciated
602.9% (8.1% annualized) from $85 per kilogram in 1985 to $597.50 per kilogram
in March 2010. Over the last fifty years, the price of indium has appreciated
729.9% (4.3% annualized) from $72 per kilogram in 1960 to $597.50 per kilogram
in March 2010.
Our
indium is and will be insured and physically stored in third-party facilities.
While it is not our current intention to do so in the short-term, at our
discretion, we may subsequently lend or sell some or all of our indium stockpile
based on market conditions. Our shareholders have the ability to effectively
purchase an interest in indium in a manner that does not directly include the
risks associated with ownership of companies that explore for, mine and process
indium. Our common shares represent an indirect interest in the physical indium
we own.
All of
the indium we purchase and own is and will be stored in warehouses or storage
facilities located in the United States, Canada, Rotterdam and or the United
Kingdom. Our Manager will negotiate storage arrangements for our indium holdings
and is required to use its best efforts to ensure that the indium holdings have
the benefit of insurance arrangements obtained on standard industry
terms.
We
currently store and intend to store our indium stockpile in reputable,
adequately capitalized and insured third-party facilities that have the
following characteristics.
|
|
•
|
Experience storing minor metals
or precious metals such as gold, silver, platinum, and
palladium.
|
|
|
•
|
Provide comprehensive inventory
service that includes:
|
|
|
•
|
monthly reporting on inventory
positions,
|
|
|
•
|
full liability for our inventory
held in their facility,
|
|
|
•
|
insurance on standard industry
terms,
|
|
|
•
|
proper warehouse security such as
the use of alarm systems, digital cameras, and or independent power
sources.
|
|
|
•
|
Management throughout the supply
chain from mine to end user
by:
|
|
|
•
|
preparation of the shipment in
accordance with our
instructions,
|
|
|
•
|
weighing according to industry
standards,
|
|
|
•
|
preparation of documents for
letter of credit,
|
|
|
•
|
experience dealing with import
and export duties,
|
|
|
•
|
flexible infrastructure that is
tractor-trailer accessible during regular business
hours,
|
|
|
•
|
storage, acceptance and release
of shipment upon receipt of formal instructions,
and
|
|
|
•
|
facilities for third-party
inspection and assaying.
|
We
utilize and expect to utilize facilities that meet our requirements that are
either (i) located closest in proximity to our indium suppliers in order to
reduce transportation fees or (ii) facilities located closest in proximity to
our corporate headquarters or satellite offices in order to facilitate our
ability to inspect our inventory and reduce future corporate expenses associated
with travel. We believe there are numerous third-party storage facilities that
provide more than adequate services that meet our criteria, which eliminates the
need for hiring a custodian. Subsequent to our 2009 Private Placement, our
Manager purchased on our behalf approximately 9.2 tons of indium, which is
currently stored in an insured, secure facility in New York owned and operated
by Brink’s Global Services U.S.A., Inc. (“Brink’s”), a bonded
warehouse.
Initially,
a member of our senior management will be responsible for warehouse facilities’
inspection. We expect our chief executive officer or our chief operating officer
to inspect the facilities. The facilities will be visited at least once per year
for inspection. We may insure the warehouse contents above and beyond a bonded
warehouse to guarantee we will not sustain a loss in the event of an unforeseen
catastrophe or we deem the warehouse company’s insurance
inadequate.
We will
monitor the ratio of our common share price to the value of our indium holdings
and may sell some of our indium holdings and buy back common shares when the
common share price is less than the NMV per share or sell common shares and buy
indium when the common share price is higher than the NMV per
share.
Our
expenses will be required to be satisfied by cash on hand that is not set aside
for the purchase of indium. Cash on hand following completion of this offering
is expected to be sufficient to satisfy our expenses for approximately 43
months. Our annual expenses, including corporate taxes, are estimated to be
approximately $1,125,000. For a detailed description of such expenses, please
see “Management of SMG Indium Resources Ltd. — Management Services
Agreement.” We are a taxable United States corporation and are subject to
federal and state taxes.
Assuming
we are able to utilize 85.0% of the net proceeds of this offering to purchase
the stockpile of indium at $597.50 per kilogram, the price of indium would need
to increase approximately 12.2% within 12 months to offset the depreciation in
our NMV associated with the initial offering expenses of $1,980,000 and annual
operating expenses of $1,125,000. The price of indium would need to increase
approximately 16.6% within 24 months or 8.3% on average per annum to offset the
depreciation in our NMV due to the expenses listed above. The price of indium
would need to increase approximately 21.0% within 36 months or 7.0% per annum to
offset the depreciation in our NMV due to the expenses listed
above.
On January 8, 2010, we
completed a private placement offering of an aggregate of 1,163,600 units to 61
investors for gross proceeds of $5,818,000. Each unit consisted of
one share of Class A common stock, par value $.001 per share, and one warrant to
purchase one share of common stock at an exercise price of $5.75 per share,
which shall become exercisable upon the closing of this offering. In
accordance with the terms of the private placement, upon the successful
completion of this offering, each share of Class A common stock shall
automatically convert into one share of common stock, subject to certain
adjustments.
The private placement shareholders will receive
shares and warrants adjusted for increases or decreases based upon the increase
or decrease of our NMV from the closing of the 2009 Private Placement to our NMV
immediately preceding the consummation of this offering. Based on the terms of
the 2009 Private Placement, upon the final closing of the 2009 Private
Placement, our NMV was approximately $5,526,800. This was calculated by applying
the $5,818,000 gross proceeds from the 2009 Private Placement to our cash of
$8,737 and adding the prepaid expenses of $3,077 then deducting (i) $265,000
revolving credit note payable to the Manager; (ii) $29,658 of interest payable
on the revolving credit note and (iii) $8,356 in accrued expenses. An example of
the private placement adjustment feature in operation is described
below.
Assuming
that immediately preceding the closing of this offering we hold in inventory
10,000 kilograms (10.0 metric tons) of indium, $500,000 in cash and debt payable
of $300,000 (the revolving credit note payable outstanding plus interest
payable) and the average monthly price of indium for the three month period
immediately preceding the closing date of this offering is $600.00 per kilogram,
our NMV would be $6,200,000 (10,000 kilograms of indium multiplied by $600 per
kilogram plus $500,000 in cash minus $300,000 (revolving credit note payable
plus interest)). To calculate the adjustment ratio per private placement Class A
common share: $6,200,000 (NMV immediately preceding this offering) minus
$5,526,800 (NMV from 2009 Private Placement) divided by the initial public
offering unit price of $5.00 equals 134,640, which represents the total number
of NMV based adjustment shares that would be issued to the private placement
shareholders. To calculate the adjustment ratio per private placement share,
134,640 (total adjustment shares to be issued to the private placement
shareholders) is divided by 1,163,600 (total number of shares of Class A common
stock outstanding) which equals 0.1157. Hence, under this scenario, from the NMV
adjustment factor only, for every one share of Class A common stock held by a
private placement shareholder, they would receive an additional 0.1157 units in
connection with the initial public offering. A private placement shareholder who
owns 10,000 shares Class A common stock would receive 1,157 additional units in
connection with this offering (10,000 multiplied by 0.1157).
In the
scenario described above, if the price of indium at the date of the initial
public offering is $600 per kilogram, exactly equivalent to the average monthly
price of indium for the three month period immediately preceding the closing
date of the initial public offering used to calculate the NMV adjustment factor,
there would be no additional dilutive or anti-dilutive effect on the initial
public offering investors.
If the
average monthly price of indium for the three month period immediately preceding
the closing date of this offering used to calculate the NMV adjustment factor is
$600 per kilogram and the price of indium on the date of closing this offering
is $650 per kilogram, there will be an anti-dilutive effect for the investors in
this offering. The investors in this offering will essentially assume control of
the 10.0 metric ton indium stockpile at $600 per kilogram which is lower than
the current price of $650 per kilogram. In this scenario, the investors in this
offering would benefit. The net effect of the benefit to the investors in this
offering would be the current price of indium, $650, minus the adjustment price
received by the private placement shareholders of $600 per kilogram multiplied
by 10,000 kilograms, or a positive effect of $500,000 to our NMV upon the
consummation of this offering. Assuming we complete this offering prior to
November 25, 2010 and the private placement investors receive the 10% increase
in units associated with the time value adjustment factor plus the 0.1157 per
Class A common share NMV adjustment and we sell 5,000,000 shares in this
offering, the positive effect is $0.08 per share outstanding ($500,000 divided
by 6,494,600 [1,163,600 private placement shares + 116,360 (10% time value
adjustment) + 134,640 (NMV adjustment) + 80,000 (management common shares) +
5,000,000 (investors in this offering)]. Our NMV upon the consummation of this
offering would increase from $4.50 per share to $4.58 per share.
Conversely,
if the average monthly price of indium for the three month period immediately
preceding the closing date of this offering used to calculate the NMV adjustment
factor is $600 per kilogram and the price of indium on the date of closing of
this offering is $550 per kilogram, there will be a dilutive effect on the
investors in this offering because they will essentially assume control of the
10.0 metric ton indium stockpile at $600 per kilogram which is higher than the
current price of $550 per kilogram. In this scenario, the investors in this
offering would be diluted. The net effect of the dilution to the investors in
this offering would be the current price of indium, $550, minus the adjustment
price received by the private placement investors of $600 per kilogram
multiplied by 10,000 kilograms or a negative effect of $500,000 to our NMV in
this offering. Assuming we complete this offering prior to November 25, 2010 and
the private placement investors receive the 10% increase in units associated
with the time value adjustment factor plus the 0.1157 per Class A common share
NMV adjustment and we sell 5,000,000 shares in this offering, there would be a
dilutive effect of $0.08 per share outstanding to our NMV
($500,000 divided by 6,494,600 [1,163,600 private placement shares + 116,360
(10% time value adjustment) + 134,640 (NMV adjustment) + 80,000 (management
common shares) + 5,000,000 (investors in this offering)]. Our NMV in this
offering would decrease from $4.50 per share to $4.42 per share.
Critical
Accounting Policies and Estimates:
Use
of Estimates
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the audited financial statements and accompanying notes. Estimates are used for,
but not limited to, purchases of indium inventories, income taxes, loss
contingencies and revenue recognition. Share based payment arrangement and
derivative accounting to the extent it may apply with respect to any financial
instruments we may issue. In addition, we will be required to review, at each
reporting date, the applicability of the variable interest consolidation model
prescribed under FASB ASC 810 with respect to our relationship with the Manager
since it is owned by our founding stockholders. Management will base its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results could differ
from these estimates under different assumptions or conditions.
Since the
date of inception, we have not produced any revenues. Accordingly, our
activities have been accounted for as those of a “Development State Company” as
set forth in FASB ASC 910-10 “Accounting for Development Stage Entities”. Among
the disclosures required by FASB ASC 910 are our financial statements being
identified as those of a development stage company. In addition, the statements
of operations and comprehensive loss, stockholders equity (deficit) and cash
flows are required to disclose all activity since our date of
inception.
We will
continue to prepare our financial statements and related disclosures in
accordance with FASB ASC 910 until such time that we have generated significant
revenues and are deemed to have exited the development stage.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
We
account for the issuance of common stock purchase warrants and other free
standing derivative financial instruments in accordance with the provisions of
FASB ASC 505. Based on the provisions as contained therein, we classify as
equity any contracts that (i) require physical settlement or net-share
settlement or (ii) gives us a choice of net-cash settlement or settlement in our
own shares (physical settlement or net-share settlement). We classify as assets
or liabilities any contracts that (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that event
is outside our control) or (ii) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement). We assess classification of our common stock purchase warrants and
other free standing derivatives at each reporting date to determine whether a
change in classification between assets and liabilities is
required.
We
currently have no outstanding free standing derivatives. Notwithstanding, we, as
a matter of policy, will evaluate any common stock purchase warrants or other
free standing derivatives at each reporting date to assess their proper
classification using the applicable classification criteria enumerated in FASB
ASC 505.
Employee
Share Based Payment Arrangements
We plan
to account for employee share based payment arrangements in accordance with the
provision of FASB ASC 718-10-S99, “Share-Based Payments” (“SBP’s”). FASB ASC 718
addresses all forms of SBP’s and awards including shares issued under employee
stock purchase plans, stock options, restricted stock and stock appreciation
rights. Under FASB ASC 718, SBP awards result in a cost that is measured at fair
value on the awards’ grant date, based on the estimated number of awards that
are expected to vest and will result in a charge to operations. We only recently
adopted an equity incentive plan but have not yet issued any employee
share-based payments and there is currently no compensation for the
periods.
Inventory
or “Stockpile” of the Metal Indium
Our
inventory or “stockpile” of the metal indium is recorded on the date we take
delivery of the physical metal. The stockpile of the physical metal indium is
carried at the lower of cost or market with cost being determined on a specific
identification method and market being determined as the net realizable value as
computed from the closing spot price as posted by Metal Bulletin on Bloomberg
L.P., a real time financial information services data platform, based on the
last day of the period. The difference between cost and fair market value is
reviewed on a periodic basis to determine if a loss should be recognized where
the utility of indium has been impaired. Where such impairment is viewed as
something other than temporary, we will reflect in earnings the value by which
the fair market value is less than the cost. Realized gains (losses) from other
transactions will be determined for income tax and for financial reporting
purposes on specific identification method.
Income
Taxes
We follow
FASB ASC 740 “Accounting for Income Taxes.” Under FASB ASC 740, we establish
financial accounting assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Additionally, FASB ASC 740 clarifies
the accounting for uncertainty in income taxes recognized in an entity’s
financial statements and prescribes a recognition threshold and measurement
attributes for financial statement disclosure of tax positions taken or expected
to be taken on a tax return.
Under FASB ASC 740, the impact of an
uncertain income tax position(s) on the income tax return must be recognized at
the largest amount that is more-likely-than-not to be sustained upon audit by
the relevant taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being sustained.
Additionally, FASB ASC 740 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. There were no such amount to be recorded under FASB ASC 740 for the
year ended December 31, 2009 and the period ended December 31,
2008.
Recently
Issued Accounting Pronouncements:
FASB ASC
820 provides guidance as to “Fair Value Measurements”. This Codification
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The changes to current practice resulting from the
application of this statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. We adopted the provisions of FASB ASC 820 at the date of our
inception on January 7, 2008. FASB ASC 820 permits an entity to choose to
measure many financial instruments and certain other items at fair value at
specified election dates. Subsequent unrealized gains and losses on items for
which the fair value option has been elected will be reported in earnings. The
adoption of this pronouncement did not have any material effects on our
consolidated financial position, results of operation, or cash flows, however,
this pronouncement may have an effect in the future.
FASB ASC
250-05 provides guidance as to “Accounting Changes and Error Corrections” and
FASB ASC 250-S55 discusses, “Considering the Effects of Prior Misstatements When
Quantifying Misstatements in Current Year Financial Statements”. FASB ASC
250-S55 provides guidance on how the effects of the carry over or reversal of
prior year financial statement misstatements should be considered in quantifying
a current year misstatement. Prior practice allowed the evaluation of
materiality on the basis of (i) the error quantified as the amount by which the
current year income statement was misstated (rollover method) or (ii) the
cumulative error quantified as the cumulative amount by which the current year
balance sheet was misstated (iron curtain method). Reliance on either method in
prior years could have resulted in misstatement of the financial statements. The
guidance provided in FASB ASC 250-S55 requires both methods to be used in
evaluating materiality. Immaterial prior year errors may be corrected with the
filing of prior year financial statements after adoption. The cumulative effect
of the correction would be reflected in the opening balance sheet with
appropriate disclosure of the cause of the error and that error had been deemed
to be immaterial in the past. The adoption of this pronouncement did not have
any material effects on our consolidated financial position, results of
operation, or cash flows.
FASB ASC
718-740-50 provides guidance for the “Accounting for Income Tax Benefits on
Dividends on Share-Based Payment Awards and addresses share-based payment
arrangements with dividend protection features that entitle employees to receive
(a) dividends on equity-classified non-vested shares, (b) dividend equivalents
on equity-classified non-vested share units, or (c) payments equal to the
dividends paid on the underlying shares while an equity-classified share option
is outstanding, when those dividends or dividend equivalents are charged to
retained earnings under FASB ASC 718 and result in an income tax deduction for
the employer. A realized income tax benefit from dividends or dividend
equivalents that are charged to retained earnings are paid to employees for
equity-classified non-vested shares, non-vested equity share units, and
outstanding equity share options should be recognized as an increase in
additional paid in capital. The amount recognized in additional paid-in capital
for the realized income tax benefit from dividends on those awards should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payments. We do not expect the adoption of this
pronouncement to have a material impact on our financial position or results of
operations.
FASB ASC
505 provided guidance on “
Accounting
for Distributions
to Shareholders with Components of Stock and Cash”. This codification clarifies
that the stock portion of a distribution to shareholders that allows them to
elect to receive cash or stock with a potential limitation on the total amount
of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and EPS).
Those distributions should be accounted for and included in the EPS calculations
in accordance with paragraphs 480-10-25-14 and 260-10-45-45 through 45-47 o the
FASB Accounting Standards Codification. The Company does not envision any such
distributions to shareholders and thus does not expect that the adoption of this
pronouncement had a material impact on its financial position or results of
operations.
FASB ASC
860 “Accounting for Transfers of Financial Assets” was issued. This codification
addresses the transfers of financial assets where there is a continuing
involvement by the transferor either with the transferred assets or with the
transferee. This codification raises issues about the circumstances under which
the transfers should be considered sales or partial sales and thus established
standards for resolving those issues. The Company may from time to time direct
sell or lend indium. In each case title and risk of loss shall pass and hence
the “continuing involvement” is eliminated. Accordingly, the Company does not
believe that the adoption of this pronouncement will have a material impact on
its financial position or results of operations.
FASB ASC
820 “Fair Value Measurements and Disclosures – Measuring Liabilities at Fair
Value” was issued. This codification discusses the need to have ready
available market fair value determinants for liabilities. As noted in the
attached financials, the principal liability is the debt and accrued interest.
These are at fair market value and hence no additional disclosure is deemed
necessary. Should other liabilities arise, the Company will follow the guidance
set forth herein to measure those liabilities at fair value in accordance with
FASB ASC 820.
FASB ASC
855 “Subsequent Events” addresses accounting and disclosure requirements related
to subsequent events. This codification requires management to evaluate
subsequent events through the date the financial statements are either issued or
available to be issued, depending on the company’s expectation of whether it
will widely distribute its financial statements to its shareholders and other
financial statement users. Companies will be required to disclose the date
through which subsequent events have been evaluated. This codification shall
require all companies to include in the financial statements the effects of all
subsequent events that existed at the balance sheet date including estimates
inherent in the process of preparing such financial statements. For such
subsequent events that did not exist as of the balance sheet date, companies
will be required to provide adequate disclosure about such items in the
footnotes to such financial statements. The adoption of this codification is not
expected to have a material effect on our financial statements.
The
Company follows the FASB Statement of Financial Standards No. 168 –
The Financial Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
(the “Codification or ASC”) which was issued on July 1, 2009
and became effective for all interim and annual reporting periods ending after
September 15, 2009. The Codification is the authoritative source of U.S.
generally accepted accounting principles (GAAP) recognized by the FASB and be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. On the
effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This Statement replaces FASB Statement 162
Statement No. 162,
The
Hierarchy of Generally Accepted Accounting Principles
to indicate this
change to the GAAP hierarchy. The Company complies with the
Codification.
Revenue
Recognition - Accounting for Direct Sales and Lending Transactions
We
envision that our stockpile of indium may be used from time to time for “direct
sales and or “lending” transactions. Under a “direct sale” transaction we would
record a gain (loss) equal to the difference between the proceeds received from
the sale of indium and the indium carrying value.
We may
also elect to enter into a lending transaction. In indium lending transactions,
we would exchange a specified tonnage and purity of indium for cash. Title and
the risks and rewards of such indium ownership would pass to the
purchaser/counterparty in the lending transaction. We would simultaneously enter
into an agreement with such counterparty in which we would unconditionally
commit to purchase and the counterparty would unconditionally commit to sell a
specified tonnage and purity of indium that would be delivered to us at a fixed
price and at a fixed future date in exchange for cash (the Unconditional Sale
and Purchase Agreement or “USPA”). The USPA would also contain terms providing
the counterparty with substantial disincentives (“penalty fees”) for
non-performance of the return of indium to the company as a means to assure our
future supply of indium. While we believe that this risk would be mitigated by
the penalty fee features of the USPA, it is nonetheless a risk associated with a
transaction of this type. We anticipate recognizing revenues on purchases and
sales of indium under these arrangements in accordance FASB ASC 845-25
“Non-Monetary Transactions” and “Accounting for Purchases and Sales of Inventory
with the Same Counterparty.” Accordingly we will disclose unconditional purchase
obligations under these arrangements (“Disclosure of Long Term Obligations”)
and, if applicable, accrue net losses on such unconditional purchase obligations
in accordance with FASB ASC 440-10-50.
Results
of Operations
We were
formed under the laws of the State of Delaware on January 7, 2008. On April 2,
2008, we changed our name from Specialty Metals Group Indium Corp. to SMG Indium
Resources Ltd. We were formed to acquire, store and sell the specialty metal
indium. We intend to utilize cash derived from the proceeds of this offering,
our capital stock, debt, or a combination of cash, capital stock and debt, in
acquiring and storing indium.
As of the
date of this offering, we have utilized the proceeds from our 2009 Private
Placement to purchase indium. At December 31, 2009, we have acquired
approximately $1,171,000 of indium. We have not generated any
revenues to date. Our activity since the closing of the private placement has
centered on purchasing indium and preparing for an initial public
offering. As of the date of this prospectus, the Manager has
purchased on our behalf approximately 9.2 tons of indium from three regular
indium suppliers at an average cost of $500 per kilogram. These purchases were
funded from the net proceeds received from the 2009 Private Placement. This
stockpile of indium is currently stored in an insured, secure facility in New
York owned and operated by Brink’s Global Services U.S.A., Inc. (“Brink’s”), a
bonded warehouse. We have incurred storage fees of approximately $1,800 since
December 2009.
We have
purchase indium but have not generated any revenues to date. Our entire activity
since inception has been to commence our acquisition of a stockpile of indium
and to prepare for our proposed initial public offering through an offering of
our equity securities. From inception, we have raised approximately $5,828,000.
On January 8, 2010, we completed a private placement offering of approximately
$5,818,000 of convertible units. To date, we have used the proceeds
of such offering to purchase 9.2 tons of indium and to provide for general
corporate and working capital expenses. Prior to obtaining these
funds, on January 8, 2008, we entered into a revolving line of credit with our
Manager, pursuant to which an aggregate of $265,000 plus interest was drawn
under such line of credit. On January 25, 2010, we amended our
revolving line of credit as follows: (i) the maturity date was amended to be due
and payable on the earlier of: (a) the date we complete an initial public
offering, which such note shall automatically convert into options to purchase
150,000 shares of common stock at an exercise price of $4.50 per share for a
term of five years; (b) the date of a dissolution, liquidation, winding up or
insolvency proceeding commenced by or on our behalf in the event we do not
complete an initial public offering; or (c) February 25, 2011. Upon consummation
of this offering, such amount due to the Manager will be automatically converted
into 150,000 common stock options exercisable at $4.50 per share for a period of
five years.
During
2008, we primarily focused our attention on organizing the business operations
in anticipation of an initial public offering, including but not limited to
appointing a Chief Executive Officer and Board of Directors, engaging
underwriters, negotiating contracts to become effective upon the successful
consummation of the anticipated initial public offering and conducting road
shows. However, prior to consummating the initial public offering in 2008,
unforeseen events severely affected the global markets and such events forced us
to delay our initial public offering. As of December 31, 2008, we did
not abandon our initial public offering plans, but decided it would be prudent
to wait for stock market conditions to improve. During January and February
2009, the global economies continued to decline, as did the stock market. On
February 27, 2009, we formally withdrew our registration statement and decided
to pursue a private placement as an alternative method to try and raise
capital.
In early
September 2009, we engaged placement agents to assist us in the 2009 Private
Placement. We held the first two closings of the private placement in November
and December of 2009, respectively, raising a cumulative total through December
31, 2009 of $5,018,000. With the capital raised through the 2009 Private
Placement, in December 2009 we began purchasing and stockpiling indium. At
December 31, 2009 we purchased approximately $1,171,000 of indium. Our indium is
currently stored in a secure insured bonded warehouse facility located in New
York owned by The Brink’s Company. We did not generate any revenue in 2009 or
2008.
In 2009,
we reported a net loss of $337,261 or an increase in the net loss of $320,366
compared with the year ended December 31, 2008. The principal reasons for the
increase in the 2009 net loss was due to (i) formation and operating expenses
associated with the 2009 Private Placement of $89,652; and (ii) the February 27,
2009 decision to abandon the initial public offering process, withdraw the
Registration Statement and thus write-off $231,489 in deferred offering costs
previously capitalized in connection with the uncompleted 2008 initial public
offering filing.
Shares
of Capital Stock
We were
incorporated on January 7, 2008, with 50,000,000 shares of authorized common
stock, par value $.001 and 1,000,000 shares of authorized preferred stock, par
value $.001. On December 5, 2008, we conducted a forward split, where
each stockholder received six shares for every one share of common stock held by
the stockholders. On June 5, 2009, we conducted a reverse split where
all stockholders received one share of common stock for every 3.6 shares
held. On November 25, 2009, we further amended out certificate of
incorporation to reduce the overall authorized capital to 8,000,000 shares
consisting of 2,000,000 shares of designated as Class A common stock, 5,000,000
shares of common stock and 1,000,000 shares of preferred
stock. Immediately prior to the consummation of this offering, we had
155,000 shares of common stock issued and outstanding, 1,163,600 shares of Class
A common stock issued and outstanding and no shares of preferred stock issued
and outstanding.
Further,
550,000 shares of common stock have been reserved for issuance pursuant to 2008
Long-Term Incentive Compensation Plan of which 124,999 have been awarded,
455,000 shares of common stock have been reserved for the exercise of options
issued to our Manager (155,000 options issued pursuant to the 2009 Private
Placement, 150,000 options to be issued upon conversion of the $265,000
promissory note plus accrued and unpaid interest and 150,000 options to be
issued upon conversion of 75,000 common shares) and 1,201,400 shares
of common stock have been reserved for the exercise of the warrants issued in
the 2009 Private Placement and 116,360 shares of common stock have been reserved
for the exercise of the additional warrants to be issued to the investors in the
2009 Private Placement upon completion of this offering.
Upon
consummation of this offering, we will amend our certificate of incorporation to
provide for [__] shares of authorized common stock, par value $.001 per share
and 1,000,000 shares of authorized preferred stock, par value
$.001. Immediately after the consummation of this offering, we will
have approximately 6,359,960 shares of common stock issued and outstanding
(assuming (i) 5,000,000 shares are issued in connection with this offering; (ii)
conversion of the 1,163,600 shares Class A common stock; (iii) the
issuance of [__] additional shares to the investors in the 2009 Private
Placement at the IPO date; and (iv) the 80,000 shares of common stock held by
the Manager following the exchange of 75,000 shares of common stock for 150,000
common stock options.
Liquidity
and Capital Resources
Since our
inception, we have incurred losses and, as of December 31, 2009, we had an
accumulated deficit of $354,156. We have not yet achieved profitability. We
expect that our general and administrative expenses will continue to increase
and, as a result, we will need to generate significant product revenues to
achieve profitability. We may never achieve profitability.
On
November 25, 2009 and December 11, 2009 we completed the first two closings of
the 2009 Private Placement and accordingly raised a total of $5,018,000. From
this total, closing fees consisting of legal and commission expenses totaled
$220,000. The net proceeds of $4,798,000 from the 2009 Private Placement are
required to be utilized as follows: (i) at least 90% of the net proceeds from
the private placement will be used to begin stockpiling indium; and (ii) 10%
will be used for general working capital purposes. As a result of the 2009
Private Placement, we issued 1,003,600 shares of Class A common stock and
warrants to purchase 1,003,600 shares of common stock. Additional Warrants were
issued to the finders in the amount of 37,800. The Warrants have an exercise
price of $5.75 per share and become exercisable upon completion of an initial
public offering. On January 8, 2010, the 2009 Private Placement’s
final closing date, we sold 160,000 additional units for net proceeds of
$800,000. No fees were paid out in connection with the sale of these additional
units. The aggregate monies secured in connection with the 2009 Private
Placement totaled $5,818,000. After deducting the $220,000 in closing costs
associated with legal expenses and broker’s commissions, the net proceeds
available pursuant to the 2009 Private Placement amounted to approximately
$5,598,000 of which 90%, or $5,038,200, was available for indium purchases and
$559,800 was to be used for general working capital purposes. The total Class A
common shares and warrants issued in connection with the 2009 Private Placement
were 1,163,600. After including the broker warrants of 37,800, the total
warrants issued aggregated 1,201,400.
As of
December 31, 2009, we purchased approximately 2.5 tons of indium at average
price of $462 per kilogram utilizing $1,171,053 of the proceeds from the 2009
Private Placement. In January, February and March 2010, we purchased
and took delivery of approximately 6.7 tons of indium with an aggregate purchase
price of $3,419,963 between January 1, 2010 and March 31, 2010. Our cumulative
purchased and delivered indium to date equals approximately 9.2 tons for an
aggregate of $4,591,015 (approximately $500 per kilogram average purchase
price). As a result, we must purchase $447,185 of indium in order to
fulfill the 90% requirement outlined in the 2009 Private Placement for indium
purchases.
We
estimate that the net proceeds from the sale of the units in this offering will
be approximately $23,020,000 (or $26,545,000 if the underwriters’ over-allotment
option is exercised in full). We intend to use at least $19,567,000 (or
$22,563,250 if the underwriters’ over-allotment option is exercised in full) of
the net proceeds of this offering to acquire indium. Pursuant to a Management
Services Agreement, we shall pay to the Manager a fee equal to 2.0% per annum of
our NMV. We intend to pay such management fee from the proceeds of the offering
not used to purchase indium.
On
January 8, 2008, we entered into a revolving line of credit with the Manager in
the aggregate amount of $300,000. The revolver was used to fund the deferred
offering costs incurred by us in connection with our attempted initial public
offering in 2008. To date, we have borrowed $265,000 under the revolving line of
credit. The revolving line of credit is unsecured and bears interest at the rate
of 6.0% per annum. As of December 31, 2009, 723 days of interest have been
accrued thereunder and we recorded an interest expense of $29,658 in connection
therewith. On January 25, 2010, we amended our revolving line of credit as
follows: (i) the maturity date was amended to be due and payable on the earlier
of: (a) the date we complete an initial public offering; (b) the date of a
dissolution, liquidation, winding up or insolvency proceeding commenced by or on
our behalf in the event we do not complete the initial public offering, whereas
upon the completion of such offering, the amount due under the note will
automatically convert into options to purchase 150,000 shares of common stock at
an exercise price of $4.50 per share; or (c) February 25, 2011.
Going
Concern
Our
ability to commence operations is contingent upon our obtaining the necessary
capital resources through our proposed public offering of up to 5,000,000 Units.
Our management has specific guidelines as to how the proposed public offering
proceeds will be used. Specifically, 85.0% of such proceeds will be used to
purchase and stockpile indium and the balance or 15.0% will be used for working
capital purposes.
We had
$3,605,228 in cash and an accumulated deficit of $(354,156). Further, after the
initial public offering, we expect annual operating costs to approximate
$1,125,000 comprised of $65,000 for storing and holding the indium, $45,000 for
insuring the indium, $150,000 for shareholder communications and relations;
initial annual Management Fee of $580,000 subject to fluctuations of our NMV;
$110,000 for directors and officers liability insurance premiums; and $175,000
for other/administrative expenses including legal, accounting and director fees.
As with the indium purchases, we expect to pay for these expenses and asset
purchases through the offering proceeds.
There is
no assurance that we will complete the proposed initial public offering or that
the completion of the proposed initial public offering will lead to the
successful execution of our business plan. Further, should we be unable to
complete our initial public offering by November 25, 2010, the 2009 Private
Placement Memorandum states that unless the initial public offering date is
extended by the affirmative vote of a majority of the 2009 Private Placement
Class A common stockholders, our existence shall be terminated, our affairs
shall be wound up and we shall liquidate. These factors, among others, raise
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
Sources
of Liquidity
We
initially financed our operations and capital expenditures by issuing revolving
credit notes and selling common stock to our Manager, which is owned by our
founders. We received a $265,000 advance from our Manager as part of a $300,000
revolving credit line. Since January 7, 2008, through the issuance of shares in
our 2009 Private Placement, we have received net proceeds of $5,018,000 as of
December 31, 2009 and we received an additional $800,000 in January 2010 for
total gross proceeds in connection with the 2009 Private Placement of
$5,818,000. With such proceeds, we have purchased and paid for approximately
$1,171,000 of indium as of December 31, 2009. Additionally, we have purchased
and paid for an additional $3,419,963 in January, February and March 2010 for an
aggregate total of 9.2 tons. At December 31, 2009 we had cash and cash
equivalents of $3,605,228 and after deducting the January, February and March
2010 indium payments of $3,419,963, the other expenses relating to the IPO
filing of $75,625 and then adding the January 2010 private placement funding of
$800,000, we had approximately $825,000 of cash on hand as of March 31,
2010.
Working
Capital and Capital Expenditure Needs
Upon
consummation of the offering, 15.0% of the net proceeds of $23,020,000 or
$3,453,000 (or $3,981,750 if the underwriters’ over-allotment option is
exercised in full) shall be allocated to general working capital purposes. These
funds will be sufficient to allow us to operate for approximately 43 months.
Over this time period, we will use these funds for paying the annual management
fee to the Manager for the acquisition, storage, insuring and disposition of
indium on our behalf and reviewing corporate, title, environmental, and
financial documents and material agreements regarding the acquisition, storage,
insuring and disposition of indium on our behalf. We anticipate that we will
incur annual expenses of approximately $1,125,000 in the aggregate, including:
(i) storage and holding of indium – $65,000; (ii)
insurance – $45,000; (iii) shareholder communications and relations
and maintaining the effectiveness of our registration statement for the shares
of common stock underlying our public warrants – $150,000; (iv) the
annual Manager's fee – $580,000; (v) director and officer liability
insurance premiums — $110,000; and (vi) other/administrative expenses including
legal, accounting and director fees – $175,000. Although we do not
believe we will need to raise additional funds following this offering in order
to meet the expenditures required for operating our business, we may need to
raise additional capital if we encounter unforeseen costs.
Although
we are currently not a party to any agreement or letter of intent with respect
to potential investments in, or acquisitions of, businesses, we may enter into
these types of arrangements in the future, which could also require us to seek
additional equity or debt financing. Additional funds may not be available on
terms favorable to us or at all. We currently have no plans, proposals or
arrangements with respect to any specific acquisition.
In the
event we need to raise additional capital, we may do so in the form of equity or
debt. The issuance of additional shares of our capital stock:
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may significantly reduce the
equity interest of our
stockholders;
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may subordinate the rights of
holders of common stock if preferred stock is issued with rights senior to
those afforded to the holders of our common
stock;
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will likely cause a change in
control if a substantial number of our shares of common stock are issued,
which may affect, among other things, our ability to use our net operating
loss carry forwards, if any, and most likely will also result in the
resignation or removal of our present officers and directors;
and
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may adversely affect prevailing
market prices for our common
stock.
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Similarly,
if we incur substantial debt, it could result in:
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default and foreclosure on our
assets if our operating cash flow is insufficient to pay our debt
obligations;
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acceleration of our obligations
to repay the indebtedness even if we have made all principal and interest
payments when due if the debt security contains covenants that require the
maintenance of certain financial ratios or reserves and any such covenant
is breached without a waiver or renegotiation of that
covenant;
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our immediate payment of all
principal and accrued interest, if any, if the debt security is payable on
demand;
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covenants that limit our ability
to acquire capital assets or make additional
acquisitions;
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our inability to obtain
additional financing, if necessary, if the debt security contains
covenants restricting our ability to obtain additional financing while
such security is
outstanding;
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our inability to pay dividends on
our common stock;
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using a substantial portion of
our cash flow to pay principal and interest on our debt, which will reduce
the funds available for dividends on our common stock, working capital,
capital expenditures, acquisitions and other general corporate
purposes;
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limitations on our flexibility in
planning for and reacting to changes in our business and in the industry
in which we operate;
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increased vulnerability to
adverse changes in general economic, industry and competitive conditions
and adverse changes in government regulation;
and
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limitations on our ability to
borrow additional amounts for working capital, capital expenditures,
acquisitions, debt service requirements, execution of our strategy and
other purposes; and other disadvantages compared to our competitors who
have less debt.
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Contractual
Obligations
On
January 8, 2008, we entered into a Revolving Line of Credit Note with our
Manager, where our Manager agreed to provide us with a revolving line of credit
up to $300,000 of which $265,000 was outstanding as of December 31, 2009. The
principal balance, including all accrued and unpaid interest, outstanding
pursuant to the Note shall become due on the earlier of: (i) the consummation of
the initial public offering which such principal balance and all accrued but
unpaid interest due under the Note will automatically convert into 150,000
options, with each option to purchase one share of common stock at an exercise
price of $4.50 per share or (ii) liquidation of our company. The Note bears an
interest rate of 6.0% per annum. As of December 31, 2009, 723 days of interest
have been accrued thereunder and the we recorded an interest expense of $29,658
in connection therewith. In the event of default, all amounts due pursuant to
the Note shall become immediately payable
On
February 8, 2010, we entered into a common stock for option exchange with the
Manager. Upon consummation of this offering, 75,000 shares of common stock owned
by the Manager will be automatically converted into 150,000 common stock options
exercisable at $4.50 per share for a period of five years following the
consummation of this offering.
Prior to
the consummation of this offering, we amended the Management Services Agreement
with the Manager, initially executed on November 24, 2009. Pursuant to such
agreement, the Manager will, on a monthly basis, prepare a report on the NMV of
each share of our common stock, which shall be determined by multiplying the
number of kilograms of indium held by or for us by the last spot price for
indium published by Metal Bulletin posted on Bloomberg L.P. for the month, plus
cash and any of our other assets, less any and all of our outstanding payables,
indebtedness and any other liabilities, multiplied by 1/6
th
of one
(1.0%) percent. Such report will be made available to us and our board of
directors. We shall pay to the Manager a fee equal to 2.0% per annum of our NMV,
which shall be paid monthly.
Disclosure
Controls and Procedures
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, a company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by a
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles. As a private company, we have designed our internal
control over financial reporting to provide reasonable assurance to our
management and board of directors regarding the preparation and fair
presentation of financial statements. As a public company, we will be required
to comply with the internal control requirements of the Sarbanes-Oxley Act. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Special
Information Regarding Forward-Looking Statements
Some of
the statements in this Management’s Discussion are “forward-looking statements.”
These forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under “Risk Factors.”
The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar
expressions identify forward-looking statements.
We
caution investors not to place undue reliance on these forward-looking
statements. We undertake no obligation to update and revise any forward-looking
statements or to publicly announce the result of any revisions to any of the
forward-looking statements in this document to reflect any future
developments.
Off
Balance Sheet Transactions
We are
not party to any off balance sheet transactions. We have no subsidiaries or
equity ownership in any other entity. We have no guarantees or obligations other
than those which arise out of normal business operations, i.e. the purchase and
sale of indium, and costs of being a public company that will significantly
increase our operating costs or cash requirements in the
future.
BUSINESS
Overview
We were
formed to purchase and stockpile the metal indium. Our strategy is to achieve
long-term appreciation in the value of our indium stockpile, and not to actively
speculate with regard to short-term fluctuations in indium prices. Our indium is
and will be insured and physically stored in third-party facilities. While it is
not our current intention to do so in the short term, at our discretion, we may
subsequently lend or sell some or all of our indium stockpile based on market
conditions. Our shareholders have the ability to invest in a company whose value
may be tied to its interest in indium in a manner that does not directly include
the risks associated with ownership of companies that explore for, mine and
process indium. Our common shares represent an indirect interest in the physical
indium we own.
All of
our indium transactions have been and will be negotiated by our Manager. Our
Manager will be paid a 2.0% per annum fee based on our NMV as compensation for
these services. The per share NMV shall be determined by (x) multiplying the
number of kilograms of our indium holdings by the last spot price for indium
published by Metal Bulletin posted on Bloomberg L.P. for the month, plus cash
and any other assets, less any and all of our outstanding payables, indebtedness
and any other liabilities, (y) divided by our total number of outstanding shares
of our common stock. Our Manager is entitled to receive the 2.0% management fee
regardless of its ability to successfully purchase and stockpile the metal
indium. Our officers and directors have limited experience in stockpiling the
metal indium, although our Chief Executive Officer has experience purchasing,
selling, storing and lending precious metals, base metals, minor metals,
non-exchange traded metals, and illiquid metals. Our Manager:
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will
first and foremost purchase and stockpile indium with a minimum purity
level of 99.97% and or higher grade indium ingots on our
behalf;
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will negotiate storage
arrangements for our indium stockpile in warehouses or third-party
facilities located in the United States, Canada, Rotterdam and/or the
United Kingdom;
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will make sure the stockpile is
fully insured by either the storage facility’s insurance policy, a
separately purchased insurance policy, or by
both;
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will purchase insurance on
standard industry terms to insure the indium during its transportation
from the supplier to the storage
facility;
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will be responsible for
conducting limited inspections of the indium delivered to
us;
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will not be responsible for
conducting any chemical assays or other tests designed to verify that such
indium meets the 99.97% purity requirements as established as industry
practice and as referred to in our
prospectus;
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will rely on the good faith of
its suppliers to provide indium that meets our requirements. If indium is
purchased from a third-party supplier that is not known to be a regular
indium industry supplier, our Manager, at its discretion, may hire, at our
expense, an independent lab to perform random assay tests using
glow-discharge mass spectrometry (GDMS) to verify the purity of the
indium. The Manager will not brand specific companies and assayers. The
Manager will deal only with known regular industry suppliers and
participants. The Manager will use only reputable assayers recommended by
reliable third-party source;
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will lend and/or sell indium from
our stockpile, based on market conditions;
and
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will not retain a custodian to
provide custodial services on our
behalf.
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Our
expenses will be required to be satisfied by cash on hand that is not set aside
for the purchase of indium. Cash on hand following completion of the offering is
expected to be sufficient to satisfy our expenses for approximately 43 months.
Annual expenses, including corporate taxes, are estimated to be approximately
$1,125,000. For a detailed description of such expenses please see “Management
of SMG Indium Resources Ltd. — Management Services Agreement”. We are
a taxable United States corporation and are subject to federal and state
taxes.
Our
objective is to purchase and stockpile already processed and mined indium ingots
with a minimum purity of 99.97%. Potential stockholders will only receive a
return on their investment if our acquired indium stockpile increases in value
more than we expend on operating expenses. Price appreciation of the metal
indium is critical for investors to receive a return on their
investment.
Assuming
we are able to utilize 85.0% of the net proceeds of this offering to purchase
the stockpile of indium at $597.50 per kilogram, the price of indium would need
to increase approximately 12.2% within 12 months to offset the depreciation in
our NMV associated with the initial offering expenses of $1,980,000 and annual
operating expenses of $1,125,000. The price of indium would need to increase
approximately 16.6% within 24 months or 8.3% on average per annum to offset the
depreciation in our NMV due to the expenses listed above. The price of indium
would need to increase approximately 21.0% within 36 months or 7.0% per annum to
offset the depreciation in our NMV due to the expenses listed
above.
Our
business model is designed to capture the long-term appreciation of the price of
indium. According to Metal Bulletin as posted on Bloomberg L.P., over the last
year, the price of indium has appreciated 66.0% from $360 per kilogram in March
2009 to $597.50 per kilogram in March 2010. Over the last five years, the price
of indium has depreciated 42.5% (10.50% annualized) from $1,040 per kilogram in
March 2005 to $597.50 per kilogram in March 2010. Over the last ten years, the
price of indium has appreciated 231.9% (12.8% annualized) from $180 per kilogram
in March 2000 to $597.50 per kilogram in March 2010. Over the last fifteen
years, the price of indium has appreciated 39.0% (2.2% annualized) from $430 per
kilogram in March 1995 to $597.50 per kilogram in March 2010. According to the
USGS, over the last twenty-five years, the price of indium has appreciated
602.9% (8.1% annualized) from $85 per kilogram in 1985 to $597.50 per kilogram
in March 2010. Over the last fifty years, the price of indium has appreciated
729.9% (4.3% annualized) from $72 per kilogram in 1960 to $597.50 per kilogram
in March 2010.
Based on
market conditions, we may seek to lend or sell indium. If there is a shortage of
indium in the market place, we may decide that it is in our best interest to
lend or sell indium directly to industry suppliers and or end users. For
example, if our supplier is a miner, and such miners do not have a sufficient
amount of indium in inventory to sell to an end user, we may lend or sell to the
miner indium from our stockpile. Furthermore, if we need additional capital to
cover annual operating expenses, we may lend or sell indium from our stockpile
to cover such operating expenses. Deciding on whether to lend or sell in these
instances can only be determined by a careful analysis of each option and its
particular benefit to us at that particular point in time. Market conditions
will dictate which option we would elect to pursue. We do not intend to change
our stated strategy. Our operations are limited to purchasing, stockpiling,
lending and selling only the metal indium.
We will
monitor the ratio of the common share price to the value of our indium holdings
and may sell some of our indium holdings and buy back common shares when the
common share price is less than the NMV per share or sell common shares and buy
indium when the common share price is higher than the NMV per share. The
decision is not based on a predetermined ratio and will be based on market
conditions.
Based on common industry knowledge and
our established indium industry relationships, we can determine which companies
are regular indium industry suppliers. We consider companies granted indium
export licenses from the Chinese government as regular indium industry
suppliers. We consider companies like Teck Resources Limited., Xstrata Plc,
Indium Corporation of America, Umicore Indium Products Co. Ltd., and Aim
Specialty Materials as regular industry suppliers because they are all well
known within the industry and have
well established reputations. We
consider metal trading houses listed in our “Competition” section like Traxys
North America LLC, Glencore International AG, Wogen PLC, MCP Metal Specialties,
etc. that have years and in some cases, decades of experience within the
industry as regular indium industry suppliers. We intend to use subjective
criteria to determine whom we plan to do business with and for competitive
reasons we do not disclose specifically which companies we intend to do
business. Currently, an established regular indium industry designated supplier
list does not exist. We consider the miners, refiners, suppliers and trading
houses listed in our “Competition” section to be a partial list of known regular
indium industry suppliers. Our Manager purchased on our behalf approximately 9.2
tons of indium from three regular indium industry suppliers utilizing the
proceeds from the 2009 Private Placement. Our indium is stored in an insured,
secure facility in New York owned and operated by Brink’s Global Services
U.S.A., Inc. (“Brink’s”), a bonded warehouse.
We have
and intend to stockpile already mined and processed indium ingots with a minimum
purity level of 99.97% known as 3N7 or standard grade. We expect that our
stockpile will also contain higher grade indium ingots such as, but not limited
to, 4N (99.99% purity) and 5N (99.999% purity) material. The specific purity of
the actual metal is very important to each of indium’s specific applications.
The purity of the indium used in alloys is typically 2N material. Thin-film
coatings such as Indium-Tin-Oxide (ITO) use 4N8 purity indium. Therefore,
refiners and suppliers will upgrade 3N7 material to 4N8 for use in ITO
production via a basic electro-refining process dissolving the indium in
hydrochloric acid and plating out the purified indium. In its purest form, 6N
and 7N, indium is used in smaller quantities for research and development and as
the raw material used to make Indium Phosphide (InP), Indium Arsenide (InAs) and
Gallium Indium Arsenide (GaInAs). Preparation of 6N high-purity indium is also
done by a method of physical-chemical purification and electro-refining. While
the purity of the metal is important to each of its applications, the price of
the higher purity indium is not considered significant relative to the industry
standard grade of 3N7. Manufacturers typically customize the purity of the
indium to its customer’s specific needs and charge a small fee to convert
standard grade into its higher purity forms.
Once the
portion of the offering proceeds to be held as cash is exhausted, we have
several options. We may physically sell indium from our stockpile to cover our
annual operating expenses, which are projected at $1,125,000. We may lend indium
from our stockpile to generate sufficient income to cover our annual operating
expenses. Alternatively, we may access the private or public equity markets to
raise additional capital to either cover our annual operating expenses and or
purchase additional indium. We may choose to do a combination of the three
listed options to generate or raise sufficient capital to cover our annual
operating expenses.
Strategy
and Policies
We based
our business model projections on having approximately $19.57 million available
from the proceeds of the IPO (85.0% of the net proceeds after expenses) to
purchase approximately 33.7 metric tons of 99.97% purity indium paying an
average price of $597.50 per kilogram for indium. Based on projected expenses,
cash remaining from the offering should be able to sustain operations for 43
months, without our needing to sell or lend any indium from our stockpile. If
the price of indium rises prior to our being able to purchase our stockpile of
indium, we would purchase fewer tons of indium to expend the 85.0% of the net
proceeds of the offering. This in turn would result in lower storage fees for
fewer tons of indium held in our stockpile and higher values for our stockpile
could result in higher annual management fees. If the price of indium decreases,
we may purchase additional indium and our storage fees would increase
accordingly and lower values for our stockpile could result in lower management
fees, either shortening or lengthening how long our cash on hand may last. Our
business model is premised on the long-term appreciation in the value of our
indium stockpile. We currently have approximately 9.2 tons of indium in
inventory purchased utilizing the proceeds from the 2009 Private Placement. In
order to facilitate our business plan over the next 24 months, our Manager may
elect to purchase indium under long-term supply contracts. Information regarding
how much and what percentage of the total indium supply is currently under
long-term contracts is not known. This may hinder our ability to enter into
long-term supply contracts with industry suppliers, purchase and stockpile
indium, and fulfill our business plan in a timely manner.
Our
ability to complete our business plan could be adversely affected by the
substantial competition we face in the marketplace. There are a substantial
number of manufacturers that require indium for the production of FPDs,
LCDs, PDAs, LEDs and CIGS thin film photovoltaics. We expect to compete
with them for purchase of the primary indium supply. The fact that many of these
companies have more substantial resources than us and have established
relationships with indium industry suppliers may prove to be detrimental to our
ability to consummate our business plan.
We may face direct competition from
market participants in purchasing our stockpile of indium. There are no other
companies, known to us, that have a business model solely dedicated to the
purchasing and
stockpiling
of indium. However, we would have to potentially compete with miners, refiners,
suppliers, end-users, traders and other market participants in purchasing indium
from suppliers. The companies listed in the “Competition” section are a partial
list of companies that are well known indium industry participants that either
mine, refine, use, and or trade indium. These companies would be considered
indirect competition.
In
addition, we are not aware of any additional information, if any, regarding the
indium market, or the type of market information other industry producers,
purchasers, suppliers and other market participants may possess. Our inability
to access this information, if any, places us at a potential relative
competitive disadvantage to other market participants who may have access to
such information. This may adversely affect our ability to purchase and
stockpile indium.
We do not
expect to purchase indium from the recycling market. After extensive discussions
with indium industry participants, we determined that it is not feasible for us
to buy directly from the recycling companies. Recycling scrap indium into 3N7 or
higher purity metal ingot is extremely complex and time consuming. Typically,
end users (ie. FPD manufacturers) establish contracts directly with the
recyclers. Pursuant to such contracts, the end user supplies the recycler with
scrap indium and the recycler specially processes, refines, and then returns the
purified recaptured indium to the end user. Recyclers cannot sell the recycled
indium to anyone else other than the end user who supplied the scrap indium.
Industry insiders consider the recycling market a “closed loop”.
End users
and recyclers do not disclose the particulars of their relationships and
contracts. This inaccessibility will limit us to the primary indium market. The
primary market is smaller than the recycling market and may affect our ability
to purchase enough indium to meet our business plan’s objectives in a timely
manner.
Chinese
export restrictions may serve to further reduce our access to more than 50% of
the world’s primary indium production. In May 2008, an earthquake in China
completely halted ten zinc smelters in Sichuan Province’s Deyang, Hanyuan and
Ganzi regions, as well as in nearby southern regions of Shaanxi Province and
Gansu Province, due to damaged facilities and power supply failures. It was
estimated that 510,000 metric tons of zinc smelting capacity was affected or
approximately 7.0% of China’s national total. If those zinc smelters were
refining indium and were shut down for one full year, it is estimated that as
much as 24.8 metric tons or 4.2% of primary indium production would have been
lost. The lack of availability of indium may affect our ability to spend at
least 50% of the net proceeds of the offering on purchasing and stockpiling
indium within the first 18 months following the completion of this
offering.
In
furtherance of our strategy, our board of directors will establish the following
policies which will be included in our By-laws.
1. At
least 85.0% of the net proceeds of this offering (and at least 85.0% of the net
proceeds of future offerings, if any) must be used to purchase, or be held for
future purchases of indium, and may only be amended by a resolution of our
stockholders.
2. We may
not enter into any borrowing arrangements except in strictly limited
circumstances to facilitate indium purchase payments. Under such circumstances,
we may enter into borrowing arrangements for which all outstanding amounts do
not exceed our total assets.
3. All
purchases and sales of indium shall be made by our Manager in accordance with
the Management Services Agreement. In such capacity, our Manager shall use
commercially reasonable efforts to purchase, lend and or sell the indium at the
best prices available to it over a prudent period of time. We consider 18 months
a prudent amount of time during which our Manager will spend at least 50% of the
net proceeds of the offering allocated toward stockpiling indium. We expect that
it will take us several years to build our indium stockpile. Potential
stockholders purchasing our stock should be aware that the price of indium could
rise prior to our ability to fully utilize the proceeds from the offering to
build our stockpile. In this event, our NMV will not be directly correlated to
the changes in the price of indium because we will be holding cash allocated
toward purchasing indium in the future.
4. In the
event that our Manager elects to purchase indium under long term contracts with
an indium supplier, we shall have the funds set aside to satisfy the purchase
price.
5. In the
event that our Manager elects to lend or sell indium under long term contracts
with an indium customer, we shall have indium set aside to satisfy the delivery
commitments.
The
indium market is illiquid and considered small compared to the base metals.
There are a limited amount of suppliers and purchasers of indium. If new
companies are formed to purchase and stockpile indium, this would adversely
affect our ability to procure sufficient quantities of indium on a timely basis
or even at all. It is our intention to spend the 85.0% of the net proceeds from
the offering to purchase 2.7% of the next two years of global primary indium
production in the first eighteen months after the completion of this offering
without disrupting the indium market. If we cannot purchase indium from China,
we would need to purchase 5.5% of the rest of the world’s two year annual
primary indium production to expend the proceeds from our offering. These
calculations are based on the assumption that global primary indium supply
remains constant at 597 metric tons per year and China produces 300 metric tons
per year over the next twenty four months. Although we do not anticipate
purchasing indium from the recycling market, if the recyclers were willing to
sell indium to us, the percentage of the world’s annual primary indium
production that we would need to purchase would be reduced. If we are unable to
purchase indium from China and or from recyclers, we anticipate it will most
likely take several years to purchase the 32.7 tons we require to expend 85.0%
of the net proceeds from the offering based on current prices.
Accounting
for Direct Sales and Lending Transactions
We
envision that our stockpile of indium may be used from time to time for “direct
sales and or “lending” transactions. Under a “direct sale” transaction we would
record as income, or loss, the difference between the proceeds received from the
sale of indium and the indium carrying value.
We may
engage in lending indium from time to time. We plan to lend in order to
facilitate our relationships with suppliers and thereby build our stockpile.
Occasionally, we may lend to take advantage of periodic shortages in the indium
market. A typical loan contract would be for terms of six months or less, and in
almost no circumstance would it exceed a period of one year. As lender, we will
negotiate an Unconditional Sale and Purchase Agreement (“USPA”) with a
prospective borrower. As part of the USPA, once all terms are reviewed and
approved by our management team, we will physically deliver indium to the
borrower.
The USPA
arrangement involves us negotiating, as lender, and physically delivering a
pre-agreed upon quantity and purity of indium to the borrower. The borrower will
pay us a negotiated dollar value for the value of the indium delivered.
Typically this would be done when market conditions favored such a transaction
and we would record income (loss) equal to the value of the negotiated price
over (under) our carrying value of indium lent. At the same time, we would
record a liability for the unconditional obligation to purchase back a
pre-determined amount of indium from the borrower of like purity based upon the
negotiated terms as detailed in the USPA. Such lending transaction(s) will
include in the USPA a provision that the borrower return to us a like quantity
and purity of indium. Failure to fulfill this return commitment will subject the
borrower to a “penalty fee” thus discouraging the borrower from borrowing indium
but never replenishing the indium to us. The ability of the borrower to satisfy
the commitment to return the quantity and purity of indium is a business risk
that we would face in a transaction like this. However, the penalty fee aspect
as detailed in the USPA would partially mitigate our overall business risk, in
that, the penalty fee would provide us with greater flexibility in recovering
indium from other sources at less than favorable prices (if applicable) if the
borrower defaulted on its return of indium. We anticipate recognizing gains and
losses on purchases and sales of indium under these arrangements in accordance
with FASB ASC 845-25 “Non-Monetary Transactions” and “Accounting for Purchases
and Sales of Inventory with the Same Counterparty.” Accordingly we will disclose
unconditional purchase obligations under these arrangements (“Disclosure of Long
Term Obligations”) and, if applicable, accrue net losses on such unconditional
purchase obligations in accordance with FASB ASC 440-10-50.
There is
no established market lending rate for indium. The terms of the USPA contracts
will stipulate that the indium returned must be of equivalent quantity and
purity. An example of a loan to facilitate future purchases of indium would be
made to an indium producer, to be repaid by the return of equivalent indium of
the same quantity and purity along with the possible purchase of additional
indium from the producer. In the event of a loan to the producer, in which we
have received dollars for the indium lent, there is a risk that the producer
will not return the equivalent quantity indium. Our Manager will be responsible
for conducting limited inspections of the indium delivered to us. Our Manager
will not be responsible for conducting any
chemical assays or other
tests designed to verify that such indium meets the minimum 99.97% purity
requirements referred to in our prospectus. Our Manager will rely on the good
faith of its suppliers to provide indium that meets our requirements. We do not
intend to brand specific companies and assayers. It is our intention to deal
only with known regular industry suppliers and participants. We consider the
miners, refiners, suppliers and trading houses listed in our “Competition”
section to be a partial list of known regular indium industry suppliers. We will
use only reputable assayers recommended by reliable third-party sources. Indium
typically comes delivered with a certificate of analysis in sealed boxes. Our
Manager, at its discretion, may hire, at our expense, an independent lab to
perform random assay tests using glow-discharge mass spectrometry (GDMS) to
verify the purity of the indium, if the indium loan was done with a company that
is not known to be a regular indium industry supplier. Failure to perform is a
risk to our business if the price of indium appreciates and we cannot replace
the loaned indium at the same or a lower price we loaned the indium. The ability
of the borrower to satisfy the commitment to return the equivalent quantity and
purity of indium is a business risk that we face in a lending transaction.
However, the penalty fee aspect as detailed in our USPA would somewhat mitigate
our overall business risk because the penalty fee would provide funds for us to
purchase indium from other sources at less than favorable prices (if
applicable). Notwithstanding the foregoing, if the borrower defaults in its
obligations under the USPA, there is always the risk that we might not be able
to replace the indium lent at favorable prices. In such instances, we may not be
able to recoup our losses through litigation and we would assume the loss which
could negatively impact our NMV.
Indium
Market Overview
About
Indium
Indium
(symbol In) is a rare, very soft, silvery-white malleable metal with a bright
luster. It is number 49 on the Periodic Table of Elements with an atomic weight
of 114.81. Indium is chemically similar to aluminum and gallium, but more
closely resembles zinc. Indium is a rare element and ranks 61
st
in
abundance in the Earth’s crust at an estimated 240 parts per billion by weight.
This makes it about three times more abundant than silver or mercury. Indium
occurs predominantly in the zinc-sulfide ore mineral, sphalerite. Indium is
produced mainly from residues generated during zinc ore processing but is also
found in iron, lead, and copper ores. The average indium content of zinc
deposits from which it is recovered, ranges from less than 1 part per million to
100 parts per million. Its occurrence in nature with other base metal ores is
sub-economic for indium recovery. Pure indium in metal form is considered
non-toxic by most sources.
Properties
and Characteristics of Indium
Indium is
very malleable and ductile and can be easily formed into a wide variety of
fabrications. Another distinctive characteristic of indium is that it retains
its softness at temperatures approaching absolute zero degrees, making it ideal
for cryogenic (freezing or very low temperature) and vacuum application. The
properties of indium may be summarized as follows:
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Low melting
point alloy:
It is useful in the high-end optical industry where lenses can be held
with the alloy instead of the lens surfaces during the polishing process
to minimize surface
distortion.
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Lead-free and
mercury-free solder industries:
It is commonly used by
environmentally friendly electronics goods manufacturers and high-energy
alkaline dry cell batteries producers in their respective industries. This
reduces or eliminates the use of lead and mercury in
soldering.
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Cold
Welding:
Oxide-free indium has the ability to cold-weld or attach to itself. Parts
coated with indium can be bonded together without the application of heat
or chemicals.
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Reduce gold
scavenging:
When soldering to gold or gold-plated surface, solder has a tendency to
dissolve gold into the joint. The addition of indium to solder will reduce
this tendency.
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Bond glass,
quartz and ceramics:
These materials cannot be bonded with traditional solders. Indium’s
unique cold-welding properties allow it to produce a bond in a variety of
non-metal applications.
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Transparent
Electrical Conductor:
When indium (in the form
of indium-tin-oxide) is coated onto various materials such as glass or
plastic films, it acts as a transparent electrical conductor and an
infrared reflector. When architectural or photovoltaic glass is coated
with indium-tin-oxide, it keeps the harmful infrared rays of the sun from
passing through. When coated onto automotive or aircraft windshields, it
allows the glass to be electronically deiced or demisted as well as
reducing the air conditioning requirement by reducing heat
gain.
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Malleable:
Because indium is so soft
and pliable (malleable), it can easily fill voids between two surfaces,
even at cryogenic (freezing or very low)
temperatures.
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According
to Displaybank, the total demand for indium was 861 tons in 2006 and was
expected to be about 1,000 tons in 2007. Metal Bulletin reported that the
average price for indium was $823 per kilogram in 2006. Based on these figures,
we determined that the total size of the indium market was approximately $709
million in 2006. Although the actual size of the indium market in 2007 has yet
to be determined, Displaybank expects the total sales of indium in 2007 to be
$533 million. Industry information with regards to monthly sales volumes and
dollar values of indium transactions is not readily available. Indium does not
trade on any futures exchange and there are no indium futures
contracts.
Applications
Flat
Panel Displays & LCDs
Indium is
an essential raw material for a number of consumer electronics applications. The
primary commercial application of indium is in coatings for the flat panel
display (“FPD”) industry. Indium is only useful when chemically processed with
tin-oxide to form indium-tin-oxide (“ITO”) to allow for electrical conductivity
and optical transparency. Sputtering targets are placed in a vacuum and since
ITO is conductive and optically transparent, thin layers of ITO are then applied
as electrical contacts onto glass, which can in turn be used as Liquid Crystal
Display (LCD) on electronic devices like television sets, computers and mobile
phones. The ITO transparent conductor is currently popularly used in LCD
technology due to its unique qualities of low melting point, good uniformity
(which is suitable for large LCDs), fast etching time and long life span. Next
generation LED backlit LCD TVs and computer monitors as well as organic light
emitting (“OLED”) TVs and displays all use indium.
Solar
Energy Technology
Indium is
increasingly being used as a crucial raw material in the solar energy industry.
Copper Indium Gallium Selenide (CIGS) is a new semiconductor material comprised
of copper, indium, gallium, and selenium. Its main use is for high-efficiency
photovoltaic cells (CIGS cells), in the form of thin-film photovoltaic. The
thin-film photovoltaic has several advantages over traditional solar energy
technologies. It is lightweight, can be applied on uneven surfaces and can be
rolled up when not in use. CIGS show great promise in achieving high conversion
efficiencies at low costs. According to the USGS, CIGS solar cells require
approximately 50 metric tons of indium to produce 1 gigawatt of solar power.
Research is underway to develop a low-cost manufacturing process for flexible
CIGS solar cells that would yield high production throughput. We believe that
flexible CIGS solar cells could be used in roofing materials and in various
applications in the aerospace, military and recreational
industries.
Other
Uses
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Indium is also used in the
manufacture of low-melting-temperature alloys. An alloy consisting of
24.0% indium and 76.0% gallium is liquid at room
temperature.
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Some indium compounds such as
indium antimonide, indium phosphide, and indium nitride are semiconductors
with useful properties.
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Indium is also used in
light-emitting diodes (LEDs) and Laser Diodes (LDs) based on compound
semiconductors.
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Ultrapure indium, specifically
high purity trimethylindium, is used in compound
semiconductors.
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Indium oxide is used as
transparent conductive glass substrate in the making of electroluminescent
panels.
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Indium is also used as a light
filter in low pressure sodium vapor
lamps.
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Indium is suitable for use in
control rods for nuclear reactors, typically in an alloy containing 80.0%
silver, 15.0% indium, and 5.0%
cadmium.
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111-Indium (isotope) is used in
medical imaging to monitor activity of white blood
cells.
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Indium-Tin-Oxide
Applications
Indium-Tin-Oxide
(ITO, or tin-doped indium oxide) is a mixture of indium (III) oxide (In
2
O
3
) and tin
(IV) oxide (SnO
2
),
typically 90% In
2
O
3
, 10% SnO
2
by
weight. It is transparent and colorless in thin layers. In bilk form, it is
yellowish to grey colored powder with a molecular weight of 277.64. It is a
stable ceramic-like material, insoluble in water and volatizes at 850 degrees
Celsius. ITO’s main feature is the combination of electrical conductivity and
optical transparency. Thin films of ITO are most commonly deposited on surfaces
by electron beam evaporation, physical vapor deposition, or a range of
sputtering deposition techniques.
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ITO is mainly used to make
transparent conductive coatings for liquid crystal displays, flat panel
displays, plasma displays, touch panels, electronic ink applications,
organic light-emitting diodes, and solar cells, and anti-static coatings
and EMI shieldings. In organic light-emitting diodes, ITO is used as the
anode (hole injection
layer).
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ITO has been used as a conductive
material in the plastic electroluminescent lamp of toy Star Wars type
lightsabers.
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ITO is also used for various
optical coatings, most notably infrared-reflecting coatings (hot mirrors)
for architectural, automotive, and sodium vapor lamp glasses. Other uses
include gas sensors, antireflection coatings, electrowetting on
dielectrics, and Bragg reflectors in VCSEL
layers.
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Reportedly, ITO is used as sensor
coating in the Canon 400D/Xti and Sony Alpha
DSLR-A100
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ITO thin film strain gauges can
operate at temperatures up to 1400 degrees Celsius and can be used in
harsh environments, ie. Gas turbines, jet engines, and rocket
engines.
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Production
of ITO thin-film coatings accounted for approximately 84.0% of global indium
consumption. Of the remaining 16.0% of the global indium market, other end uses
include solders and alloys, 8.0%; compounds, 5.0%; electrical components and
semiconductors, 2.0%; and research and other, 1.0%.
Supply
of Indium
According
to the USGS, the top five indium producing countries in the world in 2009 were
China, Japan, Canada, Republic of Korea, and Belgium. China’s refinery
production of indium was approximately 300 metric tons in 2009. This is
approximately 50% of the annual total global refined production of 597 metric
tons.
According
to the USGS, primary refined production of indium has been relatively flat since
2006. Annual worldwide production has ranged between 563 metric tons to 597
metric tons per year. Worldwide production actually decreased from 582 metric
tons in 2006 to 563 metric tons in 2007 and edged up slightly to 573 metric tons
in 2008 and an estimated 597 metric tons in 2009.
On the
supply side, a critical element will be the ability of individual countries to
recycle indium contained in electronic components. Because indium is mostly a
byproduct of zinc mining and smelting, it will be hard to increase primary
production unless there is an increase in zinc production. During the past
decades, dwindling zinc prices forced some high cost and low-grade underground
zinc mines and a few older and less efficient zinc refineries to close. Zinc
prices soared in 2005 and 2006 to record high levels, in turn, according to the
USGS, world mine production of zinc increased from 10 million metric tons in
2006 to an estimated 11.6 million metric tons in 2008. The average London Metals
Exchange (LME) price for zinc in July 2004 was approximately US$1,020 per ton.
The average LME price for zinc increased to approximately US$3,340 per ton by
July 2006. We believe that this increased primary indium production as
well. Higher prices for indium, has also resulted in increased recycling.
Despite increasing demand for indium, worldwide supply is expected to be
adequate with increased primary production and recycling. More recently, by the
end of 2009, the price of zinc plummeted from the lofty levels witnessed in 2006
and early 2007. We believe that weak zinc prices have curtailed the production
of zinc. This is reflected in the 2010 USGS Zinc Report which estimates zinc
production fell from 11.6 million tons in 2008 to 11.1 million tons in 2009.
Intuitively, this would imply lower levels of indium recovery in 2009, thusly
promulgating increased competition for indium in the future. However, the 2010
USGS Indium Report estimates indium production actually increased slightly in
2009. The USGS estimates zinc production fell 12.5% and 8.1% in China and Peru
year over year, respectively. Contradictorily, the USGS estimates Chinese indium
production only decreased by 3.2% in 2009 and Peruvian production actually
surged 233% in 2009.
Recycling
Market
The
recycling of indium has increased in recent years. The indium recycling market
is now larger than primary refinery production. Recycling scrap indium into 3N7
or higher purity metal ingot is extremely complex and time consuming. According
to the USGS, indium is most commonly recovered from ITO. Sputtering, the process
in which ITO is deposited as a thin-film coating onto a substrate, is highly
inefficient; approximately 30.0% of an ITO target is deposited onto the
substrate. The remaining 70.0% consists of the spent ITO target, the grinding
sludge, and the after-processing residue left on the walls of the sputtering
chamber. It was estimated that 60.0% to 65.0% of the indium in a new ITO target
will be recovered, and research was underway to improve this rate further.
Typically, end users (ie. FPD manufacturers) establish contracts directly with
the recyclers. Pursuant to such contracts, the end user supplies the recycler
with scrap indium and the recycler specially processes, refines, and then
returns the purified recaptured indium to the end user. Recyclers cannot sell
the recycled indium to anyone else other than the end user who supplied the
scrap indium. Industry insiders consider the recycling market a “closed loop”.
According to the USGS, it was reported that the ITO recycling loop – from
collection of scrap to production of secondary materials – now takes less than
30 days. If recycling activity continues to grow and becomes more efficient,
this may serve to increase the total worldwide indium supply. In the primary
indium market, an increase in the price of indium does not lead to increased
indium production because it is predominantly a byproduct of zinc mining. It is
believed that the market price of indium does influence the rates of reclaiming
and recycling of indium. In recent years, according to a report titled Indium
and Gallium Sustainability — September 2007 Update, reclaimed indium
supply increased from 357 metric tons in 2005 to 503 metric tons in 2006. The
same report projected total indium recycling at 650 metric tons in 2007, 802
metric tons in 2008, and 961 metric tons in 2009. In September 2007, a
presentation titled “Indium: Hot, Green & Bright” prepared by AIM Specialty
Materials estimated that the total supply of indium from recycling at 847 metric
tons in 2007, 1101 metric tons in 2008, and 1318 metric tons in 2009. Based on
what we consider the more conservative estimates, recycled indium represented
41.6% of total global indium supply in 2005, 46.4% in 2006, and 56.0% in 2007.
While the primary indium supply actually decreased from 582 metric tons in 2006
to 573 metric tons in 2008, the recycling market continues to expand. The USGS
does not provide specific data for the recycling market but stated that global
secondary indium production increased significantly during the past several
years and now accounts for a greater share of indium production than primary.
The USGS also stated that this trend is expected to continue in the future and
that several major secondary indium producers in Japan and the Republic of Korea
announced plans to further increase their recycling capacity. MinorMetals.com
reported on January 11, 2010 that 850 tons of indium was recycled in 2008, this
would represent approximately 59.7% of total global indium supply based on the
573 tons of primary indium supply reported by the USGS for 2008.
According
to Umicore Indium Products, a leading U.S. manufacturer and supplier of ITO
products, in some cases up to 70.0% of ITO can be recycled, generating a
considerable source for secondary indium, attenuating the effect of reduced
virgin indium production. Indium scrap is recovered from ITO, specially
processed or refined and purified back to a minimum purity of 99.97%. In 2005,
Sharp reported they succeeded in recycling indium from LCD panels. The USGS also
reported that an LCD manufacturer has developed a process to reclaim indium
directly from scrap LCD panels. The panels are crushed into millimeter-sized
particles then soaked in an acid solution to dissolve the ITO, from which the
indium is recovered. Indium recovery from tailings was thought to have
been insignificant, as these wastes contain low amounts of the metal and can be
difficult to process. However, recent improvements to the process technology
have made indium recovery from tailings viable when the price of indium is high.
Japanese based, Dowa Mining Company Ltd. is the world’s largest secondary indium
producer. In November 2005, Metal-Pages reported that Dowa Mining was expecting
to expand its production capacity to recover indium from ITO scrap by 50% to 150
metric tons at its subsidiary Akita Rare Metal Co. We do not expect to have any
access to material sold by indium recyclers and we will be primarily dependent
on primary refined production.
Indium's
price per kilogram is infrequently quoted and investors may have to pay for
subscriptions to various data service providers to access such information. We
intend to make arrangements with a service provider to obtain a weekly quotation
and make such information available, for free, on our website. In the event we
cannot obtain permission from one of the various service providers to post their
quotes, we will post a short discussion of the weekly price range of indium on
our website at
www.smg-indium.com
.
China
According
to the USGS, China controls over 50% of the world’s refined indium production.
There are a number of major producers in China, but also numerous smaller
producers, relying on purchasing the concentrates from the larger base-metal
refiners. China produces approximately 300 to 350 metric tons of indium per
year. The Chinese government restricts indium’s export with taxes. In December
2009, China announced it would reduce export taxes on unwrought indium, indium
scrap and indium powder from the 10.0% to 15.0% level in 2009 to 5.0% in 2010.
In December 2009, The Ministry of Commerce issued a quota allowing China to
export 139.8 tons of indium in the first half of 2010, the same level as 2009.
The eleven licensed companies granted the largest indium export quotas for the
first half of 2010 were Zhuzhou Smeltery Group Co., Ltd. – 29.4 metric
tons; Nanjing Foreign Economic & Trade Development Co.,
Ltd. – 17.6 metric tons; Liuzhou China Tin Group Co.,
Ltd. – 15.3 metric tons; Zhuzhou Keneng New Materials Co., Ltd - 14.2
metric tons; Huludao Nonferrous Metals (Group) I/E Co., Ltd. – 8.7
metric tons; Guangxi Debang Industry and Trade Co., Ltd. – 7.8 metric
tons; Xiangten Zhengtan Nonferrous Metals Co., Ltd. – 6.7 metric tons;
Hunan Jinshi Group - 6.2 metric tons; Nanjing Germanium Co.,
Ltd. – 6.0 metric tons; Liuzhou Yingge Metals Co., Ltd. - 5.9 metric
tons and Nanjing Sanyou Electronic Materials Co., Ltd. – 4.3 metric
tons . We believe that most of China’s indium output is exported, with domestic
demand currently unable to sustain production.
According
to the USGS, several producers in China suspended spot exports of indium in
April 2008. Liuzhou China Tin Group Co., Ltd, (30 - 40 tons per year indium
production capacity) stopped exporting indium towards the latter half of 2007
owing to low indium prices and again halted exports and sales late in April
2008. The USGS also states "the production cost of 99.99%-pure indium metal in
China was estimated to be between $550 to $650 per kilogram." We believe that
actual production costs have declined since the USGS reported those estimates
because the price of a key ingredient in the indium extraction process, sulfuric
acid, has dropped precipitously since peaking in 2008. Most of the indium
producers in China restarted exporting in May 2008 after the price of indium
rebounded. According to the USGS, by the end of 2008, two producers in China
confirmed they had again suspended indium production and several producers
reduced their production rates as a result of cuts in zinc production and
falling indium prices.
Canada
The USGS
estimated that in 2008 Canada produced 50 metric tons of indium. According to
the USGS, the Canadian firm, Teck Resources Limited (“Teck”), is a long-time
producer and refiner of indium as a byproduct at its facilities in Trail,
British Columbia, Canada. In 2005, Teck produced 41 metric tons of indium there
from concentrates. Teck announced in 2005 that it was planning to increase
indium production to 75 metric tons within two years. The USGS indium data
does not show any increased production of indium in Canada between 2005
and 2009, but we believe the increase may show up in the 2010
figures.
According
to the USGS, the other major producer of indium in Canada is Falconbridge Ltd.
In 2007, Falconbridge was acquired by Xstrata Plc, a diversified global mining
company. In December 2009, Xstrata Plc announced that on May 1, 2010 it
will permanently cease operation of its copper and zinc metallurgical plants at
the Kidd Metallurgical site in Timmins, Ontario, Canada. According to Roskill,
an information service provider of information on international metals and
minerals markets, in its report titled "The Economics of Indium, 2003," the Kidd
Metallurgical Division was capable of refining up to 40 tons per year of indium.
All of the output from the Kidd Creek smelter was shipped to The Indium Corp. of
America for further refining. According to the USGS, Xstrata produced 11 tons of
refined indium at Kidd Creek in 2007 and 8 tons in 2008.
United
States
The
United States does not produce any primary domestic indium and relies on imports
from China, Canada, Japan, Russia, and other countries. All refined indium
production in the United States during 2007 came from the refining of lower
grade imported indium metal and from refining scrap. Two refineries, one in New
York and the other in Rhode Island, produced the majority of indium metal and
indium compounds in 2007. A number of small companies produced specialty indium
alloys and other indium products. Very little indium is recycled in the United
States. We believe this is because there is no infrastructure for the collection
of used indium-containing products.
Zinc
Supply
According
to the USGS, total worldwide zinc production was 8.5 million metric tons in
2003, 9.6 million metric tons in 2004, 9.8 million metric tons in 2005, 10.0
million metric tons in 2006, 10.9 million metric tons in 2007, 11.6 metric tons
in 2008 and approximately 11.1 million metric tons in 2009. Yearly zinc
production dwarfs the 2009 estimated total primary refined indium production
figures of 597 metric tons and the USGS’s 2008 estimated 850 metric tons of
recycled indium. Total indium production represents less than one hundredth of
one percent of total zinc production on an annual basis.
In a
Credit Suisse research report dated November 10, 2009 and titled “Teck Resources
Ltd. – Raising EPS and TP on Higher Coking Coal and Zinc Price Forecasts,” the
Credit Suisse analysts' “expect zinc to be in over-supply in 2009 and 2010, but
in deficit from 2011 as mine production flattens on the closure of large mines.”
The report also states 2011 mine production should be flat with 2010 production
before rising only 3.9% in 2012. Credit Suisse expects a shortfall in zinc
concentrates in those years will constrain refinery output. Credit Suisse also
sees significant zinc mine closures nearing as mines are exhausted. They expect
the Brunswick mine in Canada to be closed in 2011 and the Iscaycruz mine in
Peru, Century mine in Australia, and Lisheen mine in Eire to close between 2013
and 2015. These are all considered large zinc mines.
[
In a January 19, 2010
research report titled “Metal Prospects – Zinc Market Outlook – First Quarter
2010,” RBC Capital Markets’ analysis of zinc supply “suggests that capacity
utilization rates fell sharply in 2009 because mine curtailments restricted
concentrate supply. In 2010 and beyond, utilization rates are expected to
continue to fall, constrained by a shortage of concentrate as a number of
permanent mine closures take effect. The bottleneck in the market will be mine
supply. Global refined production increased 6.4% in 2007 and 2.5% in 2008. We
estimate that production declined by 6.0% in 2009.” Furthermore, RBC states that
in 2013 they expect the concentrate shortage to become acute.
Any
disruptions in the mining of zinc could have a direct impact on the production
and availability of primary refined indium. In May 2008, an earthquake in China
completely halted ten zinc smelters in Sichuan Province’s Deyang, Hanyuan and
Ganzi regions, as well as in nearby southern regions of Shaanxi Province and
Gansu Province, due to damaged facilities and power supply failures. It was
estimated that 510,000 metric tons of zinc smelting capacity was affected or
approximately 7.0% of China’s national total. If those particular zinc smelters
were all refining indium and were shut for one full year, perhaps as much as
24.8 metric tons or 4.2% of primary indium production could have been
lost.
World
Refinery Production, Reserves, and Reserve Base (Metric Tons):
|
Refinery Production
|
Reserves
(3)
|
Reserve Base
(2)
|
||||||||||
|
2006
|
2007
|
2008
|
2009
|
|||||||||
|
China
|
350
|
320
|
310
|
300
|
8,000
|
10,000
|
||||||
|
Korea,
Republic
|
50
|
50
|
75
|
85
|
0
|
0
|
||||||
|
Japan
|
55
|
60
|
65
|
60
|
0
|
0
|
||||||
|
Canada
|
50
|
50
|
45
|
50
|
150
|
560
|
||||||
|
Belgium
|
30
|
30
|
30
|
30
|
in
other countries
|
in
other countries
|
||||||
|
Russia
|
16
|
12
|
12
|
12
|
360
|
580
|
||||||
|
France
|
10
|
10
|
0
|
0
|
in
other countries
|
in
other countries
|
||||||
|
Peru
|
6
|
6
|
6
|
20
|
in
other countries
|
in
other countries
|
||||||
|
United
States
|
0
|
0
|
0
|
0
|
280
|
450
|
||||||
|
Other
Countries
|
15
|
25
|
30
|
40
|
1800
|
4200
|
||||||
|
Total
|
|
582
|
|
563
|
|
573
|
|
597
|
|
11,000
|
|
16,000
|
|
(1)
|
Table
is taken from the U.S. Geological Survey Minerals Commodities Summaries,
January 2008, January 2009
and January
2010.
|
|
(2)
|
The
Reserve Base is that part of an identified resource that meets specified
minimum physical and chemical criteria related to current mining and
production practices, including those for grade, quality, thickness, and
depth. The reserve base is the in-place demonstrated resource from which
reserves are estimated. It includes reserves that are currently economic,
marginally economic, and some that are
subeconomic.
|
|
(3)
|
Reserves
are resources that are currently
economic.
|
Source: U.S. Geological Survey
Demand
for Indium
According
to a DisplayDaily.com article published on August 1, 2007 titled “Indium You May
Not See It But You Really Need It,” the demand for indium was 861 tons in 2006
[$708 million] and was expected to be about 1,000 tons in 2007 [$684 million]
and may reach almost 2,000 tons by 2011. Indium is primarily produced as a
by-product of zinc production. By the standards of the zinc industry, indium is
miniscule in terms of both tons and dollar volume. Seven years ago indium was
about $100/kg and now costs $597.50/kg. The total size of the primary indium
market in dollar terms has declined since 2006 due to the drop in the price of
indium. Based on the USGS’s primary production figures and Bloomberg’s
calculation of the average yearly price of indium using the prices reported by
Metal Bulletin on Bloomberg, the size of the primary indium market was $477
million in 2006, $385 million in 2007, $312 million in 2008 and $237 million in
2009. According to MinorMetals.com, when recycling is taken into account,
total indium supply in 2008 was approximately 1400 tons. This would translate
into a total market size of approximately $771 million based on Metal Bulletin’s
average price of $551 per kilogram for indium in 2008.
The price
of indium has declined substantially since it peaked in March 2005. The price
for indium has declined 44.2% from its high of $1,070 per kilogram in March 2005
to $597.50 per kilogram as of March 31, 2010. If we began operations in March
2005, and we purchased our stockpile at peak prices, the value of our stockpile
would have decreased by 44.2% in approximately five years. It is possible that
if we purchase the stockpile at today’s prices then the value may fall
substantially. It is possible that we will not be able to sell our indium
stockpile at prices higher than the price we paid for it. As recently as 2002,
the price of indium was less than $100 per kilogram. If the price of indium
returns to those levels, the value of our stockpile will be substantially lower
than what we paid for it.
A small
amount of indium is used to make every liquid crystal display screen. This is
the primary use of indium today and accounts for approximately 84.0% of
consumption. These LCDs are key components in laptop computers, flat panel
monitors and flat panel televisions. They are also used in cell phones, PDAs,
digital cameras, clocks, watches, picture frames, GPS receivers, answering
machines and other electronic devices. Touch screens for mobile devices is
another growing application for indium. According to the USGS, mobile telephones
with a multi-touch LCD screen have two layers of indium-tin-oxide, doubling the
amount of indium traditionally used in the screen. We believe many of these
products are in very high demand and LCDs are being incorporated into an
increasing number of devices.
According
to the USGS, about 2.0% of the indium produced is used to make electrical
components. These are mainly used in infrared detectors, high speed transistors
and photovoltaic devices for the solar industry. Indium’s very low melting point
and ability to conduct electricity make it an important ingredient in many low
temperature solders and alloys. According to the USGS, about 13.0% of indium
consumption goes to alloys, solders and compounds.
Another
important use of indium is in coatings applied to glass. These coatings are
transparent, but reflect radiant heat through the glass. These glasses are used
in aircraft windows, windows of office buildings, and doors on refrigerators and
ovens. Small amounts of indium are also used for defogging agents to keep
condensation from building up on aircraft and locomotive windows. We believe
some of these uses may have declined over the past few years because of the rise
in the price of indium.
According
to the USGS, U.S. indium consumption was estimated at 120 metric tons in 2009,
up substantially from the 55 metric tons consumed in 2000 and the 30 metric tons
in 1990. This confirms our belief that many of the traditional applications
utilizing indium have a long-term upward trajectory in demand. The USGS also
estimated that the U.S. imported only 95 tons of indium in 2009 down from 144
tons in 2008. This implies a significant drawdown in U.S. indium inventory based
on the estimated domestic consumption in 2008 and 2009.
Source: U.S. Geological Survey
Flat
Panel Displays (FPDs)
We
believe the demand for indium will grow for the foreseeable future. We believe
the markets for flat panel displays are strong, particularly for computer
monitors, televisions, phones, and PDA’s. We expect high rates of growth in the
LCD industry to generate increased demand for indium and we expect increased
consumption in this market.
Indium is
a key component of Indium-Tin-Oxide (ITO), the standard transparent electrode
used in virtually all flat panel displays and micro displays. An electrode is
needed to either drive the cell or provide electromagnetic shielding, whether
the display is a liquid crystal (LC), organic light emitting diode (OLED) or
plasma cell. Transparency is needed to allow the light generated or controlled
to reach the outside world. Touch screens routinely use ITO in the touch
subsystem as well as in the LCD frontplane. Apple’s iPhone is an example of
capacitive touch screen technology utilizing ITO to offer higher clarity
and quality of the display image. NanoMarkets LC, a leading provider of market
and technology research and industry analysis services, expects the market for
ITO to grow from $3.2 billion in 2009 to $10.9 billion in 2016.
According
to the USGS, the indium market remained in deficit in 2008 as demand for the
metal, supported largely by ITO demand, continued to outpace supply. The USGS
also reported that in 2007, year-on-year shipments of LCD television panels were
forecast to increase 47.0%, and LCD monitor panels to increase 24.0%. According
to the USGS, mainstream LCD devices were also trending toward larger panel
sizes, which require more indium per unit.
According
to the LCD TV Association, less than 10 million LCD TV sets were sold globally
in 2004. By 2006, more than 40 million LCDs were sold ramping to 79 million in
2007 and 105 million units in 2008.. The LCD TV Association predicted that with
LCD TVs getting better and less expensive each year that there will be 200
million units sold annually by 2012.
(1)
We
believe these forecasts may be conservative based on a press release issued in
December 2009 by DisplaySearch upgrading its 2009 LCD TV forecast to 140.5
million units, based on surging demand in China, as well as improving outlook
for LCD TVs in Western Europe and North America from large price declines.
DisplaySearch also forecasts a 22.0% percent increase in LCD TV sales in 2010 to
171 million units. According to Aim Specialty Materials, the cost of ITO per LCD
panel is insignificant. Despite indium prices exceeding $800 per kilogram in
2006, the cost of indium that is applied to a 32” LCD panel would be
approximately $0.55. Even if the price of indium were to double, the indium
(ITO) cost per panel would be approximately $1.00 on a product that retails for
over $750 per unit.
LED
Industry
A
light-emitting diode or LED is a semiconductor device that emits visible light
or infrared radiation when an electric current is passed. The visible emission,
often a high-intensity light, is useful in a whole host of applications. All of
the innovation in the high brightness LED (“HB-LED”) market sources back to the
compound semiconductor technology based on gallium and indium combinations,
according to Tom Griffiths' article titled “Getting Ahead of the LED Lighting
Curve.” An LED usually begins with either a sapphire or silicon-carbide
substrate. The substrate is then placed in a specialized oven known as an
epitaxial reactor. In the epitaxial ovens (metal organic chemical vapor
deposition or “MOVCD” reactors) vaporized metal combinations are injected to
form the epitaxial layers on the substrate creating epi-wafers that produce
red-orange-yellow-green-blue spectrum. Indium-Gallium-Aluminum-Phosphide
("InGaAlP") based LEDs are used in high-intensity red-yellow and green LED
devices. Indium-Gallium-Nitride ("InGaN") is used in green, blue, ultraviolet
and white LEDs. Cree, a leader in the solid-state lighting industry, combines
highly efficient InGaN materials with proprietary substrates to deliver
high-intensity LEDs in a wide range of applications including: digital camera
flash, full-motion video signs, automotive dashboard lighting, traffic signals
and cell phone backlighting. The global LED market is served by a number of
large established suppliers. According to Roskill, "The Economics of Indium,
2003," Nichia Corp, Toyoda Gosei, Cree and Osram dominate the market for blue,
green and white LEDs based on InGaN. The major suppliers of yellow, orange and
red High-Brightness-LEDs based on InGasAlP are Agilent Technologies, Lumileds
Lighting, Osram, Toshiba and Epistar of Taiwan.
The LED
TV and the LED Lighting markets are expected to grow rapidly over the next few
years. In a KGI research report dated September 16, 2009, titled “LED
Sector – Golden Decade Ahead for LED TV and LED Lighting,” analyst Yvonne Lu
states “the growth potential of LED Lighting is huge, as at present LED accounts
for only 0.5% of the global lighting market estimated at US$122 billion in
2009.” Mr. Lu is forecasting strong growth momentum and expects the “LED TV and
LED monitor segments to take off in 2010-2011.” On December 23, 2009, the
Digitimes reported that according to LED supplier Neo-Neon Holdings chairman Ben
Fan, that "the global supply of LED chips will remain short over the next two
years due to increasing use in LCD panel backlighting and even faster increases
in lighting applications." Fan added that "the lighting sector will see the LED
chip shortage worsen as inventories of LED chips will be fast decreasing in the
next two to three months." According to Strategies Unlimited, a research firm,
and J.P. Morgan's North America Equity Research, overall HB LED revenue growth
is expected to exceed 30.0% annually from 2009 to 2013. This rapid growth will
be mostly driven by LCD backlighting and the general lighting market segments.
Combined, these two applications are estimated to grow at a compound annual
growth rate of 83.0% between 2009 and 2013. They project that within five years,
the LED market will grow from $4.9 billion in 2009 to $14.9 billion in
2013.
In
December 2009, OSRAM Opto Semiconductors announced they completed construction
and process testing for an LED chip production plant located in Penang,
Malaysia. OSRAM claims they are the first LED manufacturer with high-volume chip
production facilities in both Europe and Asia. Routine production is underway
using 4-inch wafer based Indium-Gallium-Nitride (InGaN) semiconductor chips. The
chips form the basis for the blue, green and white LEDs used primarily in
architectural and general lighting, for display backlighting and in mobile
terminal devices.
In
September 2009, Bloomberg News reported that at a metals conference in Beijing,
Feng Juncong, an analyst at Beijing Antaike Information Development Co., Ltd.,
the state-backed research group, stated that "Indium used in LED may exceed 100
tons by 2015." We believe this would represent a very large new demand driver
for indium and consume a substantial portion of the world's primary indium
supply, if this projection were to become a reality.
LED
Backlit LCDs
The next
generation of LCD TVs and computer monitors use LEDs as the backlight. On
November 2009, Metal-Pages Ltd. reported that according to the most recent
DisplaySearch Quarterly LED & CCFL Backlight Report that light-emitting
diodes (LEDs) will become the dominant large-area TFT LCD backlit unit light
source by 2011, taking 56.0% share of the market. They also reported that
traditional backlights using fluorescent tubes (cold cathode fluorescent lamps
"CCFL" and external electrode fluorescent lamps "EEFL") for notebook PC,
monitor, and TV displays will drop to 44.0% of the market in 2011. The LCD TV
Association reports in "LCD TV Matters" Volume 3, Issue 2, sighting the
DisplaySearch report “LED LCD TV Maker’s Roadmap and Market Forecast, December
2009,” that the LED backlight penetration rate in LCD TVs is expected to
grow to 69.1% in 2013. Specifically, DisplaySearch forecasts the penetration
rate of LED backlights for LCD TVs to grow from less than 3.0% in 2009 to 69.1%
in 2013 and surpass CCFL backlights in 2013 with more than a 70% penetration
rate. According to the Digitimes, although LED-backlight penetration in monitor
panels was only 1.4% in the third quarter of 2009, current panel makers' plans
indicate that the penetration could reach 22.0% in approximately one year,
assuming adoption by brands. Some manufacturers claim that LED-backlit LCD TVs
are more efficient than traditional LCD TVs lit by fluorescent tubes by up to
30.0%. LEDs are also much smaller than tubes, even after accounting for the
number of them needed to light an entire TV using either LED edge lighting
designs or LED direct matrix lighting design technology. LED-backlit TVs can be
manufactured significantly thinner than their CCFL lit counterparts. LED-backlit
LCD TVs and computer monitors all consume indium. The LCD glass screens continue
to be coated with indium-tin-oxide and in addition, the LED-backlights also
consume minute quantities of indium.
Global LED LCD TV Market
Forecast - Displaybank
Source:
DisplayBank in LCD TV Association “LCD TV Matters” – Volume 3, Issue 2 –
February 2010
Solar
Industry
Indium is
increasingly being used as a crucial raw material in the solar energy industry.
According to the United States’ National Renewable Energy Laboratory, to produce
20 gigawatts of solar power by the year 2050, the United States will need 400
metric tons of indium per year for the production of photovoltaic modules and
systems alone. Based on the same report, the shortage of either indium or
tellurium (another raw material for photovoltaic production) could result in
serious bottlenecks to such growth unless such cells were made thinner or
substitutes were found.
Solar
cells are growing in importance and have a distinct similarity to FPDs. For
example, the recently announced Sharp Gen 10 fabrication facility will be used
not only for LCD panels but also for manufacturing solar cells as well.
According to Insight Media Analyst, they believe that in one year, the facility
is expected to be able to produce enough solar cells to produce 100 megawatts
(“MW”) of power indefinitely. This is the equivalent of a medium-sized nuclear
power plant.
Copper-Indium-Gallium-di-Selenide
(CIGS) is a new semiconductor material comprising copper, indium, gallium, and
selenium. This material is being used in the next generation of photovoltaic
cells or CIGS solar cells. CIGS solar cells are not yet as efficient as
crystalline silicon solar cells, however, they are expected to be substantially
cheaper. As a thin-film photovoltaic (PV) technology, CIGS should have
relatively low costs in scale production due to low usage of PV materials and
efficient production processes. CIGS is recognized to be one of the most
promising thin-film technologies given its high conversion efficiency as
delivered in lab environments. We believe that once mass production issues are
mastered by industry participants, CIGS based solar photovoltaic panels could be
a large new market for the usage of indium.
In a
recently released report, “Materials Markets for Thin-Film and Organic
Photovoltaics,” NanoMarkets, a leading industry analyst, estimated that the
market opportunity for materials used in CIS (Copper-Indium-Selenium) /CIGS type
solar cells will grow from $193.2 million in 2008, to $465.2 million in 2010,
before climbing to $1.11 billion in 2015. NanoMarkets also believes that the
CIS/CIGS sector will produce almost $5.0 billion in revenues by
2015.
In July
2009, NanoMarkets released a report titled “Indium Markets for Photovoltaics.”
According to Photovoltaics International, NanoMarkets projects indium
consumption by the Photovoltaic industry to grow ten-fold over the next eight
years from 20 metric tons to more than 228 metric tons in 2016, a growth rate
that is faster than that expected for the FPD industry. Nanomarkets expects a
change over time away from the use of sputtering targets and evaporation slugs
as lower cost deposition methods develop. Furthermore, they expect a shift
towards indium salts for electrodeposition and nanoparticles of indium, indium
selenide and indium oxide inks for printing. Printing and electrodeposition wil
represent close to 28.0%, or 52.3 metric tons, of the total indium consumption
for CIGS in 2016. NanoMarkets also said in the report that indium consumption
for ITO in the PV industry will grow from 13 metric tons in 2011 to 39.4 metric
tons in 2016.
In the
2008 Minerals Yearbook, the USGS states: "The solar industry is experiencing
growth, and the percentage of indium consumed for this market may increase
substantially in the future. According to sources at Indium Corp., indium demand
for thin-film CIGS solar cells potentially could increase to 300 ton per year by
2013. Current indium consumption was nearly 30 to 35 tons per year. Strong
investment in CIGS solar cell projects coupled with new or recently expanded
manufacturing plants in Europe, Japan, and the United States indicate that
indium consumption for solar cells is expected to increase
globally."
In May
2009, Metal-Pages reported that Showa Shell Sekiyu KK, the Japanese subsidiary
of the Royal Dutch Shell PLC refiner and solar equipment maker, will spend 160
billion Yen ($1.7 billion U.S.) over the next five years to increase solar
output to 1 GW a year from its current 80 MW. In 2007, Showa Shell started
commercial production of solar panels using CIS for the production of solar
energy and electricity. Showa Shell has two factories in the Miyazaki Prefecture
that could produce a combined 80 MW per year and plans to build a third
solar-panel plant for an estimated 100 billion Yen ($1.05 billion U.S.) to start
production in 2011. The USGS reported the Showa Shell 1,000-MW/yr solar
manufacturing plant could consume 30 tons of indium per year. CIS panels are
similar to CIGS panels but may be easier and possibly cheaper to make, however,
they are not as efficient at turning sunlight into power as CIGS
panels.
According
to Greentech Media, over the past several years, capital investment in CIGS
solar companies has exceeded $2.3 billion. In March 2009, Solyndra Inc.
announced that it received a $535 million loan guarantee from the U.S.
Department of Energy (DOE) under Title XVII of the Energy Policy Act of 2005 to
expand its solar panel manufacturing capacity in California. Solyndra has
raised in excess of $600 million in financing from venture capital firms
including CMEA Ventures and Redpoint Ventures. In June 2006, Nanosolar Inc.
announced $100 million in funding from leading venture capital firms.
Furthermore, it has been widely reported that Nanosolar raised an additional
$300 million in equity financing in August 2008 bringing its total funding to
$500 million. Thin-film solar startup Miasole raised $50 million in 2007 and
reports indicate as much as an additional $220 million in late 2008 from venture
firms including Kleiner Perkins Caufield & Byers and VantagePoint Venture
Partners. In 2007, Heliovolt Corporation closed a $101 million series B
funding round and an additional $17.5 million as part of a $32 million round in
April 2009 led by Sequel Venture Partners, Credit Suisse Private Equity, New
Enterprise Associates, and Morgan Stanley Private Equity. SulfurCell has raised
more than $165 million from Masdar, Intel and Climate Change Capital. Finally,
SoloPower, an innovator of thin-film solar photovoltaic cells and modules,
raised $30 million in 2007 and Venture Wire said they secured another $200
million in late 2008.
On
December 18, 2009, Solyndra, Inc filed a registration statement with the SEC to
raise up to $300 million in an IPO led by Goldman, Sachs & Co. and Morgan
Stanley, two leading investment banks. Solyndra states in the filing that their
proprietary and scalable process technology utilizes a thin layer of CIGS as the
primary solar semiconductor material, which has the highest demonstrated
efficiency among the three major thin film technologies available today.
According to the registration statement, Solyndra commenced shipments of CIGS
based photovoltaic systems in July 2008 and increased sales volume every quarter
since that date. Solyndra sold 17.4 MW of panels in the nine months ended
October 3, 2009, compared to 1.6 MW for the fiscal year ended January 3, 2009.
The registration statement also states that Solyndra's Fab 1, had an annualized
production run rate of 45 MW during its fiscal month ended December 5, 2009.
Furthermore, Solyndra is in the process of expanding production capacity at Fab
1 and expects to reach an annualized production rate of 110 MW by the fourth
fiscal quarter of 2010. In addition, Solyndra is building another fab,
referred to as Fab 2. In phase I of construction, Fab 2 is expected to
have an annualized production run rate of 250 MW by the end of the first half of
2012 with first production output occurring in the first quarter of 2011. Phase
II would further expand Fab 2's production capability to 500 MW. Solyndra is
focused on the commercial rooftop photovoltaic opportunity. The registration
statement states that according to the National Renewable Energy Laboratory, or
NREL, cumulative rooftop photovoltaic system installations in the United States
alone are projected to grow from 733 MW in 2007 to 7,492 MW in 2015,
representing a compound annual growth rate of 34.0%.
Government
Stockpiling
In
December 2008, The State Reserve Bureau of China (“SRB”) purchased 30 metric
tons of indium ingots from Huludao Zinc Industry for a strategic stockpile. Most
traders and producers believe that the SRB plans to continue stockpiling
additional indium ingot in the future, although the exact tonnage is
uncertain.
In 2006,
the South Korean government announced plans to launch a stockpile of thirteen
rare metals and ferroalloys. Indium was on their list. In May 2009, Platts
reported that South Korea’s Public Procurement Service purchased at least 5
metric tons of indium from Korea Zinc.
In June
2009, Metal Bulletin Ltd. reported that the Japanese government plans to
purchase 60 metric tons of refined indium from its own domestic companies
through a public tender. In May 2009, Platts reported that a Japanese official
from the Ministry of Economy, Trade and Industry stated that the Japanese
government plans to stockpile indium and gallium for the first time. The
Ministry has requested a 200 million Yen ($2 million) supplementary budget for
stockpiling, some of which would be used to purchase indium and gallium
according to an official in charge of the country’s stockpiling policy. The
second supplementary budget, which includes the 200 million Yen stockpiling
allowance, is currently before the Parliament. There are no official reports
stating whether or not the Japanese government has purchased any indium as of
March 31, 2010.
As
recently as 2002, the National Defense Stockpile Center (“DNSC”) of the United
States operating under the authority of the Strategic and Critical Stock Piling
Act (50 U.S.C. 98-h-2 (a)) held 35,000 ounces of indium. The DNSC has liquidated
that stockpile.
Governmental
Regulation
General
Description
There are
no governmental regulations which will directly impact our intended operation of
purchasing and lending indium. We intend to use standard industry commercial
terms recognized by industry participants in connection with the storage and
shipment of indium. A representative sample of such terms are listed
below.
Purity.
The recognized
industry wide standard purity level is 99.97%.
Price.
All purchases
and sales of indium are individually negotiated. There is no fixed price ratio
between 3N7, 4N or 5N material in the indium industry. Typically, in a regular
indium market, balanced supply and demand, the higher the purity of the indium,
the more it costs. 4N indium is slightly more expensive than 3N7. 5N is slightly
more expensive than 4N. In a declining indium market, the price of 3N7 purity
indium is often quoted at an even greater discount to indium with purities of 4N
or 5N. In some cases, the prices may be as much as 2.0% to 5.0% lower.
Typically, when the price of indium is appreciating, there is often no
difference in the price of 3N7 purity indium compared to 4N or 5N purity
metal.
Form.
Indium Metal,
3N7 grade, Type 1 or Type 2, is received for storage in the form of ingots which
have a uniform trapezoidal shape or uniform rectangular shape with square or
rounded edges. The top and bottom surfaces are relatively flat and
parallel.
Surface
Characteristics.
Indium is a silvery white metal with a bluish cast. Surfaces of the ingot are
clean and free of dirt, grease, oil, cleaning residues, etc.
Dimensions.
Nominal
ingot dimensions are listed below for the two types of Indium.
|
Weight
|
Length
|
Width
|
Height
|
|||||
|
Type
1
|
100
tr. oz
|
8.50
in./
|
3.25
in./
|
1.25
in./
|
||||
|
(3.11
kg)
|
215.9
mm
|
82.5
mm
|
31.75
mm
|
|||||
|
Type
2
|
10
kg
|
340/345
mm
|
85/95
mm
|
45
mm
|
||||
|
|
|
(bottom/top)
|
|
(bottom/top)
|
|
Production Lot Size.
Each
ingot shall be traceable to the refining lot or melt from which it was
produced.
Packaging
Ingots.
Ingots in a
production lot shall be individually wrapped in a new, clean, transparent
polyethylene bag which has a minimum thickness of 0.004 inches (4 mm). Both ends
of the bag shall be closed by heat sealing.
Boxes.
Each box from
the supplier shall contain either a maximum of twenty 100 tr. oz ingots or six
10 kg ingots with a total net weight of approximately 63 kg (2,000 tr.
oz).
Marking
Ingot.
Each ingot in a
refining lot or melt shall be permanently marked or stamped with identification
information.
Boxes.
Sufficient
aluminum tags shall be affixed to each box and shall be marked with
identification information.
Storage
Indium
ingots shall be stored indoors, in a vault or vault like area of a warehouse
which has been equipped with fire prevention sprinklers. Storage identity shall
be maintained by contract and production lot number as indicated on each box and
in shipping instructions.
Security
Eight
seals shall be affixed through holes bored in the top and bottom corners of the
box to maintain the integrity of the box contents. Entry into vault areas for
the purpose of shipments, inventory or qualitative maintenance inspections will
be documented by use of logs and/or custodial reports.
Our
Manager will be responsible for conducting limited inspections of the indium
delivered to us. Our Manager will not be responsible for conducting any chemical
assays or other tests designed to verify that such indium meets the 99.97%
purity requirements referred to in our prospectus. Our Manager will rely on the
good faith of its suppliers to provide indium that meets our requirements.
Regular industry suppliers of indium mark each ingot with grade and ingot
number. Boxes of ingots are marked with lot identification. Indium comes
delivered with a certificate of analysis in sealed heavy duty boxes. There is a
chain of authenticity that our Manager will rely upon. If the Manager purchases
indium from a company that is not known to be a regular indium industry
supplier, then at the Manager’s discretion, it may hire, at our expense, an
independent lab to perform random assay tests using glow-discharge mass
spectrometry (GDMS) to verify the purity of the indium. This would be done prior
to taking delivery of the said lots. Depending on the lot size, we might take a
sample of indium from random ingots to be tested for purity. This would minimize
our risk in taking delivery of an entire shipment of lower grade indium. The
Manager does not intend to certify known indium industry refiners. Indium in
transit will be insured regardless from whom it is purchased. We anticipate that
disputes or disagreements will be resolved by arbitration.
Competition
Although we believe no other companies
have our business model, we may have competition from miners, refiners,
suppliers, and traders of indium such as Huludao Zinc Industry Co. of China,
Liuzhou China Tin Group, Jianxi Copper Co., Zhuzhou Smeltery Group Co., Ltd.,
Nanjing Foreign Economic & Trade Development Co., Ltd., Nanjing Sanyou
Electronic Materials Co., Ltd., Huludao Nonferrous Metals (Group) I/E
Co., Ltd., Nanjing Germanium Co.,
Ltd., Xiangten Zhengtan Nonferrous Metals Co., Ltd., Guangxi Intai Technology
Co., Ltd., Hunan Jingshi Group, Laibin Debang Industry and Trade Co., Ltd.,
Shaoguan Huali Industrial Co., Ltd., Tianjin Indium Products Co. Ltd., Zhuzhou
Keneng New Materials Co., Ltd., Teck Resources Limited, Xstrata Plc, Indium
Corporation of America, Umicore Indium Products, Dowa Electronics Materials Co.,
Unionmet (Singapore) Limited, Aim Specialty Materials, Glencore International
AG, Wogen PLC, RJH Trading Ltd., MCP Metal Specialties, Hudson Metals
Corporation, and Traxys North America LLC. We may also have competition from end
users of indium. It is our belief that the top producers of FPD’s are the
largest purchasers of indium. According to an article published on June 21, 2007
in the Asia Times titled “Japan Goes Prospecting for Rare Metals,” Japan
consumes 60.0% of global indium production in the form of indium-tin-oxide for
the manufacturing of FPDs. China supplies Japan with 70.0% of their imports,
according to the same article. Major producers of FPDs, not limited to Japan and
listed in alphabetical order, are AU Optronics, Chi Mei Optoelectronics,
Chunghwa Picture Tubes, HannStar Display Co., Innolux, LG Phillips LCD, Quanta
Display Inc., Samsung Electronics, Sharp Corp., and Sony Corp. These companies
are likely competing with us for purchasing indium from industry
suppliers.
Properties
We
maintain our principal executive offices at c/o Richard A. Biele, 41 University
Drive, Suite 400, Newtown, Pennsylvania 18940.
Employees
We have
no full-time employees. Our officers will provide services to us through the
Manager. Our Chief Financial Officer will be a part-time employee and will
receive quarterly compensation subject to the consummation of this
offering.
Legal
Proceedings
There are
no legal proceedings currently pending or, to our knowledge, threatened against
us.
MANAGEMENT
Directors
and Executive Officers
The
following table sets forth certain information concerning our executive officers
and directors as of April 5, 2010:
|
Name
|
Age
|
Position
|
||
|
Executive
Officers and Directors:
|
|
|
||
|
Alan
Benjamin
|
47
|
Chairman
of the Board, Chief Executive Officer
|
||
|
Ailon
Z. Grushkin
|
37
|
President,
Director
|
||
|
Richard
A. Biele
|
40
|
Chief
Operating Officer, Secretary, Director
|
||
|
Richard
T. Morena
|
49
|
Chief
Financial Officer
|
||
|
P.J.
(Patrick James) Richardson
|
62
|
Director
|
||
|
Fred
Arena
|
54
|
Director
|
||
|
Mark
Stephen Neuhof
|
56
|
Director
|
||
|
William
C. Martin
|
32
|
Director
|
Executive
Officers and Directors
Alan
Benjamin
has been our Chairman and Chief Executive Officer since
inception. Mr. Benjamin is currently a principal at MDSolarSciences, a primary
skin cancer prevention company founded by Dr. Robert Friedman, a world-renown
expert in melanomas and other skin cancers. From 2003 to 2009, Mr. Benjamin
owned and operated SMA Development Associates, LLC, a Connecticut based real
estate investment company. Prior to this, he spent thirteen years at AIG where
he last served as Senior Vice President in charge of AIG’s global base metals
businesses. Mr. Benjamin began his career at Drexel Burnham Lambert in 1983,
where he started as a broker in their commodity’s department and by 1988 he was
managing the Asian operations of the firm’s bullion trading activities. Drexel’s
commodity trading group moved to AIG in 1990 where Mr. Benjamin founded and
managed their metals and foreign exchange trading operations in Asia. Mr.
Benjamin is also a Managing Member of Heritage Building Group, a contractor in
the luxury residential market in Fairfield County, Connecticut. Mr. Benjamin is
qualified to serve on our Board of Directors because of his extensive experience
trading physical metals. He is a graduate of the University of Michigan with a
Bachelor of Arts in history.
Ailon Z.
Grushkin
has been our President and Director since inception. He is
currently the General Partner of both the Nano-Cap Hyper Growth Partnership
L.P., a micro-cap focused hedge fund he founded in October 1996, and the
Nano-Cap New Millennium Growth Fund L.P., a similar fund he founded in January
2000. He is also currently the Managing Member of the AZG Tangible Assets Fund
LLC, a commodities based hedge fund he launched in January 2004. Prior to 1996,
Mr. Grushkin worked or interned at Merrill Lynch Futures Investment Partners
(“MLFIP”), Thompson McKinnon Securities, Prudential Securities and Sumitomo Bank
Ltd. At these firms he held various positions including assistant commodity
trader, commodity trading advisor analyst and assistant derivatives trader. At
MLFIP, he helped create the first Discretionary Trading Advisor Index in the
Managed Futures Industry. Mr. Grushkin is qualified to serve on our Board of
Directors because of his experience purchasing and taking delivery of minor
physical metals for his own personal investment as well as his experience
managing the AZG Tangible Assets Fund LLC, a fund dedicated to investing in
commodities and equities linked to commodities. Mr. Grushkin is a graduate of
the John M. Olin School of Business at Washington University in St. Louis with a
Bachelor’s of Science in Business Administration.
Richard A.
Biele
has been our Chief Operating Officer and a director since
inception. Mr. Biele is currently a Principal of Princeton Financial Partners,
which owns and operates a branch of Andrew Garrett Inc., a full service boutique
Broker Dealer based in Newtown, Pennsylvania. The branch services both
retail and institutional investors. Prior to that, Princeton Financial Partners,
operated as an affiliate of S.W. Bach & Company, a FINRA regulated
securities firm, from 2005 to 2007. From August 2001 through November 2005, Mr.
Biele worked at Kirlin Holdings Corp. From January 1998 through August 2001, Mr.
Biele worked at Princeton Securities. Mr. Biele has had seventeen years of
experience in investment banking and mergers and acquisitions. In 2001, Mr.
Biele formed Wall Street Contracting, a builder of luxury waterfront homes in
southern New Jersey. Mr. Biele is qualified to serve on our Board of Directors
because of his extensive experience in the investment banking world. Mr. Biele
has a Bachelor’s of Science in Economics from Old Dominion
University.
Richard
T. Morena
has been our
Chief Financial Officer since inception. Since 1996, Mr. Morena has been a
part-owner and the General Manager and CFO of Press Communications, LLC, a
diversified media company that through its presently owned and prior operated
properties has owned and operated radio, TV, newspaper, cable, direct mail,
internet, and other media related ventures. Currently his company operates six
radio stations in Central New Jersey, Mr. Morena is also a part owner and Chief
Financial Officer of PMCM TV LLC which owns and operates a television station in
Ely, NV and another television station in Jackson, Wyoming. Mr. Morena’s
responsibilities include all general management, tax, accounting, mergers
and
acquisitions, and
other financial and business support services for the company’s radio and
television broadcasting operations. Mr. Morena has been responsible for the
company’s overall strategic direction through various business acquisitions and
dispositions. Prior to Mr. Morena’s work in the private sector, he worked for
Price Waterhouse where he worked on a variety of audit engagements of large
multinational manufacturing corporations in the Health Care, Consumer Products,
Chemicals, Aerospace, Automotive and Oil and Gas Industries and a
diversification of other manufacturing and service-oriented companies. Mr.
Morena is a Certified Public Accountant in the State of New Jersey and a member
of the New Jersey Society of Certified Public Accountants and The American
Institute of Certified Public Accountants. He is also is associated with many
philanthropic/charitable activities that include, Little Baby Face, the American
Cancer Society, the Jimmy Fund, the United Way and Autism Speaks. Mr. Morena
while being active in all of these endeavors is especially tied to the Autism
community and presently sits on the New England Chapter Autism Speaks Board in
Boston, MA. Mr. Morena is a graduate of Rutgers University and Columbia
University Graduate School where he earned his Master’s Degree in Finance
graduating Summa Cum Laude.
Non-Employee
Directors
Mark Stephen
Neuhof
has been a director of our company since April 2008. Mr. Neuhof
has over 30 years of experience in the fields of metals trading and derivatives.
Mr. Neuhof is currently a Senior Manager at Sumitomo Corporation Global
Commodities Limited and is responsible for developing their base and precious
metals business in the United States. Mr. Neuhof has been involved with Sumitomo
Corporation since 2005, initially as a consultant advising them on their metals
business worldwide and aiding them in developing various new opportunities.
Concurrently, Mr. Neuhof was a principal of JEMM Development Group which
invested in and developed properties in New York and Connecticut. Prior to his
affiliation with Sumitomo, Mr. Neuhof was employed by AIG Financial Products
from 1990 to 2005 as a Managing Director in both their Wilton Connecticut and
London offices. Mr. Neuhof had overall responsibility for their precious and
base metals business including profit and loss, risk management as well as
maintaining and developing client relationships. Prior to that, he was a Vice
President at Drexel Burnham Lambert and held various other positions in the
currency and metals trading fields. Mr. Neuhof is qualified to serve on our
Board of Directors because of his extensive experience trading physical metals.
Mr. Neuhof is a graduate of Queens College and Saint John’s University where he
earned his Masters of Business Administration.
P.J. (Patrick
James) Richardson
has been a director of our company since January 2008.
Mr. Richardson is currently Chairman of the EXTOL Group, Inc., a private
investment group, specializing in diagnostic technology for the Homeland
Security Industry since 2005. Previously, he served as President and Chief
Executive Officer of The Reeves Group, (TRG) Inc., a company he founded in 1990
and divested in January 2005. TRG was the technology leader for products used in
the consequence management of WMD events of a Chemical/Biological nature. Prior
to the formation of TRG, Mr. Richardson served as President & Chief
Executive Officer of Racal Health & Safety, a subsidiary of Racal
Electronics PLC, from 1986 to 1990 and was responsible for all North American
activities for Racal Health & Safety Group, PLC, a world leader in the
manufacture and distribution of respiratory protection and other personal
protective equipment. Prior to joining Racal, MR. Richardson served as Director
of Sales & Marketing for American Optical Corporation, Safety Products
Division, from 1983 to 1984. Early in his career he spent considerable time with
The Johnson & Johnson Family of Companies. He held a series of senior level
positions over ten plus years with the Johnson & Johnson organization. Mr.
Richardson currently serves on the board of directors of Trailerlogic, LLC and
the Board of Advisors of Evergreen Capital LLC. Mr. Richardson is qualified to
serve on our Board of Directors because of his extensive experience founding,
growing and managing start-up businesses since 1990. Mr. Richardson received his
Bachelor of Business Administration from St. Michael’s College and has
co-authored two books for Thomas Nelson Publishers.
Fred
Arena
has been a director
of our company since January 2008.Mr. Arena is currently the Senior Vice
President of Asset Management of American Financial Realty Trust. He is also
currently the founder and President of Vision Equities LLC. Mr. Arena has served
as Senior Vice President of Asset Management at American Financial Realty Trust
since May of 2006 and is a member of the company's senior management team. From
1999 to 2006, Mr. Arena served as Regional Managing Director of Commercial Real
Estate for one of the Goldman Sachs Whitehall Companies. Prior to 1999, Mr.
Arena was Senior Vice President of Asset Management and General Manager for one
of the most prestigious privately owned real estate companies in the northeast.
Mr. Arena began his career with Hartz Mountain Industries in the 1980s managing
a 10 million square foot commercial office portfolio. Mr. Arena serves on the
board of directors of the Building Owners & Managers Association (BOMA) New
Jersey and is a member of its Executive Board. He is also a member of the
National Association of
Industrial & Office Properties (NAIOP). Mr. Arena is qualified to serve on
our Board of Directors because of his extensive experience managing a portfolio
of over ten million square feet of warehouse buildings in the northeast as well
as founding an asset management company that oversaw the management of
warehouses. Mr. Arena received his Bachelor of Science in Business
Administration and Management from Rutgers University.
William C.
Martin
has been a director of our company since January 2010. Mr. Martin
is currently the Chairman and Chief Investment Officer of Raging Capital
Management, LLC, a private investment partnership based in Princeton, New
Jersey. Mr. Martin is also the co-founder and a principal of Indie Research, LLC
and InsiderScore, LLC, since 2002 and 2004, respectively. Indie Research and
InsiderScore are providers of proprietary investment research tools for
individual and institutional investors. Mr. Martin launched his career in 1997
as the founding partner and Chief Executive Officer of Raging Bull, Inc., a
consumer-focused online investment site that attracted more than $20 million in
venture financing from CMGI and C|NET Networks. Mr. Martin sold Raging
Bull in 2000. Subsequently, Mr. Martin has been actively involved in a number of
successful public and private companies. He served four terms as a member
of the Board of Directors of Bankrate, Inc. (NASDAQ: RATE) until that company
was acquired by Apax Partners LLC in September 2009. He also served on the
boards of CallStreet, Inc, acquired by FactSet Research Systems, Inc. (NYSE:
FDS), and ByteTaxi (dba FolderShare), acquired by Microsoft (NASDAQ:
MSFT). Mr. Martin currently is a member of the Board of Directors of
Salary.com (NASDAQ: SLRY). Mr. Martin has appeared on CNBC and Fox News,
and been a guest speak at Fordham School of Business, Harvard Business School,
Harvard Law School, Indiana University, MIT, and the University of Virginia. Mr.
Martin is qualified to serve on our Board of Directors because of his extensive
experience founding start-up companies as well as his previous and current
history serving on the Board of Directors of publicly trading
companies.
Board
of Directors
Board
Composition
Our
certificate of incorporation, as amended, and bylaws provide that the authorized
number of directors may be changed only by resolution of the board of directors.
We currently have seven directors. In accordance with our certificate of
incorporation, as amended, and bylaws, immediately upon the closing of this
offering, our board of directors will be divided into two classes with staggered
two-year terms. At each annual meeting of stockholders commencing with the
meeting in 2010, the successors to the directors whose terms then expire will be
elected to serve until the second annual meeting following the election. The
term of office of the first class of directors, Class I, consisting of Mark
Neuhof, Fred Arena and P.J. Richardson, will expire at our first annual meeting
of stockholders immediately following the initial classification of the board of
directors. The term of office of the second class of directors, Class II,
consisting of Alan Benjamin, Richard Biele and Ailon Z. Grushkin, will expire at
the second annual meeting of stockholders immediately following the initial
classification of the board of directors.
Any
additional directorships resulting from an increase in the number of directors
will be distributed among the two classes so that, as nearly as possible, each
class will consist of one-third of the directors.
Director
Independence
Our board
of directors has reviewed the materiality of any relationship that each of our
directors has with us, either directly or indirectly. Based on this review, the
board has determined that the following directors are “independent directors” as
defined by in the rules of The NASDAQ OMX Group, Inc. listing standards and Rule
10A-3 promulgated under the Securities Exchange Act of 1934, as amended: Messrs.
Richardson, Neuhof, Arena and Martin.
Committees
of the Board of Directors
Prior to
the completion of this offering, our board of directors will form an audit
committee, nominating committee, and a compensation committee, each of which is
described below. We will adopt new charter for such committees, as well as
other corporate governance guidelines, prior to the closing of this offering in
accordance with the applicable requirements of the SEC and The NASDAQ OMX Group,
Inc.
Audit Committee.
Our
audit committee will be composed of Fred Arena (Chairman), Mark Neuhof and P.J.
Richardson. All members of our audit committee are independent and also
financially literate under the current listing standards of The NASDAQ OMX
Group, Inc., and our board of directors has determined that Mr. Arena qualifies
as the “audit committee financial expert,” as such term is defined by the SEC.
Our audit committee is authorized to:
|
|
•
|
approve and retain the
independent registered public accounting firm to conduct the annual audit
and quarterly reviews of our books and
records;
|
|
|
•
|
review the proposed scope and
results of the audit;
|
|
|
•
|
review and pre-approve the
independent registered public accounting firm’s audit and non-audit
services rendered;
|
|
|
•
|
review accounting and financial
controls with the independent registered public accounting firm and our
financial and accounting
staff;
|
|
|
•
|
review and approve transactions
between us and our directors, officers and
affiliates;
|
|
|
•
|
recognize and prevent prohibited
non-audit services;
|
|
|
•
|
establish procedures for
complaints received by us regarding accounting
matters;
|
|
|
•
|
oversee internal audit functions;
and
|
|
|
•
|
prepare the report of the audit
committee that SEC rules require to be included in our annual meeting
proxy statement.
|
Compensation Committee.
Our compensation committee is composed of Mr. P.J. Richardson (Chairman)
and Mr. Fred Arena. Both members are independent under the NASDAQ OMX Group,
Inc. rules, Our compensation committee is authorized to:
|
|
•
|
review and recommend the
compensation arrangements for management, including the compensation for
our Chief Executive Officer;
|
|
|
•
|
establish and review general
compensation policies with the objective to attract and retain superior
talent, to reward individual performance and to achieve our financial
goals;
|
|
|
•
|
approve
and oversee reimbursement policies for directors, executive officers and
key employees;
|
|
|
•
|
administer our stock incentive
plan;
|
|
|
•
|
review and discuss the
compensation discussion and analysis prepared by management to be included
in our annual report, proxy statement or any other applicable filings as
required by the SEC; and
|
|
|
•
|
prepare the report of the
compensation committee that SEC rules require to be included in our annual
meeting proxy statement.
|
Nominating and Governance
Committee.
Our nominating and governance committee is
composed of Messrs. P.J. Richardson (Chairman), Mark Neuhof and Fred Arena. All
members of our nominating and governance committee are independent under the
NASDAQ OMX Group, Inc. rules. Our nominating and governance committee is
authorized to:
|
|
•
|
identify
and nominate members of the board of directors;
|
|
•
|
develop
and recommend to the board of directors a set of corporate governance
principles applicable to our company;
|
|
|
•
|
review
and maintain oversight of matters relating to the independence of our
board and committee member, in light of the independence standards of the
Sarbanes-Oxley Act of 2002 and the rules of the NASDAQ Capital Market;
and
|
|
|
•
|
oversee
the evaluation of the board of directors and
management.
|
Corporate
Code of Conduct and Ethics
We have
adopted a corporate code of conduct and ethics applicable to our directors and
officers in accordance with applicable federal securities laws and the rules of
The NASDAQ OMX Group, Inc..
Employment
Our
Manager and our Chief Executive Officer, President, Chief Operating Officer and
board of directors will allocate, in the aggregate, approximately 120 hours per
week during the stockpiling phase of the business plan. Once the stockpiling
effort is complete, the number of hours allocated will fall to approximately 60
hours per week. Our Chief Financial Officer will allocate approximately 10 hours
per week.
MANAGEMENT
SERVICES AGREEMENT
We will
enter into an amended Management Services Agreement with the Manager prior to
the consummation of this offering. The primary responsibilities of the Manager
under the Management Services Agreement will be to:
|
(i)
|
use
commercially reasonable efforts to arrange for, and complete, for and on
our behalf through industry-standard tenders, the purchase and sale of
indium at the best available prices available over a prudent period of
time as may be requested by our board of directors from time to
time;
|
|
|
(ii)
|
provide
to our board of directors delivery and payment particulars in respect of
each purchase and sale of indium;
|
|
|
(iii)
|
arrange
for the storage of our indium, including arrangements regarding
indemnities or insurance in our favor for the loss of such indium in
accordance with industry practices;
|
|
|
(iv)
|
on
a monthly basis, prepare a report on the NMV of each share of our common
stock. The NMV is a non-GAAP term which shall be determined by multiplying
the number of kilograms of indium held by or for us by the last spot price
for indium published by Metal Bulletin posted on Bloomberg L.P. for the
month, plus cash and any of our other assets, less any and all of our
outstanding payables, indebtedness and any other liabilities, divided by
the total number of outstanding Common Shares. Such report will be made
available to us and our board of directors;
|
|
|
(v)
|
prepare
regulatory filing materials, reports to our stockholders, and other
reports to our board of directors as may be reasonably requested from time
to time;
|
|
|
(vi)
|
furnish
office facilities, services and supplies and generally oversee with its
staff and independent contractors, our management; and
|
|
|
(vii)
|
generally
manage our business and
affairs.
|
Our
Manager has agreed to manage our activities in accordance with reasonable and
prudent practices and may delegate, with the approval of our board of directors
and at its own cost, any of its duties or obligations under the Management
Services Agreement to any third-party.
All
purchases and sales of indium will be completed by the Manager in its discretion
for and on our behalf. The Manager will typically purchase or sell indium in the
form of a tender for an offer to sell or buy indium, whichever the case may be.
Such purchases are usually in the form of a tender, which will stipulate the
quantity to be purchased or sold, delivery particulars and payment particulars,
but not price. Typical purchasers or sellers of indium include, but are not
limited to, Huludao Zinc Industry Co. of China, Liuzhou China Tin Group, Jianxi
Copper Co., Zhuzhou Smelter Group Co., Ltd., Nanjing Foreign Economic &
Trade Development Co., Ltd., Nanjing Sanyou Electronic Materials Co., Ltd.,
Huludao Nonferrous Metals (Group) I/E Co., Ltd., Nanjing Germanium Co., Ltd.,
Xiangten Zhengtan Nonferrous Metals Co., Ltd., Guangxi Intai Technology Co.,
Ltd., Hunan Jingshi Group, Laibin Debang Industry and Trade Co., Ltd., Tianjin
Indium Products Co. Ltd., Shaoguan Huali Industrial Co., Ltd., Zhuzhou Keneng
New Materials Co., Ltd., Guangdong Shixing Star Source Metals, Guanxi Debang
Industry, Shaoguan Jinyuan Industrial Co. Ltd., Li Ying, Zhaoqing Jinchang,
Zhozhou Sinotech Special Metals Co. Ltd., Hsikuangshan Twinkling Star, Teck
Resources Limited, Xstrata Plc, Indium Corporation of America, Umicore Indium
Products, Dowa Electronics Materials Co., Unionmet (Singapore) Limited, Aim
Specialty Materials, Glencore International AG, Wogen PLC, RJH Trading Ltd., MCP
Metal Specialties, Hudson Metals Corporation, Traxys North America LLC, AU
Optronics, Chi Mei Optoelectronics, Chunghwa Picture Tubes, HannStar Display
Co., Innolux, LG Phillips LCD, Quanta Display Inc., Samsung Electronics, Sharp
Corp., and Sony Corp. There is no public market through which these purchases
and sales may occur and accordingly all such purchase and sale transactions are
private. The pool of potential purchasers and sellers is limited and each
transaction may require the negotiation of specific provisions. Accordingly, a
purchase or sell cycle pursuant to a tender may take several months to complete.
Since all purchases are confidential, we, including our Manager, may not be able
to publicly disclose any vendor from which we would potentially purchase indium
or any seller to which we may sell indium.
The amended Management Services
Agreement shall have an initial term of five years (the “Initial Term”). After
the Initial Term, the Management Services Agreement may be renewed on terms
mutually acceptable to each party and may be terminated by either party upon the
provision of 90 days prior written notice. The Management Services Agreement
shall terminate immediately where a winding-up, liquidation, dissolution,
bankruptcy, sale of assets, sale of business or insolvency proceeding have been
commenced or are being
contemplated by the Manager, and
terminated upon our completion of any such proceeding. We may terminate the
Management Services Agreement at any time if the Manager breaches any of its
material obligations thereunder and such breach has not been cured within 90
days following notice thereof from us to the Manager.
We
acknowledge that our Manager shall not be responsible for any loss of
opportunity whereby the value of any of our assets or the value of any
particular indium, monetary or currency investment could have been increased,
nor shall it be responsible for any decline in value of any of our assets unless
such decline is the result of the Manager's gross negligence or willful failure
to comply with express directions given by resolution of either our board of
directors or our Common Shareholders.
We will
be responsible for paying all costs and expenses incurred in connection with its
business except those that are expressly to be borne by our Manager as set out
therein. Such costs and expenses to be borne by us will include, without
limitation: (i) brokerage and trading commissions; (ii) transportation costs,
insurance fees and commissions, security services costs, and other charges
arising upon the holding, purchase or sale of indium or our other assets; (iii)
legal and audit fees; (iv) corporate finance offering costs; (v) fees payable
for listings, the maintenance of listings and filings or other requirements of
stock exchanges on which any of our securities are listed or quoted; (vi) the
cost of printing and mailing financial reports and material for Common
Shareholders' meetings, valuations, reporting to Common Shareholders, securities
regulatory filings and any other purposes required by law; (vii) fees payable to
any registrar and transfer agent of the Common Shares or our other securities;
(viii) our directors' fees and expenses; (ix) the Manager's fees payable under
the Management Services Agreement; and (x) all taxes (including income, capital
and sales taxes).
Our
estimated annual expenses are anticipated to be approximately $1,125,000 in the
aggregate, include: (i) storage and holding of indium — $65,000; (ii)
insurance — $45,000; (iii) shareholder communications and relations
and maintaining the effectiveness of our registration statement for the shares
of common stock underlying our public warrants — $150,000; (iv) the
annual Manager's fee — $580,000; (v) director and officer liability
insurance premiums and director fees— $110,000; and (vi)
other/administrative expenses including legal and accounting
— $175,000.
In
consideration of the Manager carrying out its duties and obligations under the
terms of the Management Services Agreement, we shall pay to the Manager a fee
equal to 2.0% per annum of our NMV (the “Management Fee”). We and our Manager
subjectively determined that two percent per annum of our NMV is the minimum
compensation required for the Manager to assume the risk involved with
overseeing our Company, executing the strategy, and annual time required to be
spent managing our affairs. The Management Fee shall be payable on or before the
10
th
day
following the end of each such month. For such purposes, the Management Fee
shall be determined by (x) our total assets as at the valuation date, valued by
multiplying the number of kilograms of indium held by or for us by the last spot
price for indium published by Metal Bulletin as posted on Bloomberg L.P. for the
month, plus cash and any of our other assets, less any and all of our
outstanding payables, indebtedness or any other liabilities (y) multiplied by
1/6
th
of one
(1.0%) percent. Our independent board of directors will have the express
authority to engage a third-party for the purpose of conducting an independent
valuation or audit of our assets.
In
addition, we shall pay to our Manager a transaction-based fee of $200,000 for
services in connection with any offering of equity or debt securities in excess
of $25 million (excluding this offering). Such fee shall be payable on or before
the tenth day following the transaction(s), as applicable.
Under the
terms of the Management Services Agreement, the Manager shall incur no liability
for any action except for its own gross negligence, willful misconduct or breach
of the Management Services Agreement.
The
following table sets forth certain information concerning the membership of the
Manager as of April __, 2010:
|
Name
|
Age
|
Position
|
||
|
Ailon
Z. Grushkin
|
37
|
Member,
Manager
|
||
|
Alan
Benjamin
|
47
|
Member
|
||
|
Richard
A. Biele
|
40
|
Member
|
Please
see above for the biographies of Messrs. Grushkin, Benjamin and
Biele.
Summary
Compensation Table
The table
below summarizes the compensation paid by the Company to the CEO and other named
executive officers for the fiscal year ended December 31,
2009.
|
principal
position
|
Year
|
Salary
($)
(1)(2)
|
Bonus
($)
|
Stock
awards
($)
|
Option
awards
($)(3)
|
Nonequity
incentive
plan
compensation
($)
|
Non-
qualified
deferred
compensation
earnings ($)
|
All other
compensation
($)(4)
|
Total ($)
|
|||||||||||||||||||||||||
|
Alan
Benjamin
|
2009
|
$
|
0
|
0
|
0
|
$
|
91,965
|
(1)
|
0
|
0
|
0
|
$
|
91,965
|
|||||||||||||||||||||
|
Chief
Executive Officer (principal financial officer)
|
2008
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||
|
Richard
T. Morena
|
2009
|
$
|
0
|
0
|
22,500
|
$
|
0
|
0
|
0
|
0
|
$
|
79,000
|
||||||||||||||||||||||
|
Chief
Financial Officer
(principal financial and
accounting officer)
|
2008
|
$
|
0
|
0
|
0
|
$
|
56,500
|
0
|
0
|
0
|
||||||||||||||||||||||||
|
Ailon
Grushkin
|
2009
|
$
|
0
|
0
|
0
|
$
|
91,965
|
(1)
|
0
|
0
|
0
|
$
|
91,965
|
|||||||||||||||||||||
|
President
|
2008
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||
|
Richard
Biele
|
2009
|
$
|
0
|
0
|
0
|
$
|
91,965
|
(1)
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
Chief Operating
Officer
|
2008
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
$
|
91,965
|
|||||||||||||||||||||||
|
(1)
|
155,000
stock options valued at a fair market value of $275,895 in accordance with
FASB ASC Topic 718 were granted to Specialty Metals Group Advisors LLC,
the Manager, in connection with the successful completion of the 2009
Private Placement. Alan Benjamin, Ailon Grushkin and Richard Biele each
own 33.33% of the Manager. These options are not exercisable until the
successful completion of an initial public offering with minimum gross
proceeds of $5,000,000.
|
Compensation
for Officers and Directors
We have
no employment agreements or arrangements with our Chairman and Chief Executive
Officer, Mr. Benjamin, with our President, Mr. Grushkin or with our Chief
Operating Officer, Mr. Biele. Messrs. Benjamin, Grushkin and Biele will provide
services on our behalf through the Manager and will be compensated by the
Manager out of the management fee to be paid by us to the Manager pursuant to
the Management Services Agreement. We have an employment arrangement with
Richard T. Morena, our Chief Financial Officer, that upon effectiveness of the
public offering, we will employ Mr. Morena for a term of one year. Mr. Morena’s
employment will provide for an annual base salary of $30,000, to be paid
quarterly in installments of $7,500.
Employment
Agreements and Change of Control Arrangements
We have
no employment agreements or arrangements with our Chairman and Chief Executive
Officer, Mr. Benjamin, with our President, Mr. Grushkin or with our Chief
Operating Officer, Mr. Biele. Messrs. Benjamin, Grushkin and Biele will provide
services on our behalf through the Manager and will be compensated by the
Manager out of the management fee to be paid by us to the Manager pursuant to
the Management Services Agreement. We have an employment arrangement with
Richard T. Morena, our Chief Financial Officer, that upon effectiveness of the
public offering, we will employ Mr. Morena for a term of one year. Mr. Morena’s
employment will provide for an annual base salary of $30,000, to be paid
quarterly in installments of $7,500. Mr. Morena has been awarded stock options
to purchase 50,000 shares of our common stock at an exercise price equal to
$7.50 per share of our common stock and 30,000 shares of our common stock at an
exercise price equal to $4.50 per share of our common stock subject to
completion of this offering. Mr. Morena will receive an award of 30,000 options
annually thereafter on terms to be established by the board of directors or the
compensation committee of the board of directors.
Remuneration
of Board of Directors
Each of
the independent members of our board of directors will be paid such remuneration
for their services as our board of directors may, from time to time, determine.
Until otherwise determined, upon consummation of the offering, we anticipate
paying each of our independent Board members $10,000 per year, $1,000 per
meeting attended (including committee meetings), reimbursement of travel
expenses, and options to purchase 5,000 shares per annum of common stock
pursuant to the 2008 Long-Term Incentive Compensation Plan. We will also
reimburse the members of our board of directors for out-of-pocket expenses for
attending such meetings, and all directors will participate in the
indemnification arrangements described under the Management Services
Agreement.
Outstanding
Equity Awards at 2009 Fiscal Year End
|
Option awards
|
Stock awards
|
||||||||||||||||||||||||||||||||
|
Name
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number
of
shares
or units
of stock
that
have
not
vested
(#)
|
Market
value
of
shares
or
units of
stock
that
have
not
vested
($)
|
Equity
incentive
plan
awards;
Number
of
unearned
shares,
units or
other
rights
that have
not
vested
(#)
|
Equity incentive
plan awards:
Market or
payout value of
unearned shares,
units or other
rights that have
not vested ($)
|
||||||||||||||||||||||||
|
Specialty
Metals Group Advisors LLC
|
0 | 155,000 | 0 | 4.50 |
11/24/14
|
0 | 0 | 0 | 0 | ||||||||||||||||||||||||
|
Alan
C. Benjamin
|
0 | 51,666 |
(1)
|
0 | 4.50 |
11/24/14
|
0 | 0 | 0 | 0 | |||||||||||||||||||||||
|
Ailon
Z. Grushkin
|
0 | 51,666 |
(1)
|
0 | 4.50 |
11/24/14
|
0 | 0 | 0 | 0 | |||||||||||||||||||||||
|
Richard
A. Biele
|
0 | 51,666 |
(1)
|
0 | 4.50 |
11/24/14
|
0 | 0 | 0 | 0 | |||||||||||||||||||||||
|
Richard
T. Morena
|
0 | 50,000 | 0 | 7.50 | 0 | 0 | 5,000 | 22,500 | |||||||||||||||||||||||||
|
P.J.
(Patrick James) Richardson
|
0 | 8,333 | 0 | 7.50 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
|
Fred
Arena
|
0 | 8,333 | 0 | 7.50 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
|
Mark
Stephen Neuhof
|
0 | 8,333 | 0 | 7.50 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
|
William
C. Martin
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
|
(1)
|
155,000
stock options with a $4.50 exercise price per share expiring on November
24, 2014 were granted to Specialty Metals Group Advisors LLC, the Manager,
in connection with the successful completion of the 2009 Private
Placement. Alan Benjamin, Ailon Grushkin and Richard Biele each own 33.33%
of the Manager. These options are not exercisable until the successful
completion of an initial public offering with minimum gross proceeds of
$5,000,000.
|
2008
Long-Term Incentive Compensation Plan
In
connection with the commencement of our initial public offering, our board of
directors adopted and our stockholders approved the plan in its entirety in
January 2008. Under this plan, we may grant incentive stock options,
non-qualified stock options restricted and unrestricted stock awards and other
stock-based awards. A maximum of 550,000 shares of common stock has been
reserved for issuance under this plan. In 2008, we granted 8,333 options to
purchase common stock to each of our three independent directors, Mssrs.
Richardson, Arena and Neuhof and 50,000 options to our Chief Financial Officer.
The option grants will be exercisable at $7.50 per share and are exercisable
subsequent to completion of this offering. In 2010, we granted 5,000 options to
purchase common stock to each of our four independent directors, Mssrs.
Richardson, Arena, Neuhof and Martin and 30,000 options to our Chief Financial
Officer. The option grants will be exercisable at $4.50 per share and are
exercisable subsequent to completion of this offering. The plan expires on
January 31, 2018.
Our board
of directors has authorized our compensation committee to administer our plan.
In connection with the administration of our Long-Term Incentive Compensation
Plan, the compensation committee, with respect to awards to be made to any
person who is not one of our directors, will:
|
•
|
determine
which employees and other persons will be granted awards under our
Long-Term Incentive Compensation Plan;
|
|
|
•
|
grant
the awards to those selected to participate;
|
|
|
•
|
determine
the exercise price for options; and
|
|
|
•
|
prescribe
any limitations, restrictions and conditions upon any awards, including
the vesting conditions of
awards.
|
With
respect to stock options or restricted stock awards to be made to any of our
directors, the Compensation Committee will make recommendations to our board of
directors as to:
|
•
|
which
of such persons should be granted stock options, restricted stock awards,
performance units or stock appreciation rights;
|
|
|
•
|
the
terms of proposed grants of awards to those selected by our board of
directors to participate;
|
|
|
•
|
the
exercise price for options; and
|
|
|
•
|
any
limitations, restrictions and conditions upon any
awards.
|
Any grant
of awards to any of directors under our Long-Term Incentive Compensation Plan
must be approved by our board of directors.
In
addition, the compensation committee will:
|
•
|
interpret
our Long-Term Incentive Compensation Plan; and
|
|
|
•
|
make
all other determinations and take all other action that may be necessary
or advisable to implement and administer our Long-Term Incentive
Compensation Plan.
|
Types
of Awards
Our
Long-Term Incentive Compensation Plan permits the Compensation Committee to
grant the following types of awards.
Stock Options.
Stock options are contractual rights entitling an optionee who has
been granted a stock option to purchase a stated number of shares of our common
stock at an exercise price per share determined at the date of the grant.
Options are evidenced by stock option agreements with the respective optionees.
The exercise price for each stock option granted under our Long-Term Incentive
Compensation Plan will be determined by our board of directors or the
Compensation Committee at the time of the grant, but will not be less than fair
market value on the date of the grant. Our board of directors or a committee of
the Board will also determine the duration of each option; however, no option
may be exercisable more than ten years after the date the option is granted.
Within the foregoing limitations, the board of directors or committee of the
Board may, in its discretion, impose limitations on exercise of all or some
options granted under our Long-Term Incentive Compensation Plan, such as
specifying minimum periods of time after grant during which options may not be
exercised. Options granted under our Long-Term Incentive Compensation Plan will
vest at rates specified in the option agreement at the time of grant; however,
all options granted under our Long-Term Incentive Compensation Plan will vest
upon the occurrence of a change of control, as defined in the Long-Term
Incentive Compensation Plan. Our Long-Term Incentive Compensation Plan also
contains provisions for our board of directors or a committee of the Board to
provide in the participants’ option award agreements for accelerating the right
of an individual employee to exercise his or her stock option or restricted
stock award in the event of retirement or other termination of employment. No
cash consideration is payable to us in exchange for the grant of
options.
Our
Long-Term Incentive Compensation Plan provides that the stock options may either
be Incentive Stock Options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or Non-Qualified Options, which are stock
options other than Incentive Stock Options within the meaning of Sections 422 of
the Code. Incentive Stock Options may be granted only to our employees or
employees of our subsidiaries, and must be granted at a per share option price
not less than the fair market value of our common stock on the date the
Incentive Stock Option is granted. In the case of an Incentive Stock Option
granted to a stockholder who owns shares of our outstanding stock of all classes
representing more than 10.0% of the total combined voting power of all of our
outstanding stock of all classes entitled to vote in the election of directors,
the per share option price must be not less than 110.0% of the fair market value
of one share of our common stock on the date the Incentive Stock Option is
granted and the term of such option may not exceed five years. As required by
the Code, the aggregate fair market value, determined at the time an Incentive
Stock Option is granted, of our common stock with respect to which Incentive
Stock Options may be exercised by an optionee for the first time during any
calendar year under all of our incentive stock option plans may not exceed
$100,000.
The exercise price for Non-Qualified
Options may not be less than the fair market value of our common stock on the
date the Non-Qualified Option is granted. Non-Qualified Options are not subject
to any of the restrictions described above with respect to Incentive Stock
Options. The exercise price of stock options may be paid in cash, in whole
shares of our common stock, in a combination of cash and our common stock, or
in
such other form of
consideration as our board of directors or the committee of the Board may
determine, equal in value to the exercise price. However, only shares of our
common stock which the option holder has held for at least six months on the
date of the exercise may be surrendered in payment of the exercise price for the
options. In no event may a stock option be exercised after the expiration of its
stated term.
Stock Appreciation Rights.
A stock appreciation right permits the grantee to receive an amount
(in cash, common stock, or a combination thereof) equal to the number of stock
appreciation rights exercised by the grantee multiplied by the excess of the
fair market value of our common stock on the exercise date over the stock
appreciation rights’ exercise price. Stock appreciation rights may or may not be
granted in connection with the grant of an option. The exercise price of stock
appreciation rights granted under the Long-Term Incentive Compensation Plan will
be determined by the board of directors or a committee of the Board; provided,
however, that such exercise price cannot be less than the fair market value of a
share of common stock on a date the stock appreciation right is granted (subject
to adjustments). A stock appreciation right may be exercised in whole or in such
installments and at such times as determined by the board of directors or a
committee of the Board.
Restricted Stock.
Restricted shares of our common stock may be granted under our
Long-Term Incentive Compensation Plan subject to such terms and conditions,
including forfeiture and vesting provisions, and restrictions against sale,
transfer or other disposition as the board of directors or a committee of the
Board may determine to be appropriate at the time of making the award. In
addition, the board of directors or a committee of the Board may direct that
share certificates representing restricted stock be inscribed with a legend as
to the restrictions on sale, transfer or other disposition, and may direct that
the certificates, along with a stock power signed in blank by the grantee, be
delivered to and held by us until such restrictions lapse. The board of
directors or a committee of the Board, in its discretion, may provide in the
award agreement for a modification or acceleration of shares of restricted stock
in the event of permanent disability, retirement or other termination of
employment or business relationship with the grantee.
Performance Units.
The Long-Term Incentive Compensation Plan permits grants of
performance units, which are rights to receive cash payments equal to the
difference (if any) between the fair market value of our common stock on the
date of grant and its fair market value on the date of exercise of the award,
except to the extent otherwise provided by the board of directors or a committee
of the Board or required by law. Such awards are subject to the fulfillment of
conditions that may be established by the board of directors or a committee of
the Board including, without limitation, the achievement of performance targets
based upon the factors described above relating to restricted stock
awards.
Performance Bonus.
The Long-Term Incentive Compensation Plan permits grants of
performance bonuses, which may be paid in cash, common stock or combination
thereof as determined by the board of directors or a committee of the Board. The
maximum value of performance bonus awards granted under the Long-Term Incentive
Compensation Plan shall be established by the compensation committee at the time
of the grant. An employee’s receipt of such amount will be contingent upon
achievement of performance targets during the performance period established by
the compensation committee. The performance targets will be determined by the
board of directors or a committee of the Board based upon the factors described
above relating to restricted stock awards. Following the end of the performance
period, the board of directors or a committee of the Board will determine the
achievement of the performance targets for such performance period. Payment may
be made within 60 days of such determination. Any payment made in shares of
common stock will be based upon the fair market value of the common stock on the
payment date.
Transferability
With the
exception of Non-Qualified Stock Options, awards are not transferable other than
by will or by the laws of descent and distribution. Non-Qualified Stock Options
are transferable on a limited basis. Restricted stock awards are not
transferable during the restriction period.
Change
of Control Event
The
Long-Term Incentive Compensation Plan provides that in the event of a change of
control event the Board shall have the discretion to determine whether and to
what extent to accelerate the vesting, exercise or payment of an
Award.
Termination
of Employment/Relationship
Awards
granted under our Long-Term Incentive Compensation Plan that have not vested
will generally terminate immediately upon the grantee’s termination of
employment or business relationship with us or any of our subsidiaries for any
reason other than retirement with our consent, disability or death. The board of
directors or a committee of the Board may determine at the time of the grant
that an award agreement should contain provisions permitting the grantee to
exercise the stock options for any stated period after such termination, or for
any period the board of directors or a committee of the Board determines to be
advisable after the grantee’s employment or business relationship with us
terminates by reason of retirement, disability, death or termination without
cause. Incentive Stock Options will, however, terminate no more than three
months after termination of the optionee’s employment, twelve months after
termination of the optionee’s employment due to disability and three years after
termination of the optionee’s employment due to death. The board of directors or
a committee of the Board may permit a deceased optionee’s stock options to be
exercised by the optionee’s executor or heirs during a period acceptable to the
board of directors or a committee of the board following the date of the
optionee’s death but such exercise must occur prior to the expiration date of
the stock option.
Dilution;
Substitution
As
described above, our Long-Term Incentive Compensation Plan will provide
protection against substantial dilution or enlargement of the rights granted to
holders of awards in the event of stock splits, recapitalizations, asset
acquisitions, consolidations, reorganizations or similar transactions. New award
rights may, but need not, be substituted for the awards granted under our
Long-Term Incentive Compensation Plan, or our obligations with respect to awards
outstanding under our Long-Term Incentive Compensation Plan may, but need not,
be assumed by another corporation in connection with any asset acquisition,
consolidation, acquisition, separation, reorganization, sale or distribution of
assets, liquidation or like occurrence in which we are involved. In the event
that our Long-Term Incentive Compensation Plan is assumed, the stock issuable
with respect to awards previously granted under our Long-Term Incentive
Compensation Plan shall thereafter include the stock of the corporation granting
such new option rights or assuming our obligations under the Long-Term Incentive
Compensation Plan.
Amendment
of the Long-Term Incentive Compensation Plan
Our Board
may amend our Long-Term Incentive Compensation Plan at any time. However,
without stockholder approval, our Long-Term Incentive Compensation Plan may not
be amended in a manner that would:
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increase
the number of shares that may be issued under our Long-Term Incentive
Compensation Plan;
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materially
modify the requirements for eligibility for participation in our Long-Term
Incentive Compensation Plan;
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materially
increase the benefits to participants provided by our Long-Term Incentive
Compensation Plan; or
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otherwise
disqualify our Long-Term Incentive Compensation Plan for coverage under
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
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Awards
previously granted under our Long-Term Incentive Compensation Plan may not be
impaired or affected by any amendment of our Long-Term Incentive Compensation
Plan, without the consent of the affected grantees.
Accounting
Treatment
Under
generally accepted accounting principles with respect to the financial
accounting treatment of stock options used to compensate employees, upon the
grant of stock options under our Long-Term Incentive Compensation Plan, the fair
value of the options will be measured on the date of grant and this amount will
be recognized as a compensation expense ratably over the vesting period. Stock
appreciation rights granted under the Long-Term Incentive Compensation Plan must
be settled in common stock. Therefore, stock appreciation rights granted under
the Long-Term Incentive Compensation Plan will receive the same accounting
treatment as options. The cash we receive upon the exercise of stock options
will be reflected as an increase in our capital. No additional compensation
expense will be recognized at the time stock options are exercised, although the
issuance of shares of common stock upon exercise may reduce basic earnings per
share, as more shares of our common stock would then be
outstanding.
When we
make a grant of restricted stock, the fair value of the restricted stock award
at the date of grant will be determined and this amount will be recognized over
the vesting period of the award. The fair value of a restricted stock award is
equal to the fair market value of our common stock on the date of
grant.
Due to
consideration of the accounting treatment of stock options and restricted stock
awards by various regulatory bodies, it is possible that the present accounting
treatment may change.
Tax
Treatment
The
following is a brief description of the federal income tax consequences, under
existing law, with respect to awards that may be granted under our Long-Term
Incentive Compensation Plan.
Incentive Stock Options.
An optionee will not realize any taxable income upon the grant or
the exercise of an Incentive Stock Option. However, the amount by which the fair
market value of the shares covered by the Incentive Stock Option (on the date of
exercise) exceeds the option price paid will be an item of tax preference to
which the alternative minimum tax may apply, depending on each optionee’s
individual circumstances. If the optionee does not dispose of the shares of our
common stock acquired by exercising an Incentive Stock Option within two years
from the date of the grant of the Incentive Stock Option or within one year
after the shares are transferred to the optionee, when the optionee later sells
or otherwise disposes of the stock, any amount realized by the optionee in
excess of the option price will be taxed as a long-term capital gain and any
loss will be recognized as a long-term capital loss. We generally will not be
entitled to an income tax deduction with respect to the grant or exercise of an
Incentive Stock Option.
If any
shares of our common stock acquired upon exercise of an Incentive Stock Option
are resold or disposed of before the expiration of the prescribed holding
periods, the optionee would realize ordinary income, instead of capital gain.
The amount of the ordinary income realized would be equal to the lesser of (i)
the excess of the fair market value of the stock on the exercise date over the
option price; or (ii) in the case of a taxable sale or exchange, the amount of
the gain realized. Any additional gain would be either long-term or short-term
capital gain, depending on whether the applicable capital gain holding period
has been satisfied. In the event of a premature disposition of shares of stock
acquired by exercising an Incentive Stock Option, we would be entitled to a
deduction equal to the amount of ordinary income realized by the
optionee.
Non-Qualified Options.
An optionee will not realize any taxable income upon the grant of a
Non-Qualified Option. At the time the optionee exercises the Non-Qualified
Option, the amount by which the fair market value at the time of exercise of the
shares covered by the Non-Qualified Option exceeds the option price paid upon
exercise will constitute ordinary income to the optionee in the year of such
exercise. We will be entitled to a corresponding income tax deduction in the
year of exercise equal to the ordinary income recognized by the optionee. If the
optionee thereafter sells such shares, the difference between any amount
realized on the sale and the fair market value of the shares at the time of
exercise will be taxed to the optionee as capital gain or loss, short- or
long-term depending on the length of time the stock was held by the optionee
before sale.
Stock Appreciation Rights.
A participant realizes no taxable income and we are not entitled to
a deduction when a stock appreciation right is granted. Upon exercising a stock
appreciation right, a participant will realize ordinary income in an amount
equal to the fair market value of the shares received minus any amount paid for
the shares, and we will be entitled to a corresponding deduction. A
participant’s tax basis in the shares of common stock received upon exercise of
a stock appreciation right will be equal to the fair market value of such shares
on the exercise date, and the participant’s holding period for such shares will
begin at that time. Upon sale of the shares of common stock received upon
exercise of a stock appreciation right, the participant will realize short-term
or long-term capital gain or loss, depending upon whether the shares have been
held for more than one year. The amount of such gain or loss will be equal to
the difference between the amount realized in connection with the sale of the
shares, and the participant’s tax basis in such shares.
Restricted Stock Award.
A recipient of restricted stock generally will not recognize any
taxable income until the shares of restricted stock become freely transferable
or are no longer subject to a substantial risk of forfeiture. At that time, the
excess of the fair market value of the restricted stock over the amount, if any,
paid for the restricted stock is taxable to the recipient as ordinary income. If
a recipient of restricted stock subsequently sells the shares, he or she
generally will realize capital gain or loss in the year of such sale in an
amount equal to the difference between the net proceeds from the sale and the
price paid for the stock, if any, plus the amount previously included in income
as ordinary income with respect to such restricted shares.
A
recipient has the opportunity, within certain limits, to fix the amount and
timing of the taxable income attributable to a grant of restricted stock.
Section 83(b) of the Code permits a recipient of restricted stock, which is not
yet required to be included in taxable income, to elect, within 30 days of the
award of restricted stock, to include in income immediately the difference
between the fair market value of the shares of restricted stock at the date of
the award and the amount paid for the restricted stock, if any. The election
permits the recipient of restricted stock to fix the amount of income that must
be recognized by virtue of the restricted stock grant. We will be entitled to a
deduction in the year the recipient is required (or elects) to recognize income
by virtue of receipt of restricted stock, equal to the amount of taxable income
recognized by the recipient.
Performance Units and Performance
Bonuses.
A participant realizes no taxable income and we are
not entitled to a deduction when performance units or performance bonuses are
awarded. When the performance units or performance bonuses vest and become
payable upon the achievement of the performance objectives, the participant will
realize ordinary income equal to the amount of cash received or the fair market
value of the shares received minus any amount paid for the shares, and we will
be entitled to a corresponding deduction. A participant’s tax basis in shares of
common stock received upon payment will be equal to the fair market value of
such shares when the participant receives them. Upon sale of the shares, the
participant will realize short-term or long-term capital gain or loss, depending
upon whether the shares have been held for more than one year at the time of
sale. Such gain or loss will be equal to the difference between the amount
realized upon the sale of the shares and the tax basis of the shares in the
participant’s hands.
Section
162(m) of the Code. Section 162(m) of the Code precludes a public corporation
from taking a deduction for annual compensation in excess of $1.0 million paid
to its chief executive officer or any of its four other highest-paid officers.
However, compensation that qualifies under Section 162(m) of the Code as
“performance-based” is specifically exempt from the deduction limit. Based on
Section 162(m) of the Code and the regulations thereunder, our ability to deduct
compensation income generated in connection with the exercise of stock options
or stock appreciation rights granted under the Long-Term Incentive Compensation
Plan should not be limited by Section 162(m) of the Code. Further, we believe
that compensation income generated in connection with performance awards granted
under the Long-Term Incentive Compensation Plan should not be limited by Section
162(m) of the Code. The Long-Term Incentive Compensation Plan has been designed
to provide flexibility with respect to whether restricted stock awards or
performance bonuses will qualify as performance-based compensation under Section
162(m) of the Code and, therefore, be exempt from the deduction limit. If the
vesting restrictions relating to any such award are based solely upon the
satisfaction of one of the performance goals set forth in the Long-Term
Incentive Compensation Plan, then we believe that the compensation expense
relating to such an award will be deductible by us if the awards become vested.
However, compensation expense deductions relating to such awards will be subject
to the Section 162(m) deduction limitation if such awards become vested based
upon any other criteria set forth in such award (such as the occurrence of a
change in control or vesting based upon continued employment with
us).
Certain
Awards Deferring or Accelerating the Receipt of Compensation. Section 409A of
the Internal Revenue Code, enacted as part of the American Jobs Creation Act of
2004, imposes certain new requirements applicable to “nonqualified deferred
compensation plans.” If a nonqualified deferred compensation plan subject to
Section 409A fails to meet, or is not operated in accordance with, these new
requirements, then all compensation deferred under the plan may become
immediately taxable. Stock appreciation rights and deferred stock awards which
may be granted under the plan may constitute deferred compensation subject to
the Section 409A requirements. It is our intention that any award agreement
governing awards subject to Section 409A will comply with these new
rules.
Limitation
of Directors’ Liability and Indemnification
The
Delaware General Corporation Law authorizes corporations to limit or eliminate,
subject to certain conditions, the personal liability of directors to
corporations and their stockholders for monetary damages for breach of their
fiduciary duties. Our certificate of incorporation, as amended, limits the
liability of our directors to the fullest extent permitted by Delaware
law.
We will have in place, upon
effectiveness of this offering, director and officer liability insurance to
cover liabilities our directors and officers may occur in connection with their
services to us, including matters arising under the Securities Act of 1933. Our
amended and restated certificate of incorporation and amended and
restated bylaws also provide that we
will indemnify any of our directors and officers who, by reason of the fact that
he or she is one of our officers or directors, is involved in a legal proceeding
of any nature. In addition, we have entered into indemnification agreements with
each of our directors and executive officers. We will repay certain expenses
incurred by a director or officer in connection with any civil or criminal
action or proceeding, specifically including actions by us or in our name
(derivative suits). Such indemnifiable expenses include, to the maximum extent
permitted by law, attorney’s fees, judgments, civil or criminal fines,
settlement amounts and other expenses customarily incurred in connection with
legal proceedings. A director or officer will not receive indemnification if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, our best
interest.
Such
limitation of liability and indemnification does not affect the availability of
equitable remedies. In addition, we have been advised that in the opinion of the
SEC, indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
Conflicts
of Interest
Potential
investors should be aware of the following potential conflicts of
interest:
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None
of our officers and directors are required to commit their full time to
our affairs and, accordingly, they may have conflicts of interest in
allocating their time among various business
activities.
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In
the course of their other business activities, our officers and directors
may become aware of investment and business opportunities that may be
appropriate for presentation to us as well as the other entities with
which they are affiliated. They may have conflicting fiduciary duties in
determining to which entity a particular business opportunity should be
presented. Our officers and directors currently are, and may in the future
become affiliated with additional entities that are, engaged in business
activities similar to those intended to be conducted by us and,
accordingly, may have conflicts of interest in determining to which entity
a particular business opportunity should be presented. Such officers and
directors may become subject to conflicts of interest regarding us and
other business ventures in which they may be involved, which conflicts may
have an adverse effect on our ability to purchase, hold and sell
indium.
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Our
officers and directors may in the future become affiliated with entities
engaged in business activities similar to those intended to be conducted
by our company.
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We
have not adopted a policy that expressly prohibits our directors,
officers, securityholders or affiliates from having a direct or indirect
pecuniary interest in any investment to be acquired or disposed of by us
or in any transaction to which we are a party or have an interest. Nor do
we have a policy that expressly prohibits any such persons from engaging
for their own account in business activities of the types conducted by us.
Accordingly, such parties may have an interest in certain transactions in
which we are involved, and may also compete with us.
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The
management fee paid by us to the Manager is dependent on our NMV. In the
event we raise additional capital or conduct future offerings, there is a
risk that the Manager may value its own interest in the management fee
more than the interest of our public stockholders, resulting in a conflict
of interest, which may not necessarily be resolved in the best interest of
our public stockholders.
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Our
Manager is responsible for negotiating, purchasing and stockpiling indium
on our behalf.
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In
general, officers and directors of a corporation incorporated under the laws of
the State of Delaware are required to present business opportunities to a
corporation if:
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the
corporation could financially undertake the
opportunity;
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the
opportunity is within the corporation’s line of business;
and
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it
would not be fair to the corporation and its stockholders for the
opportunity not to be brought to the attention of the
corporation.
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Accordingly,
as a result of multiple business affiliations, our officers and directors may
have similar legal obligations relating to presenting business opportunities
meeting the above-listed criteria to multiple entities. In addition, conflicts
of interest may arise when our board evaluates a particular business opportunity
with respect to the above-listed criteria. We cannot assure you that any of the
above mentioned conflicts will be resolved in our favor.
The
following is a description of the transactions we have engaged in since our
formation in January 2008 with our directors and officers and beneficial owners
of more than five percent of our voting securities and their
affiliates.
On
January 7, 2008, the Manager purchased 90,000 shares of our common stock at the
price of $0.111 per share. The members of the Manager are Messrs. Benjamin,
Grushkin and Biele, our Chairman and Chief Executive Officer, our President, and
our Chief Operating Officer, respectively. As a result of a six-to-one forward
stock split on December 5, 2008 and a one-to-3.6 reverse stock split on June 5,
2009, the Manager currently holds 155,000 shares of common stock.
On
February 8, 2010, we entered into a common stock for option exchange with the
Manager. Upon consummation of this offering, 75,000 shares of common stock owned
by the Manager will automatically be converted into 150,000 common stock options
exercisable at $4.50 per share for a period of five years following this
offering.
On
November 24, 2009, we entered into a Management Services Agreement with the
Manager to govern the management and operations of our company. We
will enter into an amended Management Services Agreement with the Manager prior
to the effective date of this prospectus pursuant to which the Manager will
administer our activities. See “Management of SMG Indium Resources
Ltd. — Management Services Agreement.”
On
January 7, 2008, we agreed to reimburse our Chief Operating Officer Richard
Biele or his affiliates commencing with the successful completion of this
offering, for office, secretarial and related office expenses as follows: (1)
$1,200 per month for rent; (2) reimbursement for up to 20.0% of his secretary’s
salary and healthcare benefits; and (3) office expenses directly related to our
operations. We will continue to reimburse our Chief Operating Officer or his
affiliates for rent and other office-related expenses as set forth
above.
On
January 8, 2008, we entered into a revolving line of credit with the Manager in
the aggregate amount of $300,000. The revolving line of credit will be used to
fund the deferred offering costs to be incurred by us in connection with this
offering. To date, we have borrowed $265,000 under the revolving line of credit.
The revolving line of credit is unsecured and bears interest at the rate of 6.0%
per annum. The loan will be payable on the earlier of (i) consummation of an
initial public offering or (ii) liquidation of our company. Upon
consummation of this offering, the $265,000 plus all accrued and unpaid interest
payable under such revolving line of credit will automatically convert into
150,000 options to purchase shares of common stock, at an exercise price of
$4.50 per share.
On
November 24, 2009, upon the initial closing of the 2009 Private Placement, we
issued to the Manager 155,000 stock options, exercisable at $4.50 per share for
a period of five years, for services rendered in connection with the 2009
Private Placement. These options are not exercisable until completion of an
initial public offering for our company raising minimum gross proceeds in the
amount of $5,000,000 and we become subject to the periodic and the other
reporting obligations of the SEC.
We
believe that all of the transactions above were made on terms no less favorable
to us than could have been obtained from unaffiliated third-parties. We will not
engage in any transactions with our officers, principal shareholders, or
affiliates involving purchasing, lending, or selling indium to or from us,
except pursuant to the terms of our Management Services Agreement.
Traxys
Projects LP, a joint venture in which Traxys North America LLC has a 50%
interest, and Traxys Commodity Fund LP each invested $500,000 in our 2009
Private Placement. This represents beneficial ownership in our company of
7.6% and 7.6%, respectively, prior to this offering and 1.7% and 1.7%,
respectively, if we successfully complete this offering. We purchased an
aggregate of 7.2 tons of indium, approximately 78.1% of our stockpile, from
Traxys North America LLC utilizing proceeds from the 2009 Private Placement in
which we expended approximately $3.6 million between December 2009 and February
2010 in 19 separate purchase orders. We believe that we paid the fair market
price at the time of each particular purchase order. Traxys North America LLC is
an established reputable indium supplier. We did not and do not have any
outstanding special agreements or arrangements with Traxys North America
LLC.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information regarding the beneficial ownership of our
common stock as of April 5, 2010 and as adjusted to reflect the sale of our
common stock included in the units offered by this prospectus (assuming none of
the individuals listed purchase units in this offering), by:
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each
person known by us to be the beneficial owner of more than 5.0% of our
outstanding shares of common stock;
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each
of our officers and directors; and
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all
our officers and directors as a
group.
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Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities. Except as otherwise
indicated, each person or entity named in the table has sole voting and
investment power with respect to all shares of our capital shown as beneficially
owned, subject to applicable community property laws.
We have
assumed no exercise of the outstanding warrants or options (other than, in the
case of each individual or entity listed in the table below, warrants or stock
options held by that individual or entity that will be exercisable for our
Common Stock within 60 days of April 5, 2010.
The
number of shares and the percentage of common stock beneficially owned before
this offering is based on 155,000 shares of common stock outstanding on December
31, 2009, 1,318,600 shares of Class A common stock outstanding on January 11,
2010 and 6,359,960 shares of common stock outstanding after the completion of
this offering.
The
percentage of common stock beneficially owned after this offering is based on
6,359,960shares of common stock to be outstanding after this offering, which
includes (i) 1,279,960 shares of common stock that will be acquired upon
conversion by the investors in the 2009 Private Placement; (ii) 80,000 shares of
common stock held by the Manager; and (iii) 5.000.000 shares of
common stock being offered for sale in this offering but assumes no exercise of
warrants comprising such units offered for sale of the underwriters’
over-allotment option.
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Before the Offering
(1)
(2) (3) (16)
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As Adjusted for the
Offering
(1) (2) (3) (7) (8) (14)
(15)(16)
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Name and Address of Beneficial Owners
(4)
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Number
of
Shares
(4) (9)
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Percentage of
Common Stock
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Number of
Shares
(4)
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Percentage of
Common Stock
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Common
Stock
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5%
Stockholders
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Specialty Metals
Group Advisors LLC
(6)
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150,000 | 11.38 | % | 80,000 | 1.26 | % | ||||||||||
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Raging Capital Fund,
LP
(13)
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132,000 | 10.01 | % | 145,200 | 2.28 | % | ||||||||||
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Raging Capital Fund
QP, LP
(13)
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108,000 | 8.19 | % | 118,800 | 1.87 | % | ||||||||||
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Traxys
Commodity Fund LP
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100,000 | 7.58 | % | 110,000 | 1.73 | % | ||||||||||
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Traxys
Projects LP
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100,000 | 7.58 | % | 110,000 | 1.73 | % | ||||||||||
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Directors
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P.J. (Patrick James)
Richardson
(8)
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5,000 | * | % | 5,500 | * | % | ||||||||||
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Fred Arena
(9)
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— | — | — | — | ||||||||||||
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Mark
Stephen Neuhof
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— | — | — | — | ||||||||||||
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William C. Martin
(12)
(13)
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245,000 | 18.58 | % | 269,500 | 4.24 | % | ||||||||||
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Richard A. Biele
(6)
(11)
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65,000 | 4.93 | % | 41,500 | 0.65 | % | ||||||||||
|
Richard T. Morena
(7)
(8)
|
15,000 | 1.14 | % | 16,000 | 0.25 | % | ||||||||||
|
All
Directors and Officers as a
|
||||||||||||||||
|
Group
(7 persons)
|
515,000 | 39.06 | % | 551,000 | 7.48 | % | ||||||||||
*
represents less than 1.0%.
|
(1)
|
Assumes
only the sale of 5,000,000 units in this offering, but not the exercise of
(i) the 5,000,000 warrants comprising such units or (ii) the 750,000 units
subject to the over-allotment option.
|
|
(2)
|
Assumes
the offering is consummated and Specialty Metal Group Advisors LLC
automatically converts 75,000 common shares into 150,000 stock
options.
|
|
(3)
|
Does
not include (i) the 155,000 stock options granted to Specialty Metals
Group Advisors LLC for completion of the private placement offering (ii)
the 150,000 stock options obtained by Specialty Metals Group Advisors LLC
via the automatic conversion of the Note Payable and interest subject to
completion of the offering (iii) the 150,000 stock options obtained by
Specialty Metals Group Advisors LLC via the automatic conversion of 75,000
common shares subject to completion of the offering.
|
|
(4)
|
Unless
otherwise indicated, the business address of each of the stockholders is
41 University Drive, Suite 400, Newtown, Pennsylvania
18940.
|
|
(5)
|
Unless
otherwise indicated, all ownership is direct beneficial
ownership.
|
|
(6)
|
Messrs.
Benjamin, Grushkin, and Biele may be deemed to beneficially own the shares
owned by SMG Indium Resources Ltd. by virtue of their respective ownership
and control of Specialty Metals Group Advisors LLC.
|
|
(7)
|
Does
not include the 50,000 options and 30,000 options to purchase common stock
granted to Mr. Morena, our Chief Financial Officer, under the 2008 Stock
Option Grant and the 2010 Stock Option Grant. The option grants will be
exercisable at $7.50 per share and $4.50 per share, respectively, and are
subject to completion of the offering.
|
|
(8)
|
Does
not include (i) the 8,333 options to purchase common stock granted to
three of our independent directors, Messrs. Richardson, Arena and Neuhof,
in the 2008 Stock Option Grant. (ii) the 5,000 options to purchase common
stock granted to each of our four independent directors, Messrs.
Richardson, Arena, Neuhof and Martin in the 2010 Stock Option Grant. The
option grants will be exercisable at $7.50 per share and $4.50 per share,
respectively, and are exercisable subsequent to completion of the
offering.
|
|
(9)
|
Includes
Class A Common from the 2009 Private Placement which are convertible into
shares of common stock.
|
|
(10)
|
Includes
shares held by the AZG Tangible Assets Fund LLC and A.Z.G. Capital Corp.
Profit Sharing Plan. Ailon Z. Grushkin is the Managing Member of the
Managing Member of AZG Tangible Assets Fund LLC and Ailon Z. Grushkin is
the sole beneficiary of A.Z.G. Capital Corp. Profit Sharing
Plan.
|
|
(11)
|
Includes
shares held by Richard A. Biele IRA.
|
|
(12)
|
Includes
shares held by William C. Martin SEP IRA, Raging Capital Fund QP, LP and
Raging Capital Fund, LP.
|
|
(13)
|
William
C. Martin is the General Partner of Raging Capital Fund QP, LP and Raging
Capital Fund, LP
|
|
(14)
|
Assumes
the Class A common shares are converted into shares of common stock and
increased by 10.0% as per the provisions in the 2009 private placement
memorandum.
|
|
(15)
|
Does
not include the class A common share adjustment factor as described in the
2009 private placement memorandum.
|
|
(16)
|
Does
not include any warrants issued in the 2009 Private Placement or warrants
to be issued to Private Placement investors subject to the increased
issuance subject to the time provision and adjustment factor as described
in the 2009 private placement memorandum.
|
DESCRIPTION
OF SECURITIES
General
Upon the
closing of this offering, our authorized capital stock will consist of 7,000,000
shares of common stock, par value $0.001, and 1,000,000 authorized shares of
preferred stock, par value $0.001.
On the
date of this prospectus, we had 155,000 shares of common stock issued and
outstanding held by two stockholders, 1,163,600 shares of Class A common stock
issued and outstanding held by 61 stockholders, and no shares of preferred stock
issued and outstanding. On the date of this prospectus, there were 279,999
outstanding options to purchase shares of common stock and warrants to purchase
1,201,400 shares of common stock.
Upon
closing of this offering: (i) the Class A common stock will convert into
1,279,960 shares of common stock, (ii) 155,000 shares of common stock
outstanding and held by our Manager and Chief Financial Officer prior to this
offering will be reduced to 80,000 shares of common stock outstanding due to the
automatic conversion upon consummation of this offering of
75,000 shares of common stock into 150,000 common stock options as
per the agreement dated Fenruary 8, 2010, and (iii) we will issue an additional
116,360 warrants to the 2009 Private Placement investors. Assuming such
conversions and issuances, as of the date of this prospectus, we will have
6,359,960 shares of common stock outstanding held by 62
stockholders. Upon closing of this offering, there will be
outstanding options to purchase 579,999 shares of common stock and warrants to
purchase 1,317,760 shares of common stock
Units
Each unit
consists of one share of common stock and one warrant. Each warrant entitles the
holder to purchase one share of common stock. The common stock and warrants,
without any securityholder having to take any action, may begin to trade
separately on the 90
th
day
after the date of this prospectus unless the representatives of the underwriters
informs us of its decision to allow earlier separate trading (based upon its
assessment of the relative strengths of the securities markets and small
capitalization companies in general and the trading pattern of, and demand for,
our securities in particular), provided that in no event may the common stock
and warrants be traded separately until the earlier of the expiration or
exercise in full of the underwriter’s over-allotment option. Following the date
the common stock and warrants are eligible to trade separately, the units will
continue to be listed for trading, and any securityholder may elect to trade the
common stock or warrants separately or as a unit. Even if the component parts of
the units are broken apart and traded separately, the units will continue to be
listed as a separate security, and any securityholder of our common stock and
warrants may elect to combine them together and trade them as a unit.
Securityholders will have the ability to trade our securities as units until
such time as the warrants expire or are redeemed.
Common
Stock
Holders
of common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, and do not have cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
shares of preferred stock and Class A common stock, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for dividend
payments. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and non-assessable. The holders of common stock
have no preferences or rights of conversion, exchange, pre-emption or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. In the event of any liquidation, dissolution or
winding-up of our affairs, holders of common stock will be entitled to share
ratably in our assets that are remaining after payment or provision for payment
of all of our debts and obligations and after liquidation payments to holders of
outstanding shares of preferred stock and Class A common stock, if
any.
Class
A Common Stock
Holders
of Class A common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders, and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of Class A common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for dividend
payments. All outstanding shares of Class A common stock are fully paid and
non-assessable. The Class A common stock shall automatically convert
into 1,279,960 shares of common stock upon completion of this
offering. There are no redemption or sinking fund provisions
applicable to the Class A common stock. In the event of any liquidation,
dissolution or winding-up of our affairs, holders of Class A common stock will
be entitled to share ratably in our assets that are remaining after payment or
provision for payment of all of our debts and obligations and after liquidation
payments to holders of outstanding shares of preferred stock, if
any.
Preferred
Stock
The
preferred stock has priority over the common stock with respect to dividends and
other distributions, including the distribution of assets upon liquidation. Our
board of directors has the authority, without further stockholder authorization,
to issue from time to time shares of preferred stock in one or more series and
to fix the terms, limitations, relative rights and preferences and variations of
each series. Although we have no present plans to issue any shares of preferred
stock, the issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, could decrease the amount of earnings and assets available
for distribution to the holders of common stock, could adversely affect the
rights and powers, including voting rights, of the common stock, and could have
the effect of delaying, deterring or preventing a change in control of us or an
unsolicited acquisition proposal.
Options
As of the date hereof, we have issued
options to purchase an aggregate of 155,000 shares of our common stock at an
exercise price of $4.50 per share to our Manager in connection with the 2009
Private Placement. Further, upon the successful completion of this offering, the
promissory notes payable to the Manager in the principal amount of $265,000 plus
accrued but unpaid interest, will automatically convert into 150,000 options to
purchase shares of our common stock at an exercise price of $4.50 per
share. Further, upon the successful completion of this offering,
75,000 common shares held by the Manager will automatically convert into 150,000
options to purchase shares of our common stock at an exercise price of $4.50 per
share.
As of the
date hereof, we have issued options to purchase an aggregate of 579,999 shares
of our common stock at prices ranging from $4.50 to $7.50 per share pursuant to
our 2008 Long-Term Incentive Compensation Plan. Of the total
outstanding options, 579,999 of those options were issued to our current
directors and officers.
Existing
Warrants
In
connection with our 2009 Private Placement, we issued to investors in the 2009
Private Placement warrants to purchase 1,163,600 shares of common
stock. These warrants are exercisable for five years to purchase one
share of our common stock at an exercise price of $5.75 per
share. The investors in the 2009 Private Placement will enter
into lock-up agreements with respect to their warrants for a period of [six]
months commencing on the closing of this offering In connection with its
services as placement agent for the 2009 Private Placement, Andrew Garrett Inc.
and Sunrise Securities received warrants to purchase 16,500 and 21,300 shares of
common stock, respectively. These warrants may be exercised at $5.75
per share for five years after issuance. Additional warrants to
purchase 116,360 shares of common stock at an exercise price of $5.75 per share
shall be issued to the 2009 Private Placement investors upon completion of this
offering.
The
exercise price and number of shares of common stock issuable upon exercise of
the foregoing warrants may be adjusted in certain circumstances, including in
the event of any stock split or dividend. These warrants may be
exercised upon surrender of the warrant certificate on or prior to the
expiration date at the offices of the Company with the exercise form included
with the warrant certificate completed and executed as indicated, accompanied by
full payment of the exercise price for the number of warrants being
exercised. The warrant holders do not have the rights or privileges
of holders of common stock, including any voting rights, until they exercise
their warrants and receive shares of common stock. After the issuance
of shares of common stock upon exercise of the warrants, each holder will be
entitled to one vote for each share held of record on all matters to be voted on
by stockholders.
No
fractional shares of common stock will be issued upon exercise of these
warrants. If, upon exercise of the Existing Warrants, a holder would
be entitled to receive a fractional interest in a share, we will, upon exercise,
round the number of shares issuable to the nearest whole share.
Public Warrants
Each
warrant included in the units entitles the registered holder to purchase one
share of our common stock at a price of $5.75 per share, subject to adjustment
as discussed below, immediately upon the effectiveness of the registration
statement. The warrants will expire at 5:00 p.m., New York City time, on [ ],
2011
[five years from the date
of this prospectus]
or earlier upon redemption.
The
warrants may trade separately on the 90
th
day
after the date of this prospectus unless the representatives of the underwriters
determines that an earlier date is acceptable, based upon its assessment of the
relative strengths of the securities markets and small capitalization companies
in general, and the trading pattern of, and demand for, our securities in
particular. In no event will _________________ allow separate trading of the
common stock and warrants until the underwriters’ over-allotment option has
either expired or been exercised.
We may
call the warrants for redemption (including any warrants issued upon exercise of
the unit purchase option) at any time after [ ], 2009
[six months from the date of this
prospectus]
:
|
•
|
in
whole and not in part;
|
|
|
•
|
at
a price of $5.75 per warrant;
|
|
|
•
|
upon
not less than 30 days’ prior written notice of redemption to each warrant
holder; and
|
|
|
•
|
if,
and only if, the last sale price of the common stock equals or exceeds
$8.00 per share, for any 20 trading days within a 30 trading day period
ending on the third business day prior to the notice of redemption to
warrant holders.
|
In
addition, we may not redeem the warrants unless the warrants comprising the
units sold in this offering and the shares of common stock underlying those
warrants are covered by an effective registration statement from the beginning
of the measurement period through the date fixed for the
redemption.
We have
established these criteria to provide warrant holders with a reasonable premium
to the initial warrant exercise price as well as a degree of liquidity to
cushion against a negative market reaction, if any, to our redemption call. If
the foregoing conditions are satisfied and we call the warrants for redemption,
each warrant holder will then be entitled to exercise his or her warrant prior
to the date scheduled for redemption, however, there can be no assurance that
the price of the common stock will exceed the call trigger price or the warrant
exercise price after the redemption call is made.
The
exercise price and number of shares of common stock issuable on exercise of the
warrants may be adjusted in certain circumstances, including in the event of a
stock dividend, extraordinary dividend or our recapitalization, reorganization,
merger or consolidation. However, the warrants will not be adjusted for
issuances of common stock at a price below their respective exercise
prices.
The
warrants may be exercised upon surrender of the warrant certificate on or prior
to the expiration date at the offices of the transfer agent, with the exercise
form on the reverse side of the warrant certificate completed and executed as
indicated, accompanied by full payment of the exercise price, by certified or
official bank check payable to us, for the number of warrants being exercised.
The warrant holders do not have the rights or privileges of holders of common
stock and any voting rights until they exercise their warrants and receive
shares of common stock. After the issuance of shares of common stock upon
exercise of the warrants, each holder will be entitled to one vote for each
share held of record on all matters to be voted on by
stockholders.
No
warrants will be exercisable unless at the time of exercise a prospectus
relating to common stock issuable upon exercise of the warrants is current and
the common stock has been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of the warrants.
Under the terms of the warrant agreement, we have agreed to use our best efforts
to maintain a current prospectus relating to common stock issuable upon exercise
of the warrants until the expiration of the warrants. If we are unable to
maintain the effectiveness of such registration statement until the expiration
of the warrants, and therefore are unable to deliver registered shares of common
stock, the warrants may become worthless. Additionally, the market for the
warrants may be limited if the prospectus relating to the common stock issuable
upon the exercise of the warrants is not current or if the common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the warrants reside. In no event will the registered holders of a warrant be
entitled to receive a net-cash settlement, stock, or other consideration in lieu
of physical settlement in shares of our common stock.
No
fractional shares of common stock will be issued upon exercise of the warrants.
If, upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, we will, upon exercise, round up to the nearest
whole number the number of shares of common stock to be issued to the warrant
holder.
Purchase
Option
We have
agreed to issue to the representatives of the underwriters an option to purchase
up to a total of 250,000 units at $5.50 per unit. The units issuable upon
exercise of this option are identical to those offered by this prospectus. For a
more complete description of the purchase option, including the registration
rights afforded to the holders of such option, see the section appearing
elsewhere in this prospectus entitled “Underwriting — Purchase
Option.”
Dividends
We have
not paid any cash dividends on our common stock to date and do not intend to pay
cash dividends. The payment of cash dividends in the future will be dependent
upon our revenues and earnings, if any, capital requirements and general
financial condition. The payment of any dividends will be within the discretion
of our then board of directors. It is the present intention of our board of
directors to retain all earnings, if any, for use in our business operations
and, accordingly, our board does not anticipate declaring any dividends in the
foreseeable future. Further our ability to declare dividends may be limited to
restrictive covenants if we incur any indebtedness.
Delaware
Law and Certain Charter and Bylaw Provisions
The
provisions of (1) Delaware law, (2) our certificate of incorporation, as
amended, and (3) our bylaws could discourage or make it more difficult to
accomplish a proxy contest or other change in our management or the acquisition
of control by a holder of a substantial amount of our voting stock. It is
possible that these provisions could make it more difficult to accomplish, or
could deter, transactions that stockholders may otherwise consider to be in
their best interests or our best interests. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of our
board of directors and in the policies formulated by the board of directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of us. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights. Such
provisions also may have the effect of preventing changes in our
management.
Delaware Statutory Business
Combinations Provision.
We are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporations Law. In general,
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is, or the transaction in which the
person became an interested stockholder was, approved in a prescribed manner or
another prescribed exception applies. For purposes of Section 203, a “business
combination” is defined broadly to include a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and,
subject to certain exceptions, an “interested stockholder” is a person who,
together with his or her affiliates and associates, owns (or within three years
prior, did own) 15.0% or more of the corporation’s voting
stock.
Classified Board of
Directors.
Our
certificate of incorporation, as amended, provides that our board of directors
will be divided into two classes as nearly equal in number as possible. Each
year the stockholders will elect the members of one of the two classes to a
two-year term of office. All directors elected to our classified board of
directors will serve until the election and qualification of their respective
successors or their earlier resignation or removal. Our board of directors is
authorized to create new directorships and to fill such positions so created and
is permitted to specify the class to which any such new position is assigned.
The person filling such position would serve for the term applicable to that
class. Our board of directors (or its remaining members, even if less than a
quorum) is also empowered to fill vacancies on the board of directors occurring
for any reason for the remainder of the term of the class of directors in which
the vacancy occurred.
Members of our board of directors may
only be removed for cause. These provisions are likely to increase the time
required for stockholders to change the composition of our board of directors.
For example, in general, at least two annual meetings will be necessary for
stockholders to effect a change in a majority of the members of our board of
directors.
Advance Notice Provisions for
Stockholder Proposals.
For an annual or special meeting, a
stockholder’s notice generally must be delivered not less than 10 days nor more
than 60 days prior to the meeting.
Special Meetings of
Stockholders.
Special meetings of the stockholders may be
called by our board of directors pursuant to a resolution adopted by a majority
of the total number of directors, or by such persons or persons as may be
authorized by the certificate of incorporation, as amended, or the
by-laws.
Super-Majority Stockholder Vote
required for Certain Actions.
The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation’s
certificate of incorporation and bylaws, unless the corporation’s certificate of
incorporation, as amended, and bylaws, as the case may be, requires a greater
percentage.
Transfer
Agent and Registrar
We intend
to retain Continental Stock Transfer and Trust Company as our transfer agent and
registrar for the units, common stock and warrants in connection with our public
offering.
Listing
Immediately
after this offering, we will have 6,359,960 shares of common stock outstanding,
or 7,109,960 shares if the underwriters’ over-allotment option is exercised in
full. Of these shares, the 5,000,000 shares sold in this offering, or 5,750,000
shares of common stock if the over-allotment option is exercised, will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares of common stock purchased by one of our affiliates within
the meaning of Rule 144 under the Securities Act. Upon consummation of this
offering, 1,163,600 shares of Class A common stock will convert into 1,279,960
shares of common stock, as per the terms of the 2009 Private
Placement. All of the remaining 80,000 shares of common stock are
restricted securities under Rule 144, in that they were issued in private
transactions not involving a public offering. In addition, we will have an
additional 7,147,759 shares reserved for issuance pursuant to the exercise of
issued and outstanding options and warrants. None of those shares of
common stock will be eligible for sale under Rule 144 until the following
conditions are met:
|
•
|
we
cease to be a shell company;
|
|
|
•
|
we
are subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act;
|
|
|
•
|
we
have filed all reports and materials required to be filed under Section 13
or 15(d) of the Exchange Act, as applicable, during the preceding 12
months, other than Form 8-K reports;
and
|
at least
one year has elapsed from the time we filed current Form 10 type information
with the SEC reflecting our status as an entity that is not a shell
company.
Rule
144
A person
who has beneficially owned restricted shares or our common stock or warrants for
at least six months would be entitled to sell their securities provided that (i)
such person is not deemed to have been one of our affiliates at the time of, or
at any time during the three months preceding, a sale and (ii) we are subject to
the Exchange Act periodic reporting requirements for at least 90 days before the
sale.
Persons
who have beneficially owned restricted shares of our common stock or warrants
for at least six months but who are our affiliates at the time of, or at any
time during the three months preceding, a sale, would be subject to additional
restrictions, by which such person would be entitled to sell within any
three-month period only a number of securities that does not exceed the greater
of either of the following:
|
•
|
1.0%
of the total number of shares of our common stock then outstanding, which
will equal 635,996 shares of our common stock immediately after this
offering or 710,996 shares of our common stock if the underwriters’
over-allotment is exercised in full; or
|
|
|
•
|
the
average weekly trading volume of the shares of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale.
|
Sales
under Rule 144 are also limited by manner of sale provisions, notice
requirements and the availability of current public information about
us.
Lock-up
Agreements
Our
current officers, directors and principal shareholders have agreed, with limited
exceptions, to a 12 month “lock-up” period with respect to all of their shares.
After the 12 month period from the date of this prospectus, these shares may be
sold in the public market, subject to compliance with Rule 144. At any time
without notice, the representatives of the underwriters may, in their sole
discretion, release all or some of the securities subject to these lock-up
agreements. The representatives’ decision to waive the lock-up restrictions may
be based on market conditions, then-current stock price, the number of shares
requested to be waived from the lock-up restrictions, the potential price impact
of the release and other factors the selection of which are based on their sole
discretion.
All
investors in the 2009 Private Placement entered into lock-up agreements
regarding warrants issued to such investors in the 2009 Private
Placement. Such lock-up agreements will expire six months after
the closing of this offering.
UNDERWRITING
Subject
to the terms and conditions of the underwriting agreement, the underwriters
named below have severally agreed to purchase from us on a firm commitment basis
the following respective number of units at a public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus:
|
Underwriters
|
Number of Units
|
|||
|
Sunrise
Securities Corp.
|
||||
|
Rodman
& Renshaw, LLC
|
||||
|
Total
|
5,000,000 | |||
The
underwriting agreement provides that the obligation of the underwriters to
purchase all of the 5,000,000 units being offered to the public is subject to
specific conditions, including the absence of any material adverse change in our
business or in the financial markets and the receipt of certain legal opinions,
certificates and letters from us, our counsel and the independent auditors.
Subject to the terms of the underwriting agreement, the underwriters will
purchase all of the 5,000,000 units being offered to the public, other than
those covered by the over-allotment option described below, if any of these
units are purchased.
We have
been advised by the representatives of the underwriters that the underwriters
propose to offer the units to the public at the public offering price set forth
on the cover of this prospectus and to dealers at a price that represents a
concession not in excess of $__ per unit under the public offering price of
$5.00 per unit. The underwriters may allow, and these dealers may re-allow, a
concession of not more than $__ per unit to other dealers. After the initial
public offering, the representatives of the underwriters may change the offering
price and other selling terms.
Over-Allotment
Option
We have
granted to the underwriters an option, exercisable not later than 45 days after
the date of this prospectus, to purchase up to 750,000 additional units at the
public offering price less the underwriting discounts and commissions set forth
on the cover of this prospectus. The underwriters may exercise this option only
to cover over-allotments made in connection with the sale of the units offered
by this prospectus. The over-allotment option will only be used to cover the net
syndicate short position resulting from the initial distribution. To the extent
that the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of these additional units as the number of units to be purchased by it in the
above table bears to the total number of units offered by this prospectus. We
will be obligated, pursuant to the option, to sell these additional units to the
underwriters to the extent the option is exercised. If any additional units are
purchased, the underwriters will offer the additional units on the same terms as
those on which the other units are being offered hereunder.
The
underwriting discounts and commissions are 5.0% of the initial public offering
price. We have agreed to pay the underwriters the discounts and commissions set
forth below, assuming either no exercise or full exercise by the underwriters of
the underwriters’ over-allotment option.
Fees
(1)
|
Fee per Unit
(1)
|
Without
Exercise of
Over Allotment
Option
|
With
Exercise of
Over Allotment
Option
|
||||||||||
|
Public
offering price
|
$ | 5.00 | $ | 25,000,000 | $ | 28,750,000 | ||||||
|
Discount
|
$ | 0.25 | $ | 1,250,000 | $ | 1,437,500 | ||||||
|
Proceeds
before expenses
(2)
|
$ | 4.75 | $ | 23,750,000 | $ | 27,312,500 | ||||||
|
(1)
|
The
fees do not include the over-allotment option granted to the underwriters
or the corporate finance fee in the amount of 1.0% of the gross proceeds,
or $0.05 per unit ($250,000 in total, and $287,500 in the event that the
over-allotment option is exercised in full), payable to the
representatives of the underwriters.
|
|
(2)
|
The
offering expenses are estimated at $480,000, and will be paid in part from
the proceeds of the 2009 Private Placement. On January 8, 2008, the
Company entered into a revolving line of credit with the Manager in the
aggregate amount of $300,000, at a rate of six (6.0%) percent interest per
annum, pursuant to which $265,000 (including interest) has been drawn
under such revolving line of credit to
date.
|
Purchase
Option
We have
agreed to issue to the representatives of the underwriters, at the closing of
this offering, an option to purchase up to a total of 250,000 units. The units
issuable upon exercise of this option are identical to those offered by this
prospectus. This option is exercisable at $5.50 per unit, commencing one year
from the date of this prospectus and expiring five years from the date of this
prospectus. The option and the 250,000 units, the 250,000 shares of common stock
and the 250,000 warrants underlying such units, and the 250,000 shares of common
stock underlying such warrants, have been deemed compensation by FINRA and are
therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of the FINRA
Conduct Rules. The representatives of the underwriters will not sell, transfer,
assign, pledge, or hypothecate this option or the securities underlying this
option, nor will it engage in any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition of this
option or the underlying securities for a period of 180 days from the date of
this prospectus. Additionally, the option may not be sold transferred, assigned,
pledged or hypothecated for a one-year period (including the foregoing 180 day
period) following the date of this prospectus except to any underwriter and
selected dealer participating in the offering and their bona fide officers or
partners. Although the purchase option and its underlying securities have been
registered on the registration statement of which this prospectus forms a part,
the option grants holders demand and “piggy back” registration rights for
periods of five and seven years, respectively, from the date of this prospectus.
These rights apply to all of the securities directly and indirectly issuable
upon exercise of the option. We will bear all fees and expenses attendant to
registering the securities issuable on exercise of the option, other than
underwriting commissions incurred and payable by the holders. The exercise price
and number of units issuable upon exercise of the option may be adjusted in
certain circumstances including in the event of a stock dividend, extraordinary
cash dividend or our recapitalization, reorganization, merger or consolidation.
However, the option exercise price or underlying units will not be adjusted for
issuances of common stock at a price below the option exercise
price.
The sale
of the option will be accounted for as a cost attributable to the proposed
offering. Accordingly, there will be no net impact on our financial position or
results of operations, except for the recording of the $100 proceeds from the
sale.
Directed
Unit Program
At our
request, the underwriters have reserved up to 500,000 units for sale at the
initial public offering price through a directed unit program to persons who are
directors, officers or employees, or who are otherwise associated with our
corporate stockholder. The number of units available for sale to the public will
be reduced by the number of directed units purchased by participants in the
program, if any. To the extent the directed units are not purchased pursuant to
the directed unit program, the units will be offered by the underwriters to the
public on the same basis as all other units. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with the sales of the directed
units.
Lock-up
Agreements
Our
current officers, directors and principal shareholders have agreed, with limited
exceptions, to a 12 month “lock-up” period with respect to all of their shares.
After the 12 month period from the date of this prospectus, these shares may be
sold in the public market, subject to compliance with Rule 144. At any time
without notice, the representative of the underwriters may, in their sole
discretion, release all or some of the securities subject to these lock-up
agreements. The representatives, decision to waiver the lock-up restrictions may
be based on market conditions, then-current stock price, the number of shares
requested to be waived from the lock-up restrictions, the potential price impact
of the release and other factors the selection of which are based on its sole
discretion. The underwriter has no present intention to release such lock-ups
early.
Notwithstanding the foregoing, if (a)
during the last 17 days of the lock-up period we release earnings results or
material news or a material event relating to us occurs, or (b) prior to the
expiration of the lock-up
period, we announce that we will
release earnings results during the 16-day period following the last day of the
lock-up period, the above restrictions shall continue to apply until the
expiration of the 18-day period beginning on the date of the release of the
earnings results or the occurrence of the material news or material
event.
Pricing
of this Offering
Prior to
this offering there has been no public market for any of our securities. The
public offering price of the units and the terms of the warrants were negotiated
between us and the representative. Factors considered in determining the prices
and terms of the units, including the common stock and warrants underlying the
units, include:
|
•
|
the
history and prospects of companies whose principal business is the
acquisition and disposition of specialty metals;
|
|
|
•
|
prior
offerings of those companies;
|
|
|
•
|
our
prospects for acquiring and storing indium at attractive
values;
|
|
|
•
|
our
capital structure;
|
|
|
•
|
an
assessment of our management and their experience in specialty
metals;
|
|
|
•
|
general
conditions of the securities markets at the time of the offering;
and
|
|
|
•
|
other
factors as were deemed
relevant.
|
However,
although these factors were considered, the determination of our offering price
is more arbitrary than the pricing of securities for an operating company in a
particular industry since the underwriters are unable to compare our financial
results and prospects with those of public companies operating in the same
industry.
In
connection with this offering, the underwriters may distribute prospectuses
electronically. No forms of prospectus other than printed prospectuses and
electronically distributed prospectuses that are printable in Adobe. PDF format
will be used in connection with this offering.
The
underwriters have informed us that they do not expect to confirm sales of units
offered by this prospectus to accounts over which they exercise discretionary
authority without obtaining the specific approval of the account
holder.
Price
Stabilization and Short Positions
Rules of
the SEC may limit the ability of the underwriters to bid for or purchase our
securities before the distribution of the securities is completed. The
“Restricted Period” under Regulation M for this offering will have ended when
(i) all of the Units have been sold, (ii) there are no more selling efforts,
(iii) there is no more stabilization, and (iv) the over-allotment option has
been exercised or has expired. However, the underwriters may engage in the
following activities in accordance with the rules:
|
•
|
Stabilizing
Transactions.
The underwriters may make bids or
purchases for the purpose of pegging, fixing or maintaining the price of
our securities, so long as stabilizing bids do not exceed the maximum
price specified in Regulation M, which generally requires, among other
things, that no stabilizing bid shall be initiated at or increased to a
price higher than the lower of the offering price or the highest
independent bid for the security on the principal trading market for the
security.
|
|
|
•
|
Over-Allotments and Syndicate
Coverage Transactions.
The underwriters may create a
short position in our securities by selling more of our securities than
are set forth on the cover page of this prospectus. If the underwriters
create a short position during the offering, the representative may engage
in syndicate covering transactions by purchasing our securities in the
open market. The representative may also elect to reduce any short
position by exercising all or part of the over-allotment
option.
|
|
•
|
Penalty Bids.
The representative may reclaim a selling concession from a
syndicate member when the units originally sold by the syndicate member
are purchased in a stabilizing or syndicate covering transaction to cover
syndicate short positions.
|
Stabilization
and syndicate covering transactions may cause the price of the securities to be
higher than they would be in the absence of these transactions. The imposition
of a penalty bid might also have an effect on the prices of the securities if it
discourages resales of the securities.
Neither
we nor the underwriters make any representation or prediction as to the effect
that the transactions described above may have on the prices of the securities.
These transactions may occur on the NASDAQ Capital Market or on any trading
market. If any of these transactions are commenced, they may be discontinued
without notice at any time.
Other
Terms
We have
also agreed that upon successful completion of the offering in excess of $25
million, and for a period of 24 months from the offering, that it would grant
the representatives of the underwriters the right of first participation to act
as lead underwriters or minimally as a co-managers with at least 30.0% of the
economics; or in the case of a three-handed deal 20.0% of the economics, for any
and all future public and private equity and debt offerings during such 24 month
period by us, or any successor to or any subsidiary of ours.
Although
we are not under any contractual obligation to engage any of the underwriters to
provide any services for us after this offering, and have no present intent to
do so, any of the underwriters may, among other things, assist us in raising
additional capital, as needs may arise in the future. If any of the underwriters
provide services to us after this offering, we may pay such underwriter fair and
reasonable fees that would be determined at that time in an arm’s length
negotiation
.
We have also agreed that if
12 months or later
following the successful completion of
the offering,
the
representatives
conduct a
solicitation for the exercise of outstanding warrants, we will pay to
the
representatives
a
war
rant solicitation fee
equal to 5.0
% of the total
proceeds received from the exercise of any and all warrants
as a result of such solicitation by the
representatives, provided that the representatives are designated as the
soliciting broker on the exercise form of the warrant certificate evidencing the
warrants so exercised
.
Indemnification
We have
agreed to indemnify the underwriters against some liabilities, including civil
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in this respect.
Foreign
Regulatory Restrictions on Purchase of Shares
We have
not taken any action to permit a public offering of the units outside the United
States or to permit the possession or distribution of this prospectus outside
the United States. Persons outside the United States who come into possession of
this prospectus must inform themselves about and observe any restrictions
relating to this offering of units and the distribution of the prospectus
outside the United States.
United Kingdom.
No
offer of shares of common stock has been made or will be made to the public in
the United Kingdom within the meaning of Section 102B of the Financial Services
and Markets Act 2000, as amended, or FSMA, except to legal entities which are
authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in
securities or otherwise in circumstances which do not require the publication by
us of a prospectus pursuant to the Prospectus Rules of the Financial Services
Authority, or FSA. Each underwriter: (i) has only communicated or caused to be
communicated and will only communicate or cause to be communicated an invitation
or inducement to engage in investment activity (within the meaning of Section 21
of FSMA) to persons who have professional experience in matters relating to
investments falling within Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section
21 of FSMA does not apply to us; and (ii) has complied with, and will comply
with all applicable provisions of FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the United
Kingdom.
European Economic
Area.
In relation to each member state of the European
Economic Area which has implemented the Prospectus Directive, which we refer to
as a Relevant Member State, with effect from and including the date on which the
Prospectus Directive is implemented in that Relevant Member State, which we
refer to as the Relevant Implementation Date, no offer of common stock has been
made and or will be made to the public in that Relevant Member State prior to
the publication of a prospectus in relation to the common stock which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that, with effect from and including the Relevant
Implementation Date, an offer of common stock may be made to the public in that
Relevant Member State at any time: (a) to legal entities which are authorized or
regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities; (b) to any
legal entity which has two or more of (i) an average of at least 250 employees
during the last financial year; (ii) a total balance sheet of more than
€43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown
in its last annual or consolidated accounts; or (c) in any other circumstances
which do not require the publication by us of a prospectus pursuant to Article 3
of the Prospectus Directive. For the purposes of this provision, the expression
an “offer of ordinary shares to the public” in relation to any common stock in
any Relevant Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and the common stock to be
offered so as to enable an investor to decide to purchase or subscribe the
common stock, as the same may be varied in that Relevant Member State by any
measure implementing the Prospectus Directive in that Relevant Member State and
the expression Prospectus Directive means Directive 2003/71/ EC and includes any
relevant implementing measure in each Relevant Member State.
Italy.
This
offering of the units has not been cleared by Consob, the Italian Stock
Exchanges regulatory agency of public companies, pursuant to Italian securities
legislation and, accordingly, no units may be offered, sold or delivered, nor
may copies of this prospectus or of any other document relating to the shares be
distributed in Italy, except (1) to professional investors (operatori
qualificati); or (2) in circumstances which are exempted from the rules on
solicitation of investments pursuant to Decree No. 58 and Article 33, first
paragraph, of Consob Regulation No. 11971 of May 14, 1999, as amended. Any
offer, sale or delivery of the units of or distribution of copies of this
prospectus or any other document relating to the units in Italy under (1) or (2)
above must be (i) made by an investment firm, bank or financial intermediary
permitted to conduct such activities in Italy in accordance with the Decree No.
58 and Legislative Decree No. 385 of September 1, 1993, or the Banking Act; and
(ii) in compliance with Article 129 of the Banking Act and the implementing
guidelines of the Bank of Italy, as amended from time to time, pursuant to which
the issue or the offer of securities in Italy may need to be preceded and
followed by an appropriate notice to be filed with the Bank of Italy depending,
inter alia
, on the
aggregate value of the securities issued or offered in Italy and their
characteristics; and (iii) in compliance with any other applicable laws and
regulations.
Germany.
The
offering of the units is not a public offering in the Federal Republic of
Germany. The units may only be acquired in accordance with the provisions of the
Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz), as amended,
and any other applicable German law. No application has been made under German
law to publicly market the units in or out of the Federal Republic of Germany.
The units are not registered or authorized for distribution under the Securities
Sales Prospectus Act and accordingly may not be, and are not being, offered or
advertised publicly or by public promotion. Therefore, this prospectus is
strictly for private use and the offering is only being made to recipients to
whom the document is personally addressed and does not constitute an offer or
advertisement to the public. The units will only be available to persons who, by
profession, trade or business, buy or sell shares for their own or a
third-party’s account.
France.
The units
offered by this prospectus may not be offered or sold, directly or indirectly,
to the public in France. This prospectus has not been or will not be submitted
to the clearance procedure of the Autorit des Marchs Financiers, or the AMF, and
may not be released or distributed to the public in France. Investors in France
may only purchase the units offered by this prospectus for their own account and
in accordance with articles L. 411-1, L. 441-2 and L. 412-1 of the Code Montaire
et Financier and decree no. 98-880 dated October 1, 1998, provided they are
“qualified investors” within the meaning of said decree. Each French investor
must represent in writing that it is a qualified investor within the meaning of
the aforesaid decree. Any resale, directly or indirectly, to the public of the
units offered by this prospectus may be effected only in compliance with the
above mentioned regulations.
“Les
actions offertes par ce document d’information ne peuvent pas être, directement
ou indirectement, offertes ou vendues au public en France. Ce document
d’information n’a pas t ou ne sera pas soumis au visa de l’Autorit des Marchs
Financiers et ne peut être diffus ou distribu au public en France. Les
investisseurs en France ne peuvent acheter les actions offertes par ce document
d’information que pour leur compte propre et conformment aux articles L. 411-1,
L. 441-2 et L. 412-1 du Code Montaire et Financier et du dcret no. 98-880 du 1
octobre 1998, sous rserve qu’ils soient des investisseurs qualifis au sens du
dcret susvis. Chaque investisseur doit dclarer par crit qu’il est un
investisseur qualifi au sens du dcret susvis. Toute revente, directe ou
indirecte, des actions offertes par ce document d’information au public ne peut
être effectue que conformment à la rglementation susmentionne.”
Switzerland.
This
prospectus may only be used by those persons to whom it has been directly handed
out by the offeror or its designated distributors in connection with the offer
described therein. The units are only offered to those persons and/or entities
directly solicited by the offeror or its designated distributors, and are not
offered to the public in Switzerland. This prospectus constitutes neither a
public offer in Switzerland nor an issue prospectus in accordance with the
respective Swiss legislation, in particular but not limited to Article 652A
Swiss Code Obligations. Accordingly, this prospectus may not be used in
connection with any other offer, whether private or public and shall in
particular not be distributed to the public in Switzerland.
United
Kingdom.
In
the United Kingdom, the units offered by this prospectus are directed to and
will only be available for purchase to a person who is an exempt person as
referred to at paragraph (c) below and who warrants, represents and agrees that:
(a) it has not offered or sold, will not offer or sell, any shares offered by
this prospectus to any person in the United Kingdom except in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the section 85 of the Financial Services and Markets Act 2000 (as
amended) (“FSMA”); and (b) it has complied and will comply with all applicable
provisions of FSMA and the regulations made thereunder in respect of anything
done by it in relation to the units offered by this prospectus in, from or
otherwise involving the United Kingdom; and (c) it is a person who falls within
the exemptions to Section 21 of the FSMA as set out in The Financial Services
and Markets Act 2000 (Financial Promotion) Order 2005 (“the Order”), being
either an investment professional as described under Article 19 or any body
corporate (which itself has or a group undertaking has a called up share capital
or net assets of not less than €500,000 (if more than 20 members) or otherwise
€5 million) or an unincorporated association or partnership (with net assets of
not less than €5 million) or is a trustee of a high value trust or any person
acting in the capacity of director, officer or employee of such entities as
defined under Article 49(2)(a) to (d) of the Order, or a person to whom the
invitation or inducement may otherwise lawfully be communicated or cause to be
communicated. The investment activity to which this document relates will only
be available to and engaged in only with exempt persons referred to above.
Persons who are not investment professionals and do not have professional
experience in matters relating to investments or are not an exempt person as
described above, should not review nor rely or act upon this document and
should
return this
document immediately. It should be noted that this document is not a prospectus
in the United Kingdom as defined in the Prospectus Regulations 2005 and has not
been approved by the Financial Services Authority or any competent authority in
the United Kingdom.
Norway.
This
prospectus has not been produced in accordance with the prospectus requirements
laid down in the Norwegian Securities Trading Act 1997 as amended. This
prospectus has not been approved or disapproved by, or registered with, neither
the Oslo Stock Exchange nor the Norwegian Registry of Business Enterprises. This
prospectus may not, either directly or indirectly be distributed to other
Norwegian potential investors than the addressees without the prior consent of
the underwriters.
Denmark.
This
prospectus has not been prepared in the context of a public offering of
securities in Denmark within the meaning of the Danish Securities Trading Act
No. 171 of 17 March 2005 as amended from time to time or any Executive Orders
issued on the basis thereof and has not been and will not be filed with or
approved by or filed with the Danish Financial Supervisory Authority or any
other public authorities in Denmark. The offering of units will only be made to
persons pursuant to one or more of the exemptions set out in Executive Order No.
306 of 28 April 2005 on Prospectuses for Securities Admitted for Listing or
Trade on a Regulated Market and on the First Public Offer of Securities
exceeding EUR 2,500,000 or Executive Order No. 307 of 28 April 2005 on
Prospectuses for the First Public Offer of Certain Securities between EUR
100,000 and EUR 2,500,000, as applicable.
Sweden.
Neither
this prospectus nor the units offered hereunder have been registered with or
approved by the Swedish Financial Supervisory Authority under the Swedish
Financial Instruments Trading Act (1991:980) (as amended), nor will such
registration or approval be sought. Accordingly, this prospectus may not be made
available nor may the units offered hereunder be marketed or offered for sale in
Sweden other than in circumstances which are deemed not to be an offer to the
public in Sweden under the Financial Instruments Trading Act. This prospectus
may not be distributed to the public in Sweden and a Swedish recipient of the
prospectus may not in any way forward the prospectus to the public in
Sweden.
Israel.
The units
offered by this prospectus have not been approved or disapproved by the Israeli
Securities Authority (ISA). The units may not be offered or sold, directly or
indirectly, to the public in Israel. The ISA has not issued permits, approvals
or licenses in connection with the offering of the units or publishing the
prospectus; nor has it authenticated the details included herein, confirmed
their reliability or completeness, or rendered an opinion as to the quality of
the units being offered. Any resale, directly or indirectly, to the public of
the units offered by this prospectus is subject to restrictions on
transferability and must be effected only in compliance with the Israeli
securities laws and regulations.
The
validity of the securities offered in this prospectus are being passed upon for
us by Ellenoff Grossman & Schole, LLP, New York, New York. Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York, is acting as counsel
for the underwriters in this offering. Ellenoff Grossman & Schole, LLP has
previously represented SMG Indium Resources Ltd. and expects to do so again in
the future.
The
financial statements included in this Prospectus and in the Registration
Statement have been audited by Marcum LLP, an independent registered public
accounting firm, to the extent and for the periods set forth in their report
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
We have
filed with the SEC a registration statement on Form S-1 under the Securities
Act, with respect to the common stock offered by this prospectus. This
prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and our common stock,
reference is made to the registration statement and the exhibits and schedules
to the registration statement. Statements contained in this prospectus as to the
contents or provisions of any documents referred to in this prospectus are not
necessarily complete, and in each instance where a copy of the document has been
filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matters involved.
You may
read and copy all or any portion of the registration statement without charge at
the office of the SEC at the Public Reference Room at Station Place, 100 F
Street, N.E., Washington, D.C. 20549. Copies of the registration statement may
be obtained from the SEC at prescribed rates from the Public Reference Section
of the SEC at such address. In addition, registration statements and certain
other filings made with the SEC electronically are publicly available through
the SEC’s web site at http://www.sec.gov. The registration statement, including
all exhibits and amendments to the registration statement, has been filed
electronically with the SEC.
Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, accordingly,
will file annual reports containing financial statements audited by an
independent public accounting firm, quarterly reports containing unaudited
financial data, current reports, proxy statements and other information with the
SEC. You will be able to inspect and copy such periodic reports, proxy
statements and other information at the SEC’s public reference room, and the web
site of the SEC referred to above.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
SMG
Indium Resources Ltd.
We have
audited the accompanying balance sheets of SMG Indium Resources Ltd. (a
developmental stage company) (the “Company”) as of December 31, 2009 and 2008
and the related statements of operations, changes in stockholders’ equity
(deficiency) and cash flows for the year ended December 31, 2009 and for the
period January 7, 2008 (inception) to December 31, 2008 and for the period
January 7, 2008 (inception) to December 31, 2009. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based upon our audits.
We
conducted our audits in accordance with the standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SMG Indium Resources Ltd. (a
development stage company) as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for the year ended December 31, 2009 and for
the period January 7, 2008 (inception) to December 31, 2008 and for the period
January 7, 2008 (inception) to December 31, 2009 in conformity with United
States generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has no present revenue. Further, the Company just completed a
Private Placement Offering which allows the Company one year to complete an
initial public offering (IPO). If the IPO is not completed within the year,
Class A shareholders must vote to extend the IPO completion period. Should that
not occur, the Company would be forced into liquidation and hence the Company’s
business plan is directly dependent upon the completion of an IPO. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans regarding these matters are described in Notes
1 and 2 to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of the uncertainty.
/s/
Marcum LLP
New York,
New York
April 7,
2010
SMG
INDIUM RESOURCES LTD.
BALANCE
SHEETS
The
accompanying notes are an integral part of these financial
statements.
SMG
INDIUM RESOURCES LTD.
STATEMENTS
OF OPERATIONS
|
For
the
|
For
the
Period
|
For
the
Period
|
||||||||||
|
Year
Ended
|
January
7,
2008
(Inception)
|
January
7,
2008
(Inception)
|
||||||||||
|
|
December
31,
2009
|
to
December
31,
2008
|
to
December
31,
2009
|
|||||||||
|
Costs
and
Expenses:
|
||||||||||||
|
Formation and operating
costs
|
$ | 89,652 | $ | 3,357 | $ | 93,009 | ||||||
|
Interest expense -
Manager
|
16,120 | $ | 13,538 | $ | 29,658 | |||||||
|
Deferred offering
costs
|
231,489 | $ | - | $ | 231,489 | |||||||
|
Total Costs and
Expenses
|
337,261 | 16,895 | 354,156 | |||||||||
|
Net Loss
|
(337,261 | ) | $ | (16,895 | ) | $ | (354,156 | ) | ||||
|
Net Loss per common share - Basic
and Diluted
|
$ | (2.21 | ) | $ | (0.11 | ) | ||||||
|
Weighted average number of common
shares outstanding -
Basic and
Diluted
|
152,917 | 150,000 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
For
the Period from January 7, 2008 (Inception) To December 31, 2009
|
Deficit
Accumulated
|
Total
|
|||||||||||||||||||||||||||
|
Class
A
Common
Stock
|
Common
Stock
|
Additional
|
During
the
|
Stockholders
|
||||||||||||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Paid-In
Capital
|
Development
Stage
|
Equity
(Deficiency)
|
||||||||||||||||||||||
|
Issuance
of Founders Shares
at
$.067 per share on January 7, 2008
|
- | $ | - | 150,000 | $ | 150 | $ | 9,850 | $ | - | $ | 10,000 | ||||||||||||||||
|
Net
Loss
|
(16,895 | ) | (16,895 | ) | ||||||||||||||||||||||||
|
Balances
at December 31, 2008
|
- | - | 150,000 | 150 | 9,850 | (16,895 | ) | (6,895 | ) | |||||||||||||||||||
|
Shares
Issued to CFO on June 5, 2009
Valued
at $4.50 per share
|
- | - | 5,000 | 5 | 22,495 | - | 22,500 | |||||||||||||||||||||
|
Issuance
of Class A common stock and
warrants
at $5.00 per share for cash, net
of
offering costs
|
1,003,600 | 1,004 | - | - | 4,796,996 | - | 4,798,000 | |||||||||||||||||||||
|
Net
Loss
|
(337,261 | ) | (337,261 | ) | ||||||||||||||||||||||||
|
Balances
at December 31, 2009
|
1,003,600 | $ | 1,004 | 155,000 | $ | 155 | $ | 4,829,341 | $ | (354,156 | ) | $ | 4,476,344 | |||||||||||||||
|
*
|
On December 6, 2008, the Company
effected a six for one forward split of its issued and outstanding common
stock. On June 5, 2009, the
Company effected a one for 3.6
reverse split of its issued and outstanding common stock. The accompanying
financial statements, notes,
and other references to share and
per share data have been retroactively restated to reflect the forward
stock split and reverse stock split
for all periods
presented.
|
The
accompanying notes are an integral part of these financial
statements.
SMG
INDIUM RESOURCES LTD.
STATEMENTS
OF CASH FLOWS
|
For the
|
For the Period
|
For the Period
|
||||||||||
|
Year Ended
|
January 7, 2008 (Inception)
|
January 7, 2008 (Inception)
|
||||||||||
|
December 31, 2009
|
to December 31, 2008
|
to December 31, 2009
|
||||||||||
|
Cash
flow from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (337,261 | ) | $ | (16,895 | ) | $ | (354,156 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Write-off
of deferred offering costs
|
231,489 | - | 231,489 | |||||||||
|
Stock
based compensation
|
22,500 | |||||||||||
|
Changes
in Operating Assets and Liabilities:
|
||||||||||||
|
Prepaid
expenses
|
(3,077 | ) | - | (3,077 | ) | |||||||
|
Inventory
- Indium
|
(1,171,053 | ) | - | (1,171,053 | ) | |||||||
|
Accrued
expenses
|
7,250 | 1,106 | 8,356 | |||||||||
|
Accrued
interest to Manager - Related Party
|
16,120 | 13,538 | 29,658 | |||||||||
|
Net
cash used in operating activities
|
(1,234,032 | ) | (2,251 | ) | (1,236,283 | ) | ||||||
|
Cash
flow from financing activities:
|
||||||||||||
|
Proceeds
from note payable to Manager - Related Party
|
- | 265,000 | 265,000 | |||||||||
|
Proceeds
from sale of Class A common stock
|
4,798,000 | - | 4,798,000 | |||||||||
|
Deferred
offering costs
|
(20,111 | ) | (211,378 | ) | (231,489 | ) | ||||||
|
Proceeds
from issuance of common stock to
founding stockholders
|
- | 10,000 | 10,000 | |||||||||
|
Net
cash provided by financing activities
|
4,777,889 | 63,622 | 4,841,511 | |||||||||
|
Net
increase in cash
|
3,543,857 | 61,371 | 3,605,228 | |||||||||
|
Cash,
at beginning of period
|
61,371 | - | - | |||||||||
|
Cash,
at end of period
|
$ | 3,605,228 | $ | 61,371 | $ | 3,605,228 | ||||||
The
accompanying notes are an integral part of these financial
statements.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
1 — Organization, Proposed Business Operations, Going Concern and
Management Plans
Organization
and Proposed Business Operations
SMG
Indium Resources Ltd. (formerly Specialty Metals Group Indium Corp.) (a
development stage enterprise) (the “Company”) is a corporation established
pursuant to the laws of Delaware on January 7, 2008. On April 2, 2008, the
Company changed its name from Specialty Metals Group Indium Corp. to SMG Indium
Resources Ltd. The Company’s sole business purpose is to purchase and stockpile
indium, a specialty metal that is being increasingly used as a raw material in a
wide variety of consumer electronics manufacturing applications. To assist in
the purchase of indium, the Company entered into a Management Services Agreement
(the “MSA”) on November 25, 2009 with Specialty Metals Group Advisors, LLC (the
“Manager”) to engage the Manager to purchase indium on its behalf. The primary
responsibilities of the Manager will be: (i) purchasing and selling indium; (ii)
submitting written reports detailing the delivery and payment particulars
regarding each purchase and sale of indium to the Company’s Board of Directors;
(iii) arranging for the storage of indium; (iv) preparing a monthly report on
the Net Market Value (“NMV”) of the Company’s stockpile; (v) preparating any
regulatory filings or special reports to the Company’s stockholders and Board of
Directors; and (vi) managing the general business affairs of the Company. The
MSA will have an initial term of five years with options to renew upon mutual
agreement between the parties. The Company will pay the Manager a fee of 2% per
annum of the monthly NMV. This fee will only accrue upon the completion of an
IPO by the Company. The NMV is determined by multiplying the number of kilograms
of indium held by the Company by the last spot price for indium published by the
Metal Bulletin posted on Bloomberg L.P. for the month, plus cash and other
Company assets, less any liabilities multiplied by the monthly fee of 1/6 of 1%
(or 2% per annum). The Company’s business strategy is to achieve long-term
appreciation in the value of its indium stockpile, and not to actively speculate
with regard to short-term fluctuations in indium prices. The Company’s indium
will be insured and physically stored in facilities located in the United
States, Canada, Rotterdam and/or the United Kingdom. While it is not the
Company’s current intention to do so in the short term, at its discretion, the
Company may subsequently lend or sell some of or its entire indium stockpile
based on market conditions. The Company’s common shares will represent an
indirect interest in the physical indium it will own.
Indium is
an essential raw material for a number of consumer electronics applications. The
primary commercial application of indium is in coatings for the flat panel
display industry and in the liquid crystal display industry on electronic
devices like television sets, computers, cell phones and digital cameras. Indium
is increasingly being used as a crucial raw material in the solar energy
industry. Its main use in solar energy applications is for high-efficiency
photovoltaic cells in the form of thin-film photovoltaic. Other uses of Indium
are in electrical components, alloys and solders.
Private
Placement Offering
In furtherance of the strategy of the
Company, in 2009 the Board of Directors approved a plan to seek private equity
funding through a Private Placement (the “Placement”) offered to individuals or
entities (the “
Investors
”) who qualified as “accredited
investors” as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended at a price per unit of
$5.00.
The
Company
engaged Rodman
& Renshaw, LLC and Sunrise Securities Corp. (the “
Placement
Agents
”) to act as its
exclusive placement agents for the
u
nits on a “best efforts”
basis. The Placement
Agents
utilize
d
the services of other FINRA members to
sell Securities in the Placement.
The minimum investment of any
accredited investor
was
$100,000
or 20,000 Class A common shares and
20,000 Warrants to purchase 20,000 shares of common stock at an exercise price
of $5.75 per share, which is only exercisable upon the the consummation of an
IPO
, unless waived by the
Company and Placement Agents in their sole discretion. A minimum of
$2,500,000, consisting of
500,000 Class A common and 500,000 Warrants, had to be sold in the
Offering (“
Minimum
Amount
”) on a “best
efforts all or none” basis and additional Units up to total gross proceeds of
$10,000,000 (
a total of
2,000,000 Class A Common and 2,000,000 Warrants) were to be sold in
the
Offering
(“
Maximum
Amount
”) on a “best
efforts” basis.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
1 — Organization, Proposed Business Operations, Going Concern and
Management Plans – (continued)
Private
Placement Offering (continued)
In
connection with the Placement, on November 25, 2009, the Company amended its
Certificate of Incorporation to amend the number of shares of capital stock it
is authorized to issue. The total number of shares of capital stock which the
Corporation shall have authority to issue is 8,000,000 shares, of which
2,000,000 shares shall be Class A common stock, par value $.001 per share (the
“Class A Common Stock”), and 5,000,000 shares shall be common stock, par value
$.001 per share (the “Common Stock”), and 1,000,000 shares shall be preferred
stock, par value $.001 per share (the “Preferred Stock”). The number
of authorized shares of any class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the voting power of the stock
of the Company entitled to vote. The Company authorized the sale of up to
2,000,000 Units, each Unit consisting of one share of Class A Common Stock and
one five-year Warrant. Each Warrant is convertible into one share of Common
Stock at an exercise price of $5.75 per share. The Warrants issued in the
Placement are not, and will not become, exercisable until the Company completes
an IPO. The Units offered in the Placement are subject to an automatic
conversion upon the closing of an IPO. Upon the closing of an IPO, the Units
sold in the Placement will automatically convert into securities sold in the IPO
with adjustment terms. If the IPO is completed by November 25, 2010, the number
of IPO units issued to the Placement investor shall be increased by ten percent
(10%) of the number of units the Placement investor purchased in the Placement.
If the IPO is completed after November 25, 2010 but prior to November 25, 2011,
the number of IPO units issued to the Placement investors shall be increased by
twenty percent (20%) of the number of units the Placement investor purchased in
the Placement. This assumes that prior to November 25, 2010, the Class A common
stockholders will vote to authorize an amendment to the Company’s Certificate of
Incorporation by the affirmative vote of a majority of the Class A common stock
outstanding in favor of an amendment to extend the duration and existence of the
Company for twelve additional months. Furthermore, the number of IPO units the
Placement investor receives shall also be adjusted for increases or decreases
based upon the increases or decreases in the net market value (“NMV”) of the
Company from the time of the Placement’s closing to immediately preceding the
IPO. On November 25, 2009 and December 11, 2009 the Company completed the first
two closings of the Placement and accordingly raised a total of $5,018,000. From
this total, expenses consisting of legal fees and Placement Agents’ expenses and
commissions totaled $220,000. The net proceeds of $4,798,000 from the Placement
are required to be utilized as follows: (i) at least 90% of the net proceeds
from the Placement will be used to begin stockpiling indium; and (ii) 10% will
be used for general working capital purposes. As a result of the Placement, the
Company issued 1,003,600 shares of Class A Common Stock and 1,003,600 Warrants.
The Company issued additional Warrants to purchase 37,800 shares of common stock
at an exercise price of $5.75 per share as part of a finder fee to the Placement
Agents. As noted above, these Warrants only become exercisable upon completion
of the IPO by the Company.
On
November 25, 2009 the Company amended its Certificate of Incorporation to
provide for the termination of the Corporation’s existence on November 25, 2010
(the “Corporation Termination Date”). Following the closing of the Placement, if
the Company has not completed an Initial Public Offering of securities within 12
months of the Placement’s closing (November 25, 2010), then the Company’s
existence shall terminate unless extended by the majority vote of the Class A
Common stockholders for another 12-month period. In the event the Company
terminates its existence, it will liquidate and return all remaining proceeds
from such liquidation to the Placement investors. Class A Common Stock received
in the Placement shall have liquidation rights senior in priority to the Common
Stock shares. However, in the event the Company liquidates and the
NMV has increased on the liquidation date due to the appreciation of the indium
stockpile, following the return of Placement investor’s funds, the
Manager will receive (i) repayment of a loan, in the amount up to $265,000 from
the assets available for distribution prior to the Placement investors
liquidation distribution (other than return of the Placement investor’s funds)
and (ii) twenty percent (20%) of the assets available for distribution from such
liquidation and the investors shall receive eighty (80%) percent of the assets
available for distribution from such liquidation. In the event the Company
successfully completes an IPO, the Class A Common stockholders have authorized
Ailon Z. Grushkin, President and Director of the Company, to amend the
Certificate of Incorporation to provide for “perpetual
existence.”
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
1 — Organization, Proposed Business Operations, Going Concern and
Management Plans – (continued)
Going
Concern and Management Plans
The
Company’s ability to commence operations and realize its business plan is
dependent upon its ability to complete the proposed public offering. There is no
assurance that the Company will complete the proposed initial public offering or
that the completion of the proposed initial public offering will lead to the
successful execution of the Company’s business plan. Further, as noted above,
should the Company be unable to complete the IPO by November 25, 2010, unless
the IPO date is extended by the affirmative vote of a majority of the Placement
Class A Common stockholders, the Company’s existence shall be terminated and its
affairs shall be wound up and the Company shall liquidate. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going
concern.
The Company has already completed the
first phase of its plan which was to raise funds in the private equity markets
through the Placement. The next phase of the plan is to effectuate the IPO. On
February 24, 2010, the Company engaged the Placement Agents to act as its
exclusive placement agents on a firm commitment basis in connection with a
proposed IPO raising $25,000,000 through the issuance of 5,000,000 IPO Units,
not including the 15% overallotment. Each IPO Unit shall have an offering price
of $5.00 per Unit and will consist of one share of common stock and one warrant.
Each warrant entitles the holder to purchase one share of our common stock at a
price of $5.75. Each warrant will become exercisable upon the effectiveness of
the registration statement, and will expire five years from the effective date
of the registration statement, or earlier upon redemption. Following the IPO the
Company’s strategy is to achieve long-term appreciation in the value of its
indium stockpile, and not to actively speculate with regard to short-term
fluctuations in indium prices. The Company plans to achieve long-term
appreciation in the value of its indium stockpile primarily through price
appreciation of the physical metal. While it is not the Company’s current
intention to do so in the short term, at its discretion, the Company may
subsequently lend or sell some or all of its indium stockpile based on market
conditions. Although the price of indium has declined substantially since 2005,
it is the Company’s belief that the long-term industry prospects for indium are
attractive and over time the price of the metal will appreciate. The Company’s
indium is and will be physically stored in third-party facilities. The Company’s
Manager will use its best effort to fully insure the stockpile. There will be no
custodial services provided by the third party storage facilities that the
Company contracts with.
Note
2 — Summary of Significant Accounting Policies
Development
Stage Entities
The
Company’s principal activities since formation have centered on raising capital,
acquiring indium, and beginning to look toward the longer term plan of pursuing
an IPO. Accordingly, the Company remains a development stage company as of
December 31, 2009 as defined by the Financial Accounting Standards Board
(“FASB”), Accounting Standards Codification (“ASC”) or FASB ASC 910-10. To date
the Company is still in the raising capital stage and is substantially devoting
all of its efforts to establishing itself as a new business and has no revenue
to date. The Company has not commenced its principal
operations.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
– (continued)
Revenue
Recognition
The
Company envisions that its stockpile of indium may be used from time to time for
“direct sale” and or “lending” transactions. Under a “direct sale” transaction
the Company would record a gain (loss) equal to the difference between the
proceeds received from the sale of indium and the indium carrying value. The
Company may also elect to enter into a lending transaction. In indium lending
transactions, the Company would exchange a specified tonnage and purity of
indium for cash. Title and the risks and rewards of such indium ownership would
pass to the purchaser/counterparty in the lending transaction. The Company would
simultaneously enter into an agreement with such counterparty in which the
Company would unconditionally commit to purchase and the counterparty would
unconditionally commit to sell a specified tonnage and purity of indium that
would be delivered to the Company at a fixed price and at a fixed future date in
exchange for cash (the Unconditional Sale and Purchase Agreement or “USPA”). The
USPA would also contain terms providing the counterparty with substantial
disincentives (“penalty fees”) for non-performance of the return of indium to
the Company as a means to assure the Company’s future supply of indium. While
the Company believes that this risk would be mitigated by the penalty fee
features of the USPA, it is nonetheless a risk associated with a transaction of
this type. The Company anticipates recognizing revenues on purchases and sales
of indium under these arrangements in accordance FASB ASC 845-25 “Non-Monetary
Transactions” and “Accounting for Purchases and Sales of Inventory with the Same
Counterparty.” Accordingly, the Company will disclose unconditional purchase
obligations under these arrangements (“Disclosure of Long Term Obligations”)
and, if applicable, accrue net losses on such unconditional purchase obligations
in accordance with FASB ASC 440-10-50.
Income
Taxes
The
Company follows FASB ASC 740 as it relates to “Accounting for Income Taxes”.
Under FASB ASC 740, the Company establishes financial accounting assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Any
significant difference between amounts recognized for book purposes versus tax
purposes would be accounted for and disclosed accordingly. During the period
represented by the financial statements, there were no such transactions. The
codification clarifies the accounting for uncertainty in income taxes recognized
in an entity’s financial statements and prescribes a recognition threshold and
measurement attributes for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. The impact of an uncertain income tax
position(s) on the income tax return must be recognized at the largest amount
that is more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally, the ASC provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. During the period under review,
there were no such amounts that were recorded or in need of disclosure. Further,
no tax benefit was recorded by the Company at 12/31/09 and 12/31/08 stemming
from the accumulated losses during the development stage since the longevity of
the Company is not yet known due to the liquidation vote of the private equity
investors (discussed below) should the IPO not be completed within the
prescribed one-year period. Consequently, the tax benefit is not reasonably
assured and therefore not recorded.
Start-Up
Costs
The
Company follows the guidance of FASB ASC 720-15 as it relates to the “Reporting
on the Costs of Start-Up Activities”. This codification provides guidance on the
financial reporting of start-up costs and organizational costs. It requires the
costs of start-up activities and organizational costs to be expensed as
incurred.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
– (continued)
Inventory
of the Metal Indium
In
accordance with FASB ASC 330-10, the Company’s inventory or “stockpile” of the
metal indium will be recorded at cost including all associated costs of
delivering the indium to the bonded storage warehouse on the date we take
delivery of the physical metal. The stockpile of the physical metal indium will
be carried at the lower of cost or market with cost being determined on a
specific identification method and market being determined as the net realizable
value based on a variety of factors which could include among other things, spot
prices obtained from Metal Bulletin on Bloomberg L.P., a real-time financial
information services data platform, current levels of supply and demand and
general economic conditions. Further, the Company will periodically review the
indium stockpile to determine if a loss should be recognized where the utility
of indium has been impaired on an other-than-temproary basis. Where such
impairment is viewed as something other than temporary, the Company will charge
against earnings the value by which the fair market value is less than the cost.
Realized gains (losses) from other transactions will be determined for income
tax and for financial reporting purposes on a specific identification method
when incurred.
The
Company envisions that its stockpile of indium may be used from time to time for
“direct sale” and or “lending” transactions. Under a “direct sale” transaction
it will record a gain (loss) equal to the difference between the proceeds
received from the sale of indium and the indium carrying value. The Company may
also elect to enter into a lending transaction. In indium lending transactions,
it would exchange a specified tonnage and purity of indium for cash. Title and
the risks and rewards of such indium ownership would pass to the
purchaser/counterparty in the lending transaction. The Company will
simultaneously enter into an agreement or USPA, with such counterparty in which
it would unconditionally commit to purchase and the counterparty would
unconditionally commit to sell a specified tonnage and purity of indium that
would be delivered to the Company at a fixed price and at a fixed future date in
exchange for cash. The USPA would also contain terms providing the counterparty
with substantial disincentives (“penalty fees”) for non-performance of the
return of indium to the company as a means to assure the Company’s future supply
of indium. While the Company believes that this risk is somewhat mitigated by
the penalty fee features of the USPA, it is nonetheless a risk associated with a
transaction of this type. The Company anticipates recognizing revenues on
purchases and sales of indium under these arrangements in accordance FASB ASC
845-25 “Non-Monetary Transactions” and “Accounting for Purchases and Sales of
Inventory with the Same Counterparty.” Accordingly, the Company will disclose
unconditional purchase obligations under these arrangements (“Disclosure of Long
Term Obligations”) and, if applicable, accrue net losses on such unconditional
purchase obligations in accordance with FASB ASC 440-10-50.
Accounting
for Direct Sales and Lending Transactions
The
Company envisions that its stockpile of indium may be used from time to time for
“direct sale and or “lending” transactions. Under a “direct sale” transaction
the Company would record a gain (loss) equal to the difference between the
proceeds received from the sale of indium and the indium carrying value. The
Company may also elect to enter into a lending transaction. In indium lending
transactions, the Company would exchange a specified tonnage and purity of
indium for cash. Title and the risks and rewards of such indium ownership would
pass to the purchaser/counterparty in the lending transaction. The Company would
simultaneously enter into an agreement with such counterparty in which the
Company would unconditionally commit to purchase and the counterparty would
unconditionally commit to sell a specified tonnage and purity of indium that
would be delivered to the Company at a fixed price and at a fixed future date in
exchange for cash (the USPA). The USPA would also contain terms providing the
counterparty with substantial disincentives (“penalty fees”) for non-performance
of the return of indium to the Company as a means to assure the Company’s future
supply of indium. While the Company believes that this risk would be mitigated
by the penalty fee features of the USPA, it is nonetheless a risk associated
with a transaction of this type. The Company anticipates recognizing revenues on
purchases and sales of indium under these arrangements in accordance FASB ASC
845-25 “Non-Monetary Transactions” and “Accounting for Purchases and Sales of
Inventory with the Same Counterparty.” Accordingly, the Company will disclose
unconditional purchase obligations under these arrangements (“Disclosure of Long
Term Obligations”) and, if applicable, accrue net losses on such unconditional
purchase obligations in accordance with FASB ASC 440-10-50.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
– (continued)
Share
Based Payment Arrangements
The
Company accounts for employee share based payment arrangements in accordance
with the provision of FASB ASC 718-10-S99, “Share-Based Payments” (“SBP”). This
statement addresses all forms of SBP awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. In accordance with this statement, awards result in a cost
that is measured at fair value on the awards’ grant date, based on the estimated
number of awards that are expected to vest and will result in a charge to
operations. As the Company only recently adopted an equity incentive plan but
has not yet issued any employee SBP’s there is currently no compensation to be
recorded in accordance therewith for the periods. As noted in note 6 below, our
Chief Financial Officer, Mr. Morena will be issued, subject to the completion of
an initial public offering, stock options to purchase 50,000 shares of the
Company’s common stock at an exercise price equal to $7.50 per share, for a
period of five years and stock options to purchase 30,000 shares of the
Company’s common stock at an exercise price equal to $4.50 per share, for a
period of five years. Additionally, Mr. Morena will receive an award of 30,000
options annually thereafter on terms to be established by the board of directors
and compensation committee of the board of directors.
Basic
and Diluted Loss per Share
The
Company computes net loss per share in accordance with FASB ASC 260-10,
“Earnings per Share”. This codification requires presentation of both basic and
diluted earnings/(loss) per share (“EPS”) on the face of the statement of
operations. Basic EPS is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares outstanding
during the year. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period including stock options and warrants, using
the treasury stock method and convertible debt using the if-converted method. If
anti-dilutive, the effect of outstanding warrants and options is ignored. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock option or warrants. For the year ended December 31, 2009 and the period
ended December 31, 2008, basic and diluted EPS loss per share are based upon a
weighted average number of shares of 152,917 and 150,000 common shares
outstanding, respectively. For the years ended December 31, 2009 and
2008, the number of common shares potentially issuable upon the exercise of
certain options of 229,999 and 74,999, respectively have not been included in
the computation of diluted EPS since the effect would be antidilutive. In
addition, for the year ended December 31, 2009, the Class A common shares of
1,003,600 have not been included in the computation of diluted EPS since the
effect would be antidilutive.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company accounts for the issuance of common stock purchase warrants and other
free standing derivative financial instruments in accordance with the provisions
of FASB ASC 505. Based on the provisions as contained therein, the Company
classifies as equity any contracts that (i) require physical settlement or
net-share settlement or (ii) gives the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company) or (ii)
gives the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement). The Company assesses
classification of its common stock purchase warrants and other free standing
derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
The
Company’s outstanding warrants are exercisable only upon the successful
completion of the proposed IPO and will become subject to a classification
assessment at the time they become exercisable. Notwithstanding, the Company, as
a matter of policy, will evaluate any common stock purchase warrants or other
free standing derivatives at each reporting date to assess their proper
classification using the applicable classification criteria enumerated in FASB
ASC 505.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
– (continued)
Use
of Estimates
The
preparation of the financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The most significant estimates relate to income tax, contingencies, and
revenue recognition. Actual results could differ from those
estimates.
Concentration
of Credit Risk
The
Company considers all highly liquid securities with maturities of three months
or less when purchased as cash and cash equivalents. The Company maintains cash
deposits with banks that at times exceed applicable insurance limits. The
Company reduces its exposure to credit risk by maintaining such deposits with
high quality financial institutions. The Company has not experienced any losses
in such accounts. At December 31, 2009, the Company had cash on
deposit of approximately $3,355,228 in excess of federally insured limits of
$250,000.
Fair
Value of Financial Instruments
For cash
and cash equivalents, accrued expenses, and other liabilities, the carrying
amount approximates the fair value because of the immediate or short term nature
of those instruments. The carrying amount of notes payable approximates fair
value due to the length of the maturity of the underlying note and the interest
rate which is comparable to market rates currently available to the
Company.
FASB
Accounting Standards Codification
The
Company follows the FASB Statement of Financial Standards No. 168 –
The Financial Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
(the “Codification or ASC”) which was issued on July 1, 2009
and became effective for all interim and annual reporting periods ending after
September 15, 2009. The Codification is the authoritative source of U.S.
generally accepted accounting principles (“GAAP”) recognized by the FASB and be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. On the
effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This Statement replaces FASB Statement 162
Statement No. 162,
The
Hierarchy of Generally Accepted Accounting Principles
to indicate this
change to the GAAP hierarchy. The Company complies with the
Codification.
Recently
Issued Accounting Pronouncements
FASB ASC
820 provides guidance as to “
Fair Value Measurement and
Disclosures
”. This Codification establishes a framework for measuring
fair value and expands disclosures about fair value measurements. The changes to
current practice resulting from the application of this codification relate to
the definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. The Company adopted the
provisions of FASB ASC 820 at the date of the Company’s inception on January 7,
2008. FASB ASC 820 permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
Subsequent unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings. This adoption did not have a
material impact on the Company’s financial position, results of operations or
cash flows, however, this pronouncement may have an effect in the
future.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
– (continued)
Recently
Issued Accounting Pronouncements (continued)
FASB ASC
250-05 provides guidance as to “
Accounting Changes and Error
Corrections
” and FASB ASC 250-S55 discusses, “Considering the Effects of
Prior Misstatements When Quantifying Misstatements in Current Year Financial
Statements”. FASB ASC 250-S55 provides guidance on how the effects of the carry
over or reversal of prior year financial statement misstatements should be
considered in quantifying a current year misstatement. Prior practice allowed
the evaluation of materiality on the basis of (i) the error quantified as the
amount by which the current year income statement was misstated (rollover
method) or (ii) the cumulative error quantified as the cumulative amount by
which the current year balance sheet was misstated (iron curtain method).
Accordingly, reliance on either method in prior years could have resulted in
misstatement of the financial statements. The guidance provided in FASB
ASC250-S55 requires both methods to be used in evaluating materiality.
Immaterial prior year errors may be corrected with the filing of prior year
financial statements after adoption. The cumulative effect of the correction
would be reflected in the opening balance sheet with appropriate disclosure of
the cause of the error and that error had been deemed to be immaterial in the
past. The adoption of this pronouncement did not have any material effects on
the Company’s financial position, results of operation, or cash
flows.
FASB ASC
718-740-50 provides guidance for the “
Accounting for Income Tax Benefits
on Dividends on Share-Based Payment Awards
” and addresses share-based
payment arrangements with dividend protection features that entitle employees to
receive (a) dividends on equity-classified non-vested shares, (b) dividend
equivalents on equity-classified non-vested share units, or (c) payments equal
to the dividends paid on the underlying shares while an equity-classified share
option is outstanding, when those dividends or dividend equivalents are charged
to retained earnings under FASB ASC 718 and result in an income tax deduction
for the employer. A realized income tax benefit from dividends or dividend
equivalents that are charged to retained earnings are paid to employees for
equity-classified non-vested shares, non-vested equity share units, and
outstanding equity share options should be recognized as an increase in
additional paid in capital. The amount recognized in additional paid-in capital
for the realized income tax benefit from dividends on those awards should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payments. The Company does not expect that the
adoption of this pronouncement had a material impact on its financial position
or results of operations.
In
January 2010, FASB ASC 505 provided guidance on “
Accounting for Distributions to
Shareholders with Components of Stock and Cash
”. This codification
clarifies that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and EPS).
Those distributions should be accounted for and included in the EPS calculations
in accordance with paragraphs 480-10-25-14 and 260-10-45-45 through 45-47 o the
FASB Accounting Standards Codification. The Company does not envision any such
distributions to shareholders and thus does not expect that the adoption of this
pronouncement had a material impact on its financial position or results of
operations.
In
December 2009, the FASB ASC 860 “
Accounting for Transfers of
Financial Assets
” was issued. This codification addresses the transfers
of financial assets where there is a continuing involvement by the transferor
either with the transferred assets or with the transferee. This codification
raises issues about the circumstances under which the transfers should be
considered sales or partial sales and thus established standards for resolving
those issues. The Company may from time to time direct sell or lend indium. In
each case title and risk of loss shall pass and hence the “continuing
involvement” is eliminated. Accordingly, the Company does not believe that the
adoption of this pronouncement will have a material impact on its financial
position or results of operations.
In August
2009, the FASB ASC 820 “Fair
Value Measurements and Disclosures –
Measuring Liabilities at Fair Value
” was issued. This
codification discusses the need to have ready available market fair value
determinants for liabilities. As noted in the attached financials, the principal
liability is the debt and accrued interest. These are at fair market value and
hence no additional disclosure is deemed necessary. Should other liabilities
arise, the Company will follow the guidance set forth herein to measure those
liabilities at fair value in accordance with FASB ASC 820.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Recently
Issued Accounting Pronouncements (continued)
In
May 2009, the FASB issued ASC 855, “Subsequent Events.” This
Statement sets forth: 1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; 2)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This Statement is effective for interim
and annual periods ending after June 15, 2009. The adoption of this
Statement did not impact the Company’s financial position and results of
operations.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s financial statements
upon adoption.
Note
3 — Proposed Public Offering
The
Company is currently pursuing the registration of securities on Form S-1 (the
“Registration Statement”) for the public offering of securities. The proposed
public offering calls for the Company to offer for public sale up to 5,000,000
units at a proposed offering price of $5.00 per unit (plus up to 750,000 units
to cover over-allotments, if any). Each IPO unit consists of one share of the
Company’s common stock and one redeemable common stock purchase warrant. Each
warrant will entitle the holder to purchase from the Company one share of common
stock at an exercise price of $5.75 per share commencing with the effective date
of the registration statement and expiring five years from the effective date of
the proposed offering. The warrants also contain a call feature that permits the
Company to redeem the warrants at a price of $.01 per warrant at any time after
the warrants become exercisable, upon providing at least 30 days advance written
notice of redemption and if, and only if, the last sales price of the Company’s
common stock equals or exceeds $8.00 per share for any 20 trading days within a
30 trading day period ending three business days before the Company sends the
notice of redemption. In addition, the Company may not redeem the Warrants
unless the warrants comprising the units sold in the proposed offering and the
shares of common stock underlying those warrants are covered by an effective
registration statement from the beginning of the measurement period through the
date fixed for the redemption.
If the
foregoing conditions are satisfied and the Company calls the warrants for
redemption, each warrant holder shall then be entitled to exercise their
warrants prior to the date scheduled for redemption. The redemption provisions
for the Company’s warrants have been established at a price which is intended to
avail to the warrant holders a premium in the market price as compared to the
initial exercise price. There can be no assurance, however, that the price of
the common stock will exceed either the redemption price of $8.00 or the warrant
exercise price of $5.75 after the Company calls the warrants for
redemption.
The
Company will pay the underwriters in the proposed offering an underwriting
discount of 5% of the gross proceeds of the proposed offering. Additionally, the
Company will incur a fee for non accountable expense equal to 1% percent of the
gross proceeds of the proposed offering. The estimated offering expenses are
expected to be approximately 2% of the gross proceeds of the offering. The
Company will also issue a unit purchase option (“UPO”) to the underwriters or
their designees, equal to 5% of the aggregate number of Units sold in the
Offering (excluding the over-allotment option), upon the consummation of the
proposed offering. The UPO allows the underwriters to purchase Units at an
exercise price of 110% of the price per unit in the proposed offering (or $5.50
per share). The associated warrants in connection with this unit purchase option
are exercisable at $5.75. The Company intends to account for the fair value of
this purchase option as an expense of the proposed public offering resulting in
a charge directly to stockholders’ equity. The Company shall also engage the
underwriters as its exclusive advisors with respect to the solicitation of the
exercise of the Warrants and, subject to applicable FINRA rules, shall pay the
underwriters a fee equal to 5% of the gross proceeds received from the exercise
of such Warrants.
Note
4 — Deferred Offering Costs
In
accordance with FASB ASC 340-10, in 2008 the Company capitalized its deferred
offering costs in connection with its abandoned initial public offering. Because
of the lack of liquidity in the equity markets, in early 2009, the Company
withdrew the offering and the Company wrote off the deferred offering costs in
the amount of $231,489 which were sustained in connection with the Company’s
attempt to go public in 2008. Due to the lack of liquidity in the equity markets
and correlating lack of liquidity in the public offering markets, the Company
wrote off the deferred offering costs and accordingly such amounts were charged
against operations in 2009.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
5 — Related Party Transaction
In
accordance with FASB 850-50 “Related Party Disclosures”, some of the Company’s
executives are also members of the Manager, Specialty Metals Group Advisors, LLC
(“SMG Advisors” or the “Manager”). Prior to the consummation of the PPM, on
November 25, 2009 the Company entered into a management services agreement with
SMG Advisors to engage them to perform certain services on behalf of the
Company. The Manager is also considered to be a variable interest entity with
its members being the primary obligors. Pursuant to the management services
agreement, the Manager will be responsible for: (i) the purchase and sale of
indium, (ii) submission of written reports detailing the delivery and payment
particulars regarding each purchase and sale to the Company’s Board of
Directors, (iii) arrange for the storage of indium and prepare a report on the
net market value of the Company’s common stock, (iv) prepare regulatory filing
materials, reports to the Company’s stockholders and other reports to its Board
of Directors and (v) generally manage the Company’s business and affairs. Upon
the initial closing of the minimum funds sought in connection with the PPM, the
Company issued to the Manager a five-year stock option exercisable for 155,000
shares of common stock at an exercise price of $4.50 per share (the “Manager
Options”). The Manager Options are not exercisable until the completion of the
IPO in which the Company files a registration statement with the SEC and raises
a minimum amount of $5,000,000 gross proceeds.
The
management services agreement has an initial term of five years with options to
renew the agreement on terms mutually acceptable to each party and may be
terminated by either party upon 90 days prior written notice. The Company is
responsible for paying all costs and expenses incurred in connection with the
business, except those expressly assumed by the Manager. The Company will pay
the Manager a fee equal to 2% per annum of its net market value, which will be
paid monthly. In addition, the Company will pay the Manager a transaction based
fee of $200,000 for services in connection with any offering of equity or debt
securities in excess of $25,000,000 (not including the IPO). The Manager has
agreed to waive the management fee, and such management fee will not begin to
accrue until completion of an IPO. The members of SMG Advisors, and the
positions they hold in the Company, are as follows: Ailon Z. Grushkin,
President; Richard A. Biele, Chief Operating Officer; and Alan Benjamin,
Chairman and Chief Executive Officer. SMG Advisors is managed by Ailon Z.
Grushkin.
On
January 7, 2008, the Company agreed to reimburse its Chief Operating Officer
Richard Biele or his affiliates commencing upon the successful completion of the
offering for office, secretarial and related office expenses as follows: (1)
$1,200 per month for rent; (2) reimbursement for up to 20% of his secretary’s
salary and healthcare benefits; and (3) office expenses directly related to the
Company’s operations. The Company will continue to reimburse its Chief Operating
Officer or his affiliates for rent and other office-related expenses as set
forth above. For the year ended December 31, 2009 and for the period ended
December 31, 2008, there were no such expenses incurred (or accrued) in
connection with this agreement to be recorded in the accompanying financial
statements.
On June
5, 2009, the Company awarded 5,000 shares of common stock to the CFO in
connection with his work for the Company since inception. Should the IPO be
completed, the value of these shares at the IPO date would approximate $5 per
share and thus would compensate the CFO for an amount approximately equal to his
annual base salary. This discretionary award is in consideration for the
significant unpaid time the CFO has worked on various business matters for the
Company since the inception date of January 7, 2008.
On
January 8, 2008, the Company entered into a revolving line of credit with the
Manager in the aggregate amount of $300,000 (the “Revolver’). The line of credit
was used to fund the deferred offering costs incurred by the Company in
connection with its attempt to go public in 2008. To date, the Company has
borrowed $265,000 under the line of credit. Borrowings under the line are
unsecured and bear interest at the rate of six percent per annum. As of the
balance sheet date, 723 days have been accrued thereunder and the Company has
recorded a charge to operations of $29,658 in connection therewith. On January
25, 2010, the Company amended its revolving line of credit as follows: (i) the
maturity date was amended to be due and payable on the earlier of (a) the date
the Company completes an IPO; (b) the date of a dissolution, liquidation,
winding up or insolvency proceeding commenced by or on behalf of the Company in
the event the Company does not complete the IPO; or (c) February 25, 2011. Upon
consummation of the proposed offering, such amount due to the Manager will be
automatically converted into 150,000 common stock options exercisable at $4.50
per share for a period of five years following the IPO.
On
February 8, 2010, the Company entered into a common stock for option exchange
with the Manager. Upon consummation of this offering, 75,000 shares of common
stock owned by the Manager will automatically be converted into 150,000 common
stock options exercisable at $4.50 per share for a period of five years
following the IPO.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
5 — Related Party Transaction (continued)
Traxys
Projects LP, a joint venture in which Traxys North America LLC has a 50%
interest, and Traxys Commodity Fund LP each invested $500,000 in the Company’s
2009 Placement. This represents beneficial ownership in the Company of
7.6% and 7.6%, respectively, prior to this offering and 1.7% and 1.7%,
respectively, if the Company successfully completes the proposed offering.
The Company purchased an aggregate 7.2 tons of indium, approximately 78.1% of
its current stockpile, from Traxys North America LLC utilizing proceeds from the
2009 Placement in which the Company expended approximately $4.6 million between
December 2009 and March 2010 in 21 separate purchase orders. Traxys North
America LLC is an established reputable indium supplier. The Company did not and
does not have any outstanding special agreements or arrangements with Traxys
North America LLC. An affiliate of Traxys North America LLC receives
management fees from Traxys Commodity Fund LP. Such affiliate, together with the
CEO and Chairman of Traxys North America LLC have management responsibilities in
Traxys Projects LP and Traxys Commodity Fund LP.
Note
6 — Commitments and Contingency
On behalf
of the Company, the Manager began making purchases of indium upon consummation
of the Placement in December 2009. The Company’s current Certificate of
Incorporation provides for the termination of the Company on November 25, 2010
(the “Corporation Termination Date”). As a condition of a the Placement, if the
Company has not completed an Initial Public Offering of securities within 12
months of the closing of the Placement, then the Company’s existence shall
terminate unless extended by the majority vote of the Class A Common
Stockholders for another 12-month period. In the event the Company terminates
its existence, it will liquidate and return all remaining proceeds from such
liquidation to the Placement investors. Class A Common Stock received in the
Placement has liquidation rights senior in priority to the Common Stock
shares. However, in the event the Company liquidates and the NMV has
increased on the liquidation date due to the appreciation of the indium
stockpile, following the return of Placement investor’s funds, the Manager will
receive (i) repayment of a loan, in the amount up to $265,000 from the assets
available for distribution prior to the Placement investors liquidation
distribution (other than return of the Placement investor’s funds) and (ii)
twenty percent (20%) of the assets available for distribution from such
liquidation and the Placement investors shall receive eighty (80%) percent of
the assets available for distribution from such liquidation. In the event the
Company successfully completes an IPO, the Class A Common stockholders have
authorized Ailon Z. Grushkin, President and Director of the Company, to amend
the Certificate of Incorporation to provide for “perpetual
existence.”
The
Company entered into an annual employment arrangement with Richard T. Morena,
the Company’s Chief Financial Officer that will provide for an annual base
salary of $30,000 to be paid in quarterly installments of $7,500. The Company
awarded Mr. Morena 5,000 shares of common stock on June 5, 2009 in connection
with his services since the Company’s inception. Using the NMV at the proposed
IPO date of $4.50, these shares have an assumed value of $22,500. As
noted above, Mr. Morena has also been awarded stock options to purchase 50,000
and 30,000 shares of the Company’s common stock at exercise prices equal to
$7.50 and $4.50 per share of common stock, respectively, exercisable subject to
the completion of the offering, for a period of five years. Additionally, Mr.
Morena will receive an award of 30,000 options annually thereafter on terms to
be established by the board of directors and compensation committee of the board
of directors.
In
connection with the commencement of the Company’s proposed initial public
offering, the Company’s Board of Directors adopted and the Company’s
stockholders approved the 2008 Equity Incentive Plan (the “Plan”) in its
entirety in January 2008. Under the Plan, the Company may grant incentive stock
options, non-qualified stock options, restricted and unrestricted stock awards
and other stock-based awards. A maximum of 550,000 shares of common stock has
been reserved for issuance under this plan. In 2008, the Company had agreed to
grant 8,333 options to purchase common stock to each of the Company’s three
independent directors and 50,000 options to the Company’s Chief Financial
Officer. Exercise of these options is contingent upon the successful completion
of the IPO. The options will be exercisable at $7.50 per share, subsequent to
the completion of the IPO for a period of five years. In 2010, the Company has
agreed to grant an additional 5,000 options to purchase common stock to each of
the Company’s four independent directors and 30,000 options to the Company’s
Chief Financial Officer. Exercise of these options is contingent upon the
successful completion of the IPO. The options will be exercisable at $4.50 per
share, subsequent to the completion of the IPO for a period of five years. The
Company estimates that the fair value of the 2008 option grant of 24,999
director’s options will be approximately $28,249 and Mr. Morena’s 50,000 options
will be approximately $56,500 using the Black-Scholes option pricing model,
assuming the successful completion of the IPO at the proposed unit offering
price of $5.00 per share. The Company estimates that the fair value of the 2010
option grant of 20,000 director’s options will be approximately $36,800 and Mr.
Morena’s 30,000 options will be approximately $55,200 using the Black-Scholes
option pricing model, assuming the successful completion of the offering at the
proposed unit offering price of $5.00 per share. The fair value of these options
granted to the directors and
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
6 — Commitments and Contingency (continued)
officers
is estimated as of the date of grant using the following assumptions: (i)
expected volatility of 42.40%; (ii) risk free interest rate of 2.88%; and (iii)
a term of 5 years. The volatility rate was based upon the six month average
volatility of the closest analogue to the Company, Uranium Participation Corp.,
which stockpiles a single minor metal: uranium. The assumed discount
rate was the default risk free interest rate provided by Bloomberg L.P. on March
18, 2010. The valuation of these options is an estimate and at the time the IPO
is consummated the options will be valued again and the value may
change.
Note
7 — Class A Common Stock
The
Company’s Class A common stock consists of authorized shares of 2,000,000; $.001
par value. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up of the Corporation, all the
assets of the Corporation of whatever kind available for distribution shall be
distributed as follows: (i) first, to the preferred stock; (ii) second to the
Class A common stockholders up to an amount equal to such Class A common
stockholders pro rata portion of their initial Placement investment in the Class
A common stock; (iii) third, to the Manager up to $265,000 plus accrued
interest; and (iv) fourth, the remainder of the assets on liquidations shall be
distributed 20% to the Manager and 80% to the Class A Common Stockholders.
Additionally, without the approval of a majority of the voting power of the
Class A common stock, voting as a separate class, the Company shall not be
authorized to issue, redeem or retire any shares of preferred stock, for so long
as any Class A common stock is outstanding. The holders of the Class A common
stock shall be entitled to receive, share for share with the holders of the
common stock, such dividends, if and when declared from time to time by the
Board of Directors of the Company. In the event that such dividend is paid in
the form of shares of the Company, the holders of Class A common stock shall
receive Class A common stock. Holders of Class A Common Stock shall be entitled
to one vote for each share of Class A common stock held as of the applicable
date on any matter that is submitted to a vote or for the consent of
stockholders of the Company. The holders of Class A common stock, together with
the holders of the common stock shall exclusively possess all voting power and
shall at all times vote on all matters (including, without limitation, the
election of directors). Upon the completion of an IPO of the Company’s
securities, pursuant to which the Company files a registration statement with
the SEC and raises a minimum amount of $5,000,000 of gross proceeds in a public
offering and thereupon becomes subject to the periodic and other reporting
obligations of the SEC, all outstanding shares of Class A common stock shall
automatically be converted into shares of common stock. Such shares shall be
increased for the IPO event as follows: (i) if the IPO is completed within one
year (November 25, 2010) such shares shall be increased by 10% of the number of
units the Placement investor purchased in the Placement; (ii) if the IPO event
should occur in the second year (i.e. after 11/25/10 but before 11/25/11), then
such shares shall be increased by 20% of the number of units the Placement
investor purchased in the Placement; and (iii) such shares shall also be
adjusted for increases or decreases in the NMV of the Company’s indium holdings
as follows:
Note
8 — Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors. At December 31, 2009 and 2008, there
were no outstanding preferred shares.
SMG
INDIUM RESOURCES LTD.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
Note
9 – Segment Information
The
Company operates a single segment business in which it owns and accumulates
stockpiles of indium. At December 31, 2009, the Company’s management calculated
the NMV of the Company to be $4,553,580. The Company’s management monitors the
performance of this segment based, in part, on the changes in NMV. This NMV,
which gives effect to the fair value of indium, exceeds the Company’s net book
value of $4,476,344 by $77,236. The $77,236 represents the excess of the indium
spot value of $492.50 (as published in Metal Bulletin posted on Bloomberg LP
(Bloomberg LP is not regulated or government approved)) relating to the 2,535
kilograms of indium owned as of December 31, 2009 for a value of $1,248,289
versus its historical book value $1,171,053. The Company’s business strategy is
to achieve long-term appreciation in the value of its indium stockpile and not
to actively speculate with regard to short-term fluctuations in indium prices.
Note
10 – Subsequent Events
On
January 8, 2010, the Placement’s final closing date, the Company sold 160,000
additional Units for net proceeds of $800,000. No fees were paid out in
connection with the sale of these additional Units. The aggregate monies secured
in connection with the Placement totaled $5,818,000. After deducting the
$220,000 in expenses associated with legal fees and Placement Agents’ expenses
and commissions, the net proceeds available under the Placement amounted to
approximately $5,598,000 of which 90% or $5,038,200 was available for indium
purchases and $559,800 was to be used for general working capital purposes. The
total Class A common shares and warrants issued in connection with the Placement
were 1,163,600. After including the broker warrants of 37,800 the total warrants
issued aggregated 1,201,400.
In
January, February and March 2010, the Company continued to stockpile indium. The
Company purchased and took delivery of approximately 6.7 tons of indium with an
aggregate purchase price of $3,419,963 between January 1, 2010 and March 31,
2010. That brings the cumulative purchased and delivered indium to date of
approximately 9.2 Tons for $4,591,015 and thus leaves $447,185 of indium to be
purchased to fulfill the 90% requirement outlined in the Placement for indium
purchases.
On
January 25, 2010, the Company amended its revolving line of credit as follows:
(i) the maturity date was amended to be due and payable on the earlier of: (a)
the date the Company completes an IPO; (b) the date of a dissolution,
liquidation, winding up or insolvency proceeding commenced by or on behalf of
the Company in the event the Company does not complete the IPO; or
(c) November 25, 2011. Upon consummation of this offering, such
amount due to the Manager will be automatically converted into 150,000 common
stock options exercisable at $4.50 per share for a period of five years
following the IPO.
On
February 8, 2010, the Company entered into a common stock for option exchange
with the Manager. Upon consummation of this offering, 75,000 shares of common
stock owned by the Manager will automatically be converted into 150,000 common
stock options exercisable at $4.50 per share for a period of five years
following the IPO.
Immediately
preceding the consummation of the proposed IPO, the Company will amend its
Certificate of Incorporation to extend the life of the company to perpetuity, as
stated in the 2009 Private Placement Memorandum. In addition, it will increase
the number of authorized common stock by 25,000,000 shares to 30,000,000 in
total.
The
Company evaluates events that have occurred after the balance sheet date but
before the financial statements are issued. Based upon the evaluation, the
Company did not identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the financial
statements.
[Alternate
Page for Selling Securityholder Prospectus]
SUBJECT
TO COMPLETION, DATED
,
2010
PROSPECTUS
SMG
INDIUM RESOURCES LTD.
________________
Shares of Common Stock
This prospectus relates to the offer
for sale of
shares of common stock, par value $.001 per share, by the existing
holders of the securities named in this prospectus, referred to as selling
stockholders throughout this prospectus.
The distribution of securities
offered hereby may be effected in one or more transactions that may take place
in the Nasdaq Capital Market, including ordinary brokers’ transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the selling securityholders. No sales of the shares
covered by this prospectus shall occur until the shares of common stock included
in the units sold in our initial public offering begin separate trading on the
NASDAQ Capital Market.
The
selling securityholders and intermediaries through whom such securities are sold
may be deemed “underwriters” within the meaning of the Securities Act of 1933,
as amended, with respect to the securities offered hereby, and any profits
realized or commissions received may be deemed underwriting compensation. We
have agreed to indemnify the selling securityholders against certain
liabilities, including liabilities under the Securities Act.
On
__________, 2010, a registration statement under the Securities Act with respect
to a public offering by us underwritten by Sunrise Securities Corp. and Rodman
& Renshaw, LLC of 5,000,000 units was declared effective by the Securities
and Exchange Commission. We will receive approximately $23,020,000 net proceeds
from the offering (assuming no exercise of the underwriters’ over-allotment
option) after payment of underwriting discounts and commissions and estimated
expenses of the offering.
Investing in our common stock involves
a high degree of risk. You should carefully consider the matters
discussed under the section entitled “Risk Factors” beginning on page 7 of this
prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus
is ,
2010.
[Alternate
Page for Selling Securityholder Prospectus]
THE
OFFERING
|
Common
stock offered by selling securityholders
|
______
shares (1)
|
|
Common
stock outstanding
|
______shares
(2)
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock by the
selling securityholders.
|
|
(1)
|
Includes
(i)
|
|
(2)
|
The
number of shares of our common stock outstanding as of
[ ], 2010, excludes (i)
[ ]
|
[Alternate
Page for Selling Securityholder Prospectus]
USE
OF PROCEEDS
We will
not receive any of the proceeds from the sale of the common stock by the selling
securityholders named in this prospectus. All proceeds from the sale of the
common stock will be paid directly to the selling securityholders. We may
receive proceeds from the exercise of the warrants. If all of the warrants
exercisable for shares of common stock being registered in this offering are
exercised, we could receive net proceeds of up to approximately $[__]. The
holders of the warrants are not obligated to exercise the warrants and we cannot
assure that the holders of the warrants will choose to exercise all or any of
the warrants.
We intend
to use the estimated net proceeds received upon exercise of the warrants, if
any, for working capital and general corporate purposes.
[Alternate
Page for Selling Securityholder Prospectus]
SELLING
SECURITYHOLDERS
An
aggregate of up to
[
]
shares may be offered by
certain stockholders who received notes and warrants in connection with our
private placement. See “
Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital
Resources
” and “
Description of Securities—Other
Outstanding Securities
.”
The
following table sets forth certain information with respect to each selling
securityholder for whom we are registering shares for resale to the public. No
material relationships exist between any of the selling securityholders and us
nor have any such material relationships existed within the past three years,
except that
[
]
.
Substantially
all of the shares of common stock held by the selling securityholders are
subject to a lock-up agreement under which the sale of such shares will be
restricted for a period of up to six months after the date of this prospectus
depending on the trading volume and market price of our common stock following
the date of our initial public offering. The representative of the underwriters
in our initial public offering may waive the terms of these
lock-ups.
The
representative of the underwriters may in its sole discretion and at any time
without notice release some or all of the shares subject to lock-up agreements
prior to the expiration of the lock-up period. When determining whether or not
to release shares from the lock-up agreements, the representative will consider,
among other factors, the securityholder’s reasons for requesting the release,
the number of shares for which the release is being requested and market
conditions at the time.
|
Number of Shares
|
Common Stock Beneficially
Owned After
Offering
|
|||||||||||||||
|
Selling
Securityholder
|
of Common Stock
Beneficially Owned
|
Shares Being
Offered
|
Number of Shares
Outstanding
|
Percent of Shares
|
||||||||||||
|
AZG
Tangible Assets Fund LLC
|
55,000 | 55,000 | 60,500 | 0.95 | % | |||||||||||
|
Alan
Benjamin
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Alan
Goldberg
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Alan
J. Bram
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Albert
W. Parulis Jr. & Lisa L. Parulis JT TEN/WROS
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
AZG
Capital PSP
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Bonnie
Marcus IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Daniel
M. Baron
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
David
Greenberg
|
10,000 | 10.000 | 11,000 | 0.17 | % | |||||||||||
|
David
Scannell
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Don
E. Wolff IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Douglas
Baron
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Douglas
Baron SEP IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Edward
Kaminsky
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Gary
Greenberg & Helene H-G JT
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Gerhard
Frenz & Emma Frenz JT TEN/WROS
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Germana
O. Biele IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Harold
Greenberg
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Henry
L. Marcus & Sheila Marcus JT TEN/WROS
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
James
W. Rich, Beneficiary IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
JCL
& PAL LTD
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Jerome
L. Grushkin IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Jesse
D. Roggen
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
John
F. Benjamin
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Jorge
Weingarten
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Joseph
B. Caggiano IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Joseph
Betti
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Kenneth
R. Makowka & Mary C. Makowka JT TEN/WROS
|
15,000 | 15,000 | 16,500 | 0.26 | % | |||||||||||
|
Lampert
Family Foundation
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Mark
Lampert
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Marvin
E. Lesser
|
23,600 | 23,600 | 25,960 | 0.41 | % | |||||||||||
|
Michael
S. Herron & Diane L. Lisowski JT TEN/WROS
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Michelle
S. Reitz
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
NexGen
RxMarketing, LLC
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Noam
N. Kruger
|
30,000 | 30,000 | 33,000 | 0.52 | % | |||||||||||
|
Orren
Grushkin
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Patricia
L. Woodruff
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Patrick
Hehir IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Patrick
J. Richardson & Billie H Richardson Tenants By
Entirety
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Raging
Capital Fund QP, LP
|
108,000 | 108,000 | 118,800 | 1.87 | % | |||||||||||
|
Raging
Capital Fund, LP
|
132,000 | 132,000 | 145,200 | 2.28 | % | |||||||||||
|
Randy
Dodd, SEP IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Red
Oak 86 LP
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Richard
A. Biele
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Richard
A. Biele IRA
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Richard
Morena
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Robert
F. Perry
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Sandra
Greenberg
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Sandra
Greenberg IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
Smith
Family Rev Living Trust
|
20,000 | 20,000 | 22,000 | 0.17 | % | |||||||||||
|
Surinder
Kumar & Janet J. Kumar JT TEN/WROS
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Technical
Diag Ser Def Ben Pen Plan
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Thomas
E. Woodruff Rev Trust
|
20,000 | 20,000 | 22,000 | 0.35 | % | |||||||||||
|
Thomas
F. Nolan & Patricia Nolan JT TEN/WROS
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Traxys
Commodity Fund LP
|
100,000 | 100,000 | 110,000 | 1.73 | % | |||||||||||
|
Traxys
Projects LP
|
100,000 | 100,000 | 110,000 | 1.73 | % | |||||||||||
|
William
C. Martin SEP IRA
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
William
E. Rosenthal Issue Trust
|
40,000 | 40,000 | 44,000 | 0.69 | % | |||||||||||
|
Ruth
Low
|
10,000 | 10,000 | 11,000 | 0.17 | % | |||||||||||
|
Neil
Moskowitz
|
30,000 | 30,000 | 33,000 | 0.52 | % | |||||||||||
|
Yitshak
Reichman
|
5,000 | 5,000 | 5,500 | 0.09 | % | |||||||||||
|
*
|
Less
than 1%
|
|
+
|
Except as indicated
by +,
no selling securityholder is an officer, director, affiliate
or 5% shareholder of ours.
|
|
^
|
Except
as indicated by a ^, no selling securityholder is a broker dealer or an
affiliate of a broker-dealer.
[Add info as
necessary].
|
|
(1)
|
[General footnote on breakdown
of shares across note shares and warrant
shares]
|
|
(2)
|
[
|
],
has voting and investment control over such
securities.
|
|
(3)
|
[
|
],
has voting and investment control over such
securities.
|
|
(4)
|
[
|
],
has voting and investment control over such
securities.
|
|
(5)
|
[
|
],
has voting and investment control over such
securities.
|
|
(6)
|
[
|
],
has voting and investment control over such
securities.
|
|
(7)
|
[
|
],
has voting and investment control over such
securities.
|
|
(8)
|
[
|
],
has voting and investment control over such
securities.
|
|
(9)
|
[
|
],
has voting and investment control over such
securities.
|
|
(10)
|
[
],
has voting and investment control over such
securities.
|
|
(11)
|
[
],
has voting and investment control over such
securities.
|
|
(12)
|
[
],
has voting and investment control over such
securities.
|
|
(13)
|
[
],
has voting and investment control over such
securities.
|
|
(14)
|
[
],
has voting and investment control over such
securities.
|
|
(15)
|
[
],
has voting and investment control over such
securities.
|
|
(16)
|
[
],
has voting and investment control over such
securities.
|
Each of
the selling securityholders that is an affiliate of a broker-dealer has
represented to us that it purchased the shares offered by this prospectus in the
ordinary course of business and, at the time of purchase of those shares, did
not have any agreements, understandings or other plans, directly or indirectly,
with any person to distribute those shares.
[Alternate
Page for Selling Securityholder Prospectus]
PLAN
OF DISTRIBUTION
The
selling securityholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling securityholder as a gift, pledge, partnership distribution or
other transfer, may, from time to time, sell, transfer or otherwise dispose of
any or all of their shares of common stock or interests in shares of common
stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The
selling securityholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
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;
|
|
|
·
|
short
sales;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
·
|
broker-dealers
may agree with the selling securityholders 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 securityholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the 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 amending the list of selling
securityholders to include the pledgee, transferee or other successors in
interest as selling securityholders under this prospectus. The selling
securityholders 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;
provided
,
however
, that prior
to any such transfer the following information (or such other information as may
be required by the federal securities laws from time to time) with respect to
each such selling beneficial owner must be added to the prospectus by way of a
prospectus supplement or post-effective amendment, as appropriate: (1) the name
of the selling beneficial owner; (2) any material relationship the selling
beneficial owner has had within the past three years with us or any of our
predecessors or affiliates; (3) the amount of securities of the class owned by
such security beneficial owner before the offering; (4) the amount to be offered
for the security beneficial owner’s account; and (5) the amount and (if one
percent or more) the percentage of the class to be owned by such security
beneficial owner after the offering is complete.
[Alternate
Page for Selling Securityholder Prospectus]
In
connection with the sale of our common stock or interests therein, the selling
securityholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
securityholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
securityholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling securityholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling securityholders reserves
the right to accept and, together with their agents from time to time, to
reject, in whole or in part, any proposed purchase of common stock to be made
directly or through agents. We will not receive any of the proceeds from this
offering. Upon any exercise of the warrants by payment of cash, however, we will
receive the exercise price of the warrants.
The
selling securityholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling securityholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling securityholders who are “underwriters” within the meaning of Section
2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling securityholders, the respective purchase prices and public offering
prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
The
maximum amount of compensation to be received by any NASD member or independent
broker-dealer for the sale of any securities registered under this prospectus
will not be greater than 8.0% of the gross proceeds from the sale of such
securities.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
[Alternate
Page for Selling Securityholder Prospectus]
We have
advised the selling securityholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling securityholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling securityholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling securityholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to indemnify the selling securityholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
Other
than
[ ],
to our knowledge, no selling stockholder is a broker-dealer or any affiliate of
a broker-dealer.
[Alternate
Page for Selling Securityholder Prospectus]
LEGAL
MATTERS
The
validity of the securities offered in this prospectus are being passed upon for
us by Ellenoff Grossman & Schole, LLP, New York, New York.
EXPERTS
The
financial statements included in this Prospectus and in the Registration
Statement have been audited by Marcum LLP, an independent registered public
accounting firm, to the extent and for the periods set forth in their report
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities
Act, with respect to the common stock offered by this prospectus. This
prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and our common stock,
reference is made to the registration statement and the exhibits and schedules
to the registration statement. Statements contained in this prospectus as to the
contents or provisions of any documents referred to in this prospectus are not
necessarily complete, and in each instance where a copy of the document has been
filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matters involved.
You may
read and copy all or any portion of the registration statement without charge at
the office of the SEC at the Public Reference Room at Station Place, 100 F
Street, N.E., Washington, D.C. 20549. Copies of the registration statement may
be obtained from the SEC at prescribed rates from the Public Reference Section
of the SEC at such address. In addition, registration statements and certain
other filings made with the SEC electronically are publicly available through
the SEC’s web site at http://www.sec.gov. The registration statement, including
all exhibits and amendments to the registration statement, has been filed
electronically with the SEC.
Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, accordingly,
will file annual reports containing financial statements audited by an
independent public accounting firm, quarterly reports containing unaudited
financial data, current reports, proxy statements and other information with the
SEC. You will be able to inspect and copy such periodic reports, proxy
statements and other information at the SEC’s public reference room, and the web
site of the SEC referred to above.
[Alternate
Page for Selling Securityholder Prospectus]
Until ,
2010, all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
SMG
INDIUM RESOURCES LTD.
[ ]
shares
Common
Stock
______________,
2010
Until
[• ] 2010, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers’ obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
No
dealer, salesperson or any other person is authorized to give any information or
make any representations in connection with this offering other than those
contained in this prospectus and, if given or made, the information or
representations must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the securities offered by this prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by anyone in
any jurisdiction in which the offer or solicitation is not authorized or is
unlawful.
|
Page
|
||
|
Prospectus
Summary
|
7
|
|
|
Risk
Factors
|
13
|
|
|
Use
of Proceeds
|
31
|
|
|
Dividend
Policy
|
32
|
|
|
Capitalization
|
33
|
|
|
Dilution
|
34
|
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
36
|
|
|
Business
|
49
|
|
|
Management
|
69
|
|
|
Management
Services Agreement
|
73
|
|
|
Executive
Compensation
|
76
|
|
|
Certain
Relationships and Related Party Transactions
|
85
|
|
|
Principal
Stockholders
|
86
|
|
|
Description
of Capital Securities
|
88
|
|
|
Shares
Eligible for Future Sale
|
92
|
|
|
Underwriting
|
94
|
|
|
Legal
Matters
|
101
|
|
|
Experts
|
101
|
|
|
Where
You Can Find Additional Information
|
101
|
|
|
Index
to Financial Statements
|
F-1
|
SMG
Indium Resources Ltd.
5,000,000
Units
|
PROSPECTUS
|
|
Sunrise
Securities Corp.
|
Rodman
& Renshaw, LLC
|
_____,
2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth an itemization of the various costs and expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered. All of the amounts shown are estimated except the
SEC registration fee, the NASDAQ Capital Market listing fee and the FINRA filing
fee:
|
SEC
registration fee
|
$ | 5,604 | ||
|
NASDAQ
Capital Market listing fee
|
50,000 | |||
|
FINRA
filing fee
|
7,500 | |||
|
Accounting
fees and expense
|
65,000 | |||
|
Printing
and engraving expenses
|
25,000 | |||
|
Legal
fees and expenses
|
285,000 | |||
|
Transfer
Agent and Registrar fees
|
5,000 | |||
|
Miscellaneous
|
36,896 | |||
|
Total
|
$ | 480,000 |
Our
certificate of incorporation, as amended, and bylaws provide that each person
who was or is made a party or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or an officer of SMG
Indium Resources Ltd. or is or was serving at our request as a director,
officer, or trustee of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer or trustee or in any other capacity while
serving as a director, officer or trustee, shall be indemnified and held
harmless by us to the fullest extent authorized by the Delaware General
Corporation Law against all expense, liability and loss (including attorneys’
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such.
Section
145 of the Delaware General Corporation Law permits a corporation to indemnify
any director or officer of the corporation against expenses (including
attorney’s fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any action, suit or proceeding brought by
reason of the fact that such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reason to believe his or her conduct was unlawful. In a derivative
action, (
i.e.
, one
brought by or on behalf of the corporation), indemnification may be provided
only for expenses actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit if such
person acted in good faith and in a manner that he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be provided if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Pursuant
to Section 102(b)(7) of the Delaware General Corporation Law, our amended and
restated certificate of incorporation eliminates the liability of a director to
us or our stockholders for monetary damages for such a breach of fiduciary duty
as a director, except for liabilities arising:
|
|
•
|
from any breach of the director’s
duty of loyalty to us or our
stockholders;
|
|
|
•
|
from acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation
of law;
|
|
|
•
|
under Section 174 of the Delaware
General Corporation Law; and
|
|
|
•
|
from any transaction from which
the director derived an improper personal
benefit.
|
We carry
insurance policies insuring our directors and officers against certain
liabilities that they may incur in their capacity as directors and officers. In
addition, we expect to enter into indemnification agreements with each of our
directors and executive officers prior to completion of the
offering.
Pursuant
to the indemnification agreements, the Company agrees to hold harmless and
indemnify its directors and executive officers to the fullest extent authorized
or permitted by the provisions of the Company’s amended and restated certificate
of incorporation, amended and restated by-laws and the DGCL, including for any
amounts that such director or officer becomes obligated to pay because of any
claim to which such director or officer is made or threatened to be made a
party, witness or participant, by reason of such director’s or officer’s service
as a director, officer, employee or other agent of the Company.
There are
certain exceptions from the Company’s obligation to indemnify its directors and
executive officers pursuant to the indemnification agreements, including for
“short-swing” profit claims under Section 16(b) of the Securities Exchange Act
of 1934, losses that are as a result of conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct, or that constituted a breach of the duty of loyalty to the
Company or resulted in any improper personal profit or advantage, where payment
is actually made to a director or officer under an insurance policy, indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement, for indemnification which is not
lawful, or in connection with any proceeding initiated by such director or
officer, or any proceeding against the Company or its directors, officers,
employees or other agents, unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the board of directors
of the Company, (iii) such indemnification is provided by the Company, in its
sole discretion, pursuant to the powers vested in the Company under the DGCL, or
(iv) the proceeding is initiated to enforce a claim for indemnification pursuant
to the indemnification agreement.
All
agreements and obligations of the Company contained in the indemnification
agreements shall continue during the period when the director or officer who is
a party to an indemnification agreement is a director, officer, employee or
other agent of the Company (or is or is serving at the request of the Company as
a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
and shall continue thereafter so long as such director or officer shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal, arbitrational, administrative or
investigative. In addition, the indemnification agreements provide for partial
indemnification and advance of expenses.
Additionally,
reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto,
which provides for indemnification by the underwriters of SMG Indium Resources
Ltd., our directors and officers who sign the registration statement and persons
who control SMG Indium Resources Ltd. under certain circumstances.
Item
15. Recent Sales of Unregistered Securities.
In the
three years preceding the filing of this Registration Statement, we have sold
the following securities that were not registered under the Securities
Act.
|
|
·
|
On January 7, 2008, the Manager
purchased 90,000 shares of our common stock at the price of $0.111 per
share. The members of the Manager are Messrs. Benjamin, Grushkin and
Biele, our Chairman and Chief Executive Officer, our President, and our
Chief Operating Officer, respectively. As a result of a 6:1 forward stock
split on December 5, 2008 and a 1:3.6 reverse stock split on June 5, 2009,
the Manager and its CFO currently holds 155,000 shares of common
stock. On February 5, 2010, the Manager agreed to automatically
convert 75,000 shares of common stock into 150,000 stock options upon
consummation of this offering thereby reducing the total number of shares
of common stock held by the Manager and its CFO to
80,000.
|
|
|
·
|
On January 9, 2010, we completed
a private placement offering of 1,163,600 units to 61 investors for an
aggregate amount of $5,818,000. Each unit contained one share
of Class A Common Stock, par value $.001 per share and one warrant to
purchase one share of common stock at an exercise price of $4.50 per
share. In accordance with the terms of the private placement,
upon the successful completion of this offering, each share of Class A
Common Stock shall be automatically converted into shares of Common Stock
in this offering, subject to certain adjustments based upon the purchase
price of the private placement unit compared to the purchase price of the
units in this Offering, the amount of time elapsed between the private
placement and successful completion of this
Offering.
|
(a) The
following exhibits are filed as part of this Registration
Statement:
|
Exhibit No.
|
Description
|
|
|
1.1
|
Form
of Underwriting Agreement*
|
|
|
3.1
|
Certificate
of Incorporation
|
|
|
3.2
|
Certificate
of Amendment to the Certificate of Incorporation filed on April 1,
2008
|
|
|
3.3
|
Certificate
of Amendment to the Certificate of Incorporation filed on November 23,
2009
|
|
|
3.4
|
Form
of Certificate of Amendment to the Certificate of
Incorporation*
|
|
|
3.5
|
Amended
and Restated Bylaws
|
|
|
4.1
|
Specimen
Unit Certificate*
|
|
|
4.2
|
Specimen
Common Stock Certificate*
|
|
|
4.3
|
Specimen
Warrant Certificate*
|
|
|
4.4
|
Form
of Warrant Agreement*
|
|
|
4.5
|
Form
of Unit Option Purchase Agreement*
|
|
|
4.6
|
2008
Long-Term Incentive Compensation Plan
|
|
|
5.1
|
Opinion
of Ellenoff Grossman & Schole LLP*
|
|
|
10.1
|
Form
of Amended and Restated Management Services Agreement
|
|
|
14.1
|
Corporate
Code of Conduct and Ethics
|
|
|
23.1
|
Consent
of Marcum LLP
|
|
|
23.2
|
Consent
of Ellenoff Grossman & Schole LLP (included in Exhibit
5.1)*
|
|
|
24
|
Power
of Attorney (included on the signature page of this Registration
Statement)
|
|
|
99.1
|
Audit
Committee Charter
|
|
|
99.2
|
Corporate
Governance and Nominating Committee Charter
|
|
* To be filed by
amendment.
(a) The
undersigned hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities
being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURE
Pursuant
to the requirements of the Securities Act, the registrant has duly caused this
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 7th day of April, 2010.
| SMG INDIUM RESOURCES LTD. | |||
| By: |
/s/
Alan Benjamin
|
||
|
Name:
Alan Benjamin
|
|||
|
Title:
Chief Executive
Officer
|
|||
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Alan Benjamin his true and lawful attorney-in-fact,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
including post-effective amendments to this registration statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the SEC, hereby ratifying and confirming all that said
attorney-in-fact or his substitute, each acting alone, may lawfully do or cause
to be done by virtue thereof.
Pursuant
to the requirements of the Securities Act, this Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated.
|
Name
|
Position
|
Date
|
||
|
/s/
Alan Benjamin
|
Chairman,
Chief Executive Officer and Director
|
April
7, 2010
|
||
|
Alan
Benjamin
|
(Principal
Executive Officer)
|
|
||
|
/s/
Richard T. Morena
|
Chief
Financial Officer
|
April
7, 2010
|
||
|
Richard
T. Morena
|
(Principal
Financial and Accounting Officer)
|
|
||
|
/s/
Ailon Z. Grushkin
|
President
and Director
|
April
7, 2010
|
||
|
Ailon
Z. Grushkin
|
|
|||
|
/s/
Richard A. Biele
|
Chief
Operating Officer and Director
|
April
7, 2010
|
||
|
Richard
A. Biele
|
|
|||
|
/s/
P.J. Richardson
|
Director
|
April
7, 2010
|
||
|
P.J.
Richardson
|
|
|||
|
/s/
Fred Arena
|
Director
|
April
7, 2010
|
||
|
Fred
Arena
|
|
|||
|
/s/
Mark S. Neuhof
|
Director
|
April
7, 2010
|
||
|
Mark
S. Neuhof
|
|
|||
|
/s/
William C. Martin
|
Director
|
April
7, 2010
|
||
|
William
C. Martin
|
Exhibit
Index
The agreements included as exhibits to
this registration statement contain representations and warranties by each of
the parties to the applicable agreement. These representations and
warranties have been made solely for the benefit of the parties to the
applicable agreement and (i) should not be treated as categorical statements of
fact, but rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate; (ii) have been qualified by disclosures that
ere made to the other party in connection with the negotiation of the applicable
agreement; (iii) may apply contract standards of “materiality” that are
different from “materiality” under the applicable securities laws; and (iv) were
made only as of the date of the applicable agreement or such other date or dates
as may be specified in the agreement and are subject to more recent
developments. Accordingly, these representations and warranties may
not describe the actual state of affairs of the date they were made or at any
other time. The registrant acknowledges that, notwithstanding the
inclusion of the foregoing cautionary language, it is responsible for
considering whether additional specific disclosure of material information
regarding material contractual provisions are required to make the statements in
this registration statement not misleading. Additional information
about the registrant may be found elsewhere in this registration statement and
in the registrant’s other public filings, which are available without charge
through the SEC’s website at www.sec.gov.
|
Exhibit No.
|
Description
|
|
|
1.1
|
Form
of Underwriting Agreement*
|
|
|
3.1
|
Certificate
of Incorporation
|
|
|
3.2
|
Certificate
of Amendment to the Certificate of Incorporation filed on April 1,
2008
|
|
|
3.3
|
Certificate
of Amendment to the Certificate of Incorporation filed on November 23,
2009
|
|
|
3.4
|
Form
of Certificate of Amendment to the Certificate of
Incorporation*
|
|
|
3.5
|
Amended
and Restated Bylaws
|
|
|
4.1
|
Specimen
Unit Certificate*
|
|
|
4.2
|
Specimen
Common Stock Certificate*
|
|
|
4.3
|
Specimen
Warrant Certificate*
|
|
|
4.4
|
Form
of Warrant Agreement*
|
|
|
4.5
|
Form
of Unit Option Purchase Agreement*
|
|
|
4.6
|
2008
Long-Term Incentive Compensation Plan
|
|
|
5.1
|
Opinion
of Ellenoff Grossman & Schole LLP*
|
|
|
10.1
|
Form
of Amended and Restated Management Services Agreement
|
|
|
14.1
|
Corporate
Code of Conduct and Ethics
|
|
|
23.1
|
Consent
of Marcum LLP
|
|
|
23.2
|
Consent
of Ellenoff Grossman & Schole LLP (included in Exhibit
5.1)*
|
|
|
24
|
Power
of Attorney (included on the signature page of this Registration
Statement)
|
|
|
99.1
|
Audit
Committee Charter
|
|
|
99.2
|
Corporate
Governance and Nominating Committee Charter
|
|
* To be
filed by Amendment.