OHIO 31-0121318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO
State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 1,823,256 shares of Common Stock, without par value, were outstanding at October 31, 2003.
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 2003 (unaudited)
and December 31, 2002 3 - 4
Statements of Operations For the Three Months and Nine Months
Ended September 30, 2003 and 2002 (unaudited) 5
Statements of Cash Flows For the Three Months and Nine Months
Ended September 30, 2003 and 2002 (unaudited) 6 - 7
Notes to Financial Statements (unaudited) 8 - 12
Item 2. Management's Discussion and Analysis or Plan of Operation. 13 - 21
Item 3. Controls and Procedures. 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 23
Signatures. 23
|
ITEM 1. FINANCIAL STATEMENTS
SEPTEMBER 30, DECEMBER 31,
2003 2002
---- ----
(UNAUDITED)
CURRENT ASSETS
Cash $ 393,499 $ 48,908
Accounts and notes receivable
Trade, less allowance for doubtful accounts of $22,000 and
$18,000 respectively 204,703 170,038
Contract receivable -- 71,087
Related party receivables 2,739 4,368
Employees 7,712 11,985
Other 135 733
Inventories 642,766 655,432
Prepaid expenses 5,495 33,934
----------- -----------
Total current assets 1,257,049 996,485
----------- -----------
PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,027,484 2,312,869
Furniture and fixtures 22,124 22,124
Leasehold improvements 347,349 347,349
----------- -----------
2,396,957 2,682,342
Less accumulated depreciation (1,787,172) (2,068,246)
----------- -----------
609,785 614,096
----------- -----------
OTHER ASSETS
Deposit 7,864 --
Intangibles 40,931 43,247
----------- -----------
Total other assets 48,795 43,247
----------- -----------
TOTAL ASSETS $ 1,915,629 $ 1,653,828
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
SEPTEMBER 30, DECEMBER 31,
2003 2002
---- ----
(UNAUDITED)
CURRENT LIABILITIES
Capital lease obligation, current portion $ 35,260 $ 40,144
Capital lease obligation, shareholder, current portion 66,357 48,171
Note payable shareholders, current portion 118,000 82,000
Accounts payable 236,518 329,693
Accounts payable, shareholders 7,920 7,920
Accrued contract expenses 54,223 21,143
Accrued personal property taxes 44,185 54,002
Accrued interest, shareholders 30,689 20,638
Accrued expenses 82,169 42,836
----------- -----------
Total current liabilities 675,321 646,547
----------- -----------
CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 36,989 63,721
----------- -----------
CAPITAL LEASE OBLIGATION, SHAREHOLDER, NET OF
CURRENT PORTION 2,071 20,257
----------- -----------
NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
PORTION 779,625 86,270
----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK (Series A)
10% cumulative, nonvoting, no par value, $1,000 stated value, liquidation and
mandatory redemption at stated value per share plus unpaid and accumulated
dividends of $278.20 per share -- 121,770
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
SHAREHOLDERS' EQUITY
Convertible preferred stock, Series B, 10% cumulative,
nonvoting, no par value, $10 stated value, optional
redemption at 103% 349,668 335,492
Common stock, no par value, authorized 15,000,000
shares; 1,823,256 shares issued and outstanding 6,378,216 6,378,216
Additional paid-in capital (5,184) 8,992
Accumulated deficit (6,301,077) (6,007,437)
----------- -----------
421,623 715,263
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,915,629 $ 1,653,828
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
THREE MONTHS ENDED NINE MONTHS ENDED
2003 2002 2003 2002
---- ---- ---- ----
SALES REVENUE $ 489,710 $ 794,803 $ 1,676,863 $ 2,151,396
CONTRACT RESEARCH REVENUE 119,020 68,376 217,511 211,909
----------- ----------- ----------- -----------
608,730 863,179 1,894,374 2,363,305
----------- ----------- ----------- -----------
COST OF SALES REVENUE 387,168 518,479 1,300,768 1,470,482
COST OF CONTRACT RESEARCH 107,259 71,544 124,928 210,005
----------- ----------- ----------- -----------
494,427 590,023 1,425,696 1,680,487
----------- ----------- ----------- -----------
GROSS MARGIN 114,303 273,156 468,678 682,818
GENERAL AND ADMINISTRATIVE EXPENSES 156,871 200,983 573,186 644,065
SALES AND PROMOTIONAL EXPENSES 58,210 63,088 155,784 157,576
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (100,778) 9,085 (260,292) (118,823)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest, net (10,232) (6,679) (21,514) (15,689)
Insurance proceeds -- -- -- 39,083
Miscellaneous, net 528 (428) 4,052 (1,284)
----------- ----------- ----------- -----------
(9,704) (7,107) (17,462) 22,110
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX (110,482) 1,978 (277,754) (96,713)
INCOME TAX EXPENSE -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING (110,482) 1,978 (277,754) (96,713)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING -- -- (15,886) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) (110,482) 1,978 (293,640) (96,713)
DIVIDENDS ON PREFERRED STOCK (405) (6,061) (14,175) (24,781)
ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED (SERIES A) -- -- -- (6,469)
----------- ----------- ----------- -----------
LOSS APPLICABLE TO COMMON SHARES $ (110,887) $ (4,083) $ (307,815) $ (127,963)
=========== =========== =========== ===========
EARNINGS PER SHARE - BASIC AND DILUTIVE
(Note 2)
NET INCOME (LOSS) PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
Basic $ (0.06) $ 0.00 $ (0.15) $ (0.05)
=========== =========== =========== ===========
Dilutive $ (0.06) $ 0.00 $ (0.15) $ (0.05)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE AFTER CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
Basic $ (0.06) $ (0.00) $ (0.17) $ (0.07)
=========== =========== =========== ===========
Dilutive $ (0.06) $ (0.00) $ (0.17) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,823,256 1,823,256 1,823,256 1,823,256
=========== =========== =========== ===========
Dilutive 1,823,256 1,823,256 1,823,256 1,823,256
=========== =========== =========== ===========
|
The accompanying notes are an integral part of these financial statements.
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(293,640) $ (96,713)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 165,627 174,165
Amortization and accretion 2,316 2,228
Cumulative effect of a change in accounting 15,886 --
Gain on sale of equipment (5,425) --
Inventory reserve (30,608) --
Provision for doubtful accounts (4,000) 4,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 46,922 (72,596)
Inventories 43,275 12,850
Prepaid expenses 28,439 (36,691)
Other assets (7,864) (2,227)
Increase (decrease) in liabilities:
Accounts payable (93,175) 119,982
Accrued expenses 50,189 (142,349)
--------- ---------
Total adjustments 211,582 59,362
--------- ---------
Net cash used in operating activities (82,058) (37,351)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 5,425 --
Purchases of property and equipment (147,160) (56,232)
--------- ---------
Net cash used in investing activities (141,735) (56,232)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, shareholders 600,000 50,000
Principal payments on capital lease obligations (31,616) (30,846)
--------- ---------
Net cash provided by financing activities 568,384 19,154
--------- ---------
|
The accompanying notes are an integral part of these financial statements.
2003 2002
---- ----
NET INCREASE (DECREASE) IN CASH 344,591 (74,429)
CASH - Beginning of period 48,908 118,083
--------- ---------
CASH - End of period $ 393,499 $ 43,654
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest, net $ 5,836 8,699
Income taxes $ -- --
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
In second quarter 2003, $121,770 of Redeemable Convertible
Preferred stock, Series A, was converted to Notes Payable,
Shareholders
In second quarter 2003, $7,585 of accrued interest
was transferred to Notes Payable Shareholders
Machinery & Equipment and expenses for asset retirement
obligations of $30,043 are accrued
|
The accompanying notes are an integral part of these financial statements.
NOTE 1. BUSINESS ORGANIZATION AND PURPOSE
Superconductive Components, Inc. (the "Company") is an Ohio corporation that was incorporated in May 1987. The Company was formed to develop, manufacture and sell materials using superconductive principles. Operations have since been expanded to include the manufacture and sale of non-superconductive materials. The Company's domestic and international customer base is primarily in the thin film battery, high temperature superconductor, lens and optical coatings, research, electronics and functional coatings industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2002. Interim results are not necessarily indicative of results for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Effective January 1, 2003, the Company implemented SFAS 143 - "Accounting for Asset Retirement Obligations". This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.
NOTE 3. INVENTORY
Inventory is comprised of the following:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(unaudited)
Raw materials $ 417,417 $ 459,784
Work-in-progress 136,039 145,838
Finished goods 184,825 175,933
Inventory reserve (95,515) (126,123)
--------- ---------
$ 642,766 $ 655,432
========= =========
|
NOTE 4. COMMON STOCK AND STOCK OPTIONS
The following options were granted under the 1995 Stock Option Plan during the nine months ended September 30, 2003:
GRANT DATE # OPTIONS GRANTED OPTION PRICE
---------- ----------------- ------------
January 16, 2003 35,000 $1.00
NOTE 5. EARNINGS PER SHARE
|
Basic income (loss) per share is calculated as income available to common stockholders divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted income (loss) available to common stockholders divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares has been calculated using the treasury stock method for Common Stock equivalents, which includes Common Stock issuable pursuant to stock options and Common Stock warrants. At September 30, 2003 and 2002, all Common Stock options and warrants are anti-dilutive due to the net loss. The following is provided to reconcile the earnings per share calculations:
Three months ended Sept. 30, Nine months ended Sept. 30,
2003 2002 2003 2002
---- ---- ---- ----
Income (loss) applicable
to common shares $ (110,887) $ (4,083) $ (307,815) $ (127,963)
=========== =========== =========== ===========
Weighted average
common shares
outstanding - basic 1,823,256 1,823,256 1,823,256 1,823,256
Effect of dilutions -
stock options -- -- -- --
----------- ----------- ----------- -----------
Weighted average
shares outstanding -
diluted 1,823,256 1,823,256 1,823,256 1,823,256
=========== =========== =========== ===========
|
NOTE 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (SERIES A)
Effective June 30, 2003, all 99 shares of the Series A redeemable convertible preferred stock ($99,000), accrued dividends ($22,770) and accrued interest ($7,585) were converted to notes payable. The principal sum and any accrued and unpaid interest on the notes shall be payable in full on June 30, 2006. The holders of the notes may convert all or a portion of the principal sum and any accrued and unpaid interest owing on the
notes into shares of common stock at any time after the first anniversary of the issuance of the notes. Interest will be based upon the Prime Commercial Rate on the date of the Notes and subsequently on the last business day of the preceding calendar year. If, within one year of the date of the issuance of the notes, the Company obtains non-bank equity financing in the amount of at least $500,000, then the unpaid portion of the principal sum and any accrued and unpaid interest automatically shall convert into shares of common stock. The Company also issued 26,302 warrants to the holders of the notes to purchase shares of common stock for the price of $1.00 per Warrant Share.
NOTE 7. ASSET RETIREMENT OBLIGATION
Property and equipment are stated at cost including the expected present value of future obligations to provide for their retirement. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets.
Included in machinery and equipment is various production equipment which, per the Company's building lease, is required to be removed upon termination of the lease. Included in current liabilities in the accompanying balance sheet is the asset retirement obligation that represents the expected present value of the liability to remove this equipment. There are no assets that are legally restricted for purposes of settling this asset retirement obligation.
Changes in asset retirement obligation for the nine months ended September 30, 2003:
Liability, beginning of year $ 0
Liabilities incurred prior to 2003
recorded in first quarter 27,158
Liabilities incurred through Sept 30 2,885
Liabilities settled 0
Accretion expense 0
Revisions in cash flow estimates 0
--------
Liability, end of quarter $ 30,043
========
|
Pro forma income statement effect for the nine months ended September 30, 2002:
Net loss as reported $(127,963)
Additional depreciation expense 136
Additional accretion expense 0
----------
Net loss restated retroactive for
change in accounting $(128,099)
=========
Net loss per common share
as reported $ (0.07)
Net loss per common share
restated retroactive for
change in accounting $ (0.07)
|
NOTE 8. NOTES PAYABLE SHAREHOLDERS AND COMMON STOCK WARRANTS
The Company recently completed two private financing transactions including (i) the issuance of convertible promissory notes in the aggregate amount of $600,000 and 122,000 warrants to purchase shares of common stock in exchange for $600,000 in cash and (ii) the redemption of the Company's entire $129,770 obligation on its Series A redeemable convertible preferred stock in exchange for convertible promissory notes in the aggregate amount of $129,770, which represented the face amount of the preferred stock plus accrued and unpaid dividends and interest, and 26,302 warrants to purchase shares of common stock. Four present shareholders invested the $600,000 of new money in the Company. $500,000 in cash and the redemption of the Series A redeemable preferred stock was received and recorded on June 30, 2003. $100,000 in cash was received and recorded on July 1, 2003.
The principal and interest on the $729,770 of new convertible promissory notes are payable June 30, 2006. Interest shall be based upon the prime commercial rate on the date of the notes and subsequently on the last business day of the preceding calendar year. If the Company completes an equity financing for at least $500,000 prior to June 30, 2004, the notes shall automatically convert to common stock at the same per share price as the equity financing and thereafter the notes shall convert to common stock at the option of the holders at $2.00 per share. The Company used $100,000 of the note proceeds to pay off its bank line of credit which terminated on June 30, 2003, and plans to use approximately $300,000 to finance its move to a new facility and approximately $200,000 for general corporate purposes.
NOTE 9. INCENTIVE STOCK OPTION PLANS
The Company's pro forma information for the nine months ended September 30, 2003 and 2002 in accordance with the provisions of FASB #123 is provided below. For purpose of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting period. The following table compares the results as reported for the nine months ended September 30, 2003 and 2002 to the results had the Company adopted the expense recognition provisions of FASB #123.
Sept. 30, Sept. 30,
2003 2002
---- ----
Net loss applicable to common shares:
As reported $ (307,815) $ (127,963)
Pro forma under SFAS #123 (311,552) (129,600)
Basic and diluted loss per share:
As reported $ (0.17) $ (0.07)
Pro forma under SFAS #123 (0.17) (0.07)
Diluted loss per share:
As reported $ (0.17) $ (0.07)
Pro forma under SFAS #123 $ (0.17) (0.07)
|
NOTE 10. CAPITAL REQUIREMENT; RISK OF CURTAILMENT OF BUSINESS OPERATIONS
Our accumulated deficit since inception was $6,301,077 (unaudited) at September 30, 2003. The Company has financed the losses primarily from: (i) several private offerings of debt and equity securities; (ii) additional investments and loans by our major shareholders; and (iii) a private offering of common stock and warrants to purchase common stock in October 2000. The Company expects to continue to incur significant operating and net losses in 2003, and it is possible that the Company will never be able to sustain or develop the revenue levels necessary to attain profitability.
As of September 30, 2003, cash on-hand was $393,499. During the first nine months of 2003 the Company used $82,000 in cash from operations. The Company believes, based on currently available financing and forecasted sales and expenses, that funding will be adequate to sustain operations through December 2003. The Company recently completed two private financing transactions as detailed in Note 8.
(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The matters discussed in this quarterly report on Form 10-QSB include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical fact and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in other documents filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. Actual results could differ materially from the forward-looking statements made. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The following discussion should be read in conjunction with the Financial Statements and Notes contained herein.
To date, the Company has received revenue predominantly from commercial sales, government research contracts and non-government research contracts. The Company has incurred cumulative losses of $6,301,077 from inception to September 30, 2003.
NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2002 (UNAUDITED): REVENUES
Revenues for the nine months ended September 30, 2003 were $1,894,374 compared to $2,363,305 for the nine months ended September 30, 2002, a decrease of $468,931 or 19.8%.
Contract research revenues were $217,511 for the nine months ended September 30, 2003 as compared to $211,909 for the nine months ended September 30, 2002. The increase is due to a Phase II SBIR grant from the Department of Energy. The Company was awarded an interim contract for $105,592. The entire amount was recognized as revenue during the first nine months of 2003. The complete Phase II SBIR program is valued at $623,612 and was awarded to the Company in September 2003. The project runs through June 2005.
In October 2003 the Company and its project partner received a $1,175,321 award from the Third Frontier Action Fund. This fund is administered by the Ohio Department of Development to expand the state's high-tech research capabilities and create new jobs. This award is to scale-up manufacturing processes to produce materials to be used in lithium thin-film batteries. The Company's portion of the award is approximately $600,000, which will be used to purchase manufacturing equipment.
The Company is a member of a team led by Oxford Instruments Superconducting Technology, which was awarded a grant from the Department of Energy Superconductivity Partnership Initiative (SPI) Program. Revenues of $67,474 were recognized in the first nine months of 2003.
Total gross margin for the nine months ended September 30, 2003 was $468,678 or 24.7% of total revenue compared to $682,818, or 28.9% of total revenue for the nine months ended September 30, 2002. Gross margin on product revenue was 22.4% for the nine months ended September 30, 2003 versus 31.6% for the nine months ended September 30, 2002. The decrease was due to lower sales as well as the product mix. Gross margin on contract research revenue was 42.6% for the nine months ended September 30, 2003 and 0.9% for the nine months ended September 30, 2002. The increase was due to the completion of the SBIR Phase I, the recently awarded SBIR Phase II and the addition of the Oxford SPI program. Included in the revenues of the Oxford SPI program was approximately $44,000 that was received for the purchase of machinery and equipment. This contributed directly to the gross margin.
Selling expense for the nine months ended September 30, 2003 decreased to $155,784 from $157,576 for the comparable period in 2002, a decrease of 1.1%. The decrease was due to lower commission costs, wages, and travel expenses. The savings were offset by the addition of a sales consultant.
General and administrative expense for the nine months ended September 30, 2003 decreased to $573,186 from $644,065 or a 11.0% decrease from the comparable period of 2002. The decrease in these costs was due to a reduction in administrative staff.
Internal research and development costs are expensed as incurred. Research and development costs for the nine months ended September 30, 2003 were $63,764 compared to $9,875 for the nine months ended September 30, 2002. Internal research and development costs increased due to a decrease in contract research revenues earlier in the year which are used to offset these expenses. The SBIR programs received in the second half of 2003 will help offset these costs during the remainder of this year.
Interest expense was $23,472 for the nine months ended September 30, 2003 compared to $19,509 for the nine months ended September 30, 2002. Interest expense to related parties was $17,636 and $10,985 for the nine months ended September 30, 2003, and September 30, 2002, respectively. The increase was due to the accrued interest incurred as a result of the Series A preferred stock and the financing completed in July 2003.
Net loss per common share based on the loss applicable to common shares for the nine months ended September 30, 2003 and 2002, was $0.17 and $0.07, respectively. The loss applicable to common shares includes the net loss from operations, Series A and B preferred stock dividends, the accretion of Series A preferred stock and the cumulative effect of the change in accounting. The net loss per common share before cumulative effect of a change in accounting was $0.15 and $0.05 for the nine months ended September 30, 2003 and 2002, respectively. The difference between the net loss per common share before cumulative effect of a change in accounting and the loss applicable to common shares of $0.02 and $0.02 for the nine months ended September 30, 2003 and 2002, respectively, was a result of the preferred position that the preferred shareholders have in comparison to the common shareholders and the cumulative effect of the change in accounting.
Dividends on the Series A and B preferred stock accrue at 10% annually on the outstanding shares. Dividends on the Series A preferred stock totaled $0 for the nine months ended September 30, 2003 and $4,126 for the nine months ended September 30, 2002. The 99 shares of Series A were redeemable at May 31, 2002 and the Company began accruing interest expense June 1, 2002 until the stock was exchanged for convertible promissory notes on June 30, 2003. Dividends on the Series B preferred stock totaled $14,175 and $20,655 for the nine months ended September 30, 2003 and 2002 respectively.
Basic loss per common share for the nine months ended September 30, 2003, was $0.17 per share with 1,823,256 average common shares outstanding as compared to $0.07 per share and 1,823,256 weighted average common shares outstanding for the nine months ended September 30, 2002.
Diluted loss per common share for the nine months ended September 30, 2003 was $0.17 per share with 1,823,256 average common shares outstanding as compared to $0.07 per share and 1,823,256 weighted average common shares outstanding for the nine months ended September 30, 2002. For the nine months ended September 30, 2003 and 2002, all outstanding common stock equivalents are anti-dilutive due to the net loss.
At September 30, 2003, working capital was $581,728 compared to $689,131 at September 30, 2002. The Company utilized cash from operations for the nine months ended September 30, 2003, of approximately $82,000. The Company utilized cash from operations for the nine months ended September 30, 2002, of approximately $37,000. Significant non-cash items including depreciation, inventory reserve on excess and obsolete inventory, allowance for doubtful accounts and the cumulative effect of the change in accounting were approximately $156,000 and $180,000, respectively, for the nine months ended September 30, 2003 and 2002. Overall, accounts receivable, inventory, and prepaids decreased in excess of decreases in accounts payable and accrued expenses by approximately $63,000 for the nine months ended September 30, 2003. Accounts receivable, inventory, and prepaids increased in excess of increases in accounts payable and accrued expenses by approximately $121,000 for the nine months ended September 30, 2002, as a result of timing of receipt of inventory versus required scheduled payments on this inventory and increased prepaid expenses.
For investing activities, the Company used cash of approximately $142,000 and $56,000, for the nine months ended September 30, 2003 and September 30, 2002, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity. Proceeds on sale of equipment totaled $5,425 and $0 for the nine months ended September 30, 2003 and September 30, 2002, respectively.
For financing activity for the nine months ended September 30, 2003, the Company provided cash of approximately $568,000. Cash payments to third parties for capital lease obligations approximated $32,000. Proceeds from notes payables from shareholders were $600,000.
While certain major shareholders of the Company have advanced funds in the form of subordinated debt, accounts payable and guaranteeing bank debt in the past, there is no commitment by these individuals to continue funding the Company or guaranteeing bank debt in the future. The Company will continue to seek new financing or equity financing arrangements; however, the Company cannot be certain that it will be successful in efforts to raise additional new funds.
The Company recently completed two private financing transactions including (i) the issuance of convertible promissory notes in the aggregate amount of $600,000 and 122,000 warrants to purchase shares of common stock in exchange for $600,000 in cash and (ii) the redemption of the Company's entire $129,770 obligation on its Series A redeemable convertible preferred stock in exchange for convertible promissory notes in the aggregate amount of $129,770, which represented the face amount of the preferred stock plus accrued and unpaid dividends and interest, and 26,302 warrants to purchase shares of common stock. Four present shareholders invested the $600,000 of new money in the Company. $500,000 in cash and the redemption of the Series A redeemable preferred stock was received and recorded on June 30, 2003. $100,000 in cash was received and recorded on July 1, 2003.
The principal and interest on the $729,770 of new convertible promissory notes are payable June 30, 2006. If the Company completes an equity financing for at least $500,000 prior to June 30, 2004, the notes shall automatically convert to common stock at the same per share price as the equity financing and thereafter the notes shall convert to common stock at the option of the holders at $2.00 per share.
The Company used $100,000 of the note proceeds to pay off its bank line of credit which terminated on June 30, 2003, and plans to use approximately $300,000 to finance its move to a new facility and approximately $200,000 for general corporate purposes.
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Financial Statements and accompanying notes. Note 2 to the Financial Statements in the Annual Report on Form 10-KSB for the year ended December 31, 2002, describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, accounting for doubtful accounts, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, asset retirement obligations and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected. Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will provide benefit to our Company. Cost estimates for removal from and repair of the current leased building or a change in timing of the relocation could impact the estimate. Changes in circumstances related to a change in our business, change in technology or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.
The Company has no off balance sheet arrangements including special purpose entities.
The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The following factors have affected or could affect the Company's actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by the Company. Investors should consider carefully the following risks and speculative factors inherent in and affecting the business of the Company and an investment in the Company's common stock.
WE HAVE EXPERIENCED SIGNIFICANT OPERATING LOSSES IN THE PAST AND MAY CONTINUE TO DO SO IN THE FUTURE.
We commenced business in May of 1987. Our accumulated deficit since inception was $6,301,077 (unaudited) at September 30, 2003.
We have financed the losses primarily from: (i) several private offerings of debt and equity securities; (ii) additional investments and loans by our major shareholders; and (iii) a private offering of common stock and warrants to purchase common stock in October 2000. We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations. We expect to continue to incur significant operating and net losses in 2003, and it is possible that we will never be able to sustain or develop the revenue levels necessary to attain profitability.
To successfully market our products, we must continue to develop appropriate marketing, sales, technical, customer service and distribution capabilities, or enter into agreements with third parties to provide these services. Our failure to develop these capabilities or obtain third-party agreements could adversely affect us.
Our success depends in large part on our ability to attract and retain highly qualified management, administrative, manufacturing, sales, and research and development personnel. Due to the specialized nature of our business, it may be difficult to locate and hire qualified personnel. The loss of services of one of our executive officers or other key personnel, or our failure to attract and retain other executive officers or key personnel, could have a material adverse effect on our business, operating results and financial condition. Although the Company has been successful in planning for and retaining highly capable and qualified successor management in the past, there can be no assurance that it will be able to do so in the future.
WE NEED ADDITIONAL CAPITAL, WHICH MAY REDUCE THE VALUE OF OUR COMMON STOCK.
Although the Company was successful in completing financings in the aggregate amount of $729,770 in June 2003 and July 2003, numerous factors remain which make it necessary for the Company to seek additional capital. In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of assets, public or private financing, collaborative relationships or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive products by others. Because our common stock is not listed on a major stock exchange, many investors may not be willing or allowed to purchase it or may demand steep discounts. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.
OUR COMPETITORS HAVE FAR GREATER FINANCIAL AND OTHER RESOURCES THAN WE
HAVE.
The market for Thin Film Materials is a substantial market with significant competition in both ceramic and metal materials. While we believe that our products enjoy certain competitive advantages in design, function, quality, and availability, considerable competition exists from well-established firms such as a division of Praxair's Surface Science Technology group as well as MCR, Johnson Matthey, Pure Tech and CERAC, all of which have more resources than we have.
In addition, a significant portion of our business is in the very competitive market for sputtering targets made of ceramics, metals and alloys. We face substantial competition in this area from companies with far greater financial and other resources than we have. We cannot assure you that developments by others will not render our products or technologies obsolete or less competitive.
GOVERNMENT CONTRACTS MAY BE TERMINATED OR SUSPENDED FOR NONCOMPLIANCE OR
OTHER EVENTS BEYOND OUR CONTROL.
The government may cancel virtually all of our government contracts which are terminable at the option of the government. While we have complied with applicable government rules and regulations and contract provisions in the past, we could fail to comply in the future. Noncompliance with government procurement regulations or contract provisions could result in the termination of government contracts. The termination of our significant government contracts or the adoption of new or modified procurement regulations or practices could adversely affect us.
Inventions conceived or actually reduced to practice under a government contract generally result in the government obtaining a royalty-free, non-exclusive license to practice the invention. Similarly, technologies developed in whole or in part at government expense generally result in the government obtaining unlimited rights to use, duplicate or disclose technical data produced under the contract. These licenses and rights may result in a loss of potential revenues or the disclosure of our proprietary information, either of which could adversely affect us.
OUR REVENUES DEPEND ON PATENTS AND PROPRIETARY RIGHTS THAT MAY NOT BE ENFORCEABLE.
We rely on a combination of patent and trademark law, license agreements, internal procedures and nondisclosure agreements to protect our intellectual property. These may be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which our products may be produced or sold do not protect our intellectual property rights to the same extent as the laws of the United States. Our failure to protect our proprietary information could adversely affect us.
RIGHTS WE HAVE TO PATENTS AND PENDING PATENT APPLICATIONS MAY BE CHALLENGED.
We have received from the United States Patent and Trademark Office a patent for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity made by a Chemical Precipitation and Low-Pressure Calcination method, and have also received a patent for a new process to join two individual strongly linked super-conductors utilizing a melt processing technique. In addition, in the future we may submit additional patent applications covering various applications. The patent application we filed and patent applications that we may file in the future may not result in patents being issued, and any patents issued may not afford meaningful protection against competitors with similar technology, and may be challenged by third parties. Because U.S. patent applications are maintained in secret until patents are issued, and because publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, we may not be the first creator of inventions covered by issued patents or pending patent applications or the first to file patent applications for such inventions. Moreover, other parties may independently develop similar technologies, duplicate our technologies or, if patents are issued to us or rights licensed by us, design around the patented aspects of any technologies we developed or licensed. We may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions, which could result in substantial costs. Litigation may also be necessary to enforce any patents held by or issued to us or to determine the scope and validity of others' proprietary rights, which could result in substantial costs.
THE RAPID RATE OF INVENTIONS AND DISCOVERIES IN THE SUPERCONDUCTIVITY FIELD HAS RAISED MANY UNRESOLVED PATENT ISSUES THAT MAY NEGATIVELY AFFECT OUR BUSINESS.
The claims in granted patents often overlap and there are disputes involving rights to inventions claimed in pending patent applications. As a result, the patent situation in the high temperature superconductor field is unusually complex. It is possible that there will be patents held by third parties relating to our products or technology. We may need to acquire licenses to design around or successfully contest the validity or enforceability of those patents. It is also possible that because of the number and scope of patents pending or issued, we may be required to obtain multiple licenses in order to use a single material. If we are required to obtain multiple licenses, our costs will increase. Furthermore, licenses may not be available on commercially reasonable terms or at all. The likelihood of successfully contesting the validity or enforceability of those patents is also uncertain; and, in any event, we could incur substantial costs in defending the validity or scope of our patents or challenging the patents of others.
THE RAPID TECHNOLOGICAL CHANGES OF OUR INDUSTRY MAY ADVERSELY AFFECT US
IF WE DO NOT KEEP PACE WITH ADVANCING TECHNOLOGY.
The Thin Film Market is characterized by rapidly advancing technology. Our success depends on our ability to keep pace with advancing technology, processes and industry standards. To date, we have focused our development efforts on powders and targets. We intend to continue to develop and integrate advances in the thin film coatings industry. However, our development efforts may be rendered obsolete by research efforts and technological advances made by others, and materials other than those we currently use may prove more advantageous.
DEVELOPMENT STAGE OF OUR PRODUCTS AND UNCERTAINTY REGARDING DEVELOPMENT
OF MARKETS
Some of our products are in the early stages of commercialization and we believe that it will be several years before products will have significant commercial end-use applications, and that significant additional development work may be necessary to improve the commercial feasibility and acceptance of its products. There can be no assurance that we will be able to commercialize any of the products currently under development.
To date, there has been no widespread commercial use of High Temperature Superconductive (HTS) products. Additionally, the market for the Thin Film Battery materials is still in its nascent stages.
THE MARKET FOR OUR COMMON STOCK IS LIMITED, AND AS SUCH OUR SHAREHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES WHEN DESIRED OR AT ATTRACTIVE MARKET PRICES.
Our stock price and our listing may make it more difficult for our shareholders to resell shares when desired or at attractive prices. From April 2000 until September 2001, our common stock traded on the National Quotation Bureau (the "pink sheets"). In September 2001, our stock once again began trading on The Over the Counter Bulletin Board ("OTC Bulletin Board"). Nevertheless, our common stock has continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks. This has the effect of limiting the pool of potential purchasers of our common stock at present price levels. Shareholders may find greater percentage spreads between bid and asked prices, and more difficulty in completing transactions and higher transaction costs when buying or selling our common stock than they would if our stock were listed on a major stock exchange, such as The New York Stock Exchange or The NASDAQ National Market.
Additionally, the market prices for securities of superconductive material companies have been volatile throughout the Company's existence. Most of the companies are traded over the counter through the National Quotation Bureau or National Association of Securities Dealers Automated Quotation System. Historical trading characteristics for public companies in this industry include limited market support, low trading volume, and wide spreads (on a percentage basis) between the bid and ask prices. Announcements regarding product developments, technological advances, significant customer orders, and financial results significantly influence per share prices.
OUR COMMON STOCK IS SUBJECT TO THE SECURITIES AND EXCHANGE COMMISSION'S "PENNY STOCK" REGULATIONS, WHICH LIMITS THE LIQUIDITY OF COMMON STOCK HELD BY OUR SHAREHOLDERS.
Based on its trading price, our common stock is considered a "penny stock" for purposes of federal securities laws, and therefore is subject to regulations, which affect the ability of broker-dealers to sell the Company's securities. Broker-dealers who recommend a "penny stock" to persons (other than established customers and accredited investors) must make a special written suitability determination and receive the purchaser's written agreement to a transaction prior to sale.
As long as the penny stock regulations apply to our common stock, it may be difficult to trade such stock because compliance with the regulations can delay and/or preclude certain trading transactions. Broker-dealers may be discouraged from effecting transactions in our common stock because of the sales practice and disclosure requirements for penny stock. This could adversely effect the liquidity and/or price of our common stock, and impede the sale of our common stock in the secondary market.
OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE ADDITIONAL SHARES OF
STOCK.
We are authorized to issue up to 15,000,000 shares of common stock, which may be issued by our board of directors for such consideration, as they may consider sufficient without seeking shareholders approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current shareholders.
Our Articles of Incorporation also authorize us to issue up to 260,000 shares of preferred stock. The issuance of preferred stock in the future could create additional securities which would have dividend and liquidation preferences prior in right to the outstanding shares of common stock. These provisions could also impede a non-negotiated change in control.
WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK IN THE PAST AND DO NOT EXPECT
TO DO SO IN THE FUTURE.
We cannot assure you that our operations will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flow sufficient to pay dividends. We have never paid dividends on our common shares in the past and do not expect to do so in the foreseeable future.
We require substantial capital resources to maintain existing operations.
As of the end of the period covered by this report, the Company's management carried out an evaluation, with the participation of the Company's principal executive officer and principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. It should be noted that the design of any system of controls is based in part under certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
There were no changes in the Company's internal controls over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
10(a) Department of Energy Award dated January 17, 2003.
10(b) Department of Energy Award dated June 24, 2003.
10(c) Department of Energy Award dated September 29, 2003.
31.1 Rule 13a - 14(a) Certification of Principal Executive
Officer.
31.2 Rule 13a - 14(a) Certification of Principal Financial
Officer.
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350.
|
(B) REPORTS ON FORM 8-K.
Report on Form 8-K, dated July 7, 2003, regarding the completion of the June 2003 financings (Items 5 and 7).
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 11, 2003 /s/ Daniel Rooney
--------------------------------------------
Daniel Rooney, President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Gerald S. Blaskie
--------------------------------------------
Gerald S. Blaskie, Chief Financial Officer
(Principal Financial Officer)
|
DOE F 4600.1
(08-93)
Under the authority of Public Law 95-91 Department of Energy Organization Act of 1977
and subject to legislation, regulations and policies applicable to (cite
legislative program title): Small Business Innovation Research
1. PROJECT TITLE
Feasability of Cost Effective, Long Length, BSCCO 2212 Round Wires,
for Very High Field Magnets, Beyond 12 Telsa at 4.2 Kelvin
2. INSTRUMENT TYPE
/X/ GRANT /_/ COOPERATIVE AGREEMENT
3. RECIPIENT (Name, address, zip code, area code and telephone no.)
Superconductive Components Inc.
1145 Chesapeake Avenue
Columbus OH 43212
TEL NO. 614-486-0261
4. INSTRUMENT NO. DE-FG02-02ER83538
5. AMENDMENT NO.
M001
6. BUDGET PERIOD
FROM: 07/22/2002 THRU: 04/21/2003
FROM: 07/22/2002 THRU: 04/21/2003
8. RECIPIENT PROJECT DIRECTOR (Name and telephone no.) Dr. Scott Campbell 614-486-0261
Dan Rooney
614-486-0261
-------------------------------------------------------------------------------
10. TYPE OF AWARD
/_/ NEW /_/ CONTINUATION /_/ RENEWAL
/X/ REVISION /_/ SUPPLEMENT
|
11. DOE PROJECT OFFICER (Name, address, telephone no.) Gerald J. Peters (SC-22)
U.S. DOE/Germantown Building
1000 Independence Avenue
Washington DC 20585-1290
TEL No. 301-903-3233 FAX NO.
-------------------------------------------------------------------------------
12. ADMINISTERED FOR DOE BY (Name, address, telephone no.)
David Ramirez U.S.
Department of Energy
9800 South Cass Avenue
Argonne IL 60439
TEL NO. 630-252-2133 FAX NO. 630-252-5045
-------------------------------------------------------------------------------
13. RECIPIENT TYPE
/_/ STATE GOV'T /_/ INDIAN TRIBAL GOV'T /_/ HOSPITAL
/_/ LOCAL GOV'T /_/ INSTITUTION OF /_/ OTHER NONPROFIT
HIGHER EDUCATION ORGANIZATION
|
a. Appropriation Symbol b. B & R Number c. FT/AFP/OC d. CFA Number
--------------------------------------------------------------------------------
NA NA NA NA NA NA
--------------------------------------------------------------------------------
15. EMPLOYER I.D. NUMBER
31-1210318
--------------------------------------------------------------------------------
|
16. BUDGET AND FUNDING INFORMATION
(2) DOE Funds Authorized for Carry Over $ 0.00
(3) DOE Funds Previously Obligated in this Budget Period $100,000.00
(4) DOE Share of Total Approved Budget $100,000.00
(5) Recipient share of Total Approved Budget $ 0.00
(6) Total Approved Budget $100,000.00
b. CUMULATIVE DOE OBLIGATIONS
(1) This Budget Period $100,000.00
[(Total of lines a.(1) and a.(3)]
(2) Prior budget Periods $ 0.00
(3) Project Period to Date $100,000.00
[(Total of lines b.(1) and b.(2)]
a. Special terms and conditions.
b. Applicable program regulations specify) N/A
(Date) -----------
c. DOE Financial Assistance Rules, 10 CFR 600, as amended.
d. Application/proposal dated 1/14/02, /X/ as submitted /_/ with changes
as negotiated.
19. REMARKS
This amendment changes the Principal Investigator in block 8 from Dr. Suvankar Sengupta to Dr. Scott Campbell. All other terms remain the same.
20. EVIDENCE OF RECIPIENT ACCEPTANCE
/s/ Gerald S. Blaskie 1/23/03
--------------------------------------------------------------------------------
(Signature of Authorized Recipient Official) (Date)
|
/s/ Patricia J. Schuneman 1/17/03
--------------------------------------------------------------------------------
(Signature) (Date)
|
DOE F 4600.1
(08-93)
Under the authority of Public Law 95-91 Department of Energy Organization
Act of 1977 - 106-554 Small Business
Reauthorization Act of 2000
|
and subject to legislation, regulations and policies applicable to (cite
legislative program title): Small Business Innovation Research
1. PROJECT TITLE
Feasability of Cost Effective, Long Length, BSCCO 2212 Round Wires,
for Very High Field Magnets, Beyond 12 Telsa at 4.2 Kelvin
2. INSTRUMENT TYPE
/X/ GRANT /_/ COOPERATIVE AGREEMENT
3. RECIPIENT (Name, address, zip code, area code and telephone no.)
Superconductive Components Inc.
1145 Chesapeake Avenue
Columbus OH 43212
TEL NO. 614-486-0261
4. INSTRUMENT NO. DE-FG02-02ER83538
5. AMENDMENT NO.
A002
6. BUDGET PERIOD
FROM: 06/27/2003 THRU: 09/29/2003
FROM: 07/22/2002 THRU: 06/26/2005
Dan Rooney
614-486-0261
-------------------------------------------------------------------------------
10. TYPE OF AWARD
/_/ NEW /_/ CONTINUATION /X/ RENEWAL
/_/ REVISION /_/ SUPPLEMENT
-------------------------------------------------------------------------------
|
1000 Independence Avenue
Washington DC 20585-1290
TEL No. 301-903-3233 FAX NO.
-------------------------------------------------------------------------------
12. ADMINISTERED FOR DOE BY (Name, address, telephone no.)
David Ramirez U.S.
Department of Energy
9800 South Cass Avenue
Argonne IL 60439
TEL NO. 630-252-2133 FAX NO. 630-252-5045
-------------------------------------------------------------------------------
13. RECIPIENT TYPE
/_/ STATE GOV'T /_/ INDIAN TRIBAL GOV'T /_/ HOSPITAL
/_/ LOCAL GOV'T /_/ INSTITUTION OF /_/ OTHER NONPROFIT
HIGHER EDUCATION ORGANIZATION
|
a. Appropriation Symbol b. B & R Number c. FT/AFP/OC d. CFA Number
--------------------------------------------------------------------------------
89X0222.91 KM0000000 WA CH 410 N/A
--------------------------------------------------------------------------------
15. EMPLOYER I.D. NUMBER
31-1210318
--------------------------------------------------------------------------------
|
16. BUDGET AND FUNDING INFORMATION
(2) Prior budget Periods $100,000.00
(3) Project Period to Date $205,592.00
[(Total of lines b.(1) and b.(2)]
(Date) -----------
c. DOE Financial Assistance Rules, 10 CFR 600, as amended.
d. Application/proposal dated 4/18/03, /X/ as submitted /_/ with changes as
negotiated.
19. REMARKS
/s/ Daniel Rooney 6/30/03
--------------------------------------------------------------------------------
(Signature of Authorized Recipient Official) (Date)
|
21. AWARDED BY:
/s/ Renee Irwin 6/24/03
--------------------------------------------------------------------------------
(Signature) (Date)
|
19. Remarks (Continued)
Effective with the first day of the Budget Period added by this amendment:
a. Funds are obligated for the Budget Period specified in Block No. 6 of the face page of this Notice of Financial Assistance Award;
b. The Special Terms and Conditions for Financial Assistance Awards, coded SPRG - 0503, attached hereto, are substituted for the Special Terms and Conditions for Financial Assistance Awards, coded SPRG-0202, previously incorporated into this grant;
c. All other terms and conditions remain the same.
SPECIAL TERMS AND CONDITIONS FOR FINANCIAL ASSISTANCE AWARDS
The requirements of this attachment take precedence over all other requirements
of this award found in regulations, the general terms and conditions, DOE orders,
etc., except requirements of statutory law. Any apparent contradiction of statutory
law stated herein should be presumed to be in error until the recipient has
sought and received clarification from the Contracting Officer.
1. PAYMENT OFFICE
U.S. Department of Energy
Accounts Payable Division
ME 1444
P.O. Box 500
Germantown, MD 20875-0500
2. FINANCE OFFICE
U.S. Department of Energy
Chicago Operations Office
Office of Chief Financial Officer
9800 South Cass Avenue
Argonne, Illinois 60439
3 PAYMENT
Payment under this award will be made by:
/X/ Advance by Department of Treasury Automated Standard Application for Payments System (ASAP)
The recipient shall request cash only as needed for immediate disbursements, shall report cash disbursements in a timely manner, and shall impose the same standards of timing and amount, including reporting requirements, on secondary recipients.
/ / Advance by Automated Clearing House (ACH)
/ / Reimbursement by ACH
When requesting an advance or reimbursement payment via ACH, the recipient shall submit an original Request for Advance or Reimbursement, SF 270, the Payment Office specified in Section 1, above, and a copy of the SF 270 to the Contract Specialist specified in Block 12 of the Notice of Financial Assistance Award (DOE F 4600.1). The timing and amount of advance payment requests shall be as close as is administratively feasible to the actual disbursements. Such requests shall not be made in excess of reasonable estimates of cash outlays for a 30-day period.
A completed "Automated Clearing House (ACH) Vendor Miscellaneous Payment Enrollment Form" must be on file with the Finance Office specified in Section 2, above prior to requesting any ACH payment.
4. DECONTAMINATION AND/OR DECOMMISSIONING (D&D) COSTS
Notwithstanding any other provisions of this Agreement, including but not limited to FAR 31.205-31, when applicable, as incorporated by Financial Assistance Rule 600.127(a), the Government shall not be responsible for or have any obligation to the recipient for (i) Decontamination and/or Decommissioning (D&D) of any of the recipient's facilities, or (ii) any costs which may be incurred by the recipient in connection with the D&D of any of its facilities due to the performance of the work under this Agreement, whether said work was performed prior to or subsequent to the effective date of this Agreement.
5. FEDERALLY-OWNED PROPERTY
If you acquire federally-owned property under this award whether fabricated, furnished or purchased with Capital Equipment Funds, then a listing of such property shall be submitted on DOE F 4300.3, Semi-Annual Summary Report of DOE-Owned Plant & Capital Equipment (P&CE), to the Contracting Officer within 45 days after August 31 of each year and within 30 days after the project period ends. The report must separately identify items which were fabricated, furnished or purchased with Capital Equipment funds under this award.
Any Capital Equipment funds and the equipment to be purchased, fabricated, or furnished with such funds are indicated on Page No. 2 of the Notice of Financial Assistance Award.
6. NOTICE REGARDING THE PURCHASE OF AMERICAN-MADE EQUIPMENT AND PRODUCTS-SENSE OF CONGRESS
It is the sense of the Congress that, to the greatest extent practicable, all equipment and products purchased with funds made available under this award should be American-made.
7. NOTICE REGARDING UNALLOWABLE COSTS AND LOBBYING ACTIVITIES
Recipients of financial assistance are cautioned to carefully review the allowable cost and other provisions applicable to expenditures under their particular award instruments. If financial assistance funds are spent for purposes or in amounts inconsistent with the allowable cost or any other provisions governing expenditures in an award instrument, the government may pursue a number of remedies against the recipient, including in appropriate circumstances, recovery of such funds, termination of the award, suspension or debarment of the recipient from future awards, and criminal prosecution for false statements.
Particular care should be taken by the recipient to comply with the provisions prohibiting the expenditure of funds for lobbying and related activities. Financial assistance awards may be used to describe and promote the understanding of scientific and technical aspects of specific energy technologies, but not to encourage or support political activities such as the collection and dissemination of information related to potential, planned or pending legislation
1 of 2
8. REPORTING
Failure to comply with the reporting requirements contained in this award will be considered a material noncompliance with the terms of the award. Noncompliance may result in a withholding of future payments, suspension or termination of the current award, and withholding of future awards. A willful failure to perform, a history of failure to perform, or of unsatisfactory performance of this and/or other financial assistance awards, may also result in a debarment action to preclude future awards by Federal agencies.
9. APPROPRIATIONS ACT RESTRICTIONS
If the appropriation symbol contained in Block 14.a. of the Notice of Financial Assistance Award for this award is listed below, paragraph 9.a. is applicable to this award, otherwise paragraph 9.b. applies:
a. Department of Interior and Related Agencies Appropriations Act:
1. Lobbying Restriction (Interior Act)
The awardee agrees that none of the funds obligated on this award shall be made available for any activity or the publication or distribution of literature that in any way tends to promote public support or opposition to any legislative proposal on which Congressional action is not complete. This restriction is in addition to those prescribed elsewhere in statute and regulation.
2. Compliance With Buy American Act
In accepting this aware, the recipient agrees to comply with sections 2 through 4 of the Act of March 3, 1933 (41 U.S.C. 10a-10c, popularly known as the "Buy American Act"). The recipient should review the provisions of the Act to ensure that expenditures made under this award are in accordance with it.
b. Veterans Affairs and Housing and Urban Development, and Independent
The awardee agrees that none of the funds obligated on this award shall be expended, directly or indirectly, to influence congressional action on any legislation or appropriation matters pending before Congress, other than to communicate to Members of Congress as described in 18 U.S.C. 1913. This restriction is in addition to those prescribed elsewhere in statute and regulation.
10. SUBMISSION OF SCIENTIFIC/TECHNICAL REPORTS
Electronic Submission: Scientific/Technical reports must be submitted electronically via the DOE Energy Link System (E-Link) with the appropriate DOE Form 241 (See Federal Assistance Reporting Checklist, DOE F 4600.2). E-Link will allow you to complete the DOE F 241 online and then upload your report. It can be accessed at http://www.osti.gov/elink-2413.
DOE Form 241.3, "U.S. Department of Energy (DOE), Announcement of Scientific and Technical Information (STI)": This form and instructions are available on E-Link. If there is any patentable material, protected data, or SBIR/STTR data in the report, the recipient must, consistent with the data protection provisions of the grant, clearly identify patentable or protected data on each page of the report, identify such material on the cover of the report, and mark the appropriate blocks in Section K of the DOE F 241.3. Other than patentable material, protected data, or SBIR/STTR data, reports must not contain any proprietary data (limited rights data), classified information, information subject to export control classification, or other information not subject to release. Protected data is specified technical data, first produced in the performance of the award, that is protected from public release for a period of time by the terms of the award agreement.
Electronic Format: Reports must be submitted in the ADOBE PORTABLE DOCUMENT FORMAT (PDF) and be one integrated PDF file that contains all text, tables, diagrams, photographs, schematic, graphs, and charts. E-Link can provide more details about converting a file to PDF. Materials, such as prints, videos, and books, that are essential to the report but cannot be submitted electronically, should be sent to the Contracting Officer at the address listed in Block 12 of the Notice of Financial Assistance Award.
DOE F 4600.1
(08-93)
Under the authority of Public Law 95-91 Department of Energy Organization
Act of 1977 - 106-554 Small Business
Reauthorization Act of 2000
|
and subject to legislation, regulations and policies applicable to (cite
legislative program title): Small Business Innovation Research
1. PROJECT TITLE
Feasability of Cost Effective, Long Length, BSCCO 2212 Round Wires,
for Very High Field Magnets, Beyond 12 Telsa at 4.2 Kelvin
2. INSTRUMENT TYPE
/X/ GRANT /_/ COOPERATIVE AGREEMENT
3. RECIPIENT (Name, address, zip code, area code and telephone no.)
Superconductive Components Inc.
1145 Chesapeake Avenue
Columbus OH 43212
TEL NO. 614-486-0261
4. INSTRUMENT NO. DE-FG02-02ER83538
5. AMENDMENT NO.
A003
6. BUDGET PERIOD
FROM: 06/27/2003 THRU: 06/26/2005
FROM: 07/22/2002 THRU: 06/26/2005
/_/ NEW /x/ CONTINUATION /_/ RENEWAL /_/ REVISION /_/ SUPPLEMENT ------------------------------------------------------------------------------- |
1000 Independence Avenue
Washington DC 20585-1290
TEL No. 301-903-3233 FAX NO.
-------------------------------------------------------------------------------
|
9800 South Cass Avenue
Argonne IL 60439
TEL NO. 630-252-2133 FAX NO. 630-252-5045
-------------------------------------------------------------------------------
13. RECIPIENT TYPE
/_/ STATE GOV'T /_/ INDIAN TRIBAL GOV'T /_/ HOSPITAL
/_/ LOCAL GOV'T /_/ INSTITUTION OF /_/ OTHER NONPROFIT
HIGHER EDUCATION ORGANIZATION
|
a. Appropriation Symbol b. B & R Number c. FT/AFP/OC d. CFA Number
--------------------------------------------------------------------------------
89X0222.91 KM0000000 WA CH 410 N/A
--------------------------------------------------------------------------------
15. EMPLOYER I.D. NUMBER
31-1210318
--------------------------------------------------------------------------------
|
16. BUDGET AND FUNDING INFORMATION
(2) Prior budget Periods $100,000.00
(3) Project Period to Date $485,592.00
[(Total of lines b.(1) and b.(2)]
(Date) -----------
c. DOE Financial Assistance Rules, 10 CFR 600, as amended.
d. Application/proposal dated 4/18/03, /X/ as submitted /_/ with changes
as negotiated.
19. REMARKS
/s/ Daniel Rooney 10/2/03
--------------------------------------------------------------------------------
(Signature of Authorized Recipient Official) (Date)
|
21. AWARDED BY:
/s/ Patricia J. Schuneman 9/29/03
--------------------------------------------------------------------------------
(Signature) (Date)
|
Effective for performance under this grant, on or after the effective date of this amendment:
1. Costs for the performance of the Phase II effort are herein definitized;
2. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Grant Application Budget (DOE F 4620-3), attached hereto, is made a part hereof;
3. The Special Terms and Conditions for Financial Assistance Awards, coded SPRG-0503, previously incorporated into this grant in Amendment No. A002 is revised as follows:
a. Provision 3. Payment is revised to indicate payment by "Advance by Automated Clearing House (ACH)" in lieu of "Advance by Department of Treasury Standard Application for Payment System (ASAP)"; and
b. The following Provisions are added:
12. CEILING ON INDIRECT RATES
Notwithstanding the provisions set forth in
10 CFR Part 600, Section 600.127,
reimbursement to the awardee for allowable
and allocable indirect costs shall be
subject to the following ceiling rate(s) and
base(s):
Indirect
Cost Category Ceiling Rate Base
------------- ------------ ----
Overhead 150% Direct Labor
and Fringe
Benefits
|
The ceiling rate and base listed above shall apply to each of the awardee's fiscal years during which costs were incurred in performance of this award. Any indirect costs in excess of those incurred applying the above ceiling rate and base shall be absorbed by the awardee without reimbursement by the Government under any other grant, cooperative agreement or contract.
13. ADVANCE UNDERSTANDING
The recipient shall obtain prior written approval from the Contracting Officer having cognizance over the Los Alamos National Laboratory Management and Operating Contract, for use, under this grant, of any equipment, facility, or personnel at the Los Alamos National Laboratory. The recipient will be subject to all conditions established by that DOE Contracting Officer."
FIRM NAME:
Superconductive Components, Inc.
A. PERSONNEL (Employees) ROLE IN PROJECT EST. HOURS HOURLY FRINGE TOTAL COST
RATE BENEFITS
%
NAME
Dr. Scott Campbell Principal Investigator 1400 34 25 11900 59,500
Michael Matthews Process Engineer 700 21 25 3675 18,375
Tatyana Mishrova Characterization 500 20 25 2500 12,500
Thanou Chokbenboon Technician 600 12 25 1800 9,000
SUBTOTAL 99,375
--------------------------------------------------------------------------------------------------------
B. CONSULTANTS ROLE IN PROJECT EST. HOURS HOURLY
NAME
0
--------------------------------------------------------------------------------------------------------
C. LEASED EQUIPMENT (Specify Time and Rate, or Other Basis) ITEM
0
--------------------------------------------------------------------------------------------------------
D. PURCHASED EQUIPMENT AMOUNT ITEM
Leco C-200 Carbon Analyzer 25,000 25,000
Linseis L62 Differential Thermal Analyzer 30,000 30,000
(SCI will provide 50% of the equipment purchase costs as a cost share)
--------------------------------------------------------------------------------------------------------
E. TRAVEL
One trip to OST, Carteret, NJ for Process Engineer and Technician for
Process technology transfer training
airfare for two, with two hotel rooms for 4 nights, 1 rental car for 4 days, meals and misc. 4,000
--------------------------------------------------------------------------------------------------------
F. OTHER DIRECT COSTS
1. Materials and Supplies (see budget explanation 38,237
--------------------------------------------------------------------------------------------------------
2. Publication Costs
--------------------------------------------------------------------------------------------------------
3. Testing Services (include work at Government Installations) 100,000
--------------------------------------------------------------------------------------------------------
4. Computer Services
--------------------------------------------------------------------------------------------------------
5. Research Institution
--------------------------------------------------------------------------------------------------------
6. Other Subcontracts 187,875
--------------------------------------------------------------------------------------------------------
7. Other
--------------------------------------------------------------------------------------------------------
TOTAL OTHER DIRECT COSTS 326,112
--------------------------------------------------------------------------------------------------------
G. TOTAL DIRECT COSTS (A through F) 484,487
--------------------------------------------------------------------------------------------------------
H. INDIRECT COSTS (Specify Rate and Base)
Total Labor Cost Rate % Amounts
OH @ % 99,375 140 139,125
G&A @ % 484,487 0
TOTAL INDIRECT COSTS 139,125
--------------------------------------------------------------------------------------------------------
I. TOTAL COSTS (G+H) 623,612
--------------------------------------------------------------------------------------------------------
J. FEE OR PROFIT 0
--------------------------------------------------------------------------------------------------------
K. TOTAL AMOUNT OF THIS REQUEST (Item I plus J) 623,612
--------------------------------------------------------------------------------------------------------
L. Has any executive agency of the United States Government performed any review
of your accounts of records in connection with any other grant or contract within
the past year? __Yes _ _No. If Yes, give name, address, and phone number of
reviewing office and official: DCAA, Washingon D.C. Walter Walters (202) 555-4444
--------------------------------------------------------------------------------------------------------
M. CORPORATE/BUSINESS AUTHORIZED REPRESENTATIVE - TYPED NAME AND SIGNATURE DATE: 10/02/03
Daniel Rooney (Signature) /s/ Daniel Rooney
--------------------------------------------------------------------------------------------------------
|
I, Daniel Rooney, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Superconductive Components, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: November 11, 2003
/s/ Daniel Rooney ------------------------------------- Daniel Rooney President and Chief Executive Officer |
I, Gerald S. Blaskie, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Superconductive Components, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and we have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: November 11, 2003
/s/ Gerald S. Blaskie ----------------------- Gerald S. Blaskie Chief Financial Officer |
In connection with the Quarterly Report of Superconductive Components, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Rooney, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Daniel Rooney ---------------------------------------- Daniel Rooney President and Chief Executive Officer of Superconductive Components, Inc. November 11, 2003 |
In connection with the Quarterly Report of Superconductive Components, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald S. Blaskie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Gerald S. Blaskie -------------------------------- Gerald S. Blaskie Chief Financial Officer of Superco |