OHIO 31-0121318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO
State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 1,823,256 shares of Common Stock, without par value, were outstanding at April 30, 2002.
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 2002 (unaudited)
and December 31, 2001 3 - 4
Statements of Operations For the Three Months
Ended March 31, 2002 and 2001 (unaudited) 5
Statements of Cash Flows For the Three Months
Ended March 31, 2002 and 2000 (unaudited) 6 - 7
Notes to Financial Statements (unaudited) 8 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in 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 and Reports on Form 8-K. 15
Signatures. 16
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MARCH 31, DECEMBER 31,
2002 2001
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(UNAUDITED)
CURRENT ASSETS
Cash $ 86,029 $ 118,083
Accounts and notes receivable
Trade, less allowance for doubtful accounts of $16,000 374,005 365,141
Related party receivables 6,572 4,616
Employees 15,161 15,625
Other 2,083 20,814
Inventories 877,059 857,992
Prepaid expenses 46,545 12,851
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Total current assets 1,407,454 1,395,122
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PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,326,182 2,306,128
Furniture and fixtures 21,874 20,424
Leasehold improvements 346,823 346,823
----------- -----------
2,694,879 2,673,375
Less accumulated depreciation (1,980,281) (1,919,358)
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714,598 754,017
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OTHER ASSETS
Intangibles 43,786 43,992
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TOTAL ASSETS $ 2,165,839 $ 2,193,131
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The accompanying notes are an integral part of these financial statements.
MARCH 31, DECEMBER 31,
2002 2001
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(UNAUDITED)
CURRENT LIABILITIES
Capital lease obligation, current portion $ 42,442 $ 41,596
Capital lease obligation, shareholder, current portion 30,784 25,161
Note payable shareholders, current portion 46,000 34,000
Accounts payable 313,459 318,954
Accounts payable, shareholders 15,060 7,426
Accrued contract expenses 141,787 179,748
Accrued personal property taxes 67,884 54,384
Accrued expenses 68,375 42,450
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Total current liabilities 725,791 703,719
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CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 92,958 103,865
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CAPITAL LEASE OBLIGATION, SHAREHOLDER, NET OF
CURRENT PORTION 37,644 43,267
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NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
PORTION 122,270 84,270
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REDEEMABLE CONVERTIBLE PREFERRED
STOCK (Series A)
10% cumulative, nonvoting, no par value, $1,000 stated value, liquidation and
mandatory redemption at stated value per share plus unpaid and accumulated
dividends of $278.20 per share 117,533 111,176
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COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par
value, $10 stated value, optional
redemption at 103% 340,021 333,136
Common stock, no par value, authorized 15,000,000
shares; 1,823,256 shares issued and outstanding 6,368,466 6,366,966
Additional paid-in capital 33,885 47,127
Accumulated deficit (5,672,729) (5,600,395)
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1,069,643 1,146,834
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,165,839 $ 2,193,131
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The accompanying notes are an integral part of these financial statements.
2002 2001
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SALES REVENUE $ 714,148 $ 889,744
CONTRACT RESEARCH REVENUE 69,231 170,436
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783,379 1,060,180
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COST OF SALES REVENUE 527,778 601,276
COST OF CONTRACT RESEARCH 69,231 122,916
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597,009 724,192
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GROSS MARGIN 186,370 335,988
GENERAL AND ADMINISTRATIVE EXPENSES 212,607 145,252
SALES AND PROMOTIONAL EXPENSES 41,513 65,968
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INCOME (LOSS) FROM OPERATIONS (67,750) 124,768
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OTHER INCOME (EXPENSE)
Interest, net (4,156) (7,004)
Miscellaneous, net (428) 886
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(4,584) (6,118)
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INCOME (LOSS) BEFORE INCOME TAX (72,334) 118,650
INCOME TAX EXPENSE - -
----------- -----------
NET INCOME (LOSS) (72,334) 118,650
DIVIDENDS ON PREFERRED STOCK (9,360) (9,360)
ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED (SERIES A) (3,881) (2,928)
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INCOME (LOSS) APPLICABLE TO COMMON
SHARES $ (85,575) $ 106,362
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NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.05) $ 0.06
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Dilutive $ (0.05) $ 0.06
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WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,823,256 1,818,069
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Dilutive 1,823,256 1,826,140
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The accompanying notes are an integral part of these financial statements.
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (72,334) $ 118,650
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Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 60,922 48,302
Amortization 743 610
Inventory reserve - (13,091)
Provision for doubtful accounts (3,000) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 12,876 (70,757)
Inventories (19,067) (193,967)
Prepaid expenses (33,694) 4,996
Other assets (537) (8,567)
Increase (decrease) in liabilities:
Accounts payable 2,138 120,946
Accrued expenses 1,464 (39,214)
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Total adjustments 21,845 (150,742)
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Net cash used in operating activities (50,489) (32,092)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (21,504) (74,025)
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Net cash used in investing activities (21,504) (74,025)
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CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft - -
Principal repayments on notes payable, bank - -
Proceeds from note payable, shareholders 50,000 (8,000)
Principal payments on capital lease obligations (10,061) (5,179)
Principal payments on capital lease obligations, related party - -
Proceeds from exercise of common stock options - 1,875
Proceeds from the sale of common stock - -
Proceeds from sale of common stock warrants - -
Payment of cummulative dividends - -
Redemption of Series A preferred stock - -
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Net cash provided by (used in) financing activities 39,939 (11,304)
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The accompanying notes are an integral part of these financial statements.
2002 2001
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NET INCREASE (DECREASE) IN CASH (32,054) (117,421)
CASH - Beginning of period 118,083 202,406
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CASH - End of period $ 86,029 $ 84,985
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest $ 5,671 6,176
Income taxes $ - -
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock was issued as partial payment for accounts payable $ - 19,000
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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 research, education, electronics and functional coatings industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2001. Interim results are not necessarily indicative of results for the full year.
The preparation of financial statements in conformity with generally accepted accounting principles 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.
NOTE 3. INVENTORY
Inventory is comprised of the following:
MARCH 31, DECEMBER 31,
2002 2001
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(unaudited)
Raw materials $ 597,364 $ 562,327
Work-in-progress 128,202 121,908
Finished goods 189,282 211,546
Inventory reserve (37,789) (37,789)
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$ 877,059 $ 857,992
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NOTE 4. COMMON STOCK AND STOCK OPTIONS
The following options were granted under the 1995 Stock Option Plan during the period:
GRANT DATE # OPTIONS GRANTED OPTION PRICE
---------- ----------------- ------------
March 5, 2002 100,000 $ 1.55
NOTE 5. EARNINGS PER SHARE
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Basic income 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 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. The following is provided to reconcile the earnings per share calculations:
THREE MONTHS ENDED MARCH 31,
2002 2001
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Income (loss) applicable to common shares $ (85,575) $ 106,362
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Weighted average common shares
outstanding - basic 1,823,256 1,818,069
Effect of dilutions stock options - 8,071
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Weighted average shares
outstanding - diluted 1,823,256 1,826,140
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NOTE 6. SEGMENT REPORTING
The Company has, in the past, reported financial results in terms of TMI and SCI segments. In the Company's Form 10-KSB for the year ended December 31, 2001, the Company announced that it would no longer report financial results separate for the two divisions beginning in 2002. Accordingly, this report does not report financial results separate for the two divisions. It was management's opinion that a single streamlined
company will benefit 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.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company retained a related party to provide management assistance for a fee of $14,550 per month beginning January 15, 2002. The term of this agreement shall be for six (6) months, unless sooner terminated. Funding has been provided for three (3) months beginning January 15, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial Statements and Notes contained herein.
The following section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical fact and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in other documents filed by the Company with the SEC. Many of these factors are beyond the Company's control. Actual results could differ materially from the forward-looking statements made. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time and it is not possible for management to predict all factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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-K for the year ended December 31, 2001 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 and inventory allowances. 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 $5,672,728 from inception to March 31, 2002.
Revenues for the three months ended March 31, 2002 were $783,379 compared to $1,060,180, a decrease of $276,801 or 26.1% from the three months ended March 31, 2001.
Product revenues decreased to $714,148 in 2002 from $889,744 in 2001 or a decrease of 19.7%. The decrease in revenues is largely due to the sale of tantalum and various scrap metals in the first quarter of 2001.
Contract research revenues were $69,231 in 2002 as compared to $170,436 in 2001. The Company was awarded a Phase I SBIR grant from the National Science Foundation in January 2001 and $50,000 of the grant is included in first quarter 2001 revenues. In addition, the first quarter 2001 includes revenues from a Phase II SBIR grant from the National Aeronautics and Space Administration. This grant ended March 31, 2001 and $73,125 of revenue was recognized in the first quarter of 2001.
Total gross margin in 2002 was $186,370 or 23.8% of total revenue compared to $335,988 or 31.7% in 2001.
Gross margin on product revenue was 26.1% in 2002 versus 32.4% in 2001. The decrease is due to sales of scrap metal in the first quarter of 2001.
Gross margin on contract research revenue was 0% for 2002 compared to 27.9% in 2001. The decrease in gross margin on contract research was due to a Phase I SBIR grant from the National Science Foundation, which began in January 2001, and lower sub-contractor costs in the first quarter of 2001.
Selling expense in 2002 decreased to $41,513 from $65,968 in 2001, a decrease of 37.1%. The decrease is due to a reduced staff and lower commission expense compared to first quarter 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expense in 2002 increased to $212,607 from $145,252 or 46.4%. The increase in these costs is due to an increase in staff and a decrease in funding for contract research.
Internal research and development costs are expensed as incurred. Research and development costs, including testing, for 2002 was $44,459 compared to $27,447 in 2001, an increase of 62.0%. Internal research and development costs increased due to an increase in staff.
Interest expense was $5,671 for the quarter ended March 31, 2002 compared to $7,004 for the quarter ended March 31, 2001.
Net income (loss) per common share based on the income (loss) applicable to common shares for the three months ended March 31, 2002 and 2001 was $(0.05) and $0.06, 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 $(0.04) and $0.07, respectively. The difference between the net loss from operations and the loss applicable to common shares of $(0.01) and $(0.01), 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 $2,475 for each period. Dividends on the Series B preferred stock totaled $6,885 for each period.
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 over the payout period of seven years of income (loss) applicable to common shares and additional paid-in capital. The accretion totaled $3,881 for the first quarter 2002 and $2,928 for the first quarter 2001.
Basic earnings per common share for the three months ended March 31, 2002 were $(0.05) per share with 1,823,256 average common shares outstanding as compared to $0.06 per share and 1,818,069 weighted average common shares outstanding for the three months ended March 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Diluted earnings per common share for the three months ended March 31, 2002 were $(0.05) per share with 1,823,256 average common shares outstanding as compared to $0.06 per share and 1,826,140 weighted average common shares outstanding for the three months ended March 31, 2001. For the three months ended March 31, 2002, all outstanding common stock equivalents are anti-dilutive due to the net loss.
At March 31, 2002, working capital was $681,663 compared to $852,626 at March 31, 2001. The Company utilized cash from operations for the three months ended March 31, 2002 and 2001 of approximately $50,000 and $32,000, respectively. Significant non-cash items including depreciation and inventory reserve on excess and obsolete inventory were approximately $62,000 and $36,000, respectively, for the three months ended March 31, 2002 and 2001. Overall, accounts receivable, inventory, and prepaids increased in excess of accounts payable and accrued expenses by approximately $37,000 and $186,000, respectively, as a result of timing of receipt of inventory versus required scheduled payments on this inventory and increased prepaid expenses.
For investing activities, the Company used cash of approximately $22,000 and $74,000, for the three months ended March 31, 2002 and March 31, 2001, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity.
For financing activity for the three months ended March 31, 2002, the Company provided cash of approximately $40,000. Cash payments to third parties for capital lease obligations totaled $10,000; proceeds from notes payable from shareholders totaled $50,000.
For financing activity for the three months ended March 31, 2001, the Company utilized cash of approximately $11,000. Cash payments to third parties for capital lease obligations approximated $5,000; cash payments to shareholders totaled $8,000; and cash proceeds for the exercise of stock options totaled $1,875.
Officers of the Company have advanced funds in the form of notes payable and 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. However, the Company believes that its current operations and its pursuit of new financing arrangements will allow management to continue to pursue its current plans. However, the Company cannot be certain that it will be successful in efforts to raise additional new funds.
INVESTORS ARE REFERRED TO AND SHOULD SPECIFICALLY CONSIDER THE RISKS AND SPECULATIVE FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THE COMPANY'S COMMON STOCK AS SET FORTH IN THE COMPANY'S 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2001 AT PAGES 21-24.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
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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) **** Taratac Corporation consulting agreement dated January 29,
2002.
10(p) **** Promissory note dated March 18, 2002.
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(b) REPORTS ON FORM 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 9, 2002 /s/ Daniel Rooney
--------------------------------
Daniel Rooney, President and
Chief Executive Officer
(Principal Executive Officer)
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Superconductive Components, Inc. (SCI) hereby retains Taratec Corporation (Taratec) to provide its best efforts to provide management assistance to SCI. This service is intended to be provided primarily by Edward Ungar.
ARTICLE I - STATEMENT OF SERVICES
Taratec shall make its best efforts to perform the services described in Items 1 through 5 of the attached Statement of Work, which is made a part hereof. The Items 1, 2, and 3 are to be completed during the first 3 months of this agreement. Deliverables, are a written marketing plan and business strategy, SCI proposed organization chart, and assistance to Ed Funk in the implementation of the recommended organizational structure.
ARTICLE II - PAYMENT
SCI will pay Taratec on submission of invoice, with such payments due to Taratec on February 14, 2002; March 15, 2002; and April 15, 2002, in the amount of $14,550 excluding out of pocket expenses. Payments for out of pocket expenses will be paid on submission of invoice and subject to prior approval by Ed Funk if greater than $200.
ARTICLE III - ACCESS AND AUTHORITY
SCI will provide free access to all data and personnel necessary to accomplish the services described in this agreement in a timely manner. The President of SCI (Ed Funk) will establish the authority required within SCI for Taratec to carry out the tasks described in this agreement.
ARTICLE IV - TERM
The term of this Agreement shall be for six (6) months, unless sooner terminated as provided herein or unless extended by mutual agreement in writing. Funding is provided for three (3) months of effort beginning January 15, 2002. Written approval will be required to continue the effort after April 15, 2002.
ARTICLE V - REPORTS
Taratec will furnish the marketing plan, business strategy and planned
organizational structure in a written form suitable for inclusion in SCI's
business plan.
ARTICLE VI - CONFLICTS
Taratec will promptly reveal any interest directly or indirectly in any company, firm, or activity, which interest would represent a conflict of interest with this engagement to SCI.
ARTICLE VII - TERMINATION
This Agreement may be terminated at any time by either party upon written notice to the other party. Such termination shall be addressed to Taratec at 1251 Dublin Road, Columbus, Ohio 43215, and to SCI. Work under this agreement will stop upon receipt of the termination letter, unless otherwise agreed by both parties. Upon such termination, Taratec shall be paid for all services performed and shall be reimbursed for all committed expenses prior to such termination, as outlined in ARTICLE II.
ARTICLE VIII - CONFIDENTIALITY
Taratec, agrees to keep confidential for a period of five (5) years any information which is identified as confidential and which is not generally known, obtained from SCI during the period of this Agreement, and to refrain from publishing or revealing any such information without the written consent of the president of SCL.
ARTICLE IX - MISCELLANEOUS
A. Modification of this Agreement shall be accomplished by a formal written supplement to this Agreement.
B. SCI agrees to hold Taratec harmless from the consequences of SCI's use of the advice given to SCI by Taratec.
C. This Agreement shall be subject to the laws of the State of Ohio.
TARATEC CORPORATION Superconductive Components, Inc.
/s/ Edward W. Ungar 1/29/02 /s/ Edward Funk 1/29/02 ---------------------------------- ----------------------------------- Edward W. Ungar Date Edward Funk Date President President |
1. Business Strategy Development - Work with Ed Funk, Board and staff to develop an over-all corporate strategy including
1.1. Market development
1.1.1. Develop new market thrusts as necessary
1.2. Sales
1.2.1. Monitor customer relations
1.3. Manufacturing improvement
1.4. Support Ed Funk as necessary in financing
1.5. Monitor progress and refine as necessary
2. Development of Business Plan
2.1. Working jointly with Bob Lentz, Board, Ed Funk and staff to develop business plan suitable for submission to potential investors
3. Company Organization - Work jointly with Ed Funk to reorganize the company internally to maximize business performance and achieve the objectives established in the business strategy.
4. Assist Ed Funk as necessary in moving the company to a new facility.
4.1. Help to institute LEAN and/or other improved manufacturing flow systems with the objective of improving manufacturing margins through
4.1.1. Reduced costs
4.1.2. Reduced WIP inventories
4.1.3. Shortened manufacturing time cycles
4.1.4. Improved quality, i.e., reduced rework and returns
5. Management development
Timeline: My goal will be to complete the first 3 items by the end of the first 3 months after completion of the agreement. Item 4 is determined by the move schedule. Monitoring and adjusting of strategy and plans and Item 5 are continuous activities.
$168,270 March 18, 2002 Columbus, Ohio
FOR VALUE RECEIVED, the undersigned, Superconductive Components, Inc., an Ohio corporation ("Maker"), promises to pay to the order of Edward R. Funk and Ingeborg V. Funk, joint tenants with right of survivorship ("Payee") the sum of $168,270 (the "Principal Sum"), together with interest at an annual rate equal to the Prime Commercial Rate (or other comparable rate) of Bank One, N.A., Columbus, Ohio, plus 1%, according to the terms set forth below.
Section 1. Payment Amount and Date Due. The Principal Sum and accrued and unpaid interest shall be payable in equal monthly installments of $2,000, commencing on April 1, 2002 and continuing on the first day of each calendar month until December 1, 2002 and thereafter, equal monthly installments of $4,000, commencing on January 1, 2003 and continuing on the first day of each calendar month until the entire outstanding Principal Sum and accrued and unpaid interest is paid in full.
Section 2. Calculation of Interest Rate. Interest shall be calculated on the basis of a 365-day year for the actual number of days the Principal Sum is unpaid. The interest rate shall adjust automatically without notice to the undersigned on the first day of each calendar month and shall be based upon the Prime Commercial Rate in effect at Bank One, N.A., Columbus, Ohio, on the last business day of the preceding calendar month.
Section 3. Application of Payments. Payments shall be applied first to accrued and unpaid interest and, thereafter, to the Principal Sum.
Section 4. Prepayments. All or any part of the Principal Sum and accrued interest may be prepaid at any time without penalty.
Section 5. Default. If any of the following events of default should occur, including: (1) if Maker fails to pay the Principal Sum and interest when due as provided in this Note or to perform any other obligation it owes to Payee; or (2) if Maker or any indorser, surety or guarantor becomes insolvent or bankrupt, or makes an assignment for the benefit of creditors or consents to the appointment of a trustee, receiver or liquidator; or (3) if bankruptcy, reorganization, arrangement, insolvency, liquidation or receivership proceedings are instituted by or against Maker or any indorser, surety or guarantor under federal or state law; or (4) if Maker or any indorser, surety or guarantor gives any representation, warranty or other information to Payee which proves to be false or misleading, Payee may, at its option at any time after notifying Maker in writing of the default, accelerate the maturity of this Note. Upon such notification, the obligation evidenced by this Note shall become due and payable.
Section 6. [Reserved]
Section 7. Waiver. Maker, and any indorser, surety, or guarantor, hereby severally waive presentment, notice of dishonor, protest, notice of protest, and diligence in bringing suit against any party hereto, and consent that, without discharging any of them, the time of payment may be extended by the Payee an unlimited number of times before or after maturity without notice. The Payee shall not be required to pursue any party hereto, including any guarantor, or to exercise any rights against collateral herefor before exercising any other such rights.
Section 8. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Ohio without reference to choice of law rules.
Section 9. Consent to Jurisdiction. Maker and each surety, guarantor and indorser, jointly and severally (a) consent to the jurisdiction of the Court of Common Pleas for Franklin County, Ohio, or (b) if the action is appropriate for federal jurisdiction, consent to the jurisdiction of the United States District Court for the Southern District of Ohio, Eastern Division, to determine any dispute regarding the performance or nonperformance of any obligations evidenced by this Note or guaranty thereof.
Section 10. Successors and Assigns. This Note shall be binding on and inure to the benefit of the parties hereto and their respective heirs, successors, assigns, executors, administrators and legal representatives.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed effective on the day and year first above written.
By: s/s Daniel Rooney
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Daniel Rooney, President
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