UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 0-31641

SUPERCONDUCTIVE COMPONENTS, INC.

(Exact name of small business issuer as specified in its charter)

 

Ohio   31-1210318

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2839 Charter Street, Columbus, Ohio 43228

(Address of principal executive offices)

(614) 486-0261

(Issuer’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.    YES   x     NO   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ¨     NO   x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 3,467,100 shares of Common Stock, without par value, were outstanding at July 31, 2007.

Transitional Small Business Disclosure Format (Check one): YES   ¨     NO   x

 



Table of Contents

FORM 10-QSB

SUPERCONDUCTIVE COMPONENTS, INC.

Table of Contents

 

          Page No.

PART I.    FINANCIAL INFORMATION

  

Item 1.

   Financial Statements.   
  

Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006

   3
  

Statements of Operations For the Three Months and Six Months Ended June 30, 2007 and 2006 (unaudited)

   5
  

Statements of Cash Flows For the Six Months Ended June 30, 2007 and 2006 (unaudited)

   6
  

Notes to Financial Statements (unaudited)

   8

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations.    14

Item 3.

   Controls and Procedures.    19

PART II.  OTHER INFORMATION

  

Item 1.

   Legal Proceedings.    N/A

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds.    N/A

Item 3.

   Defaults Upon Senior Securities.    N/A

Item 4.

   Submission of Matters to a Vote of Security Holders.    N/A

Item 5.

   Other Information.    N/A

Item 6.

   Exhibits.    20

Signatures.

   20

 

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Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

SUPERCONDUCTIVE COMPONENTS, INC.

BALANCE SHEETS

 

    

June 30,

2007

    December 31,
2006
 
     (UNAUDITED)        
ASSETS     

CURRENT ASSETS

    

Cash

   $ 1,303,004     $ 648,494  

Accounts receivable

    

Trade, less allowance for doubtful accounts of $24,700 and $25,000

     373,210       439,946  

Contract

     52,760       52,760  

Other

     5,095       —    

Inventories

  

 

1,249,322

 

 

 

1,189,732

 

Prepaid expenses

     83,419       47,466  
                

Total current assets

  

 

3,066,810

 

 

 

2,378,398

 

                

PROPERTY AND EQUIPMENT, AT COST

    

Machinery and equipment

     3,044,157       2,697,368  

Furniture and fixtures

     25,848       23,643  

Leasehold improvements

     299,551       299,551  

Construction in progress

     640,395       95,590  
                
     4,009,951       3,116,152  

Less accumulated depreciation

     (2,085,430 )     (2,012,312 )
                
     1,924,521       1,103,840  
                

OTHER ASSETS

    

Deposits

     27,706       289,816  

Intangibles

     29,350       30,894  
                

Total other assets

     57,056       320,710  
                

TOTAL ASSETS

   $ 5,048,387     $ 3,802,948  
                

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

BALANCE SHEETS

 

    

June 30,

2007

    December 31,
2006
 
     (UNAUDITED)        
LIABILITIES AND SHAREHOLDERS’ EQUITY     

CURRENT LIABILITIES

    

Capital lease obligation, current portion

   $ 221,898     $ 70,799  

Accounts payable

     374,875       297,161  

Accrued contract expenses

     27,258       27,258  

Accrued personal property taxes

     19,187       22,500  

Customer deposits

  

 

650,069

 

 

 

526,581

 

Accrued expenses and other

     183,237       208,494  
                

Total current liabilities

  

 

1,476,524

 

 

 

1,152,793

 

                

CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION

     831,005       145,693  
                

COMMITMENTS AND CONTINGENCIES

     —         —    
                

SHAREHOLDERS’ EQUITY

    

Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par value, $10 stated value, optional redemption at 103%; 25,185 issued and outstanding

     372,739       360,146  

Common stock, no par value, authorized 15,000,000 shares; 3,467,100 and 3,432,915 shares issued and outstanding respectively

     9,066,309       9,007,817  

Additional paid-in capital

     991,610       995,586  

Accumulated deficit

     (7,689,800 )     (7,859,087 )
                
     2,740,858       2,504,462  
                

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 5,048,387     $ 3,802,948  
                

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2007 AND 2006

AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

 

     THREE MONTHS ENDED
JUNE 30,
    SIX MONTHS ENDED
JUNE 30,
 
     2007     2006     2007     2006  

SALES REVENUE

   $ 3,403,742     $ 1,158,434     $ 5,857,751     $ 2,316,965  

CONTRACT RESEARCH REVENUE

     —         —         —         42,092  
                                
     3,403,742       1,158,434       5,857,751       2,359,057  
                                

COST OF SALES REVENUE

     2,890,574       877,894       4,886,003       1,788,137  

COST OF CONTRACT RESEARCH

     —         —         —         17,407  
                                
     2,890,574       877,894       4,886,003       1,805,544  
                                

GROSS PROFIT

     513,168       280,540       971,748       553,513  

GENERAL AND ADMINISTRATIVE EXPENSE

     219,716       232,524       456,312       445,254  

RESEARCH AND DEVELOPMENT EXPENSE

     81,873       39,216       145,037       86,392  

SELLING EXPENSE

     110,449       65,993       207,851       134,096  
                                

INCOME (LOSS) FROM OPERATIONS

     101,130       (57,193 )     162,548       (112,229 )
                                

OTHER INCOME (EXPENSE)

        

Interest income

     14,432       10,258       26,988       21,053  

Interest expense

     (18,212 )     (3,482 )     (24,116 )     (5,506 )

Gain on disposal of equipment

     4,782       —         4,782       —    

Miscellaneous, net

     (457 )     8,213       (915 )     7,501  
                                
     545       14,989       6,739       23,048  
                                

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX

     101,675       (42,204 )     169,287       (89,181 )

INCOME TAX EXPENSE

     —         —         —         —    
                                

NET INCOME (LOSS)

     101,675       (42,204 )     169,287       (89,181 )

DIVIDENDS ON PREFERRED STOCK

     (6,296 )     (6,296 )     (12,592 )     (12,592 )
                                

INCOME (LOSS) APPLICABLE TO COMMON SHARES

   $ 95,379     $ (48,500 )   $ 156,695     $ (101,773 )
                                

EARNINGS PER SHARE - BASIC AND DILUTED (Note 5)

        

NET INCOME (LOSS) PER COMMON SHARE BEFORE DIVIDENDS ON PREFERRED STOCK

        

Basic

   $ 0.03     $ (0.01 )   $ 0.05     $ (0.03 )
                                

Diluted

   $ 0.02     $ (0.01 )   $ 0.04     $ (0.03 )
                                

NET INCOME (LOSS) PER COMMON SHARE AFTER DIVIDENDS ON PREFERRED STOCK

        

Basic

   $ 0.03     $ (0.01 )   $ 0.05     $ (0.03 )
                                

Diluted

   $ 0.02     $ (0.01 )   $ 0.04     $ (0.03 )
                                

WEIGHTED AVERAGE SHARES OUTSTANDING

        

Basic

     3,462,073       3,425,915       3,451,032       3,425,915  
                                

Diluted

     4,287,082       3,425,915       4,240,350       3,425,915  
                                

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

 

     2007     2006  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income (loss)

   $ 169,287     $ (89,181 )
                

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and accretion

     137,683       105,706  

Amortization

     1,544       1,544  

Stock based compensation

     28,626       1,436  

Gain on sale of equipment

     (4,782 )     —    

Inventory reserve

     5,765       (185 )

Provision for doubtful accounts

     (300 )     —    

Changes in operating assets and liabilities:

    

(Increase) decrease in assets:

    

Accounts receivable

     61,941       (43,308 )

Inventories

  

 

(65,355

)

    34,997  

Prepaid expenses

     (15,944 )     (38,962 )

Other assets

     262,110       (4,266 )

Increase (decrease) in liabilities:

    

Accounts payable

     77,714       (145,161 )

Accrued expenses and customer deposits

     93,261       76,880  
                

Total adjustments

     582,263       (11,319 )
                

Net cash provided by (used in) operating activities

     751,550       (100,500 )
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Proceeds on sale of equipment

     15,100       —    

Purchases of property and equipment

     (78,146 )     (131,399 )
                

Net cash used in investing activities

     (63,046 )     (131,399 )
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from exercise of common stock warrants

     26,909       —    

Payments related to registration of common stock

     (8,435 )     (49,926 )

Principal payments on capital lease obligations

     (52,468 )     (29,328 )
                

Net cash used in financing activities

     (33,994 )     (79,254 )
                

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

STATEMENTS OF CASH FLOWS (CONTINUED)

SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     2007    2006  

NET INCREASE (DECREASE) IN CASH

   $ 654,510    $ (311,153 )

CASH - Beginning of period

     648,494      1,161,369  
               

CASH - End of period

   $ 1,303,004    $ 850,216  
               

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     

Cash paid during the years for:

     

Interest, net

   $ 24,116    $ 5,506  

Income taxes

   $ —      $ —    

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES

     

Property and equipment purchased by capital lease

   $ 888,879    $ 134,268  

Machinery & equipment accrued asset retirement obligation increase

   $ 1,656    $ 1,656  

SUPPLEMENTAL DISCLOSURES OF NONCASH OPERATING ACTIVITIES

     

Stock based compensation expense

   $ 28,626    $ 1,436  

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1. Business Organization and Purpose

Superconductive Components, Inc. (“SCI” or the “Company”), dba SCI Engineered Materials, an Ohio corporation, was incorporated in 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive (“HTS”) materials. The Company manufactures ceramic and metal targets for a variety of industrial applications including: Photonics/Optical, Semiconductor, Thin Film Batteries and, to a lesser extent HTS. Photonics/Optical currently represents the Company’s largest market for its targets. Semiconductor is a developing market for us. Thin Film Battery is a developing market where manufacturers of batteries use the Company’s targets to produce very small power supplies, with small quantities of stored energy. The production and sale of HTS materials was the initial focus of the Company’s operations and these materials continue to be a part of the Company’s development efforts.

Note 2. Summary of Significant Accounting Policies

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2006. Interim results are not necessarily indicative of results for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Equipment purchased with grant funding

In 2004, the Company received funds of $517,935 from the Ohio Department of Development’s Third Frontier Action Fund (TFAF) for the purchase of equipment related to the grant’s purpose. The Company has elected to record the funds disbursed as a contra asset; therefore, the assets are not reflected in the Company’s financial statements. As assets were purchased, the liability initially created when the cash was received was reduced with no revenue recognized or fixed asset recorded on the balance sheet. As of June 30, 2007, the Company had disbursed the entire amount received. The grant and contract both provide that as long as the Company performs in compliance with the grant/contract, the Company retains the rights to the equipment. Management states that the Company will be in compliance with the requirements and, therefore, will retain the equipment at the end of the grant in 2007.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

Stock Based Compensation

Prior to 2006 the Company accounted for stock based compensation using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, “Accounting for Stock Based Compensation” (SFAS No. 123), which established accounting and disclosure requirements using a fair value based methodology. SFAS No. 123 allowed the intrinsic value method to be used, and required disclosure of the impact to the financial statements of utilizing the intrinsic value versus the fair value based method on a pro forma basis. The Company utilized the fair value method as provided for in SFAS No. 123 for stock based compensation to non-employees.

In December 2004, the FASB issued SFAS No. 123 (Revised), “Shared Based Payment” (SFAS No. 123R). SFAS No. 123R replaced SFAS No. 123, and superseded APB Opinion No. 25. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R and related interpretations using the modified-prospective transition method. Under this method, compensation cost recognized in 2007 and 2006 includes (a) compensation cost for all stock-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all stock-based awards granted on or subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Non cash stock based compensation expense was $28,626 and $1,436 for the six months ended June 30, 2007, and 2006 respectively.

On January 5, 2007 the four non-employee board members each received compensation of 1,819 shares of the Company’s common stock and $5,000 in cash.

Reclassification

Certain amounts in the prior year financial statements pertaining to inventory and customer deposits have been reclassified to conform to the current year presentation.

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 3. Common Stock and Stock Options

The cumulative status at June 30, 2007 and December 31, 2006 of options granted and outstanding, as well as options which became exercisable in connection with the Stock Option Plans is summarized as follows:

Employee Stock Options

 

     Stock
Options
    Weighted
Average
Exercise Price

Outstanding at December 31, 2005

   328,250     $ 1.95

Granted

   42,500       3.25

Exercised

   (7,000 )     1.71

Forfeited

   (20,000 )     2.13
            

Outstanding at December 31, 2006

   343,750     $ 2.09

Granted

   —         —  

Exercised

   —         —  

Forfeited

   —         —  
            

Outstanding at June 30, 2007

   343,750     $ 2.09
            

Shares exercisable at December 31, 2006

   306,250     $ 1.95

Shares exercisable at June 30, 2007

   313,750     $ 1.97

Non-Employee Director Stock Options

 

     Stock
Options
   Weighted
Average
Exercise Price

Outstanding at December 31, 2005

   247,000    $ 2.48

Granted

   —        —  

Exercised

   —        —  

Expired

   —        —  

Forfeited

   —        —  
           

Outstanding at December 31, 2006

   247,000      2.48

Granted

   —        —  

Exercised

   —        —  

Expired

   —        —  

Forfeited

   —        —  
           

Outstanding at June 30, 2007

   247,000    $ 2.48
           

Shares exercisable at December 31, 2006

   247,000    $ 2.48

Shares exercisable at June 30, 2007

   247,000    $ 2.48

 

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Table of Contents

SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 3. Common Stock and Stock Options (continued)

Exercise prices for options range from $1.00 to $4.00 for options at June 30, 2007. The weighted average option price for all options outstanding is $2.25 with a weighted average remaining contractual life of 5.9 years.

The weighted average fair values at date of grant for options granted during 2006 were $3.03 and were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

 

     2006  

Expected life in years

   7.0  

Interest rate

   5 %

Volatility

   107.55 %

Dividend yield

   0 %

Note 4. Inventory

Inventory is comprised of the following:

 

    

June 30,

2007

    December 31,
2006
 
     (unaudited)        

Raw materials

   $ 503,143     $ 695,819  

Work-in-progress

  

 

646,044

 

 

 

335,325

 

Finished goods

     181,762       234,450  

Inventory reserve

     (81,627 )     (75,862 )
                
   $ 1,249,322     $ 1,189,732  
                

 

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SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 5. Earnings Per Share

Basic income (loss) per share is calculated as income available to common stockholders divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted income (loss) available to common stockholders divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares has been calculated using the treasury stock method for Common Stock equivalents, which includes Common Stock issuable pursuant to stock options and Common Stock warrants. At June 30, 2006 all Common Stock options and warrants were anti-dilutive due to the net loss. The following is provided to reconcile the earnings per share calculations:

 

     Three months
ended June 30,
2007
   Three months
ended June 30,
2006
   

Six months

ended June 30,
2007

   Six months
ended June 30,
2006
 

Income (loss) applicable to common shares

   $ 95,379    $ (48,500 )   $ 156,695    $ (101,773 )
                              
          

Weighted average common shares outstanding - basic

     3,462,073      3,425,915       3,451,032      3,425,915  

Effect of dilutions – stock options/warrants

     825,009      0       789,318      0  
                              

Weighted average common shares outstanding - diluted

     4,287,082      3,425,915       4,240,350      3,425,915  
                              

Note 6. Capital Requirements

The Company’s accumulated deficit since inception was $7,689,800 (unaudited) at June 30, 2007. The losses have been financed primarily from additional investments and loans by major shareholders and private offerings of common stock and warrants to purchase common stock. The Company cannot assure that it will be able to raise additional capital in the future to fund its operations.

As of June 30, 2007, cash on-hand was $1,303,004. Management believes, based on forecasted sales and expenses, that funding will be adequate to sustain operations at least through June 30, 2008.

The Company reported net income applicable to common shares of $156,695 for the six months ended June 30, 2007 and has incurred substantial operating losses since its inception in 1987. Numerous factors may make it necessary for the Company to seek additional capital. In order to support the initiatives envisioned in its business plan, it may need to raise additional funds through public or private financing, collaborative relationships or other arrangements. Its ability to raise additional financing depends on many factors beyond its control, including the state of capital markets, the market price of its common stock and the development or prospects for development of competitive products by others. Because the common stock is not listed on a major stock exchange, many investors may not be willing or allowed to purchase it or may demand steep discounts. The additional financing may not be available or may be available only on terms that would result in further dilution to the current owners of the common stock.

 

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SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 7. Production Equipment

The Company received new production equipment during the first six months of 2007 through capital lease obligations. This equipment was financed at a cost of approximately $889,000. Additional new production equipment, expected to be delivered in the second half of 2007, will also be financed through capital lease obligations at a cost of approximately $207,000.

Note 8. Stock Purchase Warrants

During April of 2007 a shareholder exercised 26,909 stock purchase warrants which resulted in proceeds of $26,909. The exercise price for these warrants was $1.00.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Financial Statements and Notes contained herein and with those in our Form 10-KSB for the year ended December 31, 2006.

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-QSB include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief, and expectations, such as statements concerning our future profitability and operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements contained in this Quarterly Report on Form 10-QSB and in other statements we make involve risks and uncertainties including, without limitation, the factors set forth under the caption “Risk Factors” included in our Annual Report on Form 10-KSB for the year ended December 31, 2006, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect our business and financial condition and could cause actual results to differ materially from plans and projections. Although we believe the assumptions underlying the forward-looking statements contained herein are reasonable, there can be no assurance that any of the forward-looking statements included in this Quarterly Report on Form 10-QSB will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time and it is not possible for us to predict all factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview

Superconductive Components, Inc. (“SCI” or the “Company”), dba SCI Engineered Materials, an Ohio corporation, was incorporated in 1987, to develop, manufacture and market products based on or incorporating high temperature superconductive (“HTS”) materials. Currently, we manufacture ceramic and metal targets for a variety of industrial applications including: Photonics/Optical, Thin Film Battery, Semiconductor and, to a lesser extent HTS. Photonics/Optical currently represents our largest market for our targets. Thin Film Battery is a developing market where manufacturers of batteries use our targets to produce very small power supplies, with small quantities of stored energy. Semiconductor is also a developing market. We hired additional marketing staff during the fourth quarter of 2006 to develop opportunities in these markets. During the second quarter and early in the third quarter of 2007, we added additional staff to our Technology group for the development of innovative products.

 

14


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

Executive Summary

For the three months ended June 30, 2007, we had revenues of $3,403,742. This was an increase of $2,245,308, or 193.8%, over the three months ended June 30, 2006. For the six months ended June 30, 2007, we had revenues of $5,857,751. This was an increase of $3,498,694, or 148.3%, over the six months ended June 30, 2006.

For the three months ended June 30, 2007, we had net income applicable to common shares of $95,379 compared to a net loss of ($48,500) for the same period in 2006. For the six months ended June 30, 2007, we had net income applicable to common shares of $156,695 compared to a net loss of ($101,773) for the same period in 2006.

Near the end of the first quarter 2007, the price of a high value raw material used by us to produce certain products reached a cyclical peak and then declined to approximately one-half of that amount by the end of the second quarter 2007. Cost changes for this high value raw material are fully reflected in the final selling price which insulates us from market price fluctuations associated with the raw material. We anticipate that the cost of this high value raw material will be lower for the second half of 2007 compared to the first half of this year. This will have an adverse effect on our total revenues, and, to a lesser extent, gross profit during the second half of 2007 because this high value raw material has a substantially lower gross profit margin compared to our other products.

We received notification during the second quarter of 2007 from the Department of Energy of a Notice of Financial Assistance Award in the amount of $99,887. This will provide support for Phase I of a Small Business Innovative Research (SBIR) award entitled “Flux Pinning Additions to Increase Jc Performance in BSCCO-2212 Round Wire for Very High Field Magnets.” The work on the contract is scheduled to begin during the third quarter of 2007.

RESULTS OF OPERATIONS

Six months ended June 30, 2007 (unaudited) compared to six months ended June 30, 2006 (unaudited):

Revenues

Revenues for the six months ended June 30, 2007 were $5,857,751 compared to $2,359,057, for the same period last year, an increase of $3,498,694 or 148.3%. The revenue growth can be attributed primarily to the growth in Photonics/Optical products combined with the ongoing purchase of raw materials whose prices have historically experienced periods of significant fluctuation, as well as Thin Film Battery products. As mentioned earlier, we anticipate a reduction in the cost of a raw material in the second half of 2007 which will result in a reduction in revenues.

Gross Profit

Gross profit for the six months ended June 30, 2007 was $971,748, which represents a gross margin of 16.6% of total revenue compared to $553,513 and 23.5% of total revenue for the six months ended June 30, 2006. The increase in the gross profit is due primarily to the growth in Photonics/Optical products. Thin Film Battery products have also contributed to this increase.

 

15


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

The decrease in the gross margin as a percentage of total revenue is due to product mix of higher value product with lower gross margins.

As mentioned earlier, we anticipate a reduction in the cost of a raw material in the second half of 2007 which will result in a reduction in revenues, and, to a lesser extent, gross profit during the second half of 2007 because this high value raw material has a substantially lower gross profit margin compared to our other products.

Selling Expense

Selling expense for the six months ended June 30, 2007 increased 55% to $207,851 from $134,096 for the same period in 2006. The increase was due to the addition of marketing staff and increased travel.

General and Administrative Expense

General and administrative expense for the six months ended June 30, 2007 increased to $456,312 from $445,254 for the six months ended June 30, 2006, or 2.5%. The slight increase was due to stock based compensation expense of $34,059, including non-cash compensation expense of $24,059. Stock based compensation expense was $675 for the first six months of 2006. This increase was offset by a reduction in professional fees.

Research and Development Expense

Research and development expense for the first six months of 2007 was $145,037 compared to $86,392 for the same period in 2006, an increase of 67.9%. The increase was due to continued development efforts associated with applications in Photonic, Solar, Automotive, Thin Film Battery and Semiconductor markets.

Interest Income and Expense

Interest income was $26,988 and $21,053 for the six months ended June 30, 2007 and 2006, respectively. The increase was due to increased cash due to higher revenue in 2007.

Interest expense was $24,116 and $5,506 for the six months ended June 30, 2007 and 2006, respectively. The increase was due to additional capital lease obligations incurred for the purchase of production equipment for increased production capacity.

INCOME (LOSS) APPLICABLE TO COMMON SHARES

Income applicable to common shares was $156,695 compared to a loss of $(101,773) for the six months ended June 30, 2007 and 2006, respectively. Basic net income per common share based on income applicable to common shares for 2007 and a loss for 2006 was $0.05 and $(0.03), respectively. The income (loss) applicable to common shares includes net income (loss) from operations and the accretion of Series B preferred stock dividends. Basic net income (loss) per common share before dividends on preferred stock was $0.05 and $(0.03) for the six months ended June 30, 2007 and 2006, respectively.

Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Accrued dividends on the Series B preferred stock was $12,592 for the six months ended June 30, 2007 and 2006, respectively.

 

16


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

Basic earnings for the six months ended June 30, 2007 were $0.05 per common share based on 3,451,032 average shares outstanding compared to a loss of $(0.03) per common share based on 3,425,915 weighted average shares outstanding for the six months ended June 30, 2006.

Diluted earnings per common share for the six months ended June 30, 2007 were $0.04 based on 4,240,350 average shares outstanding compared to a loss of $(0.03) per share based on 3,425,915 weighted average shares outstanding for 2006. All outstanding common stock equivalents were anti-dilutive for the six months ended June 30, 2006 due to the net loss.

The following schedule represents our outstanding common shares during the period of 2007 through 2016 assuming all outstanding stock options and stock warrants are exercised during the year of expiration. If each shareholder exercises his or her options or warrants, it could increase our common shares by 1,215,828 to 4,682,928 by December 31, 2016. Exercise prices for options and warrants range from $1.00 to $4.00 at June 30, 2007. Assuming all such options and warrants are exercised in the year of expiration, the effect on shares outstanding is illustrated as follows:

 

    

Options and Warrants

due to expire

   Potential Shares
Outstanding
2007    —      3,467,100
2008    68,021    3,535,121
2009    160,418    3,695,539
2010    444,389    4,139,928
2011    75,000    4,214,928
2012    170,000    4,384,928
2013    30,500    4,415,428
2014    90,000    4,505,428
2015    140,000    4,645,428
2016    37,500    4,682,928

LIQUIDITY AND WORKING CAPITAL

At June 30, 2007, working capital was $1,590,286 compared to $1,221,338 at June 30, 2006. The increase is due to an increase in cash, accounts receivable and inventory. This increase has been offset by increases in capital lease obligations and accounts payable. We provided cash from operations of approximately $752,000 for the six months ended June 30, 2007. Cash used in operating activities was approximately $101,000 during the first six months of 2006. Significant non-cash items including depreciation, accretion and amortization, stock based compensation expense, inventory reserve on excess and obsolete inventory, and provision for doubtful accounts were approximately $173,000 and $109,000, respectively, for the six months ended June 30, 2007 and 2006. Accounts receivable, inventory, prepaid expenses and other assets decreased approximately $243,000 for the six months ended June 30, 2007. This decrease was due to the return of a large deposit for equipment that was subsequently leased. Accounts receivable, inventory, prepaid expenses and other assets increased approximately $52,000 for the six months ended June 30, 2006. Accounts payable, accrued expenses and customer deposits increased approximately $171,000 for the six months ended June 30, 2007 and decreased approximately $68,000 for the same period in 2006.

 

17


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

Cash of approximately $63,000 and $131,000 was used for investing activities for the six months ended June 30, 2007, and 2006, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity and new product lines. Proceeds on sale of equipment were approximately $15,000 during the first six months of 2007.

Cash of approximately $34,000 was used for financing activities during the six months ended June 30, 2007. Cash payments to third parties for capital lease obligations approximated $52,000. Cash payments for services provided for the registration of common stock were approximately $8,000. Proceeds received from the exercise of common stock warrants were approximately $27,000. We incurred new capital lease obligations of approximately $889,000 for new production equipment during the first six months of 2007.

Cash of approximately $79,000 was used for financing activities during the six months ended June 30, 2006. Cash payments to third parties for capital lease obligations approximated $29,000. Cash payments for services provided for the registration of common stock were approximately $50,000. The Company incurred new leases of approximately $134,000 for new production equipment and a forklift during the first six months of 2006.

While certain of our major shareholders have advanced funds in the form of secured debt, subordinated debt, accounts payable and guaranteeing bank debt in the past, there is no commitment by these individuals to continue funding us or guaranteeing bank debt in the future. We will continue to seek new financing or equity financing arrangements. However, we cannot be certain that it will be successful in efforts to raise additional funds.

RISK FACTORS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The following factors, as well as the factors listed under the caption “Risk Factors” in our Form 10-KSB filed with the Securities and Exchange Commission on March 7, 2007, have affected or could affect our actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by us. Investors should consider carefully these risks and speculative factors inherent in and affecting our business and an investment in our common stock.

Historically we have experienced significant operating losses and may continue to do so in the future.

We reported net income applicable to common shares of $159,695 for the six months ended June 30, 2007. Our accumulated deficit since inception in 1987 was $7,689,800 (unaudited) at June 30, 2007.

We have financed the losses primarily from additional investments and loans by our major shareholders and a private offering of common stock and warrants to purchase common stock. We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements including special purpose entities.

 

18


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

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 our Annual Report on Form 10-KSB for the year ended December 31, 2006 describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, and assessing changes in which impairment of certain long- lived assets may occur. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts.

If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected. Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will benefit us. 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.

 

Item 3. Controls and Procedures

As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the period covered by this report in ensuring that information required to be disclosed by us in the reports that we file or submit 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. Our officers concluded that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Additionally, there were no changes in our internal controls that could materially affect our disclosure controls and procedures subsequent to the date of their evaluation, nor were there any material deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required.

 

19


Table of Contents

Part II. Other Information

 

Item 6. Exhibits.

 

31.1    Rule 13a-14(a) Certification of Principal Executive Officer.*
31.2    Rule 13a-14(a) Certification of Principal Financial Officer.*
32.1    Section 1350 Certification of Principal Executive Officer.*
32.2    Section 1350 Certification of Principal Financial Officer.*
99.1    Press Release dated August 7, 2007, entitled “Superconductive Components, Inc. Reports Strong Second Quarter 2007 Results.”*

 

* Filed with this report

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    SUPERCONDUCTIVE COMPONENTS, INC.
Date: August 7, 2007     /s/ Daniel Rooney
    Daniel Rooney, Chairman of the Board of Directors, President and Chief Executive Officer
    (Principal Executive Officer)
      /s/ Gerald S. Blaskie
    Gerald S. Blaskie, Vice President and Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)

 

20


Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Rooney, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-QSB of Superconductive Components, Inc.;
 
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

 

  4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) [reserved];

 

  c) evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

  5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Date: August 7, 2007     /s/ Daniel Rooney
    Daniel Rooney
    Chairman of the Board of Directors,
    President and Chief Executive Officer
    (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gerald S. Blaskie, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-QSB of Superconductive Components, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

 

  4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and we have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

  b) [reserved];

 

  c) evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

  5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent function):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Date: August 7, 2007     /s/ Gerald S. Blaskie
    Gerald S. Blaskie
    Vice President and Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Superconductive Components, Inc. (the “Company”) on Form 10-QSB for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Rooney, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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 of the Board of Directors,
President and Chief Executive Officer of Superconductive Components, Inc.
(Principal Executive Officer)
August 7, 2007

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Superconductive Components, Inc. (the “Company”) on Form 10-QSB for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerald S. Blaskie, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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
Vice President and Chief Financial Officer of Superconductive Components, Inc. (Principal Financial Officer and Principal Accounting Officer)
August 7, 2007

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

   For Additional Information
  

Contact: Robert Lentz

(614) 876-2000

SUPERCONDUCTIVE COMPONENTS, INC. REPORTS

STRONG SECOND QUARTER 2007 RESULTS

COLUMBUS, Ohio (August 7, 2007) Superconductive Components, Inc. (OTC Bulletin Board: SCCI), dba SCI Engineered Materials, a manufacturer of high quality sputtering targets for select markets in the physical vapor deposition industry, today announced results for the three months ended June 30, 2007.

The second quarter 2007 highlights versus the same period last year included:

 

   

Total revenues of $3.4 million, an increase of 194%.

 

   

Gross profit of $0.5 million compared to $0.3 million in 2006.

 

   

Net income per diluted share after dividends on preferred stock was $0.02 versus a net loss of $(0.01).

 

   

Backlog of $2.0 million at June 30, 2007.

Dan Rooney, Chairman, President and Chief Executive Officer, commented, “We are pleased with our results for the second quarter of 2007, which marked the fourth consecutive quarter of profitability. Specific strategies continue to be pursued in markets that offer long-term, profitable growth opportunities and also contribute to further diversification of the company’s business. Solid revenue growth was achieved this past quarter in each of our target markets, led by sales to photonics/optical customers. Particular emphasis is being directed toward: further development of innovative Transparent Conductive Oxide materials for the solar power generation market, scale-up of production for the Thin Film Battery market, and increasing the company’s overall manufacturing capabilities.”

Mr. Rooney continued, “We are encouraged by the progress that has been achieved during the first half of 2007. This included strong sales growth, increased penetration of current markets, positive development efforts in complementary markets, and actions taken to increase our manufacturing efficiencies and production capabilities. Our strategic focus remains on long-term growth and increased profitability.”

Second Quarter 2007 Results

Total revenues nearly tripled to $3,403,742 for the second quarter 2007 from $1,158,434 a year ago, particularly due to strong growth in sales to photonics/optical customers. A substantial portion of the year-over-year revenue increase was attributable to a high value raw material whose price fluctuates over market cycles. The cost of this raw material is fully reflected in the Company’s selling prices.

Near the end of the first quarter 2007, the price of a high value raw material used by the Company to produce certain products reached a cyclical peak and then declined to approximately one-half of that amount by the end of the second quarter 2007. Cost changes for this high value raw material are fully reflected in the final selling price which insulates the Company from market price fluctuations associated with the raw material.


The Company anticipates that the cost of this high value raw material will be lower for the second half of 2007 compared to the first half of this year. This will have an adverse effect on the Company’s total revenues, and, to a lesser extent, gross profit during the second half of 2007 because this high value raw material has a substantially lower gross profit margin compared to the Company’s other products.

Gross profit increased 83% to $513,168 for the second quarter 2007 from $280,540 for the same period in 2006. A portion of the increase reflected a greater amount of higher value product, which has lower gross profit margins than the company’s other products. As a result, the company’s gross profit margin for the most recent quarter was 15.1% of total revenues compared to 24.2% last year.

General and administrative expense declined to $219,716 for the second quarter 2007 from $232,524 a year ago, primarily due to lower professional expenses. Selling expense rose 67% to $110,449 for the second quarter 2007 from $65,993 the prior year. This increase reflected the company’s increased commitment to marketing, which includes additional marketing staff and increased travel.

Research and development expense increased to $81,873 for the second quarter 2007 compared to $39,216 the prior year. The Company continues to work closely with its customers, especially in the solar and thin film battery markets, to accelerate product development, commercialization activities, and time to market.

Net income after dividends on preferred stock was $95,379, or $0.02 per diluted share, for the three months ended June 30, 2007 versus a net loss of $(48,500), or $(0.01) per share, on a comparable basis for the same period in 2006. Due to the company’s profitability in the second quarter 2007 compared to a loss the prior year, the number of fully diluted shares increased approximately 26% to 4,313,991 from 3,425,915 for the same period last year due to common stock equivalents that were anti-dilutive in the second quarter 2006.

Six Month 2007 Results

Total revenue increased 148% to $5,857,751 for the six months ended June 30, 2007 from $2,359,057 for the same period in 2006. This was primarily due to higher sales to photonics/optical and thin film battery customers.

Gross profit increased 76% to $971,748 for the first six months of 2007 from $553,513 for the same period in 2006. Gross profit margin declined to 16.6% for the first half of 2007 from 23.5% last year, primarily due to differences in the year-over-year product mix, which included a greater amount of higher value product with lower gross margins in 2007. General and administrative expenses increased slightly to $456,312 for the first half of 2007 from $445,254 in 2006. This was primarily due to higher stock based compensation expense, which was partially offset by lower professional fees compared to the same period last year. Selling expense rose to $207,851 for the six months of 2007 from $134,096 a year ago, due to additional marketing staff and higher travel expense.

Research and development expense increased to $145,037 for the first six months of 2007 from $86,392 a year ago. The company has increased its focus on customer-driven research and development activities.

Net income after dividends on preferred stock was $156,695, or $0.04 per diluted share, for the first half of 2007 compared to a net loss of $(101,773), or $(0.03) per share, on the same basis for comparable period last year. The number of fully diluted shares increased approximately 24% to 4,240,350 for the six months ended June 30, 2007 compared to 3,425,915 the prior year.


About Superconductive Components, Inc.

Superconductive Components, Inc., dba SCI Engineered Materials, manufactures ceramics and metals for advanced applications such as optical, photonics including solar, thin film batteries, and superconductors. SCI Engineered Materials is a global materials supplier with clients in more than 40 countries. Additional information is available at http://www.sciengineeredmaterials.com.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and specifically include statements regarding further progress in 2007 and plans to increase SCI’s marketing and sales efforts throughout 2007. These forward-looking statements involve numerous risks and uncertainties, including, without limitation, anticipate sequential quarter growth in revenue and net income, plans to add more equipment in 2007, gradually enter additional niche markets, further improvement in the Company’s financial results in 2007 (paragraph 3), the development of the thin film battery market, the impact of competitive products and services, the ability to adapt to technological changes, the availability of capital, and other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006. One or more of these factors have affected, and could in the future affect, the Company's projections. Therefore, there can be no assurances that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other persons, that the objectives and plans of the company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

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