UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_________________ to ______________
Commission file number: 0-31641
SUPERCONDUCTIVE
COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1210318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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2839 CHARTER STREET, COLUMBUS,
OHIO 43228
(Address of principal executive offices, including zip code)
(614) 486-0261
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last
report)
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: 2,439,360 shares of Common Stock, without par value, were outstanding at July 28, 2005.
FORM 10-QSB
SUPERCONDUCTIVE COMPONENTS, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of June 30, 2005 (unaudited)
and December 31, 2004 3 - 4
Statements of Operations For the Three Months and Six Months
Ended June 30, 2005 and 2004 (unaudited) 5
Statements of Cash Flows For the Three Months and Six Months
Ended June 30, 2005 and 2004 (unaudited) 6 - 7
Notes to Financial Statements (unaudited) 8 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13 - 18
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 20
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. 20
Item 5. Other Information. N/A
Item 6. Exhibits. 20
Signatures. 21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERCONDUCTIVE COMPONENTS, INC.
BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
CURRENT ASSETS
Cash $ 172,860 47,095
Cash, restricted for equipment - 142,968
Accounts and notes receivable
Trade, less allowance for doubtful accounts of $22,663 and
$33,176 respectively 234,549 167,394
Employees 507 100
Inventories 589,890 535,171
Prepaid expenses 30,291 12,626
----------- ----------
Total current assets 1,028,097 905,354
----------- ----------
PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,174,324 2,143,791
Furniture and fixtures 23,643 22,586
Leasehold improvements 280,791 280,791
Construction in progress 44,314 52,048
----------- ----------
2,523,072 2,499,216
Less accumulated depreciation (1,744,353) (1,641,356)
----------- ----------
778,719 857,860
----------- ----------
OTHER ASSETS
Deposit 8,755 8,755
Intangibles 35,526 37,070
----------- ----------
Total other assets 44,281 45,825
----------- ----------
TOTAL ASSETS $ 1,851,097 1,809,039
=========== ==========
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
CURRENT LIABILITIES
Capital lease obligation, current portion $ 32,266 $ 33,522
Capital lease obligation, shareholder, current portion 68,428 68,428
Note payable shareholders, current portion 551,979 252,886
Accounts payable 371,906 230,097
Accounts payable, shareholders 7,920 7,920
Accrued contract expenses 203,678 318,939
Accrued personal property taxes 53,338 47,671
Accrued interest, shareholders 50,913 31,891
Deferred contract revenue 53,773 83,739
Accrued expenses 94,069 113,043
----------- ------------
Total current liabilities 1,488,270 1,188,136
----------- ------------
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION 23,653 38,935
----------- ------------
COMMITMENTS AND CONTINGENCIES - -
----------- ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par
value, $10 stated value, optional redemption at 103%; 25,185 issued
and outstanding 322,368 309,776
Common stock, no par value, authorized 15,000,000 shares; 2,439,360 shares
issued and outstanding 7,541,653 7,541,653
Additional paid-in capital 565,971 558,674
Accumulated deficit (8,090,818) (7,828,135)
----------- ------------
339,174 581,968
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,851,097 $ 1,809,039
=========== ============
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE
30, 2005 AND 2004 AND
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
2005 2004 2005 2004
------------ --------- ----------- ------------
SALES REVENUE $ 624,002 $ 591,788 $ 1,110,628 $ 1,056,644
CONTRACT RESEARCH REVENUE 89,533 69,374 177,966 114,295
------------ ---------- ----------- ------------
713,535 661,162 1,288,594 1,170,939
------------ ---------- ----------- ------------
COST OF SALES REVENUE 469,946 452,325 850,416 863,031
COST OF CONTRACT RESEARCH 90,209 78,210 177,966 123,131
------------ ---------- ----------- ------------
560,155 530,535 1,028,382 986,162
------------ ---------- ----------- ------------
GROSS MARGIN 153,380 130,627 260,212 184,777
GENERAL AND ADMINISTRATIVE EXPENSES 194,139 231,744 372,204 493,000
SALES AND PROMOTIONAL EXPENSES 58,412 67,933 110,934 133,170
------------ ---------- ----------- ------------
LOSS FROM OPERATIONS (99,171) (169,050) (222,926) (441,393)
------------ ---------- ----------- ------------
OTHER INCOME (EXPENSE)
Interest income 326 533 670 750
Interest expense (24,687) (6,916) (40,209) (17,646)
Debt Conversion Expense - (175,362) - (175,362)
Gain (loss) on disposal of equipment - 300 250 (2,181)
Miscellaneous, net (234) (458) (468) (915)
------------ ---------- ----------- ------------
(24,595) (181,903) (39,757) (195,354)
------------ ---------- ----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAX (123,766) (350,953) (262,683) (636,747)
INCOME TAX EXPENSE - - - -
------------ ---------- ----------- ------------
NET LOSS (123,766) (350,953) (262,683) (636,747)
DIVIDENDS ON PREFERRED STOCK (6,296) (6,296) (12,592) (12,592)
------------ ---------- ----------- ------------
LOSS APPLICABLE TO COMMON SHARES $ (130,062) $ (357,249) $ (275,275) $ (649,339)
============ ========== =========== ============
EARNINGS PER SHARE - BASIC AND DILUTED
(Note 2)
NET LOSS PER COMMON SHARE BEFORE
DIVIDENDS ON PREFERRED STOCK
Basic $ (0.05) $ (0.16) $ (0.11) $ (0.32)
============ ========== =========== ============
Diluted $ (0.05) $ (0.16) $ (0.11) $ (0.32)
============ ========== =========== ============
NET LOSS PER COMMON SHARE AFTER
DIVIDENDS ON PREFERRED STOCK
Basic $ (0.05) $ (0.17) $ (0.11) $ (0.33)
============ ========== =========== ============
Diluted $ (0.05) $ (0.17) $ (0.11) $ (0.33)
============ ========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,439,360 2,149,865 2,439,360 1,987,394
============ ========== =========== ============
Diluted 2,439,360 2,149,865 2,439,360 1,987,394
============ ========== =========== ============
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (262,683) $ (636,747)
---------- ----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and accretion 106,153 102,969
Amortization 1,544 1,544
Warrants issued for consulting - 35,586
Debt conversion expense - 175,362
(Gain) loss on disposal of equipment (250) 2,181
Inventory reserve (9,968) (2,760)
Provision for doubtful accounts 10,513 18,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (78,075) (173,277)
Inventories ` (44,751) (36,237)
Prepaid expenses (17,665) 9,861
Other assets - (261)
Increase (decrease) in liabilities:
Accounts payable 141,809 120,700
Accrued expenses and deferred revenue (122,186) 342,376
---------- ----------
Total adjustments (12,876) 596,044
---------- ----------
Net cash used by operating activities (275,559) (40,703)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 250 1,602
Purchases of property and equipment (25,356) (342,871)
---------- ----------
Net cash used in investing activities (25,106) (341,269)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, shareholders 300,000 150,000
Principal payments on notes payable, shareholders - (150,000)
Proceeds from exercise of common stock options - 3,500
Proceeds from sale of common stock - 658,782
Principal payments on capital lease obligations (16,538) (18,726)
---------- ----------
Net cash provided by financing activities 283,462 643,556
---------- ----------
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
2005 2004
-------- ---------
NET INCREASE (DECREASE) IN CASH $(17,203) $ 261,584
CASH - Beginning of period 190,063 266,940
-------- ---------
CASH - End of period $172,860 $ 528,524
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net $ 2,204 $ 2,854
Income taxes $ - $ -
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Property and equipment was purchased by capital lease $ - $ 15,644
Note payable converted to equity $ - $ 729,700
Accrued interest converted to equity $ - $ 25,491
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The accompanying notes are an integral part of these financial statements.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS ORGANIZATION AND PURPOSE
Superconductive Components, Inc. (the "Company") is an Ohio corporation that was incorporated in May 1987. The Company was formed to develop, manufacture and sell materials using superconductive principles. Operations have since been expanded to include the manufacture and sale of non-superconductive materials. The Company's domestic and international customer base is primarily in the thin film battery, high temperature superconductor, photonics and optical coatings industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2004. 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.
EQUIPMENT PURCHASED WITH GRANT/CONTRACT FUNDING
The Company received a grant of $517,935 in 2004 from the Ohio Department of Development's Third Frontier Action Fund (TFAF) for the purchase of equipment related to the grant's purpose. Additionally, the Company received $27,500 as part of its contract with the Department of Energy for the purchase of equipment related to the contract's purpose. The Company has elected to record the funds disbursed as a contra asset; therefore, the assets are not reflected in the Company's financial statements. As assets are purchased, the liability initially created when the cash was received is reduced with no revenue being recognized or fixed asset recorded on the balance sheet. At June 30, 2005, the Company has disbursed $517,935. The grant and contract both provide that as long as the Company performs in compliance with the grant/contract, the Company retains the rights to the equipment. Management states that the Company will be in compliance with the requirements and, therefore, will retain the equipment at the end of the contract/grant.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company's pro forma information for the six months ended June 30, 2005 and 2004 in accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" is provided below. For purposes of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting period. The following table compares the 2005 and 2004 results as reported to the results had the Company adopted the expense recognition provisions of SFAS #123.
June 30, June 30,
2005 2004
Net loss applicable to common shares:
As reported $(275,275) $(649,339)
Stock-based compensation, net of tax (6,342) (3,120)
---------- ---------
Pro forma net loss under SFAS #123 $(281,617) $(652,459)
Basic and diluted loss per share:
As reported $ (0.11) $ (0.33)
Pro forma under SFAS #123 $ (0.12) $ (0.33)
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For the periods ended June 30, 2005 and 2004, there was no stock-based employee compensation cost included in the determination of net loss as reported.
NOTE 3. INVENTORY
Inventory is comprised of the following:
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(unaudited)
Raw materials $ 328,914 $ 340,148
Work-in-progress 203,613 142,390
Finished goods 162,925 168,163
Inventory reserve (105,562) (115,530)
----------- ---------
$ 589,890 $ 535,171
=========== =========
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SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4. COMMON STOCK AND STOCK OPTIONS
The following options were granted under the 1995 Stock Option Plan during the six months ended June 30, 2005:
GRANT DATE # OPTIONS GRANTED OPTION PRICE ---------- ----------------- ------------ March 7, 2005 90,000 $ 2.40 |
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 June 30, 2005 and 2004, 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 June 30, Six months ended June 30,
2005 2004 2005 2004
--------- --------- ----------- ---------
Loss applicable
to common shares $(130,062) $(357,249) $(275,275) $(649,339)
========= ========= ========= =========
Weighted average
common shares
outstanding - basic 2,439,360 2,149,865 2,439,360 1,987,394
Effect of dilutions -
stock options - - - -
--------- --------- --------- ---------
Weighted average
shares outstanding -
diluted 2,439,360 2,149,865 2,439,360 1,987,394
========= ========= ========= =========
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SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. CAPITAL REQUIREMENTS; RISK OF CURTAILMENT OF BUSINESS OPERATIONS
The Company's accumulated deficit since inception was $8,090,818 (unaudited) at June 30, 2005. The losses have been financed primarily from additional investments and loans by major shareholders and a private offering of common stock and warrants to purchase common stock in 2004. The Company cannot assure that it will be able to raise additional capital in the future to fund its operations.
As of June 30, 2005, cash on-hand was $172,860. Management believes, based on anticipated financing and forecasted sales and expenses, that funding will be adequate to sustain operations through December 2005. During 2004 the Company raised additional funds through offerings of debt and equity. The Company received debt financing of $250,000 in 2004. In 2004, the Company received $517,935 from the State of Ohio's Third Frontier Action Fund to purchase capital equipment required to commercialize the Company's Lithium Thin Film Battery sputtering target-manufacturing process. At June 30, 2005, these funds had been expended.
In 2004, the Company, in a private placement to eight accredited investors sold 300,084 shares of its common stock, without par value, at a purchase price of $2.40 per share. The total offering price paid in cash was $720,200. As part of the private placement, the accredited investors also received warrants to purchase 60,017 shares of the Company's common stock, without par value, at a purchase price of $2.88 per share. Because the Company completed equity financing of at least $500,000 prior to June 30, 2004, the principal and accrued interest totaling $754,846 due on convertible promissory notes issued on June 30, 2003, converted to 314,519 shares of common stock, without par value, at a conversion rate of $2.40 per share. As part of the conversion, the holders of the convertible promissory notes also received warrants to purchase an aggregate of 62,901 shares of the Company's common stock, without par value, at a purchase price of $2.88 per share.
In November of 2004 a director agreed to loan the Company up to $200,000 for working capital, to be drawn by the Company in increments of $50,000. The loan is repayable on November 1, 2005, and may be repaid earlier without prepayment penalty upon 15 days prior written notice. The interest rate is Huntington National Bank's prime rate plus 2%, and interest will accrue and compound monthly. The loan is secured by the Company's assets and is perfected by the filing of a UCC-1 financing statement. For each $50,000 increment drawn on the loan the director received 5,000 warrants to purchase the Company's common stock, without par value, at a purchase price of $2.50 per share and exercisable until November 1, 2009. The director has the option to convert the loan balance (principal and accrued and unpaid interest) to equity at any time before repayment at the same price and terms as any equity financing of the Company equal to or in excess of $200,000. On November 3, 2004, $100,000 was drawn on the loan. An additional $50,000 was drawn on the loan on January 7, 2005 and also on April 1, 2005.
SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. CAPITAL REQUIREMENTS; RISK OF CURTAILMENT
OF BUSINESS OPERATIONS
(CONTINUED)
In April of 2005, the same director who agreed to provide a secured loan for $200,000 to the Company in November 2004, agreed to provide an additional $200,000 secured loan to the Company for working capital. The loan is repayable on June 30, 2006, and may be repaid earlier without prepayment penalty upon 15 days prior written notice. The interest rate is 10%, and interest will accrue and compound monthly. The director has the option to convert the loan balance (principal and accrued and unpaid interest) to equity at any time before repayment at the same price and terms as any equity financing received by the Company after April 14, 2005. If the Company receives at least $500,000 in equity financing, the then outstanding principal sum and accrued and unpaid interest will automatically convert to equity at the same price and terms as the equity financing. On April 14, 2005, $100,000 was drawn on this loan. $100,000 was drawn on the loan on May 20, 2005.
The Company has incurred substantial operating losses through June 30, 2005, and numerous factors make it necessary for the Company to seek additional capital. In order to support the initiatives envisioned in its business plan, it will need to raise additional funds through the sale of assets, public or private financing, collaborative relationships or other arrangements. The Company's ability to raise additional financing depends on many factors beyond its control, including the state of capital markets, the market price of its common stock and the development or prospects for development of competitive products by others. Because the 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 or may be available only on terms that would result in further dilution to the current owners of the common stock.
NOTE 7. LEGAL PROCEEDINGS
On October 29, 2004 a complaint was filed in the Franklin County Court of Common Pleas against the Company by Mr. Cavin Carmell, dba University Area Rentals ("University Area Rentals"). The complaint alleges that the Company left its former leased premises in disrepair and violated the terms of its lease. The case is in the early stages of discovery and trial is set for October 2005. Based upon the informal discovery provided by University Area Rentals, an estimate of damages claimed is between $50,000 and $100,000. The Company intends to vigorously defend itself against the claim.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial Statements and Notes contained herein.
The following section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical fact and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in other documents filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. Actual results could differ materially from the forward-looking statements made. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time and it is not possible for management to predict all factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Overview
Superconductive Components, Inc. ("SCI" or the "Company"), an Ohio corporation, was incorporated in 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive ("HTS") materials. The Company presents itself to the market as SCI Engineered Materials, an operating unit of Superconductive Components, Inc. The Company views its business as supplying ceramic and metal materials to a variety of industrial applications including: HTS, Photonics/Optical, and Thin Film Batteries. The production and sale of High Temperature Superconducting (HTS) materials was the initial focus of the Company's operations and these materials continue to be a significant part of the Company's development efforts. Photonics/Optical currently represents the Company's largest market for its materials. Thin Film Battery materials is a developing market where manufacturers of batteries use these materials to produce very small power supplies, with small quantities of stored energy.
Executive Summary
For the three months ended June 30, 2005, the Company had revenues of $713,535. This represented the highest revenue quarter since the third quarter of 2002. This was an increase of $138,476 over the first quarter of 2005. For the six months ended June 30, 2005, the Company incurred a net loss of $262,683 compared to a net loss of $636,747 for the same period in 2004. Included in 2004 were non-cash expenses totaling $210,948.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During 2004 the Company relocated its manufacturing to a new, modern facility. During this relocation the Company had significant down time. The Company was quoting long lead times prior to, during and shortly after the move. These long lead times contributed to a reduction in orders. The Company's shipments are expected to increase in 2005, as the Company is able to provide product with more reasonable lead times. The Company also expects gross margins to improve as sales grow. In addition, the Company expects improvement in its gross margins as the sales mix moves to higher margin products. The thin film battery market is poised for significant growth beginning in late 2005.
The Company achieved ISO 9001:2000 certification during the second quarter of 2005. This immediately resulted in the return of a major customer. Orders received in the three months ended June 30, 2005 were $750,000 - highest since the third quarter of 2003. Orders in the six months ended June 30, 2005 of $1,480,000 exceeded the orders received through the same date in 2004 by $183,000. The Company expects the amount of orders for 2005 to be higher than the $2,019,000 received during 2004.
The Company recently received notification that the Department of Energy can provide support for Phase I of an SBIR entitled "Feasibility of Cost Effective, Long Length, BSCCO 2212 Round Wires, for Very High Field Magnets Beyond 12 Tesla at 4.2 Kelvin." The award, in an amount not to exceed $99,793, is in the final negotiation stages and is expected to be awarded during the third quarter of 2005.
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
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, 2004 describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. We use the percentage of completion method to account for contracts based on hours incurred, estimated hours to complete and costs incurred with estimates to complete.
Revenue from product sales is recognized upon shipment to customers. Provisions for discounts and returns are provided for in the period the Company ships the discounted item or the period the Company agrees to the return. Deferred revenues represent cash received in advance of the contract revenues earned. Revenue from contract research provided for third parties is recognized on the percentage of completion method.
If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected. Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will provide benefit to our Company. Changes in circumstances related to a change in our business, change in technology or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.
SIX MONTHS ENDED JUNE 30,
2005 (UNAUDITED) COMPARED TO SIX MONTHS ENDED
JUNE 30, 2004 (UNAUDITED):
REVENUES
Revenues for the six months ended June 30, 2005 were $1,288,594 compared to $1,170,939, an increase of $117,655 or 10.0% from the six months ended June 30, 2004.
Product revenues increased to $1,110,628 in 2005 from $1,056,644 in 2004 or an increase of 5.1%. The increase in revenues for the first six months is due to the return of two major customers.
Contract research revenues were $177,966 in 2005 as compared to $114,295 in 2004. The increase was due to increased work performed on a Phase II Small Business Innovation Research grant for $523,612 from the Department of Energy that was awarded in 2003. This award was to develop an advanced method to manufacture continuous reacted lengths of High Tc Superconductor: Bismuth Strontium Calcium Copper Oxide - 2212 Wire. Revenues of $177,966 and $103,805 from this grant are included in the first six months of revenues for 2005 and 2004, respectively.
GROSS MARGIN
Gross margin in 2005 was $260,212 or 20.2% of total revenue compared to $184,777 or 15.8% in 2004. Gross margin on product revenue was 23.4% in 2005 versus 18.3% in 2004. The increase was due to higher sales, which resulted from increased production that led to improved operating efficiencies. Gross margin on contract research revenue was 0.0% and (7.7%) for the six months ended June 30, 2005 and 2004, respectively. The negative margin in 2004 was due to the Company's cost share that was reimbursed at 50%.
SELLING EXPENSE
Selling expense in 2005 decreased to $110,934 from $133,170 in 2004, a decline of 16.7%. This was due to a decrease in total wages and commission costs and expenses related to trade shows.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense in 2005 decreased to $372,204 from $493,000 in 2004, or 24.5%. The decrease was due primarily to the relocation of the Company's facility that took
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
place in the first quarter of 2004, of which $76,051 was expensed for this purpose. Also, non-employee stock warrants were granted as compensation for consulting services, for which $35,586 was expensed in 2004.
RESEARCH AND DEVELOPMENT EXPENSE
Internal research and development costs are expensed as incurred. Internal research and development costs for 2005 were $(4,454) compared to $6,577 in 2004. Internal research and development costs decreased due to an increase in contract research expenses, which resulted in internal expenses being absorbed by the grant into cost of goods sold for contract research.
INTEREST EXPENSE
Interest expense was $40,209 and $17,676 for the six months ended June 30, 2005 and 2004, respectively. Interest expense to related parties was $38,006 and $13,361 for the six months ended June 30, 2005, and June 30, 2004, respectively. The increase was primarily due to the interest incurred as a result of the notes payable to a director.
LOSS APPLICABLE TO COMMON SHARES
BASIC
Loss applicable to common shares was $275,275 and $649,339 for the six months ended June 30, 2005 and 2004, respectively. Net loss per common share based on the loss applicable to common shares for the six months ended June 30, 2005 and 2004 was $0.11 and $0.33, respectively. The loss applicable to common shares includes the net loss from operations and Series B preferred stock dividends. The net loss per common share from operations was $0.11 and $0.32 for the six months ended June 30, 2005 and 2004, respectively.
Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Dividends on the Series B preferred stock totaled $12,592 for the six months ended June 30, 2005 and 2004, respectively.
Basic loss per common share for the six months ended June 30, 2005, was $0.11 per share with 2,439,360 weighted average common shares outstanding as compared to $0.33 per share and 1,987,394 weighted average common shares outstanding for the six months ended June 30, 2004.
DILUTED
Diluted loss per common share for the six months ended June 30, 2005 was $0.11 per share with 2,439,360 average common shares outstanding as compared to $0.33 per share and 1,987,394 weighted average common shares outstanding for the six months ended June 30, 2004. For the six months ended June 30, 2005 and 2004, all outstanding common stock equivalents are anti-dilutive due to the net loss.
LIQUIDITY AND WORKING CAPITAL
At June 30, 2005, working capital was $(460,173) compared to $156,203 at June 30, 2004. The decrease was due to a reduction in cash from operations, as well as a reduction in cash restricted
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
for equipment purchases for the TFAF grant in the amount of $247,902. Also, an increase in notes payable, shareholders reduced working capital. The Company used cash from operations of approximately $276,000 and $41,000 for the six months ended June 30, 2005 and June 30, 2004, respectively. Significant non-cash items including depreciation, accretion and amortization, warrants issued for consulting, debt conversion expense, inventory reserve on excess and obsolete inventory, and allowance for doubtful accounts were approximately $108,000 and $331,000, respectively, for the six months ended June 30, 2005 and 2004. Accounts receivable, inventory and prepaids increased in excess of increases in accounts payable and accrued expenses by approximately $121,000 for the six months ended June 30, 2005. Accounts payable and accrued expenses increased in excess of increases in accounts receivable, inventory and prepaids by approximately $263,000 for the six months ended June 30, 2004.
For investing activities, the Company used cash of approximately $25,000 and $341,000, for the six months ended June 30, 2005 and June 30, 2004, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity and for leasehold improvements for the new facility. Proceeds on sale of equipment totaled $250 and $1,602 for the six months ended June 30, 2005 and June 30, 2004, respectively.
For financing activity for the six months ended June 30, 2005, the Company provided cash of approximately $283,000. Cash payments to third parties for capital lease obligations approximated $17,000. Proceeds from notes payable totaled $300,000.
For financing activity for the six months ended June 30, 2004, the Company provided cash of approximately $644,000. Cash payments to third parties for capital lease obligations approximated $19,000; proceeds from notes payable totaled $150,000. Proceeds from sale of common stock was $659,000 and proceeds from the exercise of stock options totaled $3,500. Cash payments for notes payable were $150,000.
While certain major shareholders of the Company have advanced funds in the form of secured debt, 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 funds.
In November of 2004, a director agreed to loan the Company up to $200,000 for working capital, to be drawn by the Company in increments of $50,000. The loan is repayable on November 1, 2005, and may be repaid earlier without prepayment penalty upon 15 days prior written notice. The interest rate is Huntington National Bank's prime rate plus 2%, and interest will accrue and compound monthly. The loan is secured by the Company's assets and is perfected by the filing of a UCC-1 financing statement. For each $50,000 increment drawn on the loan the director received 5,000 warrants to purchase the Company's common stock, without par value, at a purchase price of $2.50 per share and exercisable until November 1, 2009. The director has the option to convert the loan balance (principal and accrued and unpaid interest) to equity at any time before repayment at the same price and terms as any equity financing of the Company equal to or in excess of $200,000. On November 3, 2004, $100,000 was drawn on the loan. $50,000 was drawn on the loan on January 7, 2005 and also on April 1, 2005. In April of 2005 the same director agreed to loan the Company up to an additional $200,000 for working capital. The loan is repayable on June 30, 2006, and may be repaid earlier without prepayment penalty upon 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
days prior written notice. The interest rate is 10%, and interest will accrue and compound monthly. The director has the option to convert the loan balance (principal and accrued and unpaid interest) to equity at any time before repayment at the same price and terms as any equity financing received by the Company after April 14, 2005. If the Company receives at least $500,000 in equity financing, the then outstanding principal sum and accrued and unpaid interest will automatically convert to equity at the same price and term as the equity financing. On April 14, 2005, $100,000 was drawn on this loan. An additional $100,000 was drawn on this loan on May 20, 2005.
RISK FACTORS
The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The following factors, as well as the factors listed under the caption "Risk Factors" in the Company's Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2005, 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 these 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 $8,090,818 (unaudited) at June 30, 2005.
We have financed the losses primarily from additional investments and loans by our major shareholders and a private offering of common stock and warrants to purchase common stock in 2004. We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations.
If we are unable to obtain additional funds we may have to significantly curtail the scope of our operations or liquidate the Company.
As of June 30, 2005, our cash on-hand was $172,860. During the first six months of 2005, the Company used approximately $276,000 in cash for operations, with the TFAF grant accounting for $143,000. We believe, based on anticipated financing and forecasted sales and expenses, that our funding will be adequate to sustain operations through December 2005.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements including special purpose entities.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation 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 this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the period covered by this report in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified by the Securities and Exchange Commission's rules and forms.
Additionally, there were no changes in the Company's internal controls that could materially affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any material deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) On April 14, 2005, Superconductive Components, Inc. (the "Company")
entered into a Convertible Promissory Note (the "Convertible Note"),
dated as of April 14, 2005, by and between the Company, as Borrower, and Robert
H. Peitz, as Lender. Mr. Peitz currently serves as a director on the Company's
Board of Directors. At anytime before repayment, the outstanding principal and
accrued interest owed will automatically convert to equity on the same price
and terms as any equity financing received by the Company after the date of
the loan agreement, provided that the Company receives at least five hundred
thousand dollars ($500,000) from the equity financing. If the Company completes
an equity financing, but receives less than $500,000, Mr. Peitz will have the
option to otherwise convert the outstanding principal and accrued interest owed
under the same terms as the equity financing. In the Company's opinion, the
issuance of this convertible note was exempt from registration pursuant to
Section 4(2) of the Securities Act, because the transaction did not involve
a public offering. The proceeds from the convertible promissory note were used
for working capital.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its Annual Meeting of Shareholders on June 10, 2005, for the purpose of electing five directors.
(b) The following nominees were elected as directors of the Company at the Annual Meeting of Shareholders: Robert J. Baker, Walter J. Doyle, Robert H. Peitz, Daniel Rooney, and Edward W. Ungar.
(c) The table shows the voting tabulations for the matter voted upon at the Annual Meeting of Shareholders.
FOR WITHHELD
Robert J. Baker, Jr. 1,600,372 150
Walter J. Doyle 1,600,252 270
Robert H. Peitz 1,600,272 250
Daniel Rooney 1,600,312 210
Edward W. Ungar 1,596,352 4,170
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ITEM 6. EXHIBITS.
31.1 Rule 13a-14(a) Certification of Principal Executive Officer.
31.2 Rule 13a-14(a) Certification of Principal Financial Officer.
32.1 Section 1350 Certification of Principal Executive Officer.
32.2 Section 1350 Certification of Principal Financial Officer.
99.1 Press Release dated August 1, 2005, entitled "Superconductive
Components, Inc. Reports Improved Second Quarter Results"
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUPERCONDUCTIVE COMPONENTS, INC.
Date: August 1, 2005 /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)
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 annual 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 officers 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) [reserved];
c) 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
d) 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(s) 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: August 1, 2005 /s/ Daniel Rooney
-------------------------------------
Daniel Rooney
President and Chief Executive Officer
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 officers 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 annual report is being prepared;
b) [reserved];
c) 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
d) 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 officers 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: August 1, 2005
/s/ Gerald S. Blaskie
-------------------------
Gerald S. Blaskie
Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Superconductive Components, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2005 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 result of operations of the Company.
Date: August 1, 2005
/s/ Daniel Rooney
----------------------------------------
Daniel Rooney
President and Chief Executive Officer of
Superconductive Components, Inc.
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Exhibit 32.2
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Superconductive Components, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2005 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 result of operations of the Company.
Date: August 1, 2005
/s/ Gerald S. Blaskie
--------------------------------
Gerald S. Blaskie
Chief Financial Officer of
Superconductive Components, Inc.
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FOR IMMEDIATE RELEASE For Additional Information Contact: Robert Lentz (614) 876-2000
SUPERCONDUCTIVE COMPONENTS, INC.
REPORTS IMPROVED SECOND QUARTER RESULTS
COLUMBUS, Ohio (August 1, 2005) Superconductive Components, Inc. (OTCBB: SCCI), a manufacturer of ceramics and metals for advanced applications in batteries, photonic/optical, and high temperature superconductive products, today announced results for the three months ended June 30, 2005.
Dan Rooney, Chairman, President and Chief Executive Officer, commented, "Our results for the second quarter of 2005 reflect further progress in key areas of our business. Revenues for the most recent quarter were the highest since the third quarter of 2002 and bookings reached their highest level since the third quarter of 2003. The Company's ISO 9001:2000 registration, which was received during the second quarter, has already resulted in new Tier 1 automotive customers for our photonic market. We anticipate additional gross margin improvement in future quarters. Operating expenses are expected to grow at a slower rate than revenue for the foreseeable future. Together, these achievements will contribute to improved long-term performance."
Mr. Rooney continued, "Bookings from thin-film battery customers are expected to increase during the second half of 2005 as customers expand their production capabilities. We anticipate that this market will begin to take shape in 2006, resulting in significant sales growth over the next several years. We continue to work closely with all of the licensees of this technology as they move toward product introductions in their chosen markets."
Second Quarter 2005 Results
Total revenue increased 7.9% to $713,535 for the three months ended June 30, 2005 from $661,162 for the same period in 2004. Product revenues increased 5.4% to $624,002 for the second quarter of 2005 from $591,788 the prior year due to higher sales to existing and new customers. Contract research revenues rose to $89,533 for the second quarter of 2005 from $69,374 a year ago due to a Phase II Small Business Innovation Research grant from the Department of Energy.
Gross margin increased to $153,380 for the second quarter of 2005 from $130,627 for the second quarter 2004. The Company's gross profit margin rose to 21.5% of sales revenue for the second quarter of 2005 from 19.8% for the same period last year. This increase was attributable to higher revenues, improved efficiencies and product mix.
General and administrative expense declined to $194,139 for the second quarter of 2005 from $231,744 for the same period last year. General and administrative expenses for the second quarter of 2004 included $35,586 of non-cash expenses.
Sales and promotional expenses were $58,412 for the three months ended June 30, 2005 compared to $67,933 for the same period last year. This decrease was due to a reduction in trade shows and related expenses as the Company increased its emphasis on direct sales.
(more)
The loss applicable to common shares declined to $130,062, or $0.05 per share, for the second quarter of 2005 compared to a loss applicable to common shares of $357,249, or $0.17 per share, for the same period last year. Excluding the total non-cash expenses, the loss applicable to common shares for the second quarter of 2004 was $146,301 or $0.07 per share.
About Superconductive Components, Inc.
Superconductive Components, Inc. operates through SCI Engineered Materials and manufactures ceramics and metals for advanced applications such as thin film batteries, superconductors, and advanced optical systems. The Company also provides materials for thin film applications used in photovoltaics, electronic switches, hardness and decorative coatings. The Company is a global materials supplier with clients in more than 40 countries. Additional information is available at http://www.sciengineeredmaterials.com.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the company and its management, and specifically include statements regarding management's anticipation of additional gross margin improvement in future quarters, expectation that operating expenses will grow at a slower rate than revenue for the foreseeable future, and together, these achievements will contribute to improved long-term performance (paragraph 2), expectation that bookings from thin film battery customers will increase during the second half of 2005 and anticipation that the thin film battery market will begin to take shape in 2006, resulting in significant sales growth over the next several years (paragraph 3). These forward-looking statements involve numerous risks and uncertainties, including, without limitation: the development of the thin film battery market, the impact of competitive products and services, the ability to adapt to technological changes, the availability of capital, and other risks and uncertainties detailed from time to time in the company's Securities and Exchange Commission filings, including the company's Annual Report on Form 10-KSB for the year ended December 31, 2004. One or more of these factors have affected, and could in the future affect, the company's projections. Therefore, there can be no assurances that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the company, or any other persons, that the objectives and plans of the company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the company. The company assumes no obligation to update any forward-looking statements.