OHIO 31-0121318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1145 CHESAPEAKE AVENUE
COLUMBUS, OHIO 43212
(Address of principal executive offices,
including zip code)
(614) 486-0261
(Issuer's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
without par value
(Title of Class)
|
Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 2002, were $2,958,544.
The aggregate market value of the Registrant's common equity held by non-affiliates of the Registrant was approximately $268,351 on March 17, 2003.
There were 1,823,256 shares of the Registrant's Common Stock
outstanding on March 24, 2003.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2003 Annual Meeting of
Stockholders are incorporated by reference in Part III.
|
TABLE OF CONTENTS
-----------------
Page
----
PART I
Item 1. Description of Business................................................................. 3
Item 2. Description of Property................................................................. 11
Item 3. Legal Proceedings....................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders..................................... 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................................ 12
Item 6. Management's Discussion and Analysis or Plan of Operation............................... 13
Item 7. Financial Statements.................................................................... 17
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................... 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act............................................................... 18
Item 10. Executive Compensation.................................................................. 18
Item 11. Security Ownership of Certain Beneficial Owners and Management.......................... 18
Item 12. Certain Relationships and Related Transactions.......................................... 18
PART IV
Item 13. Exhibits and Reports on Form 8-K........................................................ 18
Item 14. Controls and Procedures................................................................. 20
Signatures................................................................................................ 21
Certifications of CEO and CFO.............................................................................. 22-23
|
This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 26A of the Securities Act of 1933, as amended. The words "anticipate," "believe," "expect," "estimate," and "project" and similar words and expressions identify forward-looking statements, which speak only as of the date hereof. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors, including, but not limited to, the factors discussed in "Description of Business - Risk Factors." The Company undertakes no obligation to publicly update or revise any forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Superconductive Components, Inc. ("SCI" or the "Company"), an Ohio corporation, was incorporated on May 29, 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive ("HTS") materials. During the Company's 15-year history it has evolved from producing only HTS materials to the production and development of several different ceramic and metal formulations, with applications in a variety of industries from HTS magnets to coatings on optical lens.
The Company presents itself to the market as SCI Engineered Materials, an operating unit of Superconductive Components Inc. The change to a single operating unit was made to more effectively utilize the Company's resources. The Company controls the manufacturing process and measures performance, in terms of sales, in two categories, Ceramics and Metals, as the products sold are easily separable into these categories. The performance measurements made in these two categories are, however, not conducive to segment reporting as there are many shared operating expenses relating to the production of both Ceramics and Metals that cannot be attributed solely to one or the other.
HISTORY OF THE COMPANY
The Company was founded in 1987 by Dr. Edward R. Funk and his wife Ingeborg Funk to develop, manufacture, and market High Temperature Superconductive materials (HTS materials), including sputtering targets and ceramic powders for commercial applications of the newly-discovered superconducting ceramics. HTS materials are complex metal oxides - ceramics - of certain stoichiometries (chemical mixture ratios), which exhibit superconducting phenomena when cooled to at least -196(degree) Centigrade. These complex metal oxides are identified as members of the Perovskite family of ceramic materials. Perovskites are a large family of crystalline ceramics that derive their name from the perovskite mineral. The perovskite minerals are the most abundant minerals on earth and have approximately a 2:3 metal-to-oxygen ratio. Copper-oxide superconductors are layered perovskites. The Company's initial efforts were directed toward mastering the manufacturing process for making high temperature superconducting ceramic powders. During this period, the market for high temperature superconductors was very small, estimated at $1 million a year or less, consisting primarily of demonstration kits and small amounts of HTS powder for research purposes. Sales, though relatively small, covered a wide range of superconducting products, including ceramic powders. The Company sold ceramic powders as finished products and in other forms such as pressed pills or pellets, which were achieved by sintering the ceramic powders, and solid shapes. Products sold in such forms were used primarily in research applications.
Subsequently, the Company began to develop other forms of HTS materials. The Company began to focus on the market for superconducting thin-film materials, made from the Company's sputtering targets. A sputtering target is a metal, alloy or sintered ceramic. The targets are specially sized to fit into a special coating device called a sputtering system, in general the sputtering targets are rectangular or cylindrical in geometry.
These HTS Physical Vapor Deposition materials are used by customers of the Company in a vapor deposition process to make thin films of the target materials. This process operates in a vacuum, hence, the frequently heard term, vacuum deposition or Physical Vapor Deposition ("PVD"). HTS thin films are then patterned, using techniques similar to those in the semiconductor industry, to manufacture sensors, circuits and other devices, which in turn can be used in medical diagnostics, geological exploration, advanced radar, wireless communication and other niche applications.
Despite our efforts, a broad market for HTS materials had not developed and therefore, in 1992 the Company established the TMI Division and began marketing sputtering targets of materials other than HTS materials for thin film deposition. This division was located within the headquarters of the Company in Columbus, Ohio and shared facilities and staff with the SCI Division. In 2002 the Company abandoned the separate TMI Division designation and combined its marketing efforts with SCI Engineered Materials as a single operating unit of Superconductive Components, Inc. The purpose of the reorganization was to develop a more market driven business focused in three primary areas: High Temperature Superconductive Materials, Photonic/Optical Coating and Thin Film Battery materials. These three market areas are connected in that the applications use Physical Vapor Deposition (PVD) as a manufacturing technique to produce their products. The Company now sells over 80% of its products into PVD applications. In the near term the Company sees this percentage growing to 90%.
During early 2002 Mr. Daniel Rooney was brought in as the President and Chief Executive Officer of the Company as successor management to Dr. Funk. In December 2002, Dr. Edward Funk, Chairman of the Board, passed away from complications associated with cancer. In January 2003, Mr. Rooney succeeded Dr. Funk as Chairman of the Company.
BUSINESS
The Company views its business as supplying ceramic and metal materials, including sputtering targets and ceramic powders, to a variety of industrial applications including: HTS, Photonics/Optical, Thin Film Batteries and Fuel Cells.
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. The Company is a subcontractor to Oxford Instrument's Superconducting Technology Division Department of Energy Superconductivity Partnership Initiative; this government-funded program will put HTS magnets into an operating magnetic resonance imaging unit (MRI) during 2005. MRI's are currently the largest application for Low Temperature Superconducting Wire. The Company continues to work with private companies and government agencies to develop new and improved products for future applications.
Optical/Photonics currently represents the Company's largest market for its materials. The Company's customers are continually identifying new materials that improve the utility of optical coatings, including improvements in their ability to focus or filter light or coatings that improve wear and chemical attack resistance, all of which increases the potential demand for the types and amounts of materials we sell in this market. Photonic applications continue to expand as new methods are found to manipulate light waves to enhance the various properties of light the device manufacturers are seeking.
Thin Film Battery materials is a developing market where manufacturers
of batteries use these materials to produce very small power supplies, with
small quantities of stored energy. A typical Thin Film Battery would be produced
via Physical Vapor Deposition with five (5) or more thin layers. These batteries
are often one (1) centimeter square but only fifteen (15) microns thick.
Potential applications for these batteries include but are not limited to:
active RFID tags, battery on chip and portable electronics.
The Company had total annual revenues of $2,958,544, $3,663,488 and $3,205,163 in the fiscal years ended December 31, 2002, 2001 and 2000, respectively.
Principal suppliers to the Company in 2002 were Lattice Materials Corporation, Williams Advanced Materials and Standard Resources. In every case, the Company believes that suitable substitute vendors can be found. Also, as the Company's volume grows, the Company may make alliances or purchasing contracts with these or other vendors.
The Company's largest customer represented over 10% of total revenues in 2002. The Company had $249,677 and $402,462 in government contracts for the years ending December 31, 2002 and 2001, respectively, representing 8.4% and 11.0% of total revenues in 2002 and 2001, respectively.
MARKETING AND SALES
Most of the Company's orders are in response to requests for quotations. The Company distributes a catalogue of its products and exhibits at several relevant tradeshows. The Company's catalogue lists 183 products. The Company also has an operating website www.sciengineeredmaterials.com. The Company intends to intensify its marketing efforts in the future by increasing the number of manufacturers representatives representing the Company in 2003. In addition, a sales manager will be added to the organization at some point in the future.
The Company is capable of producing ceramic powders using several different processing routes including solid state, precipitation and combustion synthesis. Ceramic targets can also be produced in a variety of ways depending on the end user applications. Production routes include sintering, hot and cold isostatic pressing and hot pressing.
Most of the Company's products are manufactured from component chemicals and metals supplied by various vendors. Production of HTS materials is dependent upon high purity Yttrium to manufacture its superconducting products. Several suppliers currently satisfy the Company's requirements for this material. If the Company suddenly lost the services of such suppliers, there could be a disruption in its manufacturing process until the suppliers were replaced, but the Company has identified several other firms as potential back-up suppliers who would be capable of supplying this material to the Company as necessary. To date, the Company has not experienced an interruption of raw material supplies. Ceramic shipments of powders and targets represented approximately 35.5% and 34.9% of total revenues in 2002 and 2001 respectively.
In addition to the ceramic powders and targets mentioned above, the Company produces metal sputtering targets, and backing plates, and bonds the targets to the backing plates for application in the Physical Vapor Deposition Industry. These targets can be produced by casting, hot pressing and machining of metals and metal alloys depending on the application.
Applications for metal targets are highly varied from applying decorative coatings for end uses such as sink faucets to the production of various electronic and photonic products.
The Company purchases various metals of reasonably high purity for its applications. The Company is not dependent on a single source for these metals and does not believe losing a vendor would materially affect the business.
The Company has continually added production processes and testing equipment for the many product compositions that can be used as Physical Vapor Deposition materials. Metal shipments represented approximately 64.5% and 65.1% of total Company revenues in 2002 and 2001 respectively.
COMPETITION
The Company has a number of domestic and international competitors in both the ceramics and metals fields, many of whom have resources far in excess of the Company's resources. With respect to ceramics specifically, Cerac provides both powders and thin film deposition products. Kurt Lesker is another supplier of targets and Dowa Chemicals of Japan supplies HTS materials. With regard to metals, Tosoh, Pure Tech, Kurt Lesker and Plasmaterials are competing suppliers of these materials.
The Company focuses its research and development efforts in areas that build on its expertise in multi-component ceramic oxides. These efforts currently include optimization and scale up efforts for BSCCO 2-2-1-2 powders.
During 2002 the Company completed the development work on a sponsored project BSCCO 2-2-1-2 funded by the National Science Foundation and the Company also completed a project sponsored by NASA to develop a rotation/levitation apparatus for gravity modification research.
During 2002 the Company was awarded a Phase I SBIR grant from the Department of Energy. The purpose of the grant is to study the effects of increasing density on the current carrying capacity of long length HTS wires.
The Company also became a subcontractor to Oxford Instruments Superconducting Technology for a Superconductivity Partnership Initiative (SPI) program from the Department of Energy. This program will ultimately put HTS materials in Siemens MRI equipment. The program started in 2002 and will not be completed until 2005.
All of the sponsored research and development contracts can be cancelled at the sponsor's option, with accrued costs being paid. The Company currently has $44,445 of funding from government sponsored research and development programs that could be cancelled at any time.
The Company intends to continue to seek government funding and grants because this funding maintains and expands the technical understanding within the Company.
The Company has certain proprietary knowledge and trade secrets related to the manufacture of ceramic oxide Physical Vapor Deposition materials.
NEW PRODUCT INITIATIVES
In 2002, the Company began more actively developing and marketing its existing products for use in the Thin Film Battery and Fuel Cell production market. In addition, the Company has undertaken research and development opportunities with respect to new and innovative materials and processes to be used in connection with the production of Thin Film Batteries and Fuel Cells. Thin Film Battery materials is a developing market. Manufacturers of batteries use these materials to produce very small power supplies with small quantities of stored energy. A typical Thin Film Battery would be produced via Physical Vapor Deposition with five or more thin layers. These batteries are often one centimeter square but only 15 microns thick.
Presently, there are approximately five manufacturers of Thin Film Batteries in the U.S., each in various stages of prototyping, with production capacities ranging from a few batteries to several thousand batteries per week. In addition there are several firms and research institutes conducting tests on Thin Film Batteries. Management believes this market may potentially become very large with significant growth expected during the next two years. There are numerous applications for Thin Film Batteries, including, but not limited to, active RFID tags, battery on chip and portable electronics. Given the many potential uses for Thin Film Batteries, the Company anticipates that the market for materials necessary to produce Thin Film Batteries will grow in direct correlation to the Thin Film Battery market itself.
The Company currently faces competition from other producers of materials used in connection with the manufacture of Thin Film Batteries. Our major competitors are Cerac and PureTech, both of which are substanially larger and better funded companies than the Company. The Company believes that it has certain competitive advantages in terms of quality. The Company intends to actively market its materials to Thin Film Battery producers in the upcoming year in order to gain a strong presence in this market. The Company's President, Technical Director and Customer Service Manager are personally handling the marketing to achieve this goal.
At present, the Company has several customers for the materials it produces for Thin Film Batteries, including seven domestic customers. Since we have begun producing materials for the Thin Film Battery market, we have experienced no problems securing the supplies we need to produce the materials. We do not anticipate there being supply problems in the near future. However, changes in production methods and advancing technologies could render our current products obsolete and the new production protocols may require supplies that are less available in the marketplace, which may cause a slowing or complete halt to production as well as expanding costs which we may or may not be able to pass on to our customers.
INTELLECTUAL PROPERTY
The Company has received a patent for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity made by a Chemical Precipitation and Low-Pressure Calcination method from the United States Patent and Trademark Office. The Company has also received a patent for a new process to join two individual strongly linked super-conductors utilizing a melt processing technique.
In the future, we may submit additional patent applications covering various applications, which have been developed by the Company. 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. Additionally, 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 rely on a combination of patent and trademark law, license agreements, internal procedures and nondisclosure agreements to protect our intellectual property. Unfortunately, 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.
EMPLOYEES
The Company had 21 employees as of December 31, 2002, of which 20 were full-time employees. Of these employees two held PhDs in Material Science. The Company has never experienced work stoppage and considers its relations with employees to be good. The employees do not have a bargaining unit.
ENVIRONMENTAL MATTERS
The Company generates small quantities of ceramic dust from grinding or machining and has approval from the Ohio EPA for the emission of the exhaust from these materials, which are primarily Zinc Oxide. The Company maintains filters and dust collectors that it believes are in accordance with all EPA regulations. Local EPA authorities have inspected the Company from time to time and the few noted deficiencies have been corrected. To date, the Company is not under any EPA strictures.
The Company does not handle "hazardous materials" as defined on the Materials Safety and Data Sheets ("MSDS"). The Company supplies MSDS sheets to its customers with all shipments as a routine procedure.
COLLECTIONS AND WRITE-OFFS
The Company collected its receivables in an average of 32 days in 2002. The Company has occasionally been forced to write-off a few small invoices as uncollectible. The Company considers credit management important to its success.
SEASONAL TRENDS
The Company has not experienced and does not in the future expect to experience seasonal trends in its business operations.
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 $6,007,437 at December 31, 2002.
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.
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.
The Company has incurred substantial operating losses through 2002, and numerous factors, including a need to secure new facilities for the Company's operations in the near future, makes it necessary for the Company to seek additional capital. There is no assurance that new capital will be available or that it will be available on terms that will not result in substantial dilution or reduction in value of the Company's common stock. The Company continues to lose money and will continue to do so unless the Company increases sales in the near future. As a result, additional capital may be needed in order to continue the Company's operations.
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.
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 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 THE COMPANY'S PRODUCTS AND UNCERTAINTY REGARDING DEVELOPMENT OF MARKETS
Some of the Company's products are in the early stages of commercialization and the Company believes 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 the Company 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 shareholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current shareholders.
Our Articles of Incorporation 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.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's current office and manufacturing facilities are located at 1145 Chesapeake Avenue, Columbus, Ohio, where it occupies about 20,000 square feet. Additional space of 10,000 square feet is currently sub-leased by the Company and can be reclaimed for Company use on three months notice. The Company's lease on the property expired on December 31, 2002, and it currently leases the property on a month-to-month basis. The Company intends to relocate during 2003. The Company is currently negotiating for a suitable 30,000 square foot manufacturing space.
The Company is current on all operating lease liabilities.
ITEM 3. LEGAL PROCEEDINGS.
There are no known legal proceedings against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
The Company's common stock currently trades on the OTC Bulletin Board under the symbol "SCCI.OB". From April 2000 until September 2001, however, the Company's common stock traded over the counter through the National Quotation Bureau (a.k.a. - the "pink sheets"). The following table sets forth for the periods indicated the high and low bid quotations for the Company's common stock on the OTC Bulletin Board, except for the quarters ended March 31, 2001 through September 30, 2001, which sets forth the high and low bid quotations for the Company's common stock as reported on the National Quotation Bureau.
HIGH LOW
---- ---
FISCAL 2001
Quarter ended March 31, 2001 $2.91 $1.34
Quarter ended June 30, 2001 1.91 0.60
Quarter ended September 30, 2001 1.95 1.08
Quarter ended December 31, 2001 1.60 0.80
FISCAL 2002
Quarter Ended March 31, 2002 2.00 0.90
Quarter Ended June 30, 2002 1.95 1.00
Quarter Ended September 30, 2002 1.05 0.50
Quarter Ended December 31, 2002 1.00 0.30
|
The quotations provided herein may reflect inter-dealer prices without retail mark-up, markdown, or commissions, and may not represent actual transactions.
As discussed above, at the present time, the Company's common stock trades on the OTC Bulletin Board. Based on its trading price, the Company's common stock is considered a "penny stock" for purposes of federal securities laws, and therefore is subject to certain regulations, which are summarized below.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires special disclosure relating to the market for penny stocks in connection with trades in any stock defined as a "penny stock." Specifically, Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act") impose sales practice and disclosure requirements on NASD broker-dealers who make a market in a "penny stock." Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share and that is not listed on The NASDAQ SmallCap Stock Market or a major stock exchange. These regulations affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers of the Company's common stock to sell their shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor," generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse, must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
As long as the penny stock regulations apply to the Company's 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 the Company's stock because of the sales practice and disclosure requirements for penny stock. This could adversely effect the liquidity and/or price of the Company's common stock, and impede the sale of the Company's stock in the secondary market.
HOLDERS OF RECORD
As of December 31, 2002, there were approximately 625 holders of record of the common stock of the Company and 1,823,256 shares outstanding, one holder of Series A preferred stock and 99 shares of Series A preferred stock outstanding, and approximately 44 holders of Series B preferred stock and 25,185 shares of Series B preferred stock outstanding. The Company has come to have approximately 625 registered holders of common stock as a result of various unregistered exempt private offerings of its common stock since the Company's inception in 1987, including issuances of stock options to employees and to members of the Company's board of directors, and subsequent trading of the common stock on the OTC Bulletin Board and over the counter through the National Quotation Bureau. The number of holders of common stock has also increased due to conversions of Series B preferred stock into shares of common stock. There is no public market for the Series A preferred stock or Series B preferred stock.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does not expect to pay any dividends in the foreseeable future. The Company intends to retain future earnings for use in the business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
In 1992 the Company segmented into two divisions to pursue areas of mixed metal oxide development in Advanced Ceramics applications under SCI and TMI to build markets in sales for thin film materials. The SCI and TMI divisions required the same manufacturing equipment for significant portions of each business. The Company has, in the past, reported financial results in terms of TMI and SCI segments. In the beginning of 2002, the Company integrated the two business segments and ceased reporting financial results separate for the two divisions, in light of management's opinion that a single streamlined business benefits the Company in the following areas: manufacturing efficiencies and manufacturing cost containment; improved sales through the merging of the strengths of the two material businesses; and improvements in quality through increased availability of analytical equipment and personnel.
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 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, the 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. 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. Lower of cost or market changes could also have an adverse effect on gross margin and inventory allowance. 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.
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 $6,007,437 from inception to December 31, 2002.
Fiscal Year 2002 As Compared to Fiscal Year 2001
Revenues in fiscal 2002 decreased by 19.2% to $2,958,544 from the fiscal 2001 level of $3,663,488.
Product sales decreased to $2,704,082 in 2002 from $3,248,347 in 2001 or a decrease of 16.8%. The decrease in sales is a result of the weak U.S. economy and lower sales of tantalum and various scrap metals.
In 2002, total contract research revenues were $254,462 as compared to $415,141 in 2001. Government development contract revenue was $249,677, or 8.4% of total revenues in 2002 and $402,462 or 11.0% of total revenues in 2001. The decrease is due to a Phase I SBIR grant from the National Science Foundation that expired in 2001. Revenues of $100,000 from this grant are included in 2001 revenues. In addition, revenues from a Phase II SBIR grant from the National Aeronautics and Space Administration are included in 2001 revenues. This grant ended March 31, 2001 and $70,454 of revenue was recognized in 2001.
During 2001 the Company was awarded an extension to a Phase II Small Business Innovation Research grant for $300,000 from the National Science Foundation. This award was to develop an advanced method to manufacture continuous reacted lengths of High Tc Superconductor: Bismuth Strontium Calcium Copper Oxide - 2212 Wire. This contract generated $184,616 in revenues in 2002. National Science Foundation was the Company's largest contract customer, accounting for 6.2% and 9.1% of the Company's revenues in fiscal 2002 and 2001, respectively. Significant loss of government funding would have a material adverse effect on the Company's financial condition and results of operations.
The Company was awarded a $100,000 Phase I SBIR from the Department of Energy in 2002. This contract generated $55,555 in revenues in 2002. This award is for the development of processes to tailor the particle size distribution of ceramic superconductor powders to improve the manufacturing of ceramic superconductor wire.
The Company became a member of a team led by Oxford Instruments Superconducting Technology that was awarded a grant from the Department of Energy Superconductivity Partnership Initiative Program. This program recognized $4,785 in revenues in 2002. The Company's share of the grant is expected to result in $131,736 in revenues. The purpose of this program is the scale-up of ceramic superconductor powder production to meet the future demands for ceramic superconductor wire production for the fabrication of next generation MRI equipment.
Total gross margin in 2002 was $617,814 or 20.9% of total revenue as compared to $1,199,998 or 32.8% in 2001. The primary reason for the reduction is an inventory write-down of $190,881. This included a write-down of $88,334 due to a reduction in raw material due to lower of cost or market. In addition, $102,547 of obsolete inventory was written off the books and charged to cost of goods sold in 2002. This was due to new management's change in philosophy of identifying inventory that was obsolete or no longer used in the manufacturing process.
Gross margin on product revenue was 29.4% in 2002 versus 34.7% in 2001. The decrease was due to sales of scrap metal in 2001. Gross margin on contract research revenue was 5.2% for 2002 compared to 17.7% in 2001. The decrease in gross margin on contract research revenue was due to the expiration of the Phase I SBIR grant from the National Science Foundation, which began in January 2001, and lower sub-contractor costs in 2001.
Gross margins on the Company's products vary widely and are impacted from period to period by sales mix and utilization of production capacity. The gross margin on the contract research is generally lower than the other products. The Company expects that gross margins will improve as sales grow.
Inventory reserves are established for obsolete inventory and excess inventory quantities based on management's estimate of net realizable value. Changes in this reserve are expensed or reduce inventory and approximated $88,334 and $23,211 for the years ended December 31, 2002, and 2001, respectively. Management deems the inventory reserve, after its assessment of obsolete inventory, at December 31, 2002, of $126,123 to be adequate for excess inventory and a lower of cost-or-market analysis. The increase in the reserve for 2002 is a result of the reduction of a portion of inventory to the lower of cost-or-market method.
Selling expense in fiscal 2002 decreased to $210,730 from $233,570 in fiscal 2001, a decrease of $22,840, or 9.8%. This decrease was due to a reduced staff and lower commission costs.
General and Administrative expense in fiscal 2002 decreased to $868,005, from $898,622 in fiscal 2001, a decrease of $30,617, or 3.4%. The decrease in these costs was due primarily to a reduction in administrative staff and a reduction in legal and accounting fees. Some of these savings were offset by consulting services for management assistance and for the use of production utilization consultants and implementation of their suggestions for lean manufacturing. These projects represented $75,573 for 2002.
Internal research and development costs are expensed as incurred. Research and development costs for 2002 were $43,885 compared to $48,915 in 2001, a decrease of 10.3%. Internal research and development costs decreased due to a reduction in staff.
Interest expense was $26,341, or 0.9% of Company revenues in fiscal 2002, up 14.9% from $22,935 in fiscal 2001. Interest expense includes $4,084 of accrued dividends payable to the sole holder of our Series A preferred stock and $10,961 for related party expense.
INCOME (LOSS) APPLICABLE TO COMMON SHARES
Net income (loss) per common share based on the income (loss) applicable to common shares was $(0.24) and $0.00 per common share for the years ended December 31, 2002 and 2001, respectively. The income (loss) applicable to common shares includes the net income (loss) from operations, Series A and B preferred stock dividends and the accretion of Series A preferred stock. The net income (loss) per common share from operations was $(0.22) and $0.03, for the years ended December 31, 2002 and 2001, respectively. The difference between the net income (loss) from operations and the income (loss) applicable to common shares of $(0.02) and $(0.03), respectively, is a result of the preferred position that the preferred shareholders have in comparison to the common shareholders.
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 $4,125 and $9,900 for the years ended December 31, 2002 and 2001, respectively. Dividends on the Series B preferred stock totaled $27,541 and $27,542, for the years ended December 31, 2002 and 2001, respectively.
The accretion of Series A preferred stock represents issue costs of $70,277 that were netted against the proceeds of Series A preferred stock. The issue costs are being amortized on a straight-line basis over the payout period of seven years to loss applicable to common shares and additional paid-in capital. The annual accretion totaled $6,469 and $13,618 for the years ended December 31, 2002 and 2001, respectively.
LIQUIDITY AND WORKING CAPITAL
At December 31, 2002, working capital was $301,938 compared to $691,403 at December 31, 2001. The decrease in working capital of $389,465 was due mainly to the reduction in cash used to purchase production equipment and to the disposal of obsolete inventory as well as the reduction of a portion of inventory to lower-of-cost or market. The Company provided cash from operations for the years ended December 31, 2002, and 2001 of $72 and $216,795, respectively. Significant non-cash expenses included depreciation, amortization and inventory reserve on excess and obsolete inventory approximate $320,000 and $197,000, respectively, for the years ended December 31, 2002, and 2001. Overall, accounts receivable, inventory and prepaids decreased in excess of decreases in accounts payable and accrued expenses by approximately $119,000 for the year ended December 31, 2002 as a result of the write-off of obsolete inventory. Accounts receivable, inventory and prepaids increased in excess of increases in accounts payable and accrued expenses by approximately $28,000 for the year ended December 31, 2001 as a result of timing of receipt of inventory versus required scheduled payments on this inventory.
For investing activities, the Company used cash of approximately $52,000 and $227,000 for the years ended December 31, 2002, and 2001, respectively. The amounts invested in 2002 and 2001 were used to purchase machinery and equipment for increased production capacity. Proceeds on sale of equipment totaled $36,500 and $0 for the years ended December 31, 2002 and 2001, respectively.
For financing activities for the year ended December 31, 2002, the Company used cash of approximately $17,000. Cash payments to third parties for debt and capital lease obligations approximated $42,000. Cash payments for accrued cumulative dividends on Series A and B preferred stock approximated $25,000. Proceeds from notes payable from shareholder totaled $50,000
For financing activities for the year ended December 31, 2001, the Company used cash of approximately $74,000. Cash payments to shareholders for notes payable and capital lease obligations were approximately $17,000. Cash payments to third parties for capital lease obligations were approximately $34,000. Cash payments for accrued cumulative dividends on Series A and B preferred stock were approximately $25,000. Proceeds from the exercise of common stock options totaled $2,000.
Until his death in December 2002, Dr. Funk guaranteed bank debt of the Company. The Estate of Edward R. Funk continues to guarantee such bank debt. There was no outstanding balance at December 31, 2002.
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.
INFLATION
The Company believes that there has not been a significant impact from inflation on the Company's operations during the past three fiscal years.
FUTURE OPERATING RESULTS
During 2002, the Company used cash to purchase production equipment. The Company is currently looking to relocate from its present facilities in 2003. The relocation will provide the Company with the space to expand its production facilities and improve productivity. The relocation is contingent upon raising additional capital of approximately $300,000.
The Company plans to place some of its larger purchase commitments on an annualized basis for raw materials that can be purchased in larger quantities at reduced prices. In general, the Company attempts to limit inventory price increases by making an annual commitment, and drawing the material either as required, or on a monthly or quarterly basis. Such annual commitments may reach $500,000 in 2003 and greater in 2004 depending on sales volume increases. The terms of payment for such commitments are worked out with the vendor on a case-by-case basis, but in all cases are cancelable at the Company's discretion without penalty to the Company.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains forward-looking statements that reflect the views of management with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. See "Risk Factors" above. These uncertainties and other factors include, but are not limited to, the words "anticipates," "believes," "estimates," "expects," "plans," "projects," "targets" and similar expressions which identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date the statements were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS
Our balance sheet as of December 31, 2002, and the related statements of operations, stockholders' equity and cash flows for the two years ended December 31, 2002 and 2001, together with the independent certified public accountants' report thereon appear on Pages F-1 through F-22 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this item is included under the captions, "ELECTION OF DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in our proxy statement and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is included under the caption "EXECUTIVE COMPENSATION" in our proxy statement and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
The information required by this item is included under the captions "OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS," "OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS," and "EQUITY COMPENSATION PLAN INFORMATION" in our proxy statement and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in our proxy statement and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form 10-KSB:
(1) The following financial statements are included in this report pursuant to Item 7:
Statements of Operations for the two years ended December 31, 2002.
Statements of Shareholders' Equity for the two years ended December 31, 2002.
Statements of Cash Flows for the two years ended December 31, 2002.
(2) Exhibits:
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
3(a) * Amended and Restated Articles of Incorporation of
Superconductive Components, Inc.
3(b) * Restated Code of Regulations of Superconductive
Components, Inc.
10(a) * Lease Agreement between Superconductive Components, Inc.
and University Area Rentals dated as of February 7, 1997.
10(b) * Subcontract Agreement between Superconductive Components,
Inc. and The Ohio State University effective as of
April 1, 2000.
10(c) * 1987 Incentive Stock Option Plan.
10(d) * 1991 Non-Statutory Stock Option Plan.
10(e) * 1995 Stock Option Plan.
10(f) ** License Agreement with Sandia Corporation dated February
26, 1996.
10(g) ** Nonexclusive License with The University of Chicago (as
Operator of Argonne National Laboratory) dated October
12, 1995.
10(h) ** Nonexclusive License with The University of Chicago (as
Operator of Argonne National Laboratory) dated October
12, 1995.
10(i) ** Sales Distribution Agreement with Earth Chemical Co.,
Ltd.
10(j) ** National Aeronautics Space Administration Contract dated
April 8, 1999.
10(k) ** National Science Foundation award dated August 26, 1999.
10(l) ** National Science Foundation award dated November 27,
2000.
10(m) ** 10% Subordinated Promissory Note dated March 1, 1993.
10(n) ** National Science Foundation award dated August 2, 2001.
10(o) Letter Agreement with Oxford Superconducting Technology
dated October 23, 2002.
10(p) Department of Energy award dated July 29, 2002.
23 Consent of Hausser & Taylor LLP
24 Powers of Attorney.
99(a) Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350.
99(b) Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350.
--------------
|
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
The exhibits to this report follow the Signature Page.
ITEM 14. CONTROLS AND PROCEDURES.
As of a date within 90 days of the date of 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. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective 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 significant changes in the Company's internal controls that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken.
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 28, 2003 By: /s/ Daniel Rooney
-----------------------------------------
Daniel Rooney, Chairman of the Board of
Directors, President and Chief
Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 28th day of March 2003.
Signature Title
--------- -----
/s/ Daniel Rooney Chairman of the Board of Directors,
------------------------------- President, and Chief Executive
Daniel Rooney Officer (principal executive
officer)
Gerald S. Blaskie* Chief Financial Officer (principal
------------------------------- financial officer and principal
Gerald S. Blaskie accounting officer)
Robert J. Baker* Director
-------------------------------
Robert J. Baker
Edward W. Ungar* Director
-------------------------------
Edward W. Ungar
*By: /s/ Daniel Rooney
-------------------------------
Daniel Rooney, Attorney-in-Fact
|
I, Daniel Rooney, certify that:
1. I have reviewed this annual report on Form 10-KSB 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, 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) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Daniel Rooney
-------------------------------------
Daniel Rooney
President and Chief Executive Officer
|
I, Gerald S. Blaskie, certify that:
1. I have reviewed this annual report on Form 10-KSB 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, 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) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Gerald S. Blaskie
---------------------------------
Gerald S. Blaskie
Chief Financial Officer
|
Page
----
Independent Auditors' Report F-1
Balance Sheet F-2-3
Consolidated Statements of Operations F-4
Consolidated Statement of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6-7
Notes to Consolidated Financial Statements F-8-24
|
To the Board of Directors and Shareholders Superconductive Components, Inc. Columbus, Ohio |
We have audited the accompanying balance sheet of Superconductive Components, Inc. as of December 31, 2002, and the related statements of operations, shareholders' equity and cash flows for the two years ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Superconductive Components, Inc. as of December 31, 2002, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ HAUSSER + TAYLOR LLP |
Columbus, Ohio
February 14, 2003
CURRENT ASSETS
Cash $ 48,908
Accounts and notes receivable
Trade, less allowance for doubtful accounts of $18,000 170,038
Contracts Receivable 71,087
Related party receivables 4,368
Employees 11,985
Other 733
Inventories 655,432
Prepaid expenses 33,934
-----------
Total current assets 996,485
-----------
PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,312,869
Furniture and fixtures 22,124
Leasehold improvements 347,349
-----------
2,682,342
Less accumulated depreciation (2,068,246)
-----------
614,096
-----------
OTHER ASSETS
Intangibles 43,247
-----------
TOTAL ASSETS $ 1,653,828
===========
|
The accompanying notes are an integral part of these financial statements.
CURRENT LIABILITIES
Capital lease obligation, current portion $ 40,144
Capital lease obligation, shareholder, current portion 48,171
Note payable shareholders, current portion 130,000
Accounts payable 329,693
Accounts payable, shareholders 7,920
Accrued contract expenses 21,143
Accrued personal property taxes 54,002
Accrued interest, shareholder 20,638
Accrued expenses 42,836
-----------
Total current liabilities 694,547
-----------
CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 63,721
-----------
CAPITAL LEASE OBLIGATION, SHAREHOLDER, NET OF
CURRENT PORTION 20,257
-----------
NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
PORTION 38,270
-----------
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 $230.00 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% 335,492
Common stock, no par value, authorized 15,000,000
shares; 1,823,256 shares issued and outstanding 6,378,216
Additional paid-in capital 8,992
Accumulated deficit (6,007,437)
-----------
715,263
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,653,828
===========
|
The accompanying notes are an integral part of these financial statements.
2002 2001
---- ----
SALES REVENUE $ 2,704,082 $ 3,248,347
CONTRACT RESEARCH REVENUE 254,462 415,141
----------- -----------
2,958,544 3,663,488
----------- -----------
COST OF SALES REVENUE 1,908,693 2,121,658
INVENTORY WRITE-DOWN 190,881 --
COST OF CONTRACT RESEARCH 241,155 341,832
----------- -----------
2,340,729 2,463,490
----------- -----------
GROSS MARGIN 617,815 1,199,998
GENERAL AND ADMINISTRATIVE EXPENSES 868,005 898,622
SALES AND PROMOTIONAL EXPENSES 210,730 233,570
----------- -----------
INCOME (LOSS) FROM OPERATIONS (460,919) 67,806
----------- -----------
OTHER INCOME (EXPENSE)
Interest, net (21,705) (17,460)
Insurance proceeds 39,083 --
Gain on sale of assets 36,500 --
Miscellaneous, net -- 9,535
----------- -----------
53,878 (7,925)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX (407,042) 59,881
INCOME TAX EXPENSE -- --
----------- -----------
NET INCOME (LOSS) (407,042) 59,881
DIVIDENDS ON PREFERRED STOCK (31,666) (37,442)
ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED (SERIES A) (6,469) (13,618)
----------- -----------
INCOME (LOSS) APPLICABLE TO COMMON
SHARES $ (445,177) $ 8,821
=========== ===========
|
EARNINGS PER SHARE - BASIC AND DILUTIVE
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.24) $ 0.00
=========== ===========
Dilutive $ (0.24) $ 0.00
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,823,256 1,821,175
=========== ===========
Dilutive 1,823,256 1,822,774
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
CONVERTIBLE ADDITIONAL
PREFERRED STOCK, COMMON PAID-IN ACCUMULATED
SERIES B STOCK CAPITAL DEFICIT TOTAL
-----------------------------------------------------------------------
BALANCE 12/31/00 $ 338,424 $ 6,334,696 $ 98,187 $(5,660,276) $1,111,031
Accretion of cumulative dividends 27,542 (37,442) (9,900)
Accretion of Series A offering costs (13,618) (13,618)
Issuance of stock (19,000 shares) 22,750 22,750
Exercise of options (750 shares) 1,875 1,875
Payment of cumulative dividends (25,185) (25,185)
Conversion of Series B preferred (1,529 shares) (7,645) 7,645 --
Net income 59,881 59,881
----------------------------------------------------------------------
BALANCE 12/31/01 333,136 6,366,966 47,127 (5,600,395) 1,146,834
Accretion of cumulative dividends 27,541 (31,666) (4,125)
Accretion of Series A offering costs (6,469) (6,469)
Issuance of stock 11,250 11,250
Payment of cumulative dividends (25,185) (25,185)
Net income (407,042) (407,042)
----------------------------------------------------------------------
BALANCE 12/31/02 $ 335,492 $ 6,378,216 $ 8,992 $(6,007,437) $ 715,263
======================================================================
|
The accompanying notes are an integral part of these financial statements.
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(407,042) $ 59,881
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 228,888 218,208
Amortization 2,971 2,451
Gain on sale of equipment (36,500) --
Inventory reserve 88,334 (23,211)
Provision for doubtful accounts 5,000 (13,000)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 154,235 1,404
Inventories 114,226 (217,313)
Prepaid expenses (21,083) 26,915
Other assets (2,226) (7,755)
Increase (decrease) in liabilities:
Accounts payable 11,233 49,549
Accrued expenses (137,964) 119,666
--------- ---------
Total adjustments 407,114 156,914
--------- ---------
Net cash provided by operating activities 72 216,795
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 36,500 --
Purchases of property and equipment (88,967) (227,114)
--------- ---------
Net cash used in investing activities (52,467) (227,114)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on note payable, shareholders 50,000 (14,000)
Principal payments on capital lease obligations (41,595) (34,066)
Principal payments on capital lease obligations, related party -- (2,628)
Proceeds from exercise of common stock options -- 1,875
Payment of cummulative dividends (25,185) (25,185)
--------- ---------
Net cash provided by (used in) financing activities (16,780) (74,004)
--------- ---------
|
The accompanying notes are an integral part of these financial statements.
2002 2001
---- ----
NET DECREASE IN CASH (69,175) (84,323)
CASH - Beginning of period 118,083 202,406
--------- ---------
CASH - End of period $ 48,908 $ 118,083
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest $ 10,905 $ 22,935
Income taxes $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock was issued as partial payment for accounts payable $ -- $ 19,000
Property and equipment was purchased by capital lease $ -- $ 166,339
|
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
A. Inventories - Inventories are stated at the lower of cost or market on an acquired or internally produced lot basis, and consist of raw materials, work-in-process and finished goods. Cost includes material, labor, freight and applied overhead. Inventory reserves are established for obsolete inventory and excess inventory quantities based on management's estimate of net realizable value. The inventory reserve increased $88,334 in 2002 due to a reduction in raw material due to lower of cost or market. This amount was charged to cost of goods sold. In addition, $102,547 of obsolete inventory was written off the books and charged to cost of goods sold in 2002.
The Company enters into cancelable purchase commitment arrangements for some suppliers. Estimated purchase commitments to these suppliers approximate $50,000 for 2002. The Company can cancel these commitments at the Company's discretion without penalty.
B. Property and Equipment - Property and equipment are carried at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the assets for financial reporting purposes and allowable accelerated methods for tax purposes. Useful lives range from ten years on certain furniture and fixtures to three years on leasehold improvements and computer software. Expenditures for renewals and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. There have been no such impairment adjustments.
C. Research and Development - Internal research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2002 and 2001 were $43,885 and $48,915, respectively.
Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. These contracts vary from six to twenty-four months in duration. The terms of the contracts, which are fixed price, require the Company to submit final reports and/or progress reports to the sponsor. While the contracts are subject to cancellation, management believes that the Company will comply with all terms of the contracts and that all of the amounts awarded to the Company will be collected.
Research revenue and expenses associated to third parties are separately identified in the Statements of Operations.
During 2002 and 2001, the Company earned $254,462 and $415,141, respectively, in contract revenue. At December 31, 2002, there was an outstanding accounts receivable from contract research revenue of $71,087.
During 2001, the Company was awarded a twelve-month extension to a contract in the amount of $300,000, that began September 1, 2001.
During 2002, the Company was awarded a nine-month contract in the amount of $100,000 that began August 22, 2002. Also, the Company became a member of a team and was awarded a thirty-five month contract in the amount of $263,471. The Company will share 50% of the cost. The contract agreement date was November 19, 2002.
D. Licenses - The Company has secured licenses to produce various superconductive materials for periods up to the expiration of the applicable patents. The license fees, included in "Other Assets" on the balance sheet, are being amortized over the expected life of the agreement or applicable patent, which is seventeen years. Cost and accumulated amortization of licenses at December 31, 2002 are $21,000 and $8,937, respectively. Amortization expense was $1,259 for the years ended December 31, 2002 and 2001. Amortization expense is estimated to be $1,259 for each of the next five years.
E. Patent - The Company has secured patents for manufacturing processes used in its operations. Costs incurred to secure the patents have been capitalized, included in "Other Assets" on the balance sheet, and are being amortized over the life of the patents. Cost and accumulated amortization of the patent at December 31, 2002 are $36,473 and $5,289, respectively. Amortization expense was $1,712 and $1,192 for the years ended December 31, 2002 and December 31, 2001, respectively. Amortization expense is estimated to be $1,712 for each of the next five years.
F. Income Taxes - Income taxes are provided for by utilizing the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using presently enacted tax rates. Deferred tax assets are recognized for net operating loss carryforwards, reduced by a valuation allowance which is established when "it is more likely than not" that some portion or all of the deferred tax assets will not be recognized.
G. Stock Based Compensation - The Company utilizes the provisions of Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees" which utilized a fair value based method. The Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation", utilized a fair value based method. The FASB requires disclosure for new employee stock options of the impact to the financial statements of utilizing the intrinsic value versus the fair value based method (see Note 8). For stock based compensation other than employees, the Company utilizes the fair value method as provided for in FASB #123.
H. Income (Loss) Per Common Share - Income (loss) per common share amounts are based on the weighted average number of shares outstanding. Due to the net loss in 2002, the assumed conversion of preferred stock and exercise of stock options and warrants are anti-dilutive and have not been considered in the calculation of per share amounts.
I. Statements of Cash Flows - For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with maturity of three months or less to be cash. No such investments were purchased.
J. Concentrations of Credit Risk - The Company's cash balances, which are at times in excess of federally insured levels, are maintained at a large regional bank, and are continually monitored to minimize the risk of loss. The Company grants credit to its customers, who are varied in terms of size, geographic location and financial strength. Customer balances are continually monitored to minimize the risk of loss.
The Company had one major customer in 2002 and 2001, which accounted for approximately $519,000 and $538,000, respectively, of the total revenue and $55,000 of the trade accounts receivable at December 31, 2002.
K. Use of Estimates - 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
L. Fair Value - The estimated fair value of amounts reported in the financial statements have been determined using available market information and valuation methodologies, as applicable (see Note 12).
M. Revenue Recognition - Revenue from product sales is recognized upon shipment to customers. Provisions for discounts, returns and others adjustments are provided for in the same period as the related sales are recorded.
Revenue from contract research provided for third parties is recognized when the contracted work has been performed or as milestone results have been achieved.
N. Accounts Receivable - The Company extends unsecured credit to customers under normal trade agreements, which require payment within 30 days. Accounts greater than 90 days past due, which amounted to $11,000 and $21,000 of net receivables for the years ended December 31, 2002 and 2001, respectively are considered delinquent. The Company does not charge interest on delinquent trade accounts receivable. Accounts greater than one year past due, which amount to $0 and $0 of net receivables for the years ended December 31, 2002 and 2001are placed on non-accrual status. Unless specified by the customer, payments are applied to the oldest unpaid invoice. Accounts receivable are presented at the amount billed.
Management estimates an allowance for doubtful accounts, which was $18,000 and $13,000 as of December 31, 2002 and 2001, respectively. The estimate is based upon management's review of delinquent accounts and an assessment of the Company's historical evidence of collections. Bad debt expense of $0 and $0 was recognized for the years ended December 31, 2002 and 2001, respectively as a result of this estimate. Specific accounts are charged directly to the reserve when management obtains evidence of a customer's insolvency or otherwise determines that the account is uncollectible. Charge-offs of specific accounts for the years ended December 31, 2002 and 2001 totaled $2,000 and $13,000 respectively.
O. Intangible Assets - In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires certain intangible assets to be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards required. SFAS 142 is effective for fiscal years beginning after December 31, 2001. The adoption of SFAS 142 in 2002 did not have an effect on the Company's operating results or financial condition.
P. In June 2002, the FASB issued FAS No. 146, "Accounting for Exit or Disposal Activities." FAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The scope of FAS 146 also includes: (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. Under the new standard, exit and disposal activities are generally expensed as incurred. FAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. Early application is encouraged.
In June 2001, the Financial Accounting Standards Board (FASB) issued FAS 143, "Accounting for Asset Retirement Obligations," which requires the recognition of a liability at fair value for an asset retirement obligation in the period in which it is incurred. Retirement obligations associated with long-lived assets included within the scope of FAS 143 are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract, or by legal obligation under the doctrine of promissory estoppel. Retirement obligations are included in the scope of the standard only if the legal obligation exists in connection with or as a result of the permanent retirement, abandonment or sale of a long-lived asset. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding amount capitalized at inception is depreciated over the useful life of the asset. The liability must be revalued each period based on current market prices. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Management estimates the costs associated with this obligation range from $175,000 to $225,000. The Company will implement this pronouncement in first quarter 2003.
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." This Statement amends FAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. FAS No. 148 provides for voluntary adoption of the fair value method for entities with fiscal years ending after December 15, 2002. The Company has elected to continue the use of the intrinsic value method for the fiscal year ending December 31, 2002 but has adopted the prominent disclosure provisions.
NOTE 3. INVENTORIES
Inventories consist of the following at December 31, 2002
Raw materials $ 459,784
Work-in-process 145,838
Finished goods 175,933
------------
781,555
Less reserve for obsolete inventory 126,123
------------
$ 655,432
============
NOTE 4. NOTES PAYABLE - BANK
The Company has a bank line of credit in the amount of
|
NOTE 5. LEASE OBLIGATIONS
The Company leases certain office equipment under agreements classified as operating leases expiring through 2004. Rent expense which includes various monthly rentals for the years ended December 31, 2002 and 2001, totaled $73,420 and $77,983, respectively. Future minimum lease payments at December 31, 2002 are as follows:
2003 $ 6,046
2004 2,777
---------
$ 8,823
=========
|
The Company also leases certain equipment under capital leases including the lease with a major shareholder entered into in 2001. The future minimum lease payments by year with the present value of such payments, as of December 31, 2002 is as follows:
RELATED
PARTY OTHER
-------- -----
2003 $ 54,123 $ 47,297
2004 20,817 35,934
2005 -- 23,889
2006 -- 9,780
-------- --------
Total minimum lease payments 74,940 116,900
Less amount representing interest 6,512 13,035
-------- --------
Present value of minimum lease payments 68,428 103,865
Less current portion 48,171 40,144
-------- --------
Long-term capital lease obligations $ 20,257 $ 63,721
======== ========
|
The equipment under capital lease at December 31, 2002 is included in the accompanying balance sheet under the following captions:
RELATED
PARTY OTHER
------- ------
Machinery and equipment $ 68,428 $211,355
Less accumulated depreciation 14,663 105,351
-------- --------
Net book value $ 53,765 $106,004
======== ========
|
These assets are amortized over four to seven years using the straight-line method and amortization is included in depreciation expense.
Amortization expense totaled $39,969 and $28,087 for the years ended December 31, 2002 and 2001, respectively.
NOTE 6. RELATED PARTY NOTES PAYABLE
Effective December 31, 2000, the Company converted accounts payable and accrued interest payable to certain major shareholders totaling $132,270 to a note payable shareholders. The same shareholder converted $50,000 of accounts payable in March 2002 to the note payable. The note provides for monthly payments of principal of $2,000 per month for the period of February 1, 2001 through December 1, 2002 and, thereafter, in monthly installments of $4,000 for principal until the entire outstanding balance is paid in full. There were no principal payments made on this note during 2002. The note bears interest at prime (4.25% at December 31, 2002). Interest expense on this note charged to operations was $8,037 and $8,902 for the years ended December 31, 2002 and 2001, respectively.
The aggregate long-term debt payments for each of the next five years are:
2003 130,000
2004 38,270
--------
168,270
Current 130,000
--------
Long-term $ 38,270
========
|
NOTE 7. COMMON AND PREFERRED STOCK
During 2002 and 2001, 0 and 1,529 respectively, of the outstanding shares of Series B preferred stock were converted to 0 and 1,529 shares of common stock. Additionally, stock options were exercised for a total of 750 shares of common stock with total proceeds of $1,875.
During 2001, the Company paid cash of $12,500 and issued 19,000 shares of common stock of the Company at a subscription price of $1.00 per share to Taratec Corporation for services rendered to the Company. The president of Taratec, Mr. Ungar, is a director of the Company. The fair market value of the common stock issued at the date of issuance was $1.34 per share, or a discount of 25%. The Company issued the shares at a discounted price as the shares are unregistered, therefore, limited as to marketability for sale until the securities are registered under the Securities Act of 1933.
Shares of preferred stock authorized and outstanding at December 31, 2002 are as follows:
SHARES SHARES
AUTHORIZED OUTSTANDING
---------- -----------
Cumulative Preferred Stock 10,000 --
Voting Preferred Stock 125,000 --
Non-Voting Preferred Stock 125,000 (a) 25,284 (b)
|
(a) Includes 700 shares of Series A Preferred Stock and
100,000 shares of Series B Preferred Stock authorized for
issuance.
(b) Includes 99 shares of Series A Preferred Stock and 25,185
shares of Series B Preferred Stock outstanding at December 31,
2002.
In June 1995, the Company completed an offering of 215 shares of $1,000 stated value 1995 Series A 10% non-voting convertible preferred stock. In January 1996, the Company completed an offering of 70,000 shares of $10 stated value 1995 Series B 10% non-voting convertible preferred stock. For the first three years, the dividends on both issues were payable by issuing additional Series A or B preferred shares or in cash. The Series A shares are convertible to common shares at the rate of $6.00 per share and Series B shares at the rate of $5.00 per share. At the Company's option, Series A and Series B shares are redeemable at 103% after the respective third anniversary dates.
The Series A preferred shares have a mandatory redemption at 25% annually of the issued Series A preferred shares at their stated value plus accrued and unpaid dividends. As of December 31, 2002, none of the Series A preferred shares had been redeemed. As security for cash dividends, or mandatory redemption payments due on the Series A preferred shares, and to collateralize the preference upon a liquidation, dissolution or winding up of the affairs of the Company, Dr. and Mrs. Funk pledged an aggregate of 60,000 shares of common stock, $.01 par value of Interpore/Cross International (Interpore) (formerly known as Cross Medical Products, Inc.).
Series A redeemable convertible preferred stock and accrued dividends in the amount of $121,770 is outstanding at December 31, 2002 and was due May 31, 2002. Management is working with the shareholder to negotiate repayment terms. Management expects to have a resolution prior to the end of the second quarter of 2003.
Issue costs of $70,277 on Series A were netted against the proceeds and are being amortized over the term of the Series A payout period of seven years using the straight-line method. Unamortized costs at December 31, 2001 are $0. The amortized (accreted) amount is reflected in income (loss) applicable to common shares and additional paid-in-capital. The annual accretion totaled $6,469 and $13,618 for the years ended December 31, 2002 and 2001, respectively.
As security for cash dividends on the Series B preferred shares, Dr. and Mrs. Funk had pledged an aggregate 131,000 shares of $.01 par value common stock of Interpore. In December of 2002, the pledged Interpore shares were released in accordance with the terms of the pledge agreement. Issue costs of approximately $116,110 on Series B were netted against the proceeds of that issue.
During 2002 and 2001, Series B cash dividends totaling $25,185 and $25,185 were paid, respectively. Additionally, preferred stock was converted to 0 and 1,529 shares of common stock, respectively.
At December 31, 2001, options were included in the diluted earnings per share as detailed below in the weighted average number of shares outstanding.
At December 31, 2002, all outstanding common stock equivalents which include preferred stock Series A and B employee and director stock options and warrants are antidilutive due to the net loss. All common stock equivalents were excluded in the diluted loss per share calculation as there were none "in the money", and therefore, not included as a common stock equivalent.
DECEMBER 31, DECEMBER 31,
2002 2001
---------- ------------
Options 504,550 449,700
Warrants 160,000 160,000
Preferred Series A 16,500 16,500
Preferred Series B 50,370 50,370
------- -------
731,420 676,570
======= =======
|
The following data show the amounts used in computing income
(loss) per share (EPS) and the effect on income and the
weighted average number of shares of dilutive potential common
stock.
2002 2001
---- ----
Income (loss) available to common shareholders
used in basic EPS and diluted EPS $ (445,177) $ 8,821
=========== ===========
Weighted average number of common shares
used in EPS 1,823,256 1,821,175
Effect of dilutive securities:
Stock options and warrants -- 1,599
----------- -----------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 1,823,256 1,822,774
=========== ===========
|
NOTE 8. INCENTIVE STOCK OPTION PLANS
In November 1987, the Company adopted the 1987 Incentive Stock Option Plan (the Incentive Plan) for key employees under which options to purchase up to 40,000 shares of the Company's common stock may be granted to qualified employees, subject to the execution of stock option agreements. Options may be exercised for periods up to 10 years from the date of grant at prices not less than 100% of fair market value on the date of grant. All remaining options outstanding for this Plan expired in 2001.
In February 1991, the Company adopted the 1991 Non-Statutory Stock Option Plan (the Non-Statutory Plan) under which options to purchase up to 20,000 shares of the Company's common stock may be granted to key employees, directors, consultants, advisors and sales representatives, subject to the execution of stock option agreements. Options may be exercised for periods up to 10 years from the date of grant at prices to be determined by the Board of Directors. The Company has reserved 2,000 of the shares subject to the Non-Statutory Plan for options to be granted to sales representatives.
On September 29, 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan) as incentive to key employees, directors and consultants under which options to purchase up to 900,000 shares of the Company's common stock may be granted, subject to the execution of stock option agreements. Incentive stock options may be granted to key associates of the Company and Non-Statutory options may be granted to directors who are not employees and to consultants and advisors who render services to the Company. Options may be exercised for periods up to 10 years from the date of grant at prices not less than 100% of fair market value on the date of grant.
The cumulative status at December 31, 2002 and 2001 of options granted and outstanding, as well as options which became exercisable in connection with the Incentive Plan is summarized as follows:
WEIGHTED
AVERAGE
STOCK OPTIONS EXERCISE PRICE
------------- --------------
Outstanding at December 31, 2000 299,700 $ 2.47
Granted 50,750 1.82
Exercised -- --
Forfeited (87,250) 2.76
--------- ---------
Outstanding at December 31, 2001 263,200 2.22
Granted 190,000 1.55
Exercised -- --
Forfeited (55,650) 2.89
--------- ---------
Outstanding at December 31, 2002 $ 397,550 1.94
========= =========
Shares exercisable at December 31, 2001 80,510 2.35
Shares exercisable at December 31, 2002 123,200 2.42
|
WEIGHTED
AVERAGE
STOCK OPTIONS EXERCISE PRICE
------------- --------------
Outstanding at December 31, 2000 157,500 $ 2.53
Granted 45,000 1.46
Exercised (750) 2.50
Forfeited (5,250) 2.50
-------- --------
Outstanding at December 31, 2001 196,500 2.22
Granted -- --
Exercised -- --
Forfeited (89,500) 2.00
-------- --------
Outstanding at December 31, 2002 107,000 $ 2.14
======== ========
Shares exercisable at December 31, 2001 115,500 2.46
Shares exercisable at December 31, 2002 98,000 2.14
|
The exercise price for all options exercisable at December 31, 2002 range from $1.34 to $3.00.
In electing to continue to follow APB #25 for expense recognition purposes, the Company is obliged to provide the expanded disclosures required under SFAS #123 for stock-based compensation including disclosure of pro-forma net income and earnings per share had compensation expense been measured under the fair value recognition provisions.
The weighted average fair values at date of grant for options granted during 2002 and 2001 were $1.45 and $1.65, respectively, and were estimated using the Black-Scholes option valuation model with the following weighted average assumptions: 2002 2001 ---- ---- Expected life in years 6.89 6.71 Interest rate 5% 6% Volatility 110.67% 111.25% Dividend yield 0% 0%
The Company's pro forma information for the years ended December 31, 2002 and 2001 in accordance with the provisions of FASB #123 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 2002 and 2001 results as reported to the results had the Company adopted the expense recognition provisions of FASB #123.
2002 2001
---- ----
Net income (loss) applicable to
common shares:
As reported $ (445,177) $ 8,821
Pro forma under SFAS #123 (447,360) 2,480
Basic and diluted income (loss)
per share:
As reported $ (0.24) $ 0.00
Pro forma under SFAS #123 (0.25) 0.00
Diluted income (loss) per share:
As reported $ (0.24) $ 0.00
Pro forma under SFAS #123 (0.25) 0.00
NOTE 9. WARRANTS ISSUED
|
Warrants unexercised at December 31, 2002, issued to related parties are as follows:
# OF COMMON ISSUE EXERCISE SHARES ISSUED TO CONSIDERATION DATE EXPIRATION PRICE -------------- --------- ------------- ---- ---------- ----- Related Parties 10,000 Edward Funk Lease Guarantee 3-96 3-03 $ 5.00 75,000 Edward Funk Subordinated notes payable 1-00 1-10 $ 2.50 75,000 Ingeborg Funk Subordinated notes payable 1-00 1-10 $ 2.50 |
The Company has issued common stock purchase warrants at $2.50 (fair market value at date of grant) per common share for 150,000 shares of common stock related to the subordinated notes payable to Edward and Ingeborg Funk, The warrants are 100% vested and expire ten years from the date of grant of January 7, 2000.
NOTE 10. INCOME TAXES
Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. Significant components of the Company's deferred tax assets and liabilities are as follows at December 31:
2002
----
Deferred tax assets
NOL Carryforward $ 1,697,000
UNICAP 49,000
Allowance for doubtful accounts 6,000
Reserve for obsolete inventory 43,000
Property and equipment 18,000
------------
1,813,000
Valuation allowance 1,813,000
------------
Net $ --
============
|
A valuation allowance has been recorded against the realizability of the net deferred tax asset, such that no value is recorded for the asset in the accompanying financial statements. The valuation allowance totaled $1,813,000 and $1,728,000 at December 31, 2002 and 2001, respectively.
The Company has net operating loss carryovers available for federal and state tax purposes of approximately $4,991,000, which expire in varying amounts from 2003 through 2022.
For the years ended December 31, 2002 and 2001, a reconciliation of the statutory rate and effective rate for the provisions for income taxes consists of the following:
2001 2000
---- ----
Federal statutory rate (34.0) (34.0)
Valuation allowance 34.0 34.0
--------- ---------
Effective rate -- % --%
========= =========
|
The expense (benefit) for income taxes consists of the following:
Current expense $ -- $ --
Deferred expense -- --
------ -----
Total $ -- $ --
====== =====
|
NOTE 11. RELATED PARTY TRANSACTIONS
Sales to a related party amounted to $20,812 and $12,224 during 2002 and 2001, respectively.
The Company has a note receivable from an employee of the Company in the amount of $11,985. The note bears interest at 8% per annum.
The Company has trade payables, shareholders of $7,920 pertaining to reimbursement for purchase of goods and services obtained for Company purposes.
Interest expense, shareholder was $15,428 and $10,961 for the years ended December 31, 2002 and 2001, respectively.
The Company retained a related party to provide management assistance for a fee of $14,550 per month beginning January 15, 2002. This agreement was terminated after three (3) months and all fees have been paid.
For additional information regarding related party transactions, see Notes 4, 6 and 9.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
o Cash and cash equivalents, short-term debt and current maturities of long-term debt: Amounts reported in the balance sheet approximate fair market value due to the short maturity of these instruments.
o Long-term capital lease obligations: Amounts reported in the balance sheet approximate fair value as the interest rates on these obligations range from 6% to 9.9%.
o Note payable shareholder: Amounts reported in the balance sheet represent debt to a major shareholder. Amounts reported in the balance sheet approximate fair market value, as the interest rate is prime.
o Redeemable convertible preferred stock: Amounts reported in the balance sheet are in excess of fair market value as the conversion price is $6.00 per share and average market price at December 31, 2002 was $0.40 for a difference of fair value of $5.60 per share or a total difference of $92,400 at December 31, 2002.
NOTE 13. FOURTH QUARTER ADJUSTMENTS
The Statement of Operations includes fourth quarter adjustments for the inventory write-down of $190,881. This adjustment contains two components. Inventory for one raw material item was reduced to the lower of cost or market for a reduction of pricing that began declining in the second quarter of 2002. The lower of cost or market adjustment totaled $88,334.
Additionally, management in the fourth quarter reviewed inventory for obsolete items and inventory items that are no longer used in the manufacturing process. This review process was in excess of the inventory reserve on the books and resulted in an inventory write-down of $102,547.
EXHIBIT 10(o)
Oxford Superconducting Technology 600 Milik Street Telephone (732) 541-1300
www.oxford-instruments.com P.O. Box 429 Fax (732) 541-7769
Carteret, NJ 07008-0429 ken.marken@ost.oxinst.com
|
October 23, 2002
Dan Rooney, President
SCI Engineered Materials
1145 Chesapeake Ave.
Columbus, OH 43212
Dear Dan:
Oxford Superconducting Technology has received a Financial Assistance Award from the U.S. Department of Energy for the purpose of carrying out the work plan detailed in our joint SPI proposal "Cost Effective Open Geometry HTS MRI System". SCI Engineered Materials is a partner in this project.
This letter represents an agreement between Oxford Superconducting Technology (OST) and SCI Engineered Materials (SCI) under which SCI will provide materials and technical consulting for use in this project. This agreement is effective as of the date June 28, 2002 (the start of the Financial Assistance Award for this Project), and will continue until May 31, 2003. This agreement is subject to renewal for additional materials and services provided that the underlying US-DOE Financial Assistance Award is extended. (The Award is approved through May 31, 2005, but funding is allocated for one year periods.)
SCI will perform tasks according to the Statement of Work and Schedule described in our proposal, which includes providing to OST up to 30 kg of BSCCO-2212 powder for use in development and fabrication of tape. SCI will provide technical consultation, attend project meetings, and provide reports pertaining to the Project referenced above. SCI will also purchase equipment as covered in the original proposal and cost estimate. This will be done by SCI at an estimated cost of $263,471. This expense shall be shared equally between OST, through its agreement with US-DOE, and SCI (50% each). This shall result in SCI paying $131,736. The remaining $131,736 will be reimbursed to SCI by OST, provided SCI carries out the proposed tasks and submits a brief technical report summarizing progress along with invoices sent to OST.
SCI will submit quarterly invoices to OST which will itemize costs of the materials and services for the project. OST will invoice DOE for 50% of the invoiced amount. Once OST has received payment from DOE, OST will pay SCI the 50% share of the invoiced amount.
Please indicate your agreement to the foregoing by executing and returning one of the duplicate originals of this Agreement.
Sincerely,
/s/ Ken Marken Ken Marken HTS Program Manager |
AGREED by SCI Engineered Materials
Signed /s/ Daniel Rooney Date 11/19/02 |
EXHIBIT 10(p)
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 200?
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-ER83538
-------------------------------------------------------------------------------
5. AMENDMENT NO.
A000
-------------------------------------------------------------------------------
6. BUDGET PERIOD
FROM: 07/22/2002
THRU: 04/21/2003
-------------------------------------------------------------------------------
7. PROJECT PERIOD
|
/X/ NEW /_/ CONTINUATION /_/ RENEWAL
/_/ REVISION /_/ SUPPLEMENT
11. DOE PROJECT OFFICER (Name, address, telephone no.) Gerald J. Peters (SC-22) U.S. Department of Energy
19901 Germantown Rd
Germantown DC 20874
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
|
14. ACCOUNTING AND APPROPRIATIONS DATA
a. Appropriation Symbol b. B & R Number c. FT/AFP/OC d. CFA Number
31-1210318
16. BUDGET AND FUNDING INFORMATION
a. CURRENT BUDGET PERIOD INFORMATION
(1) DOE Funds Obligated This Action $100,000.00(2) Prior budget Periods $ 0.00
(3) Project Period to Date $100,000.00
[(Total of lines b.(1) and b.(2)]
17. TOTAL ESTIMATED COST OF PROJECT $___________________ (This is the current
estimated cost of the project. It is not a promise to award nor an authorization
to expend funds in this amount.)
18. AWARD/AGREEMENT TERMS AND CONDITIONS
This award/agreement consists of this form plus the following:(Date) -----------
c. DOE Financial Assistance Rules, 10 CFR 600, as mentioned.
d. Application/proposal dated 1/14/02, /X/ as submitted /_/ with changes
as negotiated.
19. REMARKS
The following terms and conditions, attached hereto, are made a part hereof:
a. General Terms and Conditions for DOE SBIR and STTR Grants (AUG 2001);
b. Special Terms and Conditions for Financial Assistance Awards, coded SPRG-0202;
c. Federal Assistance Reporting Checklist, Coded REV-APRIL 2002.
/s/ DANIEL ROONEY 8/2/02
--------------------------------------------------------------------------------
(Signature of Authorized Recipient Official) (Date)
/s/ DANIEL ROONEY
--------------------------------------------------------------------------------
(Name)
|
21. AWARDED BY:
/s/ PATRICIA J. SCHUNEMAN 7/29/02
--------------------------------------------------------------------------------
(Signature) (Date)
|
Operations Division
Office of Acquisiton and Assistance
Contracting Officer
DOE F-4620.3 APPENDIX C
(09-90)
U.S. DEPARTMENT OF ENERGY
SMALL BUSINESS INNOVATIVE RESEARCH (SBIR) AND
SMALL BUSINESS TECHNOLOGY TRANSFER (STTR)
FIRM NAME:
Superconductive Components, Inc.
A. PERSONNEL (Employees) ROLE IN PROJECT EST. HOURS HOURLY FRINGE TOTAL COST
RATE BENEFITS
NAME
Dr. Suvankar Sengupta Principal Investigator 180 41 10 9,180
Dr. Rao Revure Chemist 180 21 5 4,680
Tatyana Mishrova Characterization 120 19 5 2,880
J.R. Gaines, Jr. Technologist 100 41 10 5,100
SUBTOTAL 21,840
--------------------------------------------------------------------------------------------------------
B. CONSULTANTS ROLE IN PROJECT EST. HOURS HOURLY
NAME
None Consultant n/a n/a
--------------------------------------------------------------------------------------------------------
C. LEASED EQUIPMENT (Specify Time and Rate, or Other Basis)
ITEM
None
--------------------------------------------------------------------------------------------------------
D. PURCHASED EQUIPMENT AMOUNT
ITEM
None
--------------------------------------------------------------------------------------------------------
E. TRAVEL
One trip to OST, Carteret, NJ for PI and Technologist
airfare for two, with two hotel rooms for 1 night, 1 rental car day, meals and misc 2,300
--------------------------------------------------------------------------------------------------------
F. OTHER DIRECT COSTS
1. Materials and Supplies superconductive powder precursors, 10 kilos 9,950
--------------------------------------------------------------------------------------------------------
2. Publication Costs
--------------------------------------------------------------------------------------------------------
3. Testing Services (include work at Government Installations)
--------------------------------------------------------------------------------------------------------
4. Computer Services
--------------------------------------------------------------------------------------------------------
5. Research Institution
--------------------------------------------------------------------------------------------------------
6. Other Subcontracts Oxford Superconducting Technologies 30,000
--------------------------------------------------------------------------------------------------------
7. Other
--------------------------------------------------------------------------------------------------------
TOTAL OTHER DIRECT COSTS 39,950
--------------------------------------------------------------------------------------------------------
G. TOTAL DIRECT COSTS (A through F) 64,090
--------------------------------------------------------------------------------------------------------
H. INDIRECT COSTS (Specify Rate and Base)
Indirect costs at 150% of direct labor with fringes 32,760
TOTAL INDIRECT COSTS 32,760
--------------------------------------------------------------------------------------------------------
I. TOTAL COSTS 96,850
--------------------------------------------------------------------------------------------------------
J. FEE OR PROFIT 3,150
--------------------------------------------------------------------------------------------------------
Subtotal (I plus J) 100,000
--------------------------------------------------------------------------------------------------------
K. COST SHARING (If any)
--------------------------------------------------------------------------------------------------------
L. TOTAL AMOUNT OF THIS REQUEST (Item I plus J minus K) 100,000
--------------------------------------------------------------------------------------------------------
M. 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 _X_No. If Yes, give name, address, and phone number of
reviewing office and official:
--------------------------------------------------------------------------------------------------------
N. CORPORATE/BUSINESS AUTHORIZED REPRESENTATIVE - TYPED NAME AND SIGNATURE DATE: 14 Jan '02
J. R. Gaines, Jr., Vice President
(Signature) /s/ J. R. Gaines, Jr.
--------------------------------------------------------------------------------------------------------
|
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
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:
/ / Advance by Department of Treasury Automated Standard Application of 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.
/ / 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
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:
89X0213.91 89X0215.91 89X0234.91 89X0235.91
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 4600.2 U.S. DEPARTMENT OF ENERGY
(10/01) FEDERAL ASSISTANCE REPORTING CHECKLIST
All Other Editions Are Obsolete For instructions see FAL Management of Report Deliverables
------------------------------------------------------------------------------------------------------------------------------------
1. Identification Number: 2. Program/Project Title:
DE-FG02-02ER83538 Feasability Of Cost Effective, Long Length, Bscco 2212 Round Wires For Very
High Field Magnets Beyond 12 Tesla At 4.2 Kelvin
------------------------------------------------------------------------------------------------------------------------------------
3. Recipient:
Superconductive Components, Inc., 1145 Chesapeake Avenue, Columbus, OH 43212
------------------------------------------------------------------------------------------------------------------------------------
4. Reporting Requirements: Frequency No.of Copies Addressees
----------------------------------------------------------------------
MANAGEMENT REPORTING
[X] Progress Report (Informal Technical Report) S (Phase II Only) 1 See NFAA, Block 11
[ ] Special Status Report(see Special Instructions)
SCIENTIFIC/TECHNICAL REPORTING
(Reports/Products must be submitted with appropriate DOE F 241. The
241 forms are available at www.osti.gov/elink.)
Report/Product Form F (See Notes 5.a. & d. below)
[X] Final Scientific/Technical Report DOE F 241.3
[ ] Conference papers/proceedings* DOE F 241.3
[ ] Software/Manual DOE F 241.4
[ ] Other(see special instructions) DOE F 241.3
*Scientific and technical conferences only
FINANCIAL REPORTING
[ ] SF-269, Financial Status Report
[X] SF-269A, Financial Status Report (Short Form) F (See Notes 5.b. & d. below) 2 See NFAA Block 12
[ ] SF-272, Federal Cash Transactions Report
CLOSEOUT REPORTING
[X] Final Invention and Patent Report F (See Note 5.c. below) 2 See NFAA Block 12
[X] Property Certification F (See Note 5.c. below) 2 See NFAA Block 12
[X] Other (see Special Instructions) F (See Note 5.c. below) 2 See NFAA Block 12
OTHER REPORTING
[ ] Other (see Special Instructions)
------------------------------------------------------------------------------------------------------------------------------------
FREQUENCY CODES AND DUE DATES:
A - Within 5 calendar days after events or as specified.
F - Final; 90 calendar days after expiration or termination of the award. (See Note 5.d. below)
Y - Yearly; 90 days after the end of the reporting period.
S - Semiannually; within 30 days after the end of the reporting period.
Q - Quarterly, within 30 days after the end of the reporting period.
------------------------------------------------------------------------------------------------------------------------------------
|
5. Special Instructions: SBIR/STTR-PHASES I AND II
NOTES
a. Scientific/Technical Reporting: All scientific/technical reports must be submitted electronically via the DOE Energy Link System (E-Link) which can be accessed at http://www.osti.gov/elink-2413. For further guidance regarding electronic submission requirements, refer to the provision entitlted "Submission of Scientific/Technical Reports.
The Final Technical Report shall contain a comprehensive, cumulative, and substantive summary of the progress and significant accomplishments achieved, including a statement of project objectives, the work carried out, the results obtained, and an estimate of technical and economic feasibility. The Final Technical Report shall be marked in accordance with the clause entitled "Rights in Data - SBIR/STTR Program" of the grant.
The Final Technical Report shall include a single page summary as the first page identifying the purpose of the research, a brief description of the research carried out, the research findings or results, and potential applications of the research. This summary may be published by the DOE and should not contain proprietary information.
b. Financial Status Report: A Final Financial Status Report is required at the end of Phase I. If a Phase I award continues into Phase II, a second Final Financial Status Report is required 90 days after the Phase II Project Period ends for costs associated with Phase II only.
c. Closeout Reporting: Patent Certification (OMB No. 1902-0121); Financial Assistance Property Certification (AA-88); SBIR Final Technical Report Data Determination Form (SBIR-4) or STTR Final Technical Report Data Determination Form (STTR-4), as applicable; and a Final Schedule of Costs By Element (AA-135) (Phase II only) are required. DOE will provide detailed closeout reporting instructions to the recipient by letter upon award expiration.
d. Final Reports: For submission of Final Reports, "90 calendar days after
expiration" of the award is defined as:
- 90 days after the Phase I Project Period ends if a Phase II
application was not submitted; or
- 90 days after DOE notification to the recipient of
non-selection for a Phase II award if a Phase II
application was submitted; or
- 90 days after the Phase II Project Period ends.
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE I AND PHASE II GRANTS
NO. TITLE
--- -----
1. EXPLANATION
2. GRANTEE ADHERENCE TO GRANT TERMS AND CONDITIONS
3. DEFINITIONS
4. GRANTEE SUBMISSIONS INCLUDING PRIOR APPROVAL REQUESTS
5. ALLOWABLE COSTS/APPLICABLE COST PRINCIPLES
6. PAYMENT
7. PREAWARD COSTS
8. REPORTING REQUIREMENTS
9. COST SHARING
10. EXTENSIONS
11. MAXIMUM DEPARTMENTAL OBLIGATION
12. PROPERTY
13. PRINCIPAL INVESTIGATOR OR DESIGNATED KEY PERSONNEL
14. CHANGES IN OBJECTIVES OR SCOPE
15. TRANSFER OF SUBSTANTIVE PROGRAMMATIC EFFORT
16. RESEARCH EFFORT
17. SOLE SOURCE PROCUREMENT
18. FOREIGN TRAVEL
19. CONSULTANT SERVICES
20. PAPERWORK REDUCTION
21. GENERALLY APPLICABLE REQUIREMENTS
22. NONDISCRIMINATION
23. PUBLIC ACCESS TO INFORMATION
24. ACKNOWLEDGMENT OF SUPPORT
25. NATIONAL SECURITY: CLASSIFIABLE RESULTS ORIGINATING UNDER AN AWARD
26. SUSPENSION AND TERMINATION
27. INTEREST
28. AUTHORIZATION AND CONSENT
29. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT
30. PATENT RIGHTS
|
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE I AND PHASE II GRANTS
NO. TITLE
--- -----
31. REPORTING OF ROYALTIES
32. ADDITIONAL DATA REQUIREMENTS
33. RIGHTS IN DATA - SBIR/STTR PROGRAM
34. RIGHTS TO APPLICATION DATA
35. OTHER RESEARCH SUPPORT
36. NOTIFICATION OF DELAY
37. FEE
|
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE I ONLY
1. FIXED OBLIGATION
2. PREAWARD COSTS
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE II ONLY
1. REPORTING NON-FEDERAL SUPPORT
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE I AND PHASE II GRANTS
1. EXPLANATION.
a. These general terms and conditions do not restate all the provisions of applicable statutes and regulations, nor do they represent an exhaustive listing of all requirements applicable to this grant. Rather, they highlight and are consistent with those requirements which are especially pertinent to research grants in general. They are emphasized by inclusion here because: (1) they are invoked with high frequency; (2) their violation is a matter of especially serious concern (e.g., use of human subjects); (3) restating them in the research context will allow them to be more easily understood by the research community.
b. In addition to these general terms and conditions, the grantee must comply with all governing requirements, including those identified in block 18 of DOE F 4600.1, "Notice of Financial Assistance Award," (NFAA) and those included in the "Special Terms and Conditions" attached to this grant award.
2. GRANTEE ADHERENCE TO GRANT TERMS AND CONDITIONS.
a. The grantee's signature on the NFAA signifies the grantee's agreement to all terms and conditions of the award. Should the grantee believe modification of any of the terms and conditions of this award is necessary, an authorized official of the grantee organization or, in the case of an individual, the grantee, must submit a written request on its own behalf or on behalf of any subgrant recipient or applicant for prior approval of the Contracting Officer named in block 21 of the NFAA.
b. Following this procedure is very important because many of the terms and conditions of the grant are required by statute and must be enforced by the Department of Energy.
3. DEFINITIONS.
a. Contracting Officer. This may be any Contracting Officer of the awarding office. The terms, "the Contracting Officer named on the face page of this award," "the Contracting Office," and "a DOE Contracting Officer" refer to this person as well. The address to be used in corresponding with the Contracting Officer is that appearing in block 12 of the NFAA.
b. Grant Administrator. This individual is named in block 12 of the NFAA.
c. Principal Investigator. As used herein, the scientist or other programmatic expert named in block 8 of the NFAA, designated by the grantee organization to direct the scientific/technical efforts being supported.
d. Prior Approval. A statement in writing, signed by the Contracting Officer, that a cost may be incurred or an action may be taken. The approval may take the form of a letter or an amendment to the grant. If actions or costs requiring prior approval are specified in the application and are not expressly disapproved by DOE in the attached "Special Terms and Conditions," the award of the grant constitutes such prior approval.
e. Program Manager. The DOE Headquarters line manager in charge of the SBIR/STTR program. The Program Manager's address is:
U.S. Department of Energy
SC-32
19901 Germantown Road
Germantown, MD 20874-1290
4. GRANTEE SUBMISSIONS INCLUDING PRIOR APPROVAL REQUESTS.
All grantee submissions (applications, reports, and requests, including prior approvals) are to be addressed to the grant administrator except as otherwise specified in writing by an authorized DOE official as determined by the Contracting Officer.
All requests for prior approval must be signed by an individual who is authorized to act for the grantee organization. The signature of the principal investigator (unless also a corporate officer or otherwise authorized) is insufficient to obtain action on a prior approval request, although countersignature by the principal investigator is not discouraged. Requests for budget revisions shall be made using the same budget format as used in applying for the grant and must be supported by a narrative justification. Other prior approval requests may be made by letter.
5. ALLOWABLE COSTS/APPLICABLE COST PRINCIPLES.
a. In accordance with the applicable cost principles cited below, the allowable costs of this grant shall consist of the actual allowable direct costs incident to performance of the project, plus the allocable portion of the allowable indirect costs, if any, of the organization, less applicable credits. The allowable costs shall not exceed the amount shown on the face page of this award for the total approved budget for the current budget period (line 16.a.(6) of the NFAA).
b. The allowability of costs for work performed under this grant and any subsequent subaward will be determined in accordance with the Federal cost principles applicable to the grantee or subrecipient in effect on the date of award or the date of the subaward, except as modified by other provisions of this grant or the subaward. The grantee or subrecipient shall specify in any cost-reimbursement contract under the grant or subaward the applicable cost principles cited in this provision that apply to the contractor.
c. The Federal cost principles applicable to specific types of grantees, subrecipients, and contractors under grants and subawards are as follows:
(2) State and Local Governments and Indian Tribal Governments. OMB Circular A-87, "Cost Principles for State and Local Governments," is applicable to State, local, and Indian tribal governments.
(3) Hospitals. Title 45 CFR Part 74, Appendix E, "Principles for Determining Costs Applicable to Research and Development under Grants and Contracts with Hospitals, "applies to nonprofit and for-profit hospitals.
(4) Other Nonprofit Organizations and Individuals. OMB Circular A-122, "Cost Principles for Nonprofit Organizations," applies to nonprofit organizations and individuals, except for those specifically exempted by the terms of the circular or those nonprofit organizations and individuals covered by the cost principles cited elsewhere in this term.
(5) Commercial Firm and Certain Nonprofit Organizations. Title 48 CFR Subpart 31.2, "Contracts with Commercial Organizations," as supplemented by 48 CFR Subpart 931.2, applies to those nonprofit organizations not covered by OMB Circular A-122, and to all commercial organizations.
6. PAYMENT.
a. Payments under this award will be made by an advance payment method unless DOE determines that the grantee's financial management system does not meet the requirements of 10 CFR 600.120 through 600.122 or the grantee has not maintained or demonstrated the willingness and ability to maintain procedures that will minimize the time elapsing between transfer of funds from the U.S. Treasury and their disbursement for grant-related purposes.
b. The appropriate advance payment method or the reimbursement method, and the cognizant payment and finance offices, are specified in the attached "Special Terms and Conditions."
c. Advances by the grantee to subgrantee and contractor organizations must conform substantially to the same standards of time and amount that govern advances made by the Federal government to the grantee. Excess cash advances erroneously withdrawn from the U.S. Treasury shall be promptly refunded to DOE unless the funds will be disbursed within 7 calendar days or the amount is less than $10,000 and will be disbursed within 30 calendar days.
d. Interest earned on advance payments to other than State governments or their subgrantees shall be reported on SF-272, "Report of Federal Cash Transactions," and promptly remitted to the cognizant Contracting Officer by check payable to the Department of Energy (unless otherwise specified in the attached "Special Terms and Conditions").
7. PREAWARD COSTS.
Recipients may incur preaward costs up to ninety (90) days prior to the effective date of an award. Preaward costs for periods preceding 90 days prior to the effective date of the award are allowable only if approved in writing, prior to incurrence, by a DOE Contracting Officer. Any preaward expenditures (including those made after DOE approval) are made at the recipient's risk and do not impose any obligation on the DOE.
8. REPORTING REQUIREMENTS.
a. Attached to the grant award is a completed DOE F 4600.2, "Federal Assistance Reporting Checklist," which lists the reports required under the grant. (See 10 CFR 600.151 and 600.152 for general reporting requirements.)
b. Phase I grantees applying for Phase II grant support shall summarize their Phase I results to date in their application. This summary shall be in lieu of a separate, final, Phase I performance report only for grantees applying for Phase II. The depth of detail of the summary should be sufficient to allow Phase II grant application reviewers to assess the extent to which the Phase I objectives were achieved. All other Phase I and Phase II grantees shall prepare a final technical report in accordance with paragraph a., above, upon completion or termination of the project. The final technical report shall be prepared in accordance with the applicable program rule cited on the face page of the award or, in the absence of such program rule coverage, in accordance with the technical reporting format specified in 10 CFR 600.151.
c. Instructions concerning reports to be submitted in conjunction with this award will be provided to the grantee at the time of the award.
9. COST SHARING.
a. As shown on the face page of the award, any cost sharing shall defray only the allowable costs of the project in accordance with the statutes, regulations, applicable cost principles, and other terms and conditions governing the award. Cost sharing contributions may be incurred either as direct or indirect costs, and include cash or in-kind contributions by the grantee, its subgrantees, or contractors. The cost sharing may be in any allowable budget category or combination of categories. When a direct cost item represents some or all of the non-Federal contribution, any associated indirect costs may not be charged to Federal funds but may be counted as part of the cost sharing. The classification of contributed costs as direct or indirect must be consistent with the classification of similar items charged to DOE funds.
10. EXTENSIONS.
Grantee requests for extensions of time on the grant must be submitted for approval to the Contracting Officer prior to the expiration date of the budget period to which the extension is to apply, in accordance with 10 CFR 600.181.
11. MAXIMUM DEPARTMENTAL OBLIGATION.
DOE's maximum obligation to the recipient is the amount shown in block 16.b.(3) of the NFAA. DOE shall not be obligated to make any additional, supplemental, continuation, renewal or other award for the same or any other purpose.
12. PROPERTY.
a. Real and Tangible Personal Property.
(1) No real property may be acquired under this award.
(2) Equipment and supplies acquired by the grantee with Federal funds: The grantee shall be accountable for equipment with a unit acquisition cost of $5,000 or more acquired under this grant as specified in 10 CPR 600.130 - 10 CFR 600.134. Unused supplies exceeding $5,000 in aggregate current fair market value shall be accounted for after the end of the project period, during closeout of the award. In this case, DOE shall be compensated in an amount computed in accordance with section 600.135(a) if the supplies are retained for use on non-Federal activities.
(3) Title to equipment purchased under this award lies with the government. It may be transferred to the grantee where such transfer would be more cost effective than recovery of the property by the government.
(4) All grantees shall follow property management policies and procedures that provide for adequate control of the acquisition and use of the assets acquired under the grant.
b. Intangible Property. (See Terms 28 through 34.)
13. PRINCIPAL INVESTIGATOR OR DESIGNATED KEY PERSONNEL.
a. The principal investigator is named in Block 8 of the NFAA. Other key personnel, if any, are listed in the attached "Special Terms and Conditions."
b. Since the DOE decision to fund a project is based, to a significant extent, on the qualifications and level of participation of the principal investigator or of the level of effort of the principal investigator is considered a change in the approved project. There shall be only one principal investigator at any one time during the performance of this grant. Departmental approval must be obtained prior to any change of the principal investigator or, in certain cases, others who have been identified as key personnel in the "Special Terms and Conditions" of the grant. In addition, any absence of the principal investigator or plans for the principal investigator to become substantially less involved in the project than was indicated in the approved grant application requires Departmental approval. The grantee is encouraged to contact DOE immediately upon becoming aware that any of these changes are likely to be proposed, but in any event must do so and receive Departmental approval before effecting any such change.
c. The recipient represents that it is the primary source of employment of the principal investigator at the time of the award of this grant, and agrees it will continue to be such during the project period of the grant. Additionally, the principal investigator is expected to devote a considerable part of his or her time to the project, in no case less than 5 hours (average) per week, for the duration of the project.
"Primary employment" means that more than one-half of the principal investigator's time, but no less than 20 hours (average) per week, is spent in the employment of the small business and that the principal investigator is not employed full time by any other entity.
14. CHANGES IN OBJECTIVES OR SCOPE.
Any change in the objective or scope of a grant-supported project requires the prior approval of DOE. This includes changes in the phenomenon or phenomena under study and in the methodologies or experiments if they are a specific objective of the research work as stated in the application approved by DOE.
15. TRANSFER OF SUBSTANTIVE PROGRAMMATIC EFFORT.
None of the substantive effort of the project may be transferred by contract or subgrant to another organization or person without the prior approval of DOE. This provision does not apply to the procurement of equipment, supplies, materials, or general support services; these services may, however, be subject to other prior approval requirements (e.g., those found in the applicable cost principles or procurement standards).
16. RESEARCH EFFORT.
For both SBIR and STTR, there are requirements on the amount of the funded research or analytical effort that must be performed by the small business. The funded research or analytical effort is defined as the total requested funding minus the cost of any purchased or leased equipment, materials, or supplies (whether purchased by the grantee or a subcontractor). These requirements are:
(1) Phase I: A minimum of two-thirds of the funded research or analytical effort must be performed by the grantee; a maximum of one-third of the effort may be performed by consultants or subcontractors.
(2) Phase II: A minimum of one-half of the research and analytical effort of Phase II must be performed by the grantee; up to one-half of the research or analytical effort may be performed by consultants or subcontractors.
b. STTR:
(1) Phase I: A minimum of 40% of the work must be performed by the small business and at least 30% of the work must be performed by the non-profit research institution partner. Such institutions include Federally funded research and development centers, universities, teaching hospitals, and other non-profits. A minimum of 40% of the funding, excluding any purchased or leased equipment, materials, and supplies, must be allocated to the small business; a minimum of 30% of the funding, excluding any purchased or leased equipment, materials, and supplies, must be allocated to the research institution.
(2) Phase II: The same as STTR Phase I.
17. SOLE SOURCE PROCUREMENT.
A grantee must receive prior approval from DOE before entering into any sole-source contract or contract in which only one bid or proposal is received, when the aggregate value of the contract is expected to exceed $100,000.
18. FOREIGN TRAVEL.
Foreign travel is not an appropriate expense for SBIR and STTR projects.
19. CONSULTANT SERVICES.
Costs of consultant services are allowable in accordance with the applicable cost principles. These principles include the requirement that the consultant not be an employee of the grantee organization; the one exception to this requirement applies to colleges and universities.
20. PAPERWORK REDUCTION.
a. The award is subject to the requirements of the Paperwork Reduction Act of 1980 as implemented by the Office of Management and Budget rules, "Controlling Paperwork Burdens on the Public" published as 5 CFR 1320 (48 FR 13666, 3-31-83). These requirements apply if the grantee will collect information from ten or more respondents at the specific request of DOE, or if the award requires specific DOE approval of the information collection or the collection procedures.
b. The grantee shall submit any proposed sponsored information collection under paragraph a. of this term to the Contracting Officer named on the NFAA. The proposal shall be submitted at least 120 days prior to the intended date of information collection. DOE will seek the requisite approval from the Office of Management and Budget and will promptly notify the grantee of the disposition of the request.
21. GENERALLY APPLICABLE REQUIREMENT.
In accordance with 10 CFR 600.12, this grant is subject to a number of statutory and other generally applicable requirements. Those requirements most pertinent to research projects are highlighted below:
a. Research Involving Vertebrate Animals. Any recipient performing research on vertebrate animals shall comply with the Laboratory Animal Welfare Act of 1966, as amended (7 U.S.C. 2131 et seq.), and the regulations promulgated thereunder by the Secretary of Agriculture (9 CFR) pertaining to the care, handling, and treatment of vertebrate animals held or used for research, teaching, or other activities supported by Federal awards. The recipient is expected to ensure that the guidelines described in Department of Health and Human Services (DHHS) Publication No. (NIH) 85-23, "Guide for the Care and Use of Laboratory Animals," are followed and to comply with the U.S. Government Principles for the Utilization and Care of Vertebrate Animals Used in Testing, Research and Training (included as an Appendix to the NIH Guide).
b. Research Involving Recombinant DNA Molecules. Any grantee performing research involving recombinant DNA molecules and/or organisms and viruses containing recombinant DNA molecules agrees by acceptance of this grant to comply with the National Institutes of Health "Guidelines for Research Involving Recombinant DNA Molecules," 6-83 (48 FR 24556) or such later revision to those guidelines as may be published in the Federal Register.
c. Use of Human Subjects in Research, Development, and Related Activities. Any DOE grantee performing research, development, or related activities involving human subjects must comply with regulations found at 10 CFR Part 745, "Protection of Human Subjects," and any additional provisions which may be included in the "Special Terms and Conditions" of the grant. Such provisions are intended to safeguard the rights and welfare of human subjects at risk of possible physical, psychological, or social injury as a consequence of their participation.
22. NONDISCRIMINATION.
The grant is subject to the provisions of 10 CFR 1040, Nondiscrimination in Federally Assisted Programs.
a. The Freedom of Information Act, as amended, and the DOE implementing regulations (10 CFR 1004), require DOE to release certain documents and records regarding grants to any person who provides a written request. The intended use of the information will not be a criterion for release. These requirements apply to information held by DOE and do not require grantees, their subgrantees, or their contractors to permit public access to their records.
b. Records maintained by DOE with respect to grants are subject to the provisions of the Privacy Act and the DOE implementing regulations (10 CFR 1008) if those records constitute a "system of records" as defined in the Act and the regulations. Generally, records maintained by grantees, their subgrantees, or their contractors are not subject to these requirements.
24. ACKNOWLEDGMENT OF SUPPORT.
Publication of the results of the grant is encouraged subject to any applicable restrictions in 10 CFR 600.27, Patent and data provisions. Any article published shall include an acknowledgment that the research was supported, in whole or in part, by a DOE grant (with the grant number) and a statement that such support does not constitute an endorsement by DOE of the views expressed in the article.
25. NATIONAL SECURITY: CLASSIFIABLE RESULTS ORIGINATING UNDER AN AWARD
a. The awardee will not be granted access to classified information. In addition, DOE does not expect that this research will generate information that would require classification. Under certain circumstances, however, a classification review of information originated tinder the award may be required.
b. Executive Order 12958 (60 Fed. Reg. 19,825 (1995)) states that basic scientific research information not clearly related to the national security may not be classified. Nevertheless, some information concerning (among other things) scientific, technological, or economic matters relating to national security or cryptology may require classification. If an awardee originates information during the course of this award that it believes requires classification under this Executive Order, the awardee must promptly:
(1) Notify the Contracting Officer and the DOE Project Officer;
(2) Submit the information by registered mail directly to the Director, Office of Nuclear and National Security Information, SO-22; U.S. Department of Energy; P.O. Box A; Germantown, MD 20875-0963, for classification review.
(3) Restrict access to the information to the maximum extent possible until the awardee is informed that the information is not classified, but no longer than thirty (30) days after receipt by the Director, Office of Nuclear and National Security Information.
(1) Notify the Contracting Officer and the DOE Project Officer.
(2) Submit the information by registered mail directly to the Director, Office of Nuclear and National Security Information, SO-22; U.S. Department of Energy; P.O. Box A; Germantown, MD 20875-0963 for classification review within 180 days of the date the awardee first discovers or first has reason to believe that the information is useful in such production or utilization.
(3) Restrict access to the information to the maximum extent possible until the awardee is informed that the information is not classified, but no longer than 90 days after receipt by the Director, Office of Nuclear and National Security Information.
d. If DOE determines any of the information requires classification, the awardee agrees that the Government may terminate the award by mutual agreement in accordance with 10 CFR 600.25(d). If the award is terminated, all material deemed to be classified must be forwarded to the DOE, in a manner specified by DOE.
e. If DOE does not respond within the specified time periods, the awardee is under no further obligation to restrict access to the information.
26. SUSPENSION AND TERMINATION.
a. Under the provisions of 10 CFR 600.25 and 600.161, DOE may suspend or terminate the award, in whole or in part (1) when the grantee has materially failed to comply with the terms and conditions of the award or (2) for any reason by mutual agreement between DOE and the grantee upon the request of either party.
b. Normally, DOE action to suspend or terminate an award for cause will be taken only after DOE has informed the grantee of any deficiency on its part and given the grantee an opportunity to correct it. However, DOE may immediately suspend or terminate the award without prior notice when it believes such action is necessary to protect the interests of the Government.
c. No costs incurred during a suspension period or after the effective date of a termination will be allowable, except those costs which, in the opinion of DOE, the grantee could not reasonably avoid or eliminate or which were otherwise authorized by the suspension or termination notice, provided such costs would otherwise be allowable under the terms of the award and the applicable Federal cost principles.
e. Within 90 days after the termination of the grant, the grantee shall submit any final financial, performance, and other reports required by the terms and conditions of the award. (See 10 CFR 600.151 and 600.152.)
f. A notice of termination other than by mutual agreement may be subject to review according to the provisions of 10 CFR 600.22, Disputes and appeals.
27. INTEREST.
The requirements of this paragraph are not applicable when the Contracting Officer affirmatively determines that its inclusion would not be in the best interests of the Government.
a. Notwithstanding any other term or condition of the grant, all amounts that become payable by the recipient to the Government under the grant shall bear simple interest from the date due until paid unless paid within 30 days of becoming due. The interest rate shall be the interest rate established by the Secretary of the Treasury (Secretary) as provided in Section 11 of the Debt Collection Act of 1982 (31 U.S.C. 3717), 10 CFR 600.173, which is applicable to the period in which the amount becomes due, as provided in paragraph b. below, and then at the rate applicable for each 3-month period as fixed by the Secretary until the amount is paid.
b. Amounts shall be due at the earliest of the following dates:
(1) The date fixed under the grant.
(2) The date of the first written demand for payment consistent with the grant, including any demand resulting from a termination.
(3) The date the Government transmits to the recipient a proposed agreement to confirm completed negotiations establishing the amount of debt.
c. The interest charge made under this provision may be reduced in accordance with the procedures prescribed in 4 CFR 102.13 or in accordance with agency regulations in effect on the date of original award of the grant.
28. AUTHORIZATION AND CONSENT.
The Government hereby gives its authorization and consent for all use and manufacture of any invention described in and covered by a patent of the United States in the performance of this grant or any part hereof or any amendment hereto or any contracts and subgrants under the award at whatever tier.
The provisions of this term shall be applicable only if the amount of this grant exceeds $10,000.
a. The grantee shall report to the Contracting Officer, promptly and in reasonable written detail, each notice or claim of patent or copyright infringement based on the performance of this grant of which the grantee has knowledge.
b. In the event of any claim or suit against the Government on account of any alleged patent or copyright infringement arising out of the performance of this grant or out of the use of any supplies famished or work or services performed hereunder, the grantee shall furnish to the Government when requested by the Contracting Officer, all evidence and information in possession of the grantee pertaining to such suit or claim. Such evidence and information shall be furnished at the expense of the Government except where the grantee has agreed to indemnify the Government.
c. This term shall be included in all contracts and subgrants under the grant.
30. PATENT RIGHTS.
a. Definitions.
(1) "Invention" means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code (U.S.C.) or any novel variety of plant which is or may be protected under the Plant Variety Protection Act (7 U.S.C. 2321, et seq.).
(2) "Subject Invention" means any invention of the grantee conceived or first actually reduced to practice in the performance of work under this grant, provided that in the case of a variety of plant the date of determination (as defined in section 44(d) of the Plant Variety Protection Act, 7 U.S.C. 2401(d)) must also occur during the period of grant performance.
(3) "Practical Application" means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is utilized and that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms.
(4) "Made" when used in relation to any invention means the conception or first actual reduction to practice of such invention.
(6) "Nonprofit Organization" means a university or other institution
of higher education or an organization of the type described in section
501(c)(3) of the Internal Revenue Code of 1954 (26 U.S.C. 501(c) and exempt from
taxation under Section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a)) or
any nonprofit scientific or educational organization qualified under a state
nonprofit organization statute.
(7) "Patent Counsel" means the Department of Energy (DOE) Patent Counsel assisting the DOE contracting activity.
b. Allocation of Principal Rights.
(1) The grantee may retain the entire right, title and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 203. With respect to any subject invention in which the grantee retains title, the Federal Government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.
(2) (Reserved)
c. Invention Disclosure, Election of Title and Filing of Patent
(1) The grantee will disclose each subject invention to the Patent Counsel within two months after the inventor discloses it in writing to grantee personnel responsible for patent matters. The disclosure to the Patent Counsel shall be in the form of a written report and shall identify the grant under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding, to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to the Patent Counsel, the grantee will promptly notify the Patent Counsel of the acceptance of any manuscript describing the invention for publication or of any on sale or public use planned by the grantee.
(2) The grantee will elect in writing whether or not to retain title to any such invention by notifying the Patent Counsel within two years of disclosure to the Patent Counsel. However, in any case where publication, on sale or public use has initiated the one-year statutory period wherein valid patent protection can still be obtained in the United States, the period for election of title may be shortened by Patent Counsel to a date that is no more than sixty days prior to the end of the statutory period.
(3) The grantee will file its initial patent application on a subject invention to which it elects to retain title within one year after election of title or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained in the United States after a publication, on sale, or public use. The grantee will file patent applications in additional countries or international patent offices within either ten months of the corresponding initial patent application or six months from the date permission is granted by the Commissioner of Patents and Trademarks to file foreign patent applications where such filing has been prohibited by a Secretary Order.
(4) Requests for extension of the time for disclosure to the Patent Counsel, election, and filing, under subparagraphs (1), (2), and (3) may, at the discretion of the Patent Counsel, be granted.
d. Conditions When the Government May Obtain Title.
The grantee will convey to the DOE, upon written request, title to any subject invention:
(1) If the grantee fails to disclose or elect title to the subject invention within the times specified in c. above, or elects not to retain title; provided that the DOE may only request title within 60 days after learning of the failure of the grantee to disclose or elect within the specified times;
(2) In those countries in which the grantee fails to file patent applications within the times specified in c. above, provided, however, that if the grantee has filed a patent application in a country after the time specified in c. above prior to its receipt of the written request of the Patent Counsel, the grantee shall continue to retain title in that country; or
(3) In any country in which the grantee decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in a reexamination or opposition proceeding, a patent on a subject invention.
e. Minimum Rights to Grantee and Protection of the Grantee Right to
(1) The grantee will retain a nonexclusive, royalty-free license throughout the world in each subject invention to which the Government obtains title except if the grantee fails to disclose the subject invention within the times specified in c. above. The grantee's license extends to its domestic subsidiaries and affiliates, if any, within the corporate structure of which the grantee is a part and includes the right to grant sublicenses of the same scope to the extent the grantee was legally obligated to do so at the time the grant was awarded. The license is transferable only with the approval of DOE except when transferred to the successor of the part of the grantee's business to which the invention pertains.
(3) Before revocation or modification of the license, DOE will furnish the grantee a written notice of its intention to revoke or modify the license, and the grantee will be allowed thirty days (or such other time as may be authorized by DOE for good cause shown by the grantee) after the notice to show cause why the license should not be revoked or modified. The grantee has the right to appeal, in accordance with 37 CFR 404 and 10 CFR Part 781, any decision concerning the revocation or modification of its license.
f. Grantee Action to Protect the Government's Interest.
(1) The grantee agrees to execute or to have executed and promptly deliver to the Patent Counsel all instruments necessary to:
(a) Establish or confirm the rights the Government has throughout the world in those subject inventions to which the grantee elects to retain title, and
(b) Convey title to DOE when requested under d. above and to enable the Government to obtain patent protection throughout the work in that subject invention.
(2) The grantee agrees to require, by written agreement, its employees, other than clerical and nonclerical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the grantee each subject invention made under this grant in order that the grantee can comply with the disclosure provisions of c. above and to execute all papers necessary to file patent applications on subject inventions and to establish the Government's rights in the subject inventions. The disclosure format should require, as a minimum, the information required by c.(l) above. The grantee shall instruct such employees through the employee agreements or other suitable educational programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to United States or foreign statutory bars.
(3) The grantee will notify the Patent Counsel of any decision not to continue prosecution of a patent application, pay maintenance fees, or defend in reexamination or opposition proceeding on a patent, in any country not less than thirty days before the expiration of the response period required by the relevant patent office.
(5) The grantee agrees to:
(a) Upon request, provide a report prior to the closeout of the grant listing all subject inventions or stating that there were none;
(b) Provide, upon request, a copy of the patent application, filing date, serial number and title, patent number and issue date for any subject invention in any country in which the grantee has applied for a patent; and
(c) Provide upon request, but not more than annually, listings of all subject inventions which were disclosed to DOE during the applicable reporting period.
g. Contracts and Subgrants under Grants.
(1) The grantee will include this clause, suitably modified to identify the parties in all contracts and subgrants under grants regardless of tier for experimental, developmental or research work to be performed by a small business firm or a domestic nonprofit organization. The lower tier recipient will retain all rights provided for the grantee in this clause, and the grantee will not as part of the consideration for awarding the contract or subgrant obtain rights in the lower tier recipient's subject inventions.
(2) The grantee will include in all other contracts or subgrants, regardless of tier for experimental, developmental, demonstration, or research work this patent rights clause as appropriate, modified to identify the parties.
(3) In the case of subcontracts, at any tier, DOE, subcontractor, and the Contractor agree that the mutual obligations of the parties created by this clause constitute a contract between the subcontractor and DOE with respect to the matters covered by the clause; provided, however, that nothing in this paragraph is intended to confer any jurisdiction under the Contract Disputes Act in connection with proceedings under paragraph j. of this clause.
h. Reporting on Utilization of Subject Inventions.
The grantee agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the grantee or its licensees or assignees. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the grantee, and such other date and information as DOE may reasonably specify. The grantee also agrees to provide additional reports as may be requested by DOE in connection with any march-in-proceeding undertaken by DOE in accordance with paragraph j. of this clause. As required by 35 U.S.C. 202(c)(5), DOE agrees it will not disclose such information to persons outside the Government without permission of the grantee.
i. Preference for United States Industry.
Notwithstanding any other provision of this term, the grantee agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject inventions in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States, However, in individual cases, the requirement for such an agreement may be waived by DOE upon a showing by the grantee or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.
j. March-in-rights.
The grantee agrees that with respect to any subject invention in which it has acquired title, DOE has the right in accordance with the procedures in 37 CFR 401.6 and any supplemental regulations of DOE to require the grantee, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the grantee, assignee, or exclusive licensee refuses such a request, DOE has the right to grant such a license itself if DOE determines that:
(1) Such action is necessary because the grantee or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;
(2) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the grantee, assignee, or their licensees;
(3) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the grantee, assignee, or licensee; or
(4) Such action is necessary because the agreement required by paragraph I. of this term has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such agreement.
k. Special Provisions for Grants with Nonprofit-Organizations.
If the grantee is a nonprofit organization it agrees that:
(2) The grantee will share royalties collected on a subject invention with the inventor, including Federal employee co-inventors (when DOE deems it appropriate) when the subject invention is assigned in accordance with 35 U.S.C. 202(e) and 37 CFR 401.10.
(3) The balance of any royalties or income earned by the grantee with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, will be utilized for the support of scientific research or education, and
(4) It will make efforts that are reasonable under the circumstances to attract licensees of subject inventions that are small business firms and that it will give a preference to a small business firm when licensing a subject invention if the grantee determines that the small business firm has a plan or proposal for marketing the invention which, if executed, is equally as likely to bring the invention to practical application as any plans or proposals from applicants that are not small business firms; provided that the grantee is also satisfied that the small business firm has the capability and resources to carry out its plan or proposal. The decision whether to give a preference in any specific case will be at the discretion of the grantee. However, the grantee agrees that the Secretary of Commerce may review the grantee's licensing program and decisions regarding small business applicants, and the grantee will negotiate changes to its licensing policies, procedures, or practices with the Secretary of Commerce when the Secretary of Commerce's review discloses that the grantee could take reasonable steps to implement more effectively the requirements of this paragraph k.(4).
l. Communications.
The DOE central point of contact for communications or matters relating to this clause is the Patent Counsel.
31. REPORTING OF ROYALTIES.
If this grant is in an amount which exceeds $10,000 and if any royalty payments are directly involved in the grant or are reflected in the amount of the grant award, the grantee agrees to report in writing to the Patent Counsel (with notification by Patent Counsel to the Contracting Officer) during the performance of this grant and prior to its completion or final settlement, the amount of any royalties or other payments paid or to be paid by it directly to others in connection with the performance of this grant together with the names and addresses of licensors to whom such payments are made and either the patent numbers involved or such other information as will permit the identification of the patents or other basis on which the royalties are to be paid. The approval of DOE of any individual payments or royalties shall not stop the Government at any time from contesting the enforceability, validity or scope of, or title to, any patent under which a royalty or payments are made.
a. In addition to the data (as defined in the term entitled, "Rights in Data - SBIR/STTR Program" - or other equivalent included in this grant) specified elsewhere in this grant to be delivered, the Contracting Officer may, at any time during the project period or within 3 years of closeout of the grant, order any data first produced or specifically used in the performance of this grant.
b. The "Rights in Data - SBIR/STTR Program" term or other equivalent included in this grant is applicable to all data ordered under this "Additional Data Requirements" term. Nothing contained in this term shall require the grantee to deliver any data the withholding of which is authorized by the "Rights in Data - SBIRSTTR Program" or other equivalent term of this grant, or data which are specifically identified in this grant as not subject to this term.
c. When data are to be delivered under this term the grantee will be compensated for converting the data into the prescribed form for reproduction, and for delivery.
d. The Contracting Officer may release the grantee from the requirement of this clause for specifically identified data items at any time during the 3-year period set forth in a. above.
33. RIGHTS IN DATA - SBIR/STTR PROGRAM.
a. Definitions.
"Computer software" as used in this term, means computer programs, computer databases, and documentation thereof.
"Data" as used in this term, means recorded information, regardless of form or the media on which it may be recorded. The "Data" includes technical data and computer software. The "Data" does not include information incidental to grant administration, such as financial, administrative, cost or pricing or management information.
"Form, fit and function data" as used in this term, means data relating to items, components, or processes that are sufficient to enable physical and functional interchangeability as well as data identifying source, size, configuration, matching and attachment characteristics, functional characteristics, and performance requirements except that for computer software it means data identifying source, functional characteristics, and performance requirements, but specifically excludes the source code, algorithm, process, formulae, and flow charts of the software.
"Restricted computer software" as used in this term, means computer software developed at private expense and that is a trade secret; is commercial or financial and confidential or privileged; or is published copyrighted computer software; including modifications of such computer software.
"SBIR/STTR data" as used in this term, means data first produced by a grantee that is a small business firm in performance of a small business innovation research grant issued under the authority of 15 U.S.C. 631 (Pub. L. 102-564, Small Business Research and Development Enhancement Act of 1992), which data are not generally known, and which data without obligation to its confidentiality have not been made available to others by the grantee or are not already available to the Government.
"SBIR/STTR rights" as used in this term, means the rights in SBIR/STTR data set forth in the SBIR/STTR Rights Notice of paragraph d. of this term.
"Technical data" as used in this term, means that data which are of a scientific or technical nature.
"Unlimited rights" as used in this term, means the right of the Government to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose whatsoever, and to have or permit others to do so.
b. Allocation of Rights.
(1) Except as provided in paragraph c. of this term regarding copyright, the Government shall have unlimited rights in -
(a) Data specifically identified in this grant as data to be delivered without restriction;
(b) Form, fit, and function data delivered under this grant;
(c) Data delivered under this grant (except for restricted computer software) that constitute manuals or instructional and training material for installation, operation, or routine maintenance and repair of items, components, or processes delivered or furnished for use under this grant; and
(d) All other data delivered under this grant unless provided otherwise for SBIR/STTR data in accordance with paragraph d. of this term or for limited rights data or restricted computer software in accordance with paragraph
g. of this term.
(a) Protect SBIR/STTR rights in SBIR/STTR data delivered under this grant in the manner and to the extent provided in paragraph d. of this term.
(b) Withhold from delivery those data which are limited
rights data or restricted computer software to the extent provided in paragraph
g. of this term.
(c) Substantiate use of, add, or correct SBIRSTTR rights of copyright notices and to take other appropriate actions, in accordance with paragraph e. of this term; and
(d) Establish claim to copyright subsisting in data first
produced in the performance of this grant to the extent provided in subparagraph
c. (1) of this term.
(1) DATA FIRST PRODUCED IN THE PERFORMANCE OF THIS GRANT. Except as otherwise specifically provided in this grant, the grantee may establish claim to copyright subsisting in any data first produced in the performance of this grant. If claim to copyright is made, the grantee shall affix the applicable copyright notice of 17 U.S.C. 401 and 402 and acknowledgment of Government sponsorship (including grant number) to the data when such data are delivered to the Government, as well as when the data are published or deposited for registration as published work in the U.S. Copyright Office. For data other than computer software the grantee grants to the Government, and others acting on its behalf, a paid-up nonexclusive, irrevocable worldwide license to reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, by or on behalf of the Government for all such data. For computer software, the grantee grants to the Government, and others acting on its behalf, a paid-up nonexclusive, irrevocable worldwide license for all such computer software to reproduce, prepare derivative works, and perform publicly and display publicly, by or on behalf of the Government.
(2) DATA NOT FIRST PRODUCED IN THE PERFORMANCE OF THIS GRANT. The grantee shall not, without prior written permission of the Contracting Officer, incorporate in data delivered under this grant; and that contain the copyright notice of 17 U.S.C. 401 and 402, unless the grantee identifies such data and grants to the Government, or acquires on its behalf, a license of the same scope as set forth in subparagraph c.(1) of this term.
(3) REMOVAL OF COPYRIGHT NOTICES. The Government agrees not to remove any copyright notices placed on data pursuant to this paragraph c., and to include such notices on all reproductions of the data.
(1) The grantee is authorized to affix the following SBIR/STTR
Rights Notice to SBIR/STTR data delivered under this grant and the Government
will thereafter treat the data, subject to the provisions of paragraphs e. and
f. of this term, in accordance with such Notice:
These SBIR/STTR data are furnished with SBIR/STTR rights under Grant No. _____________ (and subcontract ________________ if appropriate). For a period of 4 years after acceptance of all items to be delivered under this grant, the Government agrees to use these data for Government purposes only, and they shall not be disclosed outside the Government (including disclosure for procurement purposes) during such period without permission of the grantee, except that, subject to the foregoing use and disclosure prohibitions, such data may be disclosed for use by support contractors. After the aforesaid 4-year period the Government has a royalty-free license to use, and to authorize others to use on its behalf, these data for Government purposes, but is relieved of all disclosure prohibitions and assumes no liability for unauthorized use of these data by third parties. This Notice shall be affixed to any reproductions of these data in whole or in part.
(2) The Government's sole obligation with respect to any SBIR/STTR data shall be as set forth in this paragraph d.
e. Omitted or Incorrect Markings.
(1) Data delivered to the Government without any notice authorized by paragraph d. of this term, and without a copyright notice, shall be deemed to have been furnished with unlimited rights, and the Government assumes no liability for the disclosure, use, or reproduction of such data. However, to the extent the data have not been disclosed without restriction outside the Government, the grantee may request within six months (or a longer time approved by the Contracting Officer for good cause shown) after delivery of such data, permission to have notices placed on qualifying data at the grantee's expense, and the Contracting Officer may agree to do so if the grantee -
(a) Identifies the data to which the omitted notice is to be applied;
(b) Demonstrates that the omission of the notice was inadvertent;
(d) Acknowledges that the Government has no liability with respect to the disclosure or use of any such data made prior to the addition of the notice or resulting from the omission of the notice.
(2) The Contracting Officer may also (a) permit correction, at the grantee's expense, of incorrect notices if the grantee identifies the data on which correction of the notice is to be made and demonstrates that the correct notice is authorized, or (b) correct any incorrect notices.
f. Protection of Limited Rights Data. When data other than that listed in subdivisions b.(1)(a), (b), and (c) of this term are specified to be delivered under this grant and such data qualify as either limited rights data or restricted computer software, the grantee, if the grantee desires to continue protection of such data, shall withhold such data and not furnish them to the Government under this grant. As a condition to this withholding the grantee shall identify the data being withheld and furnish form, fit, and function data in lieu thereof.
g. Contracts and Subgrants under the Grant. The grantee has the responsibility to obtain from its contractors and subgrantees all data and rights therein necessary to fulfill the grantee's obligations to the Government under this grant. If a contractor or subgrantee refuses to accept terms affording the Government such rights, the grantee shall promptly bring such refusal to the attention of the Contracting Officer and not proceed with contract or subgrant award without further authorization.
h. Relationship to Patents. Nothing contained in this term shall imply a license to the Government under any patent or be construed as affecting the scope of any license or other right otherwise granted to the Government.
34. RIGHTS TO APPLICATION DATA.
Except for data contained on pages N/A , it is agreed that as a condition of award of this grant, and notwithstanding the conditions of any notice appearing thereon, the Government shall have unlimited rights (as defined in the "Rights in Data - SBIR/STTR Program" term contained in this grant) in and to the technical data contained in the application dated ________________, upon which this grant is based.
35. OTHER RESEARCH SUPPORT.
a. The recipient represents that it has disclosed to the Contracting Officer any applications made or contemplated at the time of award of this grant to be made by it to any public or private entity for performance of the same or similar work.
c. The recipient further agrees that it has not accepted and will not be a party to any contractual arrangement for the duration of this project for the same or essentially the same work as contemplated by this award.
d. Failure of the recipient to adhere to paragraphs a., b., and c. above shall constitute a basis for a determination of noncompliance under 10 CFR 600.24.
36. NOTIFICATION OF DELAY.
If the recipient will not complete the project or complete the project within the established time frame, the Contracting Officer should be notified as soon as that circumstance becomes apparent.
37. FEE.
SBIR/STTR recipients may be paid a fee or profit.
GENERAL TERMS AND CONDITIONS APPLICABLE TO PHASE I ONLY
1. FIXED OBLIGATION.
a. Awards will be made on a "fixed obligation" basis in accordance with 10 CFR 600.181(b).
b. The Contracting Officer may approve lump-sum payments in circumstances deemed appropriate by DOE. If a lump-sum payment is made, such payment is subject to the condition that the recipient will return to the DOE amounts remaining unexpended at the end of the project if those amounts exceed $500 in accordance with 10 CFR 600.181(b)5.
2. PREAWARD COSTS.
Preaward expenditure approval as stated in the term entitled, "Preaward Costs" of these General Terms and Conditions, is not required for Phase I awards.
1. REPORTING NON-FEDERAL SUPPORT.
The recipient agrees to provide the SBIR Program Manager an annual report during Phase II and for five years after completion of this project detailing the sources and amounts of non-Federal funding used to continue support or commercialization of the research funded under this award.
EXHIIBT 23
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8, Registration Number 333-97583, of Superconductive Components, Inc. of our report dated February 14, 2003, relating to the financial statements which appear in the Company's Form 10-KSB for the year ended December 31, 2002.
/s/ Hausser + Taylor LLP |
Columbus, Ohio
March 26, 2003
EXHIBIT 24
Each of the undersigned officers and/or directors of Superconductive Components, Inc., an Ohio corporation (the "Company"), hereby appoints Daniel Rooney and Curtis A. Loveland as his or her true and lawful attorneys-in-fact, or any of them individually with power to act without the other, as his or her true and lawful attorney-in-fact, in his or her name and on his or her behalf, and in any and all capacities stated below, to sign and to cause to be filed with the Securities and Exchange Commission the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, and any and all amendments thereto, hereby granting unto said attorneys, and to each of them, full power and authority to do and perform in the name and on behalf of the undersigned, in any and all such capacities, every act and thing whatsoever necessary to be done in and about the premises as fully as each of the undersigned could or might do in person, hereby granting to each such attorney full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney in counterparts if necessary, effective as of March 27, 2003.
Signature Title
/s/ Daniel Rooney President, Chief Executive Officer and Chairman of
--------------------------- the Board of Directors and Director (principal
Daniel Rooney executive officer)
/s/ Jerry Blaskie Chief Financial Officer
-------------------------- (principal financial officer and principal
Jerry Blaskie officer)
accounting
/s/ Robert J. Baker, Jr. Director
--------------------------
Robert J. Baker, Jr.
/s/ Edward W. Ungar Director
--------------------------
Edward W. Ungar
|
Exhibit 99(a)
In connection with the Annual Report of Superconductive Components, Inc. (the "Company") on Form 10-KSB for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Rooney, Chairman, Chief Executive Officer, and President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 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.
/s/ Daniel Rooney --------------------------------------------------- Daniel Rooney, Chairman, Chief Executive Officer and President of Superconductive Components, Inc. March 28, 2003 |
Exhibit 99(b)
In connection with the Annual Report of Superconductive Components, Inc. (the "Company") on Form 10-KSB for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Rooney, Chairman, Chief Executive Officer, and President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 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.
/s/ Gerald S. Blaskie --------------------------------------------- Gerald S. Blaskie, Chief Financial Officer of Superconductive Components, Inc. March 28, 2003 |