UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For The Fiscal Year Ended December 31, 2000

                         Commission File Number: 0-31641

                        SUPERCONDUCTIVE COMPONENTS, INC.
                 (Name of small business issuer in its charter)

             OHIO                                         31-0121318
 (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                      Identification No.)

                             1145 CHESAPEAKE AVENUE
                              COLUMBUS, OHIO 43212
                    (Address of principal executive offices,
                               including zip code)

                                 (614) 486-0261
                           (Issuer's telephone number,
                              including area code)

    Securities registered pursuant to Section 12(b) of the Act:   None

    Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                                                               without par value
                                                                (Title of Class)

    Check 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 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
                  ----      ----

    Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and will not be contained, to the best of
Registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

    The  issuer's  revenues for the fiscal year ended  December  31, 2000,  were
$3,205,163.

    The  aggregate  market  value  of the  Registrant's  common  equity  held by
non-affiliates of the Registrant was approximately $1,636,973 on March 23, 2001.

    There were 1,802,043 shares of the Registrant's  Common Stock outstanding on
March 23, 2001.

    Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                  ---   ---

                       DOCUMENTS INCORPORATED BY REFERENCE

    Portions of our Proxy  Statement for the 2001 Annual Meeting of Stockholders
are incorporated by reference in Part III.


<PAGE>


                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>

                                                                                                        Page
                                                                                                        ----
<S>         <C>                                                                                         <C>

                                                   PART I

Item 1.     Description of Business.................................................................      3

Item 2.     Description of Property.................................................................     25

Item 3.     Legal Proceedings.......................................................................     26

Item 4.     Submission of Matters to a Vote of Security Holders.....................................     26


                                                   PART II

Item 5.     Market for Common Equity and Related Stockholder Matters................................     26

Item 6.     Management's Discussion and Analysis or Plan of Operation...............................     27

Item 7.     Financial Statements....................................................................     31

Item 8.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure....................................................................     55


                                                  PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
            16(a) of the Exchange Act...............................................................     55

Item 10.    Executive Compensation..................................................................     55

Item 11.    Security Ownership of Certain Beneficial Owners and Management..........................     55

Item 12.    Certain Relationships and Related Transactions..........................................     55

Item 13.    Exhibits and Reports on Form 8-K........................................................     55


Signatures..........................................................................................     57


</TABLE>

NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K contains forward-looking  statements within
the meaning of Section 21E of the  Securities  Exchange Act of 1934, as amended,
and  Section  26A  of  the  Securities  Act  of  1933,  as  amended.  The  words
"anticipate,"  "believe," "expect,"  "estimate," and "project" and similar words
and expressions identify  forward-looking  statements which speak only as of the
date hereof.  Investors are  cautioned  that such  statements  involve risks and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
historical  or  anticipated  results  due to many  factors,  including,  but not
limited to, the factors  discussed in  "Description of Business - Risk Factors."
The  Company   undertakes  no  obligation  to  publicly  update  or  revise  any
forward-looking statements.


                                       -2-

<PAGE>


                                     PART I

ITEM 1          DESCRIPTION OF BUSINESS.

INTRODUCTION

         Superconductive  Components,  Inc.  ("SCI" or the  "Company"),  an Ohio
corporation,  was  incorporated  on May 29, 1987,  to develop,  manufacture  and
market  products  based on or  incorporating  high  temperature  superconductive
("HTS")  materials.  HTS  materials  are  complex  metal  oxides - ceramics - of
certain stoichiometries  (chemical mixture ratios) which exhibit superconducting
phenomena  when cooled to at least  -196(degree)Centigrade.  These complex metal
oxides are identified as members of the Perovskite family of ceramic  materials.
Perovskites  are a large family of  crystalline  ceramics that derive their name
from the  perovskite  mineral.  The  perovskite  minerals are the most  abundant
minerals  on  earth  and  have  approximately  a  2:3   metal-to-oxygen   ratio.
Copper-oxide superconductors are layered perovskites.

         The  strategy  of the  Company  has  been to find  commercially  viable
applications  for HTS  materials  and,  subsequently,  other  ceramic  and metal
materials.  The Company's objective has been to stay intellectually current with
the advancing  technology in HTS materials,  and search out commercially  viable
applications  by being in the market place.  This  objective has been widened to
include  other  perovskites,  as well as other  metals and alloys,  in materials
other than HTS materials.

         Until 1998, the Company  relied  primarily on its own resources for the
research and development  necessary to stay current with HTS technology and also
to develop  products for other  applications.  In 1998,  the Company  engaged in
sponsored research for Nanophase Technology Corporation,  Inc. and also received
several  awards for research from two United  States  government  agencies,  the
National   Aeronautics  and  Space   Administration  and  the  National  Science
Foundation.  The Company's  sponsored research programs are discussed more fully
at Pages 12 through 14 of this Report with  respect to their  revenues  and time
lines. The following table summarizes this information:

<TABLE>
<CAPTION>


                   SPONSOR                 PROGRAM TYPE           AWARD       START DATE     END DATE
<S>                                        <C>                    <C>
         National Aeronautics and          SBIR Phase II          $585,000      4/1/99        3/31/01
           Space Administration
         National Science                  SBIR Phase II          $399,000      9/1/99        8/31/01
           Foundation
         National Science                  STTR Phase I           $100,000      7/1/99        6/30/00
           Foundation
         National Science                  SBIR Phase I           $100,000      1/1/01        6/31/01
           Foundation
         Cambridge Research and            Private Contract        $25,000      9/1/99       12/31/00
           Instrumentation
         Ceramphysics, Inc.                Private Contract        $20,500      9/1/99       12/31/00

                               TOTAL:                           $1,229,500

</TABLE>


The Company  intends to  continue  to seek such  funding  because  this  funding
maintains and expands the technical understanding within the Company.

         With the  exception  of processes  and devices  being  developed  under
federal or private  research  grants (which are discussed more fully in "The SCI
Division - Sensors in Development" and "- Sponsored Product Development Programs
within the SCI  Division"),  the  Company's  products  are fully  developed  and
currently are being sold in the marketplace.  The Company supplies  materials to
customers who are engaged in product or process development themselves, but such
customers  purchase the Company's  products based on clear  specifications for a
fixed price.

         The Company currently does not have any export  restrictions on foreign
sales of its products.

                                      -3-

<PAGE>

         As of December 31, 2000,  the total amount of  accumulated  deficit the
Company has generated since its inception in 1987 was $5,660,276.

BACKGROUND   OF   SUPERCONDUCTIVITY   AND   ADVANTAGES   OF   HIGH   TEMPERATURE
SUPERCONDUCTIVITY

         A superconductor is an element,  inert-metallic alloy, or compound that
will conduct electricity without resistance when cooled below a certain critical
temperature.  For the types of  superconductors  that the Company  manufactures,
this critical  temperature  is  -196(degree)  Centigrade.  This  phenomenon  was
discovered in 1911 in the metal Mercury when it was cooled with liquid Helium to
-273(degree)  Centigrade.  This cooling enables the material to carry electrical
currents without loss of energy and, due to the increased current the metals can
carry, be used to generate very large magnetic fields.  Scientists realized that
the  phenomenon of  superconductivity  raised the  possibility of less expensive
electrical generation and transmission,  powerful magnets and levitation. In the
past,  the only way to achieve  this  phenomenon  was to submerge  the metals in
liquid Helium.  Because of Helium's inherent instability in liquid form and cost
issues, the wide spread use of  superconductors  in commercial  applications was
impractical. These metals, now known as Low Temperature Superconductors ("LTS"),
are  superconductive  at  temperatures  from  absolute  zero  up to as  high  as
23(degree) Kelvin.

         Kelvin is the  temperature  scale used to identify the  extremely  cold
conditions required for superconductivity.  The Kelvin scale starts at "absolute
zero," which is the equivalent of  -273(degree)  Centigrade,  and is the coldest
theoretical  temperature  attainable.  The unit of measure  on this  temperature
scale is called a Kelvin ("K") and is equal to a single degree on the Centigrade
scale ("C").

         With the discovery of new ceramic compounds in 1986,  superconductivity
can now be  accomplished  at higher  temperatures  by using liquid  Nitrogen for
cooling.  The  boiling  point of  Liquid  Nitrogen  is  77(degree)  K,  which is
equivalent to -196o C. These new ceramics bring superconductivity into the realm
of the practical since liquid Nitrogen is inexpensive, stable, long-lasting, and
the largest  component in our atmosphere  and  environmentally  friendly.  These
materials are known as HTS materials.

         HTS  materials  provide the  potential  for  significant  increases  in
performance  of  electrical  systems.   Every  electrical  application  delivers
electricity from its source to a user through the use of "conductors."  However,
conventional conductors, such as Copper, exhibit some performance disadvantages.
These performance  disadvantages include resistance to electric current, causing
power  loss,  heat  generation,  interference  and  noise,  each  of  which  can
significantly decrease the performance of electrical systems.  Additionally, the
ceramic  superconductors  manufactured  by the  Company  must  overcome  several
hurdles if they are to gain wide spread  commercial  application.  These include
problems  associated with making  flexible  structures such as wire from brittle
materials such as ceramics,  the limited  performance of these materials at what
are  considered  practical  temperatures,  such as the  boiling  point of liquid
Nitrogen  (77(degree)  K), and the cost of any device based on these  materials.
The scientific  community has been working on these and other  difficulties with
HTS materials since 1987.  There is no assurance that all of these  difficulties
can be overcome.

         Superconductors  have the ability to conduct  electrical  current  with
zero  resistance,  no power loss,  and no generation of heat below some critical
current. The performance advantages of HTS materials in electronics applications
include reduced  component size and weight,  increased  operating speeds and, in
transmission  applications,  include lower line losses.  HTS  materials  exhibit
these  properties when cooled to 77(degree) K, a process easily  obtainable with
inexpensive  liquid  Nitrogen.  LTS  materials  require  cooling  to as  cold as
4(degree)  K or  -269(degree)  C , with  the use of the  more  expensive  liquid
Helium.

         The problem of system-wide cooling is being addressed by various of the
Company's  customers  and  others.  While  this  problem  must be solved for the
success of large  area  applications,  such as power  transmission  lines,  high
performance   applications   such  as   superconductive   magnets   for  medical
applications have been widely demonstrated.

         The required use of liquid Helium has made wide spread  applications of
LTS  superconductors  impractical  in many  applications.  The higher  operating
temperatures  of HTS  superconductors  have reduced the operating  costs for HTS
products  since  the  required   liquid  Nitrogen  is  inexpensive  and  readily
available.  However, the HTS material itself, as a ceramic, is more difficult to
form into products than the metallic LTS materials.  For example,  with wire and
cables,  the HTS  material  requires  considerably  more  processing  steps  and
possibly a higher  degree of  processing  precision

                                      -4-
<PAGE>

in order to manufacture a useful  product.  In many respects these processes are
still in development by the Company's customers and others.

         Because  of these  difficulties,  it has been  necessary  to  develop a
number of new or modified processes to achieve satisfactory results with the HTS
materials.  The Company's process development in this area is being sponsored by
the National  Science  Foundation  through a Phase II SBIR grant.  This two year
program is intended to produce a fine grained  superconductive  powder which can
be  manufactured  in  large  batches.  The  Company  is  on  schedule  with  its
development  plans and  continues  to make sales  based on the  enhanced  powder
products that have resulted from this research.

HISTORY OF THE COMPANY

         The  Company  was  founded  in 1987 by Dr.  Edward R. Funk and his wife
Ingeborg Funk to develop,  manufacture,  and market HTS materials for commercial
applications of the  newly-discovered  superconducting  ceramics.  The Company's
initial efforts were directed  toward  mastering the  manufacturing  process for
making high temperature superconducting ceramic powders, as discussed in further
detail   below.   During   this   period,   the  market  for  high   temperature
superconductors  was  very  small,  estimated  at $1  million  a year  or  less,
consisting  primarily of demonstration  kits and small amounts of HTS powder for
research  purposes.  Sales,  though  relatively  small,  covered a wide range of
superconducting  products,  including ceramic powders.  The Company sold ceramic
powders  as  finished  products  and in other  forms  such as  pressed  pills or
pellets, which were achieved by sintering the ceramic powders, and solid shapes.
Ceramic powders sold in such forms were used primarily in research applications.

         Subsequently,   the  Company  began  to  develop  other  forms  of  HTS
materials.  A broad  commercial  market for products  using HTS  superconducting
materials has not yet  developed,  although  small niche markets had emerged for
some  products.  In the second half of 1989,  the Company  began to focus on the
market  for  superconducting   thin-film  materials,  made  from  the  Company's
sputtering targets. A sputtering target is a pressed and sintered ceramic pellet
which has been sized to fit into a special  coating  device  called a sputtering
system.

         These HTS sputtering  targets are used by customers of the Company in a
vapor deposition process to make thin films of the target material. This process
operates in vacuum,  hence,  the  frequently  heard term,  vacuum  deposition or
Physical Vapor  Deposition  ("PVD").  HTS thin films are then  patterned,  using
techniques  similar  to  those in the  semiconductor  industry,  to  manufacture
sensors,  circuits  and  other  devices,  which in turn  can be used in  medical
diagnostics,  geological exploration, advanced radar, wireless communication and
other niche applications.

         The  Company's  HTS  products  are  produced  and  marketed  by its SCI
Division. Additionally, the Target Markets, Inc. ("TMI") Division of the Company
is  marketing  some of the  non-superconducting  products  that the  Company has
developed.  The Company established the TMI Division in 1992 and began to market
sputtering  targets  of  materials  other  than  superconductors  for thin  film
deposition.  This division is located within the  headquarters of the Company in
Columbus,  Ohio and  shares  facilities  and staff  with the SCI  Division.  For
additional information, see "The TMI Division."

         The following  chart  summarizes the annual  revenues and percentage of
total consolidated sales for the fiscal years ended December 31, 1998, 1999, and
2000 respectively, for each class of products that the Company produces.

                                      -5-

<PAGE>

<TABLE>
<CAPTION>


                                         12/31/98                  12/31/99                 12/31/00
                                         --------                  --------                 --------

                                    Annual        % of Total  Annual     % of Total     Annual     % of Total
PRODUCT CLASS                       Revenue         Sales     Revenue       Sales      Revenue       Sales
-------------                       -------         -----     -------       -----      -------       -----
<S>                               <C>                <C>    <C>           <C>          <C>           <C>

Superconductive Powders           $   73,959         2.96%  $  107,277      4.01%         47,886     1.49%
Nonsuperconductive Powders             8,456         0.34%      18,003      0.67%         24,698     0.77%
Superconductive Targets               52,899         2.12%      85,386      3.19%         55,981     1.75%
Nonsuperconductive Targets(1)      1,035,725        41.46%   1,079,133     40.29%      1,340,411    41.82%
Buy & Resell(2)                      435,119        17.42%     552,663     20.63%        781,377    24.38%
Bonding and Backing Plates(3)        142,161         5.69%     163,200      6.09%        210,474     6.57%
Demonstration Kits                    21,644         0.87%      15,141      0.57%         20,961     0.65%
Levitators                            21,182         0.85%       1,245      0.42%         26,000     0.81%
Contract Research                    470,552        18.84%     425,153     15.87%        525,566    16.40%
Other(4)                             236,465         9.45%     221,161      8.26%        171,809     5.36%
                                  ----------                ----------                ----------
                                  $2,498,162                $2,678,362                $3,206,163
                                  ==========                ==========                ==========

</TABLE>


----------

(1)   Includes  nonsuperconductive targets from the SCI division and ceramic and
      metal targets from the TMI Division.

(2)   Includes buy and resell of precious metals,  buy/resell  targets and other
      miscellaneous items.

(3)   Includes sales from the SCI and TMI divisions.

(4)   Includes scrap inventory sales, as well as shipping and packaging  charges
      on the Company's products.

Original Company Focus in HTS Products

         The  Company's  original  focus was to offer  HTS  powders  in  various
chemical mixture ratios and bulk solid state forms of HTS materials, including:

      o  sputtering targets;
      o  Levitators(R), which produce a large oriented grain useful for its high
         levitation  forces,  ability to trap  magnetic  flux,  and carry  large
         currents;
      o  magnetic shields; and
      o  various kits, support equipment and other materials.

      Superconductors  can be used as magnetic  shields  because of their unique
diamagnetic  properties.  Diamagnetism  is the  ability of a material to repel a
magnetic field. Many  naturally-occurring  substances,  such as water, wood, and
paraffin, exhibit weak diamagnetism. Superconductors exhibit strong diamagnetism
below their Tc, which represents the critical transition temperature below which
a  material  begins  to  superconduct.  The  sudden  loss  of  resistance  in  a
superconductive medium may occur across a range as small as twenty millionths of
a degree Centigrade.

         The market for all HTS products,  although small, has historically been
represented  by groups seeking to establish a fundamental  understanding  of the
properties,  principles and theory of these materials and also groups focused on
applications of high temperature superconductivity.  The ratio of fundamental to
applications  research  continues  to  shift  toward  commercialization  of  the
technology as demonstrated by the increasing number of "beta prototype" programs
in the  industry.  A beta  prototype  is a device or system in a  pre-commercial
stage  of  development,  which  has  been  tested  in a  laboratory  as an alpha
prototype, and then further developed to be tested in an actual customer site in
a typical operating  environment.  Operating experience and customer feedback in
the beta test phase can be used in the design of an initial commercial product.

                                      -6-

<PAGE>


         The Company  provides the basic building  blocks for many HTS products,
since  nearly all  applications  of HTS start with powder  that is  subsequently
processed  into  products  such as wire,  sputtering  targets,  or large  single
crystals,  which,  in  turn,  can be used to  manufacture  transmission  cables,
superconductive  magnets,  sensors,  radio frequency ("Rf") filters for wireless
communications,  and frictionless  bearing systems for linear or rotating system
applications.  A  frictionless  bearing  system  is a  non-contact  device  that
utilizes the diamagnetic  characteristics of a superconductor to stably levitate
or  suspend a load  which may be in  rotational  or linear  motion.  The  system
overcomes  normal  frictions  which limit  conventional  mechanical  bearings by
eliminating  physical  contact between the  components.  This bearing design has
been used in energy storage systems under development by Boeing, among others.

         The Company has a suite of  proprietary  processes that are utilized in
the  production  of its  products.  As  discussed  later,  the Company  also has
licenses  of patents and its own patent and patent  applications  in this field.
See the section of this document entitled "Intellectual Property" for additional
information.

         The  Company's  proprietary  ceramic  powder and  powder  densification
processes  have been  successfully  adapted to other  electronic  ceramics  that
exhibit unique, non-superconductive characteristics. Some of these materials are
also in transition from fundamental to applications oriented development and may
be the source of significant  revenues in the Company's future.  These materials
can be categorized  as ionic or electronic  conductors and materials with unique
magnetic properties such as the ceramics used in non-volatile computer memories.

Expansion into Other Materials and the Creation of the TMI Division

         By early  1990,  it was clear to the  Company  that the  market for HTS
superconducting  powder,  targets  and  other HTS  products  was still too small
(about $1 to $2 million  annually) to assure survival and growth of the Company.
Accordingly, the Company expanded its product line to include sputtering targets
made of non-superconducting ceramics, metals and metal alloys. As the demand for
these  products  grew it became  evident that this new product line could expand
more rapidly if it were managed as a focused,  non-superconductive,  effort. The
metal,  metals alloy and simple  ceramic  sputtering  targets were then packaged
into the newly created TMI Division. The Company's  non-superconductive products
are marketed and identified under the TMI name.

         The total market for non-superconducting  metal, metal alloy and simple
ceramic targets for the thin film industry is estimated at $720 million globally
based on a Business Communications Company ("BCC") report dated August 26, 1999.
The  Company,  through  its TMI  Division,  also  embarked  on a program to move
selected  products  developed  for research and  development  applications  into
production   applications.   Through  continuing  relationships  with  equipment
manufacturers and potential customers,  TMI is able to compete in the production
markets with existing  products  both on a technical and price basis.  There are
new materials being continuously investigated,  and these new ceramics and metal
alloys sometimes develop rapidly into significant  markets. The Company believes
that it has positioned  itself well in the  marketplace to move quickly as these
materials move from research and  development  into  production  usage. In 2000,
approximately  60% of the  Company's  target  shipments  were  classified by the
Company as production, and 40% were classified as research and development. This
is a  marked  change  from  100%  classification  as  research  and  development
shipments in 1995. The Company's  objective is to achieve an 80% to 20% ratio of
production to research and development shipments.

         The Company has  continually  added  production  processes  and testing
equipment  for the many  product  compositions  that  can be used as  sputtering
targets.  The TMI Division standard  products,  as listed in its catalogue,  now
include nearly 200 items of ceramic materials and metals and alloys available in
various sizes and shapes.  TMI shipments were 64.6% of total Company revenues in
2000.

         The Company offers a wide range of HTS products to the marketplace. The
Company  has  competitors  for all of its  various  products.  In  general,  the
Company's  HTS  products are distinct in the  marketplace  due to the  molecular
level mixing achieved  through the Company's  patented and proprietary  chemical
precipitation  processes for ceramic powders,  the chemical purity achievable by
these processes,  and the high level of  characterization  and customization the
Company performs for each client.  Accordingly,  the Company intends to be price
competitive on its products but not the low price leader.

                                      -7-

<PAGE>


THE SCI DIVISION

         The SCI Division  primarily  produces and markets the Company's various
HTS  products,   which  include  both  superconducting  and  non-superconducting
products.  The most  significant  of the  Company's  HTS products are  discussed
below.

Superconducting Products

         High Temperature  Superconductive Powders. HTS powders are the building
blocks for most applications of high temperature superconductivity.  The Company
offers  a  wide  variety  of  HTS  powders.   Powders  are  manufactured   using
conventional  solid state and wet chemistry,  as well as  proprietary  processes
developed or licensed by the Company. Wet chemistry refers to a mixing technique
using liquid precursors from the Company's  processes which utilize dry blending
of chemical precursors.  Superconducting powders represented  approximately 1.5%
of Company  revenues in 2000,  4.0% in 1999, and 3.0% in 1998. The Company's HTS
powder production is also used internally to make Levitators(R),  HTS sputtering
targets and other ceramic components.

         Customers in the SCI Division have included  several  manufacturers  of
superconducting  wire,  wherein  the  powder  is put into a tube and  drawn  and
redrawn to very fine size.  Such wire is now  available  from our  customers and
others in lengths sufficient to make superconducting  magnets, motors, and power
transmission lines. This market for the Company's HTS powder is expected to grow
as these  applications  transition from research to prototype to production use.
Some of these applications are now in the  engineering-prototype  stage, and are
being evaluated with respect to their conventional counterparts. There currently
are  several  highly-publicized  prototype  devices  or  systems  based  on  HTS
materials, most of which in the United States are sponsored by the Department of
Energy through its Strategic Partnership Initiatives, including:

         o Fault Current Limiter
         o Transformer
         o Transmission Line
         o Flywheel Energy Storage System

         The  purpose of the  engineering  prototypes  now in  evaluation  is to
determine the technical and economic  feasibility of the specific  applications.
Although it is unlikely that all of the initially  configured  prototypes now in
testing will be economically  viable,  there are a number of applications  being
tested, and the Company believes that some of these will move into production in
the next several  years,  although in most cases the time lines for  development
are  unclear.  Specifically,  the  development  of Ittrium  Barium  Copper Oxide
("YBCO")  wires  based  on the  coated  conductor  approach  still  has  several
technical and financial hurdles to overcome, and at this time it is unclear when
such  wires  will  move into  production  phase.  The  Company  is  particularly
optimistic  about  cables,  where the use of  superconductors  may reduce  power
transmission losses. In addition, because much higher currents can be carried in
HTS  cables  for a given  volume,  there may be  savings  realized  through  the
minimization  of the  disruption  to dense  cityscapes as the  transmission  and
distribution grid is refitted to accommodate the increase in demand for electric
power.

         Encouraging  results are also being shown by  companies  other than SCI
that make  superconductive  Rf filters for the  distributed  base stations which
support the  national  wireless  communication  network.  Rf filters are used in
wireless  communication  systems  to  enable  the  selection  of  desired  radio
frequencies  and the exclusion of undesired  signals.  Such  applications of HTS
promise to reduce  noise level,  decrease  signal  interference,  and reduce the
number of dropped calls. Additionally,  some HTS equipped cellular base stations
extend the range of the station.

         Another promising application of HTS is fast response fuses,  sometimes
called  fault  current  limiters.  In this case,  the very short  (fraction of a
cycle) response time of HTS material to voltage surges on electric  transmission
and  distribution  networks  may reduce  downtime and capital  expenditures  for
utilities.   HTS  fault  current   limiters  are   self-resetting   and,  unlike
conventional  fuses, are not destroyed by a voltage surge. The Company currently
has an alliance  with Argonne  National  Laboratory in the  development  of this
device. This product has not yet reached the prototype test stage.

         The  major  market  for LTS wire is in  magnets  for  medical  Magnetic
Resonance  Imaging ("MRI") systems.  Recent tests conducted by Siemens show that
HTS wire may have an economic and technical advantage for this

                                      -8-

<PAGE>

application.  Cost  advantages may be achieved in new systems by the elimination
of liquid  Helium  cooling.  Technical  advantages  may be achieved  through the
higher fields  obtainable by using HTS materials at very low  temperatures.  The
Siemens  tests  were not  conducted  with  wire  containing  the  Company's  HTS
materials,  but with  wire of  similar  composition  produced  by the  Company's
competitors. At this time, the Company's HTS products have not been tested in an
MRI system.

         The Company makes the raw materials that are used by the  manufacturers
of the above  mentioned  products,  and actively  solicits the business of those
making such products.

         Superconducting  Sputtering  Targets.  The Company converts its powders
into dense,  precisely  machined ceramic components which are used as sputtering
targets by its  customers for the  manufacture  of  superconductive  thin films.
These thin films can then be etched in  patterns to produce  electrical  devices
such  as  superconductive   quantum  interference  devices  that  are  extremely
sensitive to small  electric and magnet  fields,  such as brain waves, a passing
submarine,  or certain electric and magnetic  signatures of ore or oil deposits.
This market was 1.7% of Company revenues in 2000, 3.2% in 1999 and 2.1% in 1998.

         HTS materials,  as thin and thick films both as sputtering  targets and
powder  are  currently  used in Rf  filters  microwave  applications  such as in
cellular  base  stations.  At this  time,  there  are  several  companies  whose
superconductive  Rf filters are going into limited  production.  These companies
include:  Superconductor  Technologies,  Inc.,  Conductus,  Inc.,  and  Illinois
Superconductor  Corp. Other companies are thought to be developing such products
based on HTS materials.  The Company is a potential  supplier to these producers
for both HTS  powder  and  sputtering  targets,  although  it has not sold these
products to such producers as of yet.

         The "next  generation"  of HTS wires and cables is expected to be based
on a structure called a "coated conductor." In this case the conductor, YBCO, is
deposited  using a thin film  technique onto a metal tape or foil which has been
modified so that the area receiving the  superconductor is specifically  aligned
or  "textured"  to  promote  optimal  performance  of  the  coating.  Thin  film
deposition is a method of fabricating ceramic  superconductors to more precisely
control the growth of the crystalline  structure to eliminate  grain  boundaries
and achieve a desired Tc. The  deposition of the YBCO conductor is being pursued
in the United States and Japan by use of the Company's sputtering targets. While
this  application  is expected  to take  several  years to  develop,  for now it
enables the Company to participate in near term applications of HTS wire through
its Bismuth,  Strontium,  Calcium,  Copper and Oxygen ("BSCCO")  materials,  and
future requirements through its YBCO ceramic components.

         "Levitators(R)."  The Company has a non-exclusive  license from Argonne
National  Laboratories  for producing seeded and melt textured YBCO large single
domains for which the Company has been issued the trademark  "Levitators(R)." In
a typical melt  processing  method,  YBCO is heated above its  peritectic  point
where it melts  incongruently  into Y2BaCuO5 and a Ba- and Cu- rich liquid.  The
semi-solid melt is cooled slowly to obtain aligned grains of YBCO or domains. In
order to achieve high  levitation  forces,  large domain size and high  critical
current density ("Jc,") are desirable. One way to increase the domain size is by
initiating grain growth by using a seed crystal.  In the presence of a favorable
temperature  gradient,  the seed not only ensures a single  nucleation  site but
also permits  controlled  orientation of the grains. The seeding technique along
with a controlled temperature gradient enable growth of YBCO domains as large as
that of the sample size.

         A   superconducting   Levitator(R)   is  a  compact  of  the  Company's
superconductive  powders  which  have  been  processed  to form a  large  C-axis
oriented grain that exhibits a high critical  current  density and  considerable
diamagnetism.  The Company has advanced its technology  well beyond the original
Argonne licenses,  and has applied for and expects to be issued a patent for its
own  proprietary  processes  to  manufacture  Levitators(R).  At this time,  the
Company's  large domain  Levitators(R)  ("LDL"),  made from its  superconducting
powders,  exceed 30 Newtons of separating  force when used with certain magnets.
This value is high enough to make practical several applications, including near
frictionless  bearing  systems,  flywheels  energy  storage  devices  (so called
frictionless  flywheels),   and  linear  transportation  devices  (e.g.,  Maglev
trains).

         In 1996 the  Company  supplied  approximately  1,600  Levitators(R)  to
Commonwealth  Edison  for  a  prototype  frictionless  flywheel  energy  storage
("FFES")  device.  The FFES device is a flywheel  that  rotates in an  evacuated
chamber and is supported by HTS  Levitators(R)  so that there are no  mechanical
bearings.  The friction  factor is more than


                                      -9-

<PAGE>

1,000,000 times less than the best mechanical bearings.  Under these conditions,
very little  energy is lost to  friction.  Energy is applied to the  flywheel to
spin it up, and energy is withdrawn at nearly 90.0% efficiency as needed.


         At this time,  Commonwealth  Edison has placed the  development of FFES
units  on  hold.   The  prototype  for  which  the  Company   supplied  for  the
Levitators(R)  is said to have  demonstrated  the  feasibility  of HTS levitated
frictionless  bearings for this application.  The Levitators(R)  supplied by the
Company for this program were tested by Argonne National Laboratory.

         The Company  has engaged in further  research  and  development  on its
Levitators(R),  with a view toward  enhancing their  performance  capability and
reducing  the costs of  production.  The  Company  has  focused  its  efforts on
identifying a suitable  replacement for Platinum Oxide, which is one of the most
expensive  components of its basic powder mix for Levitators(R).  If successful,
levitator production costs will be substantially reduced.  Currently the Company
is  exploring  the use of Cerium as a substitute  for  Platinum  Oxide with some
success.

         The Company  continues to collaborate with Argonne National  Laboratory
through a Creative  Research and  Development  Agreement in order to advance the
technology and broaden the range of  applications  for which  Levitators(R)  are
applicable.  Improvements in performance,  combined with a significant reduction
in  manufacturing  costs,  are  expected  to result from this  multi-year,  cost
sharing program.

         The United States electric power industry is scheduled for deregulation
in the very near future.  This will force  competition  to occur  between  power
providers well beyond their current regional  boundaries.  Commonwealth  Edison,
which purchased the Company's LDLs in 1996, at that time supplied  approximately
5% of the electrical  power used in the United States.  Officials at the utility
have advised the Company that they view the  development of the FFES system as a
key component of their competitive strategy.  Other utilities may also use these
systems in their  competitive  strategies.  There are also  programs  to develop
similar energy storage devices in Japan, the United Kingdom,  Korea and Germany.
Currently  Boeing  Corporation,  which is one of the Company's  competitors,  is
developing  a  competitive  FFES system that uses HTS  materials  as an enabling
component of the bearing system.

         Superconducting  Accessories.  The Company provides  certain  accessory
superconducting  products that are needed, in addition to the Company's core HTS
materials,  to support its customers'  research or manufacturing  programs.  The
Company does not manufacture accessory  superconducting  products, but rather it
purchases such products for resale to the Company's customers.

         Demonstration Kits,  Instrumentation  Accessories for Superconductivity
Education.  Demonstration  kits were the first  products  sold by the Company in
significant  volume.  Packaged  for  the  educational  community,   the  Company
continues to manufacture a family of laboratory  demonstration  kits designed to
exhibit the key features of perfect  conduction,  diamagnetism and flux trapping
that are  unique to HTS  materials.  These  kits are  marketed  directly  by the
Company and also through a network of  educational  product  distributors  which
include  Edmund  Scientific,  Arbor  Scientific,  Beckly  Cardy and others.  The
instrumentation  and accessories  offered by the Company include a wide range of
discs, dies, rare earth magnets, vacuum jars, box furnaces, digital volt meters,
dewars and flasks,  and related  items.  These combined  categories  represented
approximately 0.7% of Company revenues in 2000, 0.6% in 1999 and 0.9% in 1998.

Non-Superconducting Products

         Beginning  in 1996,  the SCI Division of the Company  manufactured  and
sold  non-superconducting,  as well as HTS products for commercial use which can
be  categorized  as  engineered   powders,   engineered  parts,  and  engineered
components.

         Engineered  Ceramic  Powders.  The Company has adapted its  proprietary
Ceramic  Oxide  powder  production   processes  for  the  manufacture  of  fine,
ultra-fine  and  nano-crystalline  powders of  non-superconductive  materials to
support a variety of expanding applications requiring electronic ceramics. These
powders are used by customers of the Company in the  development  or manufacture
of:

                                      -10-
<PAGE>


         o   solid oxide fuel cells;
         o   ceramic  membranes  for the  separation  of  natural  gas  from its
             contaminants;
         o   Lithium ion batteries;
         o   ceramic electrodes for harsh environments;
         o   ceramic electrodes as a replacement for precious metals; and
         o   capacitors.

         Engineered  ceramic powders were 0.8% of Company revenues in 2000, 0.7%
in 1999 and 0.3% in 1998.

         Ceramic  Sputtering  Targets.  The Company has adapted its  proprietary
ceramic  powder  densification  processes to manufacture a variety of sputtering
targets from its line of  electronic  ceramic  powders.  The energy  storage and
optical  industries  are working to utilize the unique  properties of electronic
ceramics to enhance the performance or reduce the cost of their products.

         Sputtering  targets composed of complex ceramic oxides for applications
such as non-volatile  memory,  thin film capacitors,  thin film electrodes,  and
transparent  electronic  conductors  are an  emerging  product  line for the SCI
Division,  comprising 10.2% of the SCI Division's revenues in 2000, 5.9% in 1999
and 5.8% in 1998. The hope of the Company is that materials  developed to supply
customers'  research  requirements  will grow into large scale production orders
with the commercial success of the next generation of thin-film-based electronic
devices. The Company has certain proprietary knowledge and trade secrets related
to the  manufacturing  of these  non-superconductive  ceramic  oxide  sputtering
targets.

Sensors in Development by SCI Division

         The SCI  Division  was awarded a Phase I SBIR  contract by the National
Science Foundation to develop a sensor for oxides of Nitrogen gas ("NOx") and to
be used in harsh environments.  The Company has also been given a purchase order
by Cambridge Research  Instruments to develop a temperature  sensor,  based on a
thin film  superconductor,  for use at or slightly  above the  boiling  point of
liquid Nitrogen.  These two development  contracts were 1.2% of Company revenues
in 1999. The Company was not in this field of sensors prior to 1999.

         Sensors  for  Harsh  Environments-  Gaseous  Oxides  of  Nitrogen.  For
automobiles,  public  utilities,  and other generators of NOx,  currently no low
cost  detection  system  exists.  The  harmful  effects  of NOx are a well known
component  of the green house gases that are  damaging to the  environment.  The
United States and other foreign governments  continue to fund the development of
solutions  to  reduce  green  house  gasses in which  sensors  are a part of the
detection  and  correction  system.  Once  developed,  these  solutions  may  be
legislated  upon the  marketplace.  The low-cost NOx sensor market is global and
may be expected to exceed several million dollars in the next decade.

         The Company has recently completed a Phase I Small Business  Innovative
Research ("SBIR) feasibility study of the design, development and manufacture of
a sensor for NOx to be used in harsh environments, such as the exhaust stream of
internal combustion engines. This program consists of three phases: (1) Phase I,
which is the feasibility study, (2) Phase II, in which a prototype is developed,
and (3) Phase III,  which  includes the  realization  of a  commercial  product,
backed by private funds. The Company is currently  preparing a Phase II proposal
for this sensor. The goal of the program,  funded through a competitive award in
the amount of $399,000 by the National  Science  Foundation,  is to build on the
Company's  strengths in ceramic  fabrication and to devise a device that is both
low in cost and also highly  sensitive  to NOx in the range  required for future
automobiles.

         The  development of a NOx sensor,  suitable for use in next  generation
spark-ignition  direct injection engines, has been given the highest priority by
stakeholders   in  the  industry,   including   major   automobile   and  engine
manufacturers.   New,  lean-burn  engine  technologies  are  nearing  commercial
reality,  but they lack  adequate  sensors to monitor and control the quality of
exhaust in order to operate within federally mandated pollution guidelines.

         Sensors for Cryogenic  Temperatures - YBCO Based.  Sensors based on the
superconductor   YBCO  are  being  developed  for  the   temperature   range  of
77-92(degree) K. The skill set developed to perfect these devices will serve the
Company in the  manufacture  of all of its planned  sensors.  While  temperature
sensors  for  the  broad  range  of  4.2(degree)  K to  300(degree)  K are  well
understood,  and available  from  reputable  commercial  enterprises,  a greater
accuracy over a limited

                                      -11-

<PAGE>


temperature  range may be a competitive  advantage for YBCO based sensors in new
and dynamic  applications  such as magnetic  levitation  ("MAGLEV") and flywheel
energy  storage,  where very  small  temperature  excursions  may be used as the
predictors  of  system  disruptions  or  failure.  In this  effort  the  Company
currently has an alliance with Cambridge Research and Instrumentation.

Strategic Alliances, Major Suppliers and Customers

         The Company attempts to do most development work in the SCI Division in
cooperation with partners who will ultimately consume, or may serve as a channel
to market,  the  Company's  products  and  technology.  In this way, the Company
remains  focused on providing  value-added  materials  solutions  for a range of
commercial applications.

         Most  of  the  Company's   products  are  manufactured  from  component
chemicals and metals supplied by various vendors.  The SCI Division is dependent
upon ultra high purity  Yttrium to  manufacture  its  superconducting  products.
Several  suppliers  currently  satisfy  the  Company's   requirements  for  this
material.  If the Company  suddenly lost the services of such  suppliers,  there
could be a disruption in its  manufacturing  process  until the  suppliers  were
replaced,  but the  Company has  identified  several  other  firms as  potential
back-up suppliers who would be capable of supplying this material to the Company
as necessary.  To date, the Company has not  experienced an  interruption of raw
material supplies.

         The top five  suppliers to the SCI Division in 2000 were, in descending
order:  Argonne National  Laboratories,  Noah Technology Corp., MTI Corp., Cerac
Corp.,  and Praxair  Corp.  In every case,  the Company  believes  that suitable
substitute  vendors could be found.  Also, as the  Company's  volume grows,  the
Company may make alliances or purchasing contracts with these or other vendors.

         No  customers in the SCI  Division  accounted  for 10.0% or more of the
total SCI revenue in 2000.

Research and Development

         The Company focuses its research and development  efforts in areas that
build  on  its  expertise  in  multi-component  ceramic  oxides.  These  efforts
currently  include  optimization  and scale up efforts for BSCCO 2-2-1-2 powders
sponsored by the National  Science  Foundation,  large and specially  formulated
YBCO discs and  rotation/levitation  apparatus for gravity modification research
sponsored by NASA, and a sensing device based on the Company's  ceramic products
which  identify  the presence of NOx gases in harsh  environments  which is also
sponsored by the National Science Foundation.

         The  Company's  initial  focus on HTS was shifted upon the  realization
that the market for that  technology  would take several  years to develop,  and
that the  Company's  talents  and  capital  base  could  also be used to provide
materials  solutions in a wide range of other  industries.  While according to a
study commissioned by the United States Department of Energy, HTS is expected to
develop  into a  multi-billion  dollar  industry  in the  first  decade  of this
century, the Company has diversified its efforts to concurrently  participate in
other materials  markets.  The emphasis of the SCI Division's  research has been
broadened to include engineered ceramic oxide materials.

         The SCI Division of the Company  remains  focused on the development of
materials, processes and devices based on its core skills in:

         o  ceramic powder fabrication;
         o  powder densification;
         o  thin  film  technology,   a  device   fabrication   technique  where
            individual  layers of the device are less than one micron  thick and
            are typically  constructed using specialized coating techniques that
            can utilize the Company's sputtering targets; and
         o  thick  film  technology,   a  device  fabrication   technique  where
            individual  layers of the device are more than one micron  thick and
            are typically  constructed using specialized  coating processes like
            tape casting, which can utilize the Company's ceramic powders.

         These developments are realized through partnerships with the Company's
many customer  collaborators.  The Company's  reliance on a commercial  customer
collaborator optimizes its development  expenditures by focusing on the


                                      -12-

<PAGE>

projects  where  customers have  identified  markets and agree to provide future
revenue streams based on the successful completion of the project.


         Company   Sponsored   Research  and  Development.   The  Company  often
undertakes  commitments  in the  ordinary  course of business  that  require the
Company to develop  methods or processes that expand the Company's skill set. In
general,  the  Company  does  not  initiate  a  formal  development  program  to
accomplish  these  tasks,  but does  absorb  any  expenses  which may exceed the
revenues provided by clients, as part of its internal development costs.

Sponsored Product Development Programs within the SCI Division

         The Company has a number of research  programs,  including two Phase II
SBIRs that are  sponsored  by  government  agencies.  These  programs  are being
conducted  within the SCI  Division.  These  programs  are all  believed to have
significant  commercial  potential if the respective  technologies  can be fully
developed.  The research program sponsored by NASA involved various  experiments
to determine  the proper  composition  and crystal  structure  of a  specialized
ceramic  material which,  when used in conjunction with a  superconductive  YBCO
layer,  and the assembly is both cooled and rotated at high  speeds,  may shield
the effects of gravity.  Another  research  program  sponsored  by the  National
Science  Foundation as a Phase II SBIR  involves the  automation of the chemical
precipitation  and  also  the  scale  up  and  automation  of the  low  pressure
calcination  process for the  Company's  BSCCO  2-2-1-2  superconductor  powder.
Experiments  are being  performed to determine the  reliability of the automated
process,  and the effects of the larger batch size on quality in the calcination
step. The Company's subcontractor,  Intermagnetics General Corporation, Advanced
Superconductor  Division,  was  also  using  selected  powder  samples  to  make
multi-filament  superconductive  wire  and also  developing  a  process  for the
continuous heat treatment of long lengths of HTS wire. The Phase I STTR program,
also sponsored by NSF, included  experiments  using various  combinations of the
Company's  ceramic  substrates and powders to determine which pairing showed the
most  sensitivity to NOx gases at temperatures in the range of  700-1000(degree)
C. SBIRs and sponsored research and development contracts accounted for 16.4% of
Company revenues in 2000, 15.9% in 1999 and 18.8% in 1998.

         Several  public  and  privately  funded  programs   currently   support
continued product, process and component development within the SCI Division.

         Sponsored programs include:

         o  National Aeronautics and Space Administration ("NASA"), beginning on
            April 1, 1999,  funded a Phase II SBIR for a $580,000  program  over
            two years to demonstrate the  feasibility of  manufacturing a large,
            bi-layered     superconductive    toroid    (ring)    and    related
            levitation/rotation  system for gravity  modification  experiment in
            cooperation  with  Argonne  National  Laboratories  and Wright State
            University. The Company's share for in-house work on this project is
            $310,000  over two years.  The contract may be cancelled at any time
            and the two year duration expires on May, 2001.

         o  The National Science Foundation  ("NSF"),  beginning on September 1,
            1999, funded a Phase II SBIR program over two years for $400,000 for
            advanced  manufacturing  of BSCCO  superconductive  powders  for low
            cost, continuous HTS wire fabrication,  with partner  Intermagnetics
            General Corporation,  Advanced Superconductor Division.  Pursuant to
            the terms of an award  letter from NSF dated  August 26,  1999,  the
            Company's  share of this funding is $200,000  over two years and the
            contract may be  cancelled at any time.  The grant is subject to the
            NSF SBIR Phase II grant general  conditions and to the NSF SBIR/STTR
            Phase I  Program  Solicitation  and  Phase  II  Instructions.  These
            conditions  require,  among other  things,  that the Company  submit
            semiannual progress reports and a final report to NSF as a condition
            to  payment  of the  award  amounts.  The  Company  may  subcontract
            portions of the work to be performed  under the grant,  although the
            Company  itself must  perform at least  one-half of the research and
            analytical  effort.  The Company may retain rights in technical data
            developed under the grant,  except that the U.S. federal  government
            will have the right to use such data for  government  purposes.  The
            Company  may also  retain  all  rights,  title and  interest  in any
            patentable  invention or discovery  conceived or reduced to practice
            in performance  of work under the grant,  provided that it discloses
            the  invention or  discovery to NSF,  notifies NSF in writing of its
            intent to retain  title to the  invention  or  discovery,  and takes
            appropriate action under applicable U.S. federal patent laws. If the
            Company  fails to follow  these  procedures,  it may lose  title

                                      -13-

<PAGE>

            and  rights  to the  invention  or  discovery  to the  U.S.  federal
            government. This program expires on August 31, 2001.

         o  NSF,  beginning  on July 1,  1999,  funded a Phase I Small  Business
            Technology   Transfer   Program   ("STTR")   for  $100,000  for  the
            development  and  technology  transfer  of a sensor  for  oxides  of
            Nitrogen gas to be used in harsh  environments,  i.e. an  automobile
            exhaust  stream,   with  the  Center  for  Industrial   Sensors  and
            Measurement at The Ohio State  University as a partner.  Pursuant to
            the terms of an award letter from NSF dated June 25, 1999, the grant
            is a fixed  amount  grant.  The  Company's  in-house  share  of this
            funding is $50,000.  This program expired on June 30, 2000, although
            work  continues  on the  device in  preparation  of a Phase II grant
            application which will be submitted in the first quarter of 2001.

         o  NSF,  beginning  on  January  1,  2001,  funded  a Phase I SBIR  for
            $100,000 for a project entitled "New Coordination  Complexes for the
            Synthesis of Nanocrystalline SrRuO3," with Oklahoma State University
            as a  partner.  Pursuant  to the terms of an award  letter  from NSF
            dated November 27, 2000, the grant is a fixed amount grant that will
            expire  on June 30,  2001.  The  Company  must  file a Phase I Final
            Report  within 15 days of the date the grant  expires.  The grant is
            subject  to the NSF  SBIR/STTR  Programs  FY-2000  and Phase I Grant
            General  Conditions,  which  require,  among other things,  that the
            Company  timely  submit  the  final  report to NSF to  receive  full
            payment of the grant.  The Company may  subcontract  portions of the
            work to be  performed  under the grant,  although it must perform at
            least two-thirds of the research and analytical  effort itself.  The
            Company may retain  rights in  technical  data  developed  under the
            grant,  except that the U.S. federal  government will have the right
            to use such  data for  government  purposes.  The  Company  may also
            retain all rights, title and interest in any patentable invention or
            discovery  conceived or reduced to practice in  performance  of work
            under  the  grant,  provided  that it  discloses  the  invention  or
            discovery  to NSF,  notifies  NSF in writing of its intent to retain
            title to the invention or discovery,  and takes  appropriate  action
            under  applicable U.S.  federal patent laws. If the Company fails to
            follow  these  procedures,  it may  lose  title  and  rights  to the
            invention to the U.S. federal government.

         o  Cambridge  Research and  Instrumentation,  funded by a Phase II SBIR
            subcontracted  with the Company  pursuant to a purchase  order dated
            September  27,  1999,   for  $25,000  for  the   development   of  a
            superconductive  temperature sensor tunable for a specific 2(degree)
            K region around the boiling point of liquid Nitrogen  (77(degree) K)
            for use in a unique  geological  instrument.  This program  began on
            September 1, 1999, and ended on September 30, 2000.

         o  Ceramphysics,  Inc., which has a funded Phase II SBIR, subcontracted
            with the Company for the  development  of HTS  electrodes to replace
            Platinum  in  a  Department  of  Defense  application  of  cryogenic
            capacitance energy storage. This subcontract is for $20,500 and ends
            on  September 1, 2001. A second phase of the program has been funded
            outside the  government for a 13 month period  beginning  October 1,
            2000.

         All  of  the  sponsored  research  and  development  contracts  can  be
cancelled at the sponsor's  option,  with accrued costs being paid.  The Company
currently  has  $364,753  of funding  from  government  sponsored  research  and
development programs that could be cancelled at any time.

         To date,  federal  funding has been directly or indirectly  responsible
for an estimated 80.0% of the  developmental  funding of the HTS industry.  Such
funding  plummeted  in  1992  and  1993  when  the  Supercollider   project  was
terminated.  Federal funding has rebounded somewhat in recent years.  Management
of the Company  anticipates  that any increase in funding for  superconductivity
research  may  benefit  the  Company  indirectly,  since many of its  customers'
research and development efforts receive government funding.  However, while the
Company   continues  to  submit   proposals  to  federal  and  private   funding
organizations,  there is no assurance  that the Company will be awarded  similar
contracts in the future.

Competition in the HTS Industry

         The Company has a number of domestic and  international  competitors in
the HTS  field,  many of whom have  resources  far in  excess  of the  Company's
resources.  After more than a decade of intensive  development work,

                                      -14-

<PAGE>


commercial  prototypes of various large scale HTS  applications are now reaching
prototype test stage. It is anticipated that as commercial  devices based on HTS
technology begin to gain wide spread  acceptance,  and the attractiveness of the
industry  improves,  new competitors for powders,  sputtering  targets and large
superconductive single crystals will emerge. A major United States competitor of
the SCI  Division is The Surface  Science  Division of Praxair  Corporation.  In
Europe,  the SCI  Division  competes  principally  with a  spin-off  of  Aventis
(f.k.a.,  Hoechst),  a division of Aliatec  Corporation of France. In Japan, the
SCI Division's  principal  competitor is the DOWA Chemical Company.  Some of the
developers of HTS based products, such as American  Superconductor  Corporation,
have also chosen to  internally  manufacture  the HTS powders that they require,
and therefore compete with the Company in some cases, or foreclose themselves as
potential customers of the Company.

Marketing and Sales

         The SCI  Division  markets  its  products  by direct sale in the United
States.  Most  of  the  Division's  orders  are  in  response  to  requests  for
quotations.  The SCI Division distributes a catalogue of its products,  exhibits
at the several relevant tradeshows,  and engages in direct mailings. The Company
also has an operating website: www.superconductivecomp.com.  The Company intends
to intensify its marketing efforts in the future.

         The SCI Division also sells its products  through  distributors in some
foreign markets. On March 2, 2000, the Company announced that Earth Chemicals in
Japan was  selected  as the  exclusive  distributor  for Japan.  The Company has
non-exclusive distributors in Europe, Korea, Taiwan, Israel and Singapore.

         The global  acceptance  of the Internet has greatly  increased  the SCI
Division's  ability to promote itself to the entire  scientific  community,  and
thereby  facilitated  direct sales,  engineering  and customer  support from the
Company's  Columbus,  Ohio  facility.  Notwithstanding  an increasing  number of
distributors,  more  than  75% of the SCI  Division's  international  sales  are
handled directly by the Company's in-house sales staff.

         In addition to distributors  and  representatives  around the world and
its Internet website,  the Company maintains a modest print advertising program,
which includes the magazines Physics Today, Superconductor, Cryo-electronics and
the Thomas Register of Manufacturers.  The Company publishes  technical articles
in  scientific  journals  and  presents  technical  papers  at  technology-based
conferences, workshops and symposia.

         The  Company  has  sold  HTS  products  to  customers  in 42  countries
worldwide.  The total number of customers served by the Company was 235 in 2000,
185 in 1999 and 129 in 1998.

         No single  customer  accounts for more than 10.0% of total SCI Division
sales.

Production Capacity

         The SCI  Division  has a current  HTS  powder  production  capacity  of
approximately  700  kilograms  per year,  but is  expected  to increase to 1,200
kilograms  per year in the year  2001.  The  Company  was able to  increase  its
production capacity in the year 2000 to keep pace with customer demand. The cost
of this expansion was supported by grants from NSF and by additional  investment
in equipment by the Company.  Currently,  the Company is on track to meet future
demand. Generally, the Company has not had instances where it was unable to meet
demand,  although delivery times have been extended by a few weeks in some cases
without  any loss of sales.  Increasingly,  however,  the  customers  of the SCI
Division are inquiring  about the  production  capacity of the Company for their
future production requirements.  Based on this experience and occasional loss of
customers to larger competitors,  management views the expansion of HTS capacity
in the SCI Division as a primary objective in the near future.

Quality Control

         The Company uses a network of trusted and qualified  suppliers,  backed
up by the Company's internal and contracted  analytical  capabilities.  Incoming
raw materials are tested,  when required,  for suitability using techniques such
as X-ray diffraction ("XRD"),  inductivity coupled plasma ("ICP")  spectrometry,
particle size analysis,  and other methods.  In addition to these tests,  sample
lots of the Company's  complex  ceramics are often  fabricated to determine if a
new supplier  and/or new lot of input materials can be used to make a product to
specification.

                                      -15-

<PAGE>

         The quality  assurance  processes for Company products include critical
temperature,  carbon  content,  or packing  density.  The Company  certifies its
products for phase purity by XRD, for major and trace  elemental  composition by
ICP, and mechanical tolerances using certified calipers and micrometers.

         The amount of rejected  product during internal  processing was 1.5% of
revenues  in  2000,  4.5% in 1999  and 3.0% in  1998.  Customer  returns  of SCI
Division products were 1.5% of revenues in 2000, 0.1% in 1999 and 0.5% in 1998.

         The Company owns its quality  control  equipment  and also  selectively
contracts  with  a  network  of  domestic  vendors  for  additional   analytical
capabilities. The Company's in-house analytical instruments include:

         o  ICP manufactured by Leeman Laboratories, Inc.;
         o  particle size analyzer manufactured by Toshiba Corporation.;
         o  XRD manufactured by Rigaku Corporation;
         o  electronic dispersive X-ray spectrometer manufactured by Edax;
         o  differential   thermal   analyzer   manufactured   by  Perkin  Elmer
            Corporation;
         o  scanning electron microscope manufactured by ISI Corporation;
         o  various  digital  calipers,  analog  calipers,  digital  and  analog
            micrometers,  routinely  calibrated  against  National  Institute of
            Standards ("NIST") traceable standards; and
         o  various digital weight scales that are routinely  calibrated against
            NIST traccable standards.

Intellectual Property

         The Company has developed or acquired intellectual property in the form
of patents, patent applications,  and licenses on patents. The Company currently
is not aware of any litigation involving its products or processes,  nor has the
Company been contacted by any potential litigants regarding the same.

         Patents  and Patent  Applications.  The  Company  has  applied  for and
received from the United  States Patent and Trademark  Office patent # 5,863,867
dated January 26, 1999, for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity
made by a Chemical  Precipitation  and  Low-Pressure  Calcination  method.  This
patent will expire on October 28, 2016. This material is used to make HTS powder
at this time.

         Several  other  patents  have  been or may be  filed  covering  various
aspects of the HTS field,  including the basic concepts, the powder composition,
processing,  and  products.  The Company has applied to the United States Patent
and  Trademark  Office  for a  patent  number  covering  Large,  Strongly-Linked
Superconducting  Monoliths and Process for Making Same. The application  date is
July 1, 1998. Notice of allowance for this patent  application has been received
and the Company expects a patent to issue in the near future.  Industry wide, it
has  been  reported  that  over  4,000  applications  exist  for HTS  materials,
processes  and  applications.  The  Company  does not have a license  or patents
covering all products that it makes and markets in the HTS field.

         The Company may not be able to obtain licenses for  manufacturing  from
the patent holders.  Furthermore, the Company may have a liability, which cannot
be determined at this time,  for products  produced prior to the issuance of the
patents. The Company may not have the resources to defend itself in the event of
a patent  lawsuit,  although the Company is not currently a party to any ongoing
patent  dispute or litigation  and knows of no  circumstances  at this time that
would give rise to such a dispute or litigation.

         The Company's patent attorneys are Hudak and Shunk of Akron,  Ohio. Ms.
Laura  Shunk,  a partner in that firm,  is the  daughter of Dr.  Edward R. Funk,
President and Chief Executive Officer of the Company.

         Trademarks.  The Company has a federally  registered  trademark  on the
word "Levitator(R),"  which is used to describe the SCI Division's line of large
domain YBCO seeded and melt-textured monoliths.

                                      -16-

<PAGE>
         Non-Exclusive  Licenses.  The  Company  has the following non-exclusive
licenses:

         o  Sandia National Laboratories - Sandia Chemical Prep Process for line
            YBCO  superconductive  powders,  license  #95-000131,  based on U.S.
            patent #4,839,339, dated June 13, 1989. The Company's license to use
            this  patent  is  governed  by the terms of a  Nonexclusive  License
            Agreement between the Company and Sandia Corporation, which operates
            Sandia National Laboratories,  effective February 26, 1996. Pursuant
            to this Agreement, the Company has a non-transferable, non-exclusive
            right and license to make,  sell,  lease and transfer  products that
            are operated  under any claim of Sandia  patent  rights for patent #
            4,439,339.  In exchange therefor,  and in addition to an initial fee
            paid on the effective date of the Agreement,  the Company  currently
            pays  Sandia a  royalty  equal to 5% of the net  sales  price of the
            licensed  product  sold,  leased or  transferred.  The  Nonexclusive
            License  Agreement is effective  until the earliest to occur of: (1)
            January 1, 2015, (2) expiration of the subject patent rights, or (3)
            a default by the Company on a royalty payment or other breach by the
            Company  of the  Agreement  that is not cured  within 60 days  after
            written  notice  from  Sandia  of  such  default.  Sandia  may  also
            terminate the Agreement upon the Company's dissolution,  insolvency,
            bankruptcy, or similar event.

         o  Argonne National Laboratory Low Pressure Calcination process for low
            Carbon HTS material.  License # ANL-IN-89-030,  based on U.S. patent
            #5,086,034.  This license is subject to the terms of a  Nonexclusive
            License  Agreement between the Company and The University of Chicago
            as operator of Argonne National Laboratory,  effective as of October
            12, 1995. Pursuant to this Agreement, the Company has a nonexclusive
            license to use U.S. patent #5,086,034 and all extensions  thereof in
            the processing of HTS powders. In exchange therefor, and in addition
            to an initial non-refundable license fee, the Company currently pays
            a royalty  equal to 1.25% of its gross sales of products made within
            the scope of any  claim of the  subject  patent.  The  Agreement  is
            effective  for as long as the patent is  effective,  except that the
            Company  may  terminate  at any time,  with or without  cause,  upon
            written notice to the  University,  and the University may terminate
            if the Company has breached a material term of the Agreement and has
            failed to cure the same within 90 days of receiving  written  notice
            of such  breach  from the  University.  The  Company  may assign the
            Agreement only with the University's  consent,  which the University
            may not unreasonably withhold.

         o  Argonne   National   Laboratory   Levitator   Package.   Licenses  #
            ANL-IN-93-008,  ANL-IN-93-130,  ANL-IN-93-134  based on U.S. patents
            #5,504,060  (Method of  Harvesting  Rare Earth  Barium  Copper Oxide
            Single Crystals),  #5,549,748  (Method of Harvesting Single Crystals
            from a Peritectic  Melt),  and #5776,864  (Large Domain 123 Material
            Produced by Seeding with Single  Crystal  Rare Earth  Barium  Copper
            Oxide  Single  Crystals).  This license is subject to the terms of a
            Nonexclusive   License   Agreement   between  the  Company  and  The
            University   of  Chicago  as  operator   of  the  Argonne   National
            Laboratory,  effective  as of October  12,  1995.  Pursuant  to this
            Agreement,  the  Company  has a  nonexclusive  license  to  use  the
            foregoing  patents in  levitator  materials  and seeds for  inducing
            phase  control in levitator  materials  during melt  processing.  In
            exchange  therefor,  and in addition to non-refundable  license fees
            already paid, the Company  currently pays a royalty equal to 5.0% of
            its gross  sales of  products  made within the scope of any claim of
            the subject  patents.  The Agreement is effective for as long as the
            patents are effective,  except that the Company may terminate at any
            time, with or without cause,  upon written notice to the University,
            and the  University  may  terminate  if the Company  has  breached a
            material  term of the  Agreement  and has  failed  to cure  the same
            within 90 days of receiving  written  notice of such breach from the
            University.  The  Company  may  assign the  Agreement  only with the
            University's  consent,  which the  University  may not  unreasonably
            withhold.

         The  Company's  license  agreements  with  Argonne and Sandia  National
Laboratories  form the core of its  technology  base in HTS  powder  and  device
fabrication.  The Company  acquired  these  licenses for less cost than it could
have developed similar technology  internally,  and was able, based on the speed
at which the Company was able to  commercialize  the resulting HTS products,  to
create a revenue  stream  within a few  months  of  license  acquisition  dates.
Subsequently,  the  Company  has  built  on these  licenses  to  create  its own
intellectual  property  in  the  form  of  patents,  patent  applications,   and
industrial knowledge.

         Licensed  Powder  Processing  Technologies.  The processes  used by the
Company to manufacture high temperature  ceramic  (superconductive)  powder were
invented at various national research laboratories operated by the

                                      -17-
<PAGE>


Department  of  Energy.  The  Company  has  licensed  these  processes  from the
Department  of Energy,  which gives the Company the legal right to practice  the
technology in exchange for a small  royalty on sales.  The powders are then used
to make pressed shapes which can become  sputtering  targets or Levitators(R) or
they can be sold without  further  processing to customers who will combine them
with other materials to make superconductive wire and cable.

         Trade Secrets.  The  Company  uses  the  following trade secrets in the
manufacture of its SCI Division products:

         o  powder fabrication in non-SC powders;
         o  powder densification in YBCO and non-SC material;
         o  fabrication  of  BI-layer  structure  of  YBCO  for  use in  gravity
            modification; and
         o  fabrication of nano-materials.

THE TMI DIVISION

         The TMI  Division  manufactures  and  markets  source  materials,  both
ceramics and metals, for the thin film physical vacuum deposition industry.  The
TMI Division  has served over 950  customers  worldwide in 40 foreign  countries
over the past five years.

         While  serving as  critical  raw  materials  for the  fabrication  of a
variety of highly  engineered thin film products -- from integrated  circuits to
window coatings -- sputtering targets are themselves  high-value-added  advanced
materials.

The Sputtering Targets Industry

         A number of  technological  changes are occurring within the sputtering
industry. For example, higher purity sputtering targets and new target materials
are  emerging  to improve  the  performance  of thin film  products  for certain
applications.  Also,  sputtering target fabrication  methods and cathode designs
are being  refined and  optimized to improve  target  material  utilization  and
process efficiency.

         A  Business  Communications,   Inc.  Report,  dated  August  26,  1999,
summarizes sputtering target consumption as follows:

                     SPUTTERED FILMS AND SPUTTERING TARGETS

         -----------------------------------------------------------------------
                                                                           AAGR*
         WORLD MARKET                                        1999   2004   (%)
                                                             EST'D  EST'D  EST'D
         -----------------------------------------------------------------------

         Total film area (in million s of meters squared)     363    764  16.0
         Target consumption (in millions of kilograms)        2.9    3.9   6.0
         Target consumption (in millions of pounds)           6.4    8.5   6.0
         Approx. target units consumed (in thousands)         374    510   6.4
         Value of material consumed (in millions of dollars)  720   1100   8.8

                  Source: Business Communications Co. Inc., Norwalk, Connecticut
                  * Average Annual Growth Rate

         An estimated 2.9 million  kilograms (6.4 million  pounds) of sputtering
target material will be consumed in 1999 to  sputter-deposit  363 million square
meters of thin films for  microelectronics,  data storage,  advanced display and
optical  coating  applications.  This  projection  shows  that,  worldwide,  the
production  of sputtered  films will  increase at an average  annual growth rate
("AAGR")  of 16.0% from 1999 to 2004,  reaching  764  million  square  meters of
sputter-deposited films in 2004.

                                      -18-

<PAGE>

         Applications of sputtering targets include the following products:

         o  optical filters;
         o  flat panel displays;
         o  photovoltaic cells;
         o  electronic switches;
         o  thin film resistors;
         o  decorative coatings;
         o  thin film batteries; and
         o  tool coating for wear  resistance,  non-glare  glass and mirrors and
            semi-conductors.

TMI Division Products

         Sputtering  Targets.  The  Company  has  chosen to focus on  production
applications in industries  other than the  semi-conductor  industry.  Thus, the
focus  of  the  Company  is on the  use  of  sputtering  targets  in  industrial
applications.  Sputtering targets are offered in an extensive line of materials,
including most ceramic materials and various metals and alloys. Customers in the
solar panel, tool coating, decorative coating, electronic,  optical and research
industries use these targets.  Non-superconducting targets (including buy/resell
targets,   buy/resell  of  precious  metals,  and  other  miscellaneous   items)
represented  approximately  66.2% of Company revenues in 2000, 60.9% in 1999 and
58.9% in 1998. In addition to the TMI Division,  the SCI Division of the Company
also makes and markets sputtering targets.  The SCI Division sputtering targets,
however, are made of more complex ceramics which require specialized processing.

         Bonding  and  Backing  Plates.  Bonding is the  process  of  adhering a
sputtering  target to a  backing  plate to  prepare  the  target  for use in the
physical  vapor  deposition  process.  Physical vapor  deposition  processes are
coating  techniques  that deposit thin metal,  ceramic or other materials onto a
substrate,  and include sputtering,  laser ablation,  evaporation,  and ion beam
deposition. The Company offers bonding on its own, or customer supplied, backing
plates with metallic  solder or silver epoxy.  High purity copper backing plates
can also be used in thicknesses ranging from .125" to 1" on sizes from 1" to 12"
and rectangles to 72" long.  Bonding services  generated  approximately  6.6% of
Company revenues in 2000 and 6.1% in 1999. In earlier years, TMI had the bonding
done through an outside source.

Process Knowledge

         Since its inception, the TMI Division has invested heavily in practical
in-house research and development. Each item of the nearly 200 items now offered
in the TMI  Division's  catalogue  has  required  some  degree  of  development,
including finding vendors, developing the manufacturing processes and methods of
control  and  standardization.  The  process  knowledge  is  captured in written
specifications, process set cards, logs, operating procedures and other means.

Competition

         The market for sputtering targets is very competitive.  The Company has
numerous  competitors,  most of which  are  larger  and have  greater  financial
resources than the Company.  Domestically,  the Company views Puretech,  Inc., a
division  of  Williams  Advanced   Materials,   itself  a  division  of  Wellman
Corporation,  and Cerac Corporation as primary  competitors over the entire line
of manufactured  products,  although as many as 30 competitors exist and compete
for different  portions of the sputtering target market.  Further,  some primary
metal suppliers also produce sputtering targets.

         Additionally,   the  Company  competes  with  several  other  companies
producing  sputtering  targets and  thin-film  deposition  materials for foreign
markets.  Management  believes that Tosoh Corp. has the largest worldwide market
share,   followed  by  MRC  Corporation  (a  division  of  Praxair  Corp.),  VMC
Corporation,  Johnson Mathey Corporation,  Nippon Mining  Corporation,  Puretech
Inc., and Cerac Inc. All enjoy vastly superior resources than those possessed by
the Company.  However, few of these competitors focus their marketing efforts on
the research  segment of the market,  due to the low volumes  that  characterize
this market niche.

         The Company  believes  that the principal  competitive  factors in this
market are price, service, quality, reliability,  reproducibility,  availability
of technical information, and timely deliveries.

                                      -19-

<PAGE>

         The Company  strives to  differentiate  itself from its  competitors by
providing a full line of  manufacturing  capabilities,  maintaining an excellent
quality rating by achieving  quick  turnaround on  manufactured  orders,  and by
providing personalized customer service.

         Although  TMI's  objective  is to  achieve  an 80.0% to 20.0%  ratio of
shipments for production to research and development, at this time, the ratio is
approximately  60.0%  production to 40.0%  research and  development.  Obtaining
production   business  requires   submitting   samples,   meeting  the  customer
specifications,  and developing  the confidence of the customer for  reliability
and  reproducibility.  Management  believes  that  the  needs  of its  customers
generally progress from research and development  quantities to pilot production
to full scale production.  The length of time this cycle requires varies widely.
The TMI  Division  now has the  equipment  and  capacity  to  supply  production
quantities  to  customers  who have  moved out of the  development  phase to the
production  of any  new  product.  Management  believes  that it will be able to
capture a larger  portion of  production  type  orders in the future  from these
customers  based  on  on-going  sales  and  marketing   programs  and  long-term
relationships that have been developed with current and prospective customers.

Marketing and Sales

         The  TMI   Division   markets   and  sells  its   products   worldwide,
concentrating on the research and development and industrial production markets.
Domestic sales account for approximately 70% of the Company's sales, compared to
30% export sales. All sales are conducted in United States dollars.

         In the United  States,  the TMI Division  markets and sells through its
internal  sales staff,  and through  independent  manufacturer's  representative
groups located strategically around the country.  Either party may terminate the
Company's contracts with its representatives on 60 days notice. Commission rates
vary according to materials and other factors.  A typical  commission rate is 8%
of gross sales dollars.

         In  Asia,   the  TMI  division   markets  and  sells  through   several
non-exclusive  distributors.  Sales in this region consist primarily of research
and  development  accounts.  TMI  currently  is  seeking  representation  in the
European market.

Production Capacity

         In the TMI Division,  the production  equipment  currently on hand will
accommodate  a  throughput  of $4.0  million or greater per year,  depending  on
product mix and the  addition  of a second  shift  operation.  In order to enter
production accounts requiring larger, more complex targets,  the Company intends
to  acquire  a  larger  machine  center  in  2001.  The  new  center  will  cost
approximately  $150,000  and will be financed  through a leasing  program.  This
additional  center  will  increase  the  TMI  Division  production  capacity  by
approximately  25%. With those measures taken, the production  capability of the
TMI Division is expected to be approximately $6.0 million per year revenue.

Major Suppliers and Customers

         The TMI Division buys raw  materials,  components and chemicals used in
the manufacture and assembly of the Company's  products.  If these materials are
not  received  in a  timely  manner,  it  may  seriously  affect  the  Company's
production  schedule.  The Company,  however,  has  designed its products  using
widely-available  standard items and components,  and has identified alternative
vendors  it may use in order to avoid  production  delays.  The  Company  is not
experiencing  difficulty  in  maintaining  its  inventory  of  such  components,
although purchase commitments are, at times, limited by cash flow.

         The TMI Division  purchases  various types of ceramic powder as well as
metal for the production of ceramic or metal sputtering targets. These materials
are purchased to Company  specifications.  In such cases,  the price per unit of
weight of the  material  depends  primarily  on the volumes  purchased.  In some
cases,  the materials are very costly.  The  quantities  purchased and price per
unit  weight  paid  by  the  Company  varies   widely,   based  upon  cash  flow
considerations and inventory levels.

                                      -20-

<PAGE>


         The  Company  has  established  supplier  relations  with a  number  of
companies, some of which are importers of metals from other countries, including
China and Russia. Delivery schedules are often unpredictable for these supplies,
requiring  the  Company  to  maintain  considerable  inventory  levels  to avoid
shortages.

         The Company  does not  manufacture  sputtering  targets made from gold,
platinum,  palladium  or other  materials  considered  in the market as precious
metals.  As a service to its  customers  who require  such  materials,  TMI buys
finished  targets from one of several  suppliers  and resells these targets at a
markup. The approximate  percent of the Company's overall revenues consisting of
precious  metals targets was 5.3% in 1998,  7.9% in 1999, and 10.9% in 2000. The
Company  maintains a letter of credit with one precious  metal supplier to cover
the purchases.  The Company sells precious  metals on a net-10 day basis,  while
all other sales are net-30 days.

         The Company also purchases other finished  sputtering targets made with
unique  compositions  of common  materials from outside  sources for resale at a
markup to its customers as a service.  The approximate  percent of the Company's
overall  revenues  consisting  of these  "buy/re-sell"  items was 12.1% in 1998,
12.7% in  1999,  and  10.9%  in  2000.  The  Company  has  appropriate  purchase
specifications,  and performs its own receiving,  inspection and quality control
on these products prior to shipment to its customers.

         The top five  suppliers to the TMI Division in 2000 were, in descending
order: Williams Advanced Materials,  Inc., Standard Resources,  Inc., ACI Alloys
Inc.,  Noah,  Inc.  and Alta,  Inc. In every case,  the  Company  believes  that
suitable  substitute vendors could be found. The Company buys primarily based on
quality, price and delivery to its specifications factors.

         No  customers in the TMI  Division  accounted  for 10.0% or more of the
total TMI revenue in 2000.

Research and Development

         The TMI Division has no government support, preferring to invest in and
control its research  and  development  program in a commercial  market-oriented
customer-driven manner.

Quality Control

         The  Company  strives  for world  class  quality in its  products.  The
Company has experienced quality control problems in the past. Consequently,  the
Company in recent years has invested funds in the development and implementation
of a quality assurance program to insure that each process in the manufacturing,
materials purchasing and order-entry functions are more tightly controlled.

         The Company has also invested in quality control equipment. The Company
is currently able to perform in-house testing of its ceramic products and metals
and  alloys  via  scanning  electron  microscopy,   Edax,  differential  thermal
analysis,  electrical  resistivity,  particle size  analysis,  ICP,  spectagraph
equipment and XRD.

         The quality control efforts have included preparation for certification
for ISO 9000,  the  international  standard of quality  performance,  as well as
investment in training of personnel,  preparation of specifications,  purchasing
and installation of equipment,  purchasing of software, on-going calibration and
maintenance of advanced  measuring and  composition  analysis  equipment.  These
efforts have produced a significant  improvement in the product  produced by the
Company,  as shown by customer  returns,  which were under 2.2% overall in 2000,
1.7% in 1999  and 2.0% in 1998.  The  Company  has not  requested  the  required
examination by the controlling  authorities for ISO 9000 and does not plan to do
so in fiscal year 2001.

EMPLOYEES

         The Company currently has 23 full-time and 4 part-time employees. Three
of the Company's  employees have a Ph.D. in Chemistry or Materials Science.  Ten
employees  work  primarily  for the  TMI  Division  of the  Company,  while  the
remainder work primarily for the SCI Division.  In the case of shared employees,
charges are assigned in accordance with the ratio of shipped dollars.

                                      -21-

<PAGE>

         The Company has never  experienced  work  stoppage  and  considers  its
relations  with  employees  to be good.  The  employees do not have a bargaining
unit.

ENVIRONMENTAL MATTERS

         The Company generates small quantities of ceramic dust from grinding or
machining  and has  approval  from the Ohio EPA for the  emission of the exhaust
from these  materials,  which are primarily  Zinc Oxide.  The Company  maintains
filters and dust  collectors  that it believes  are in  accordance  with all EPA
regulations.  The  Company  has been  inspected  from  time to time by local EPA
authorities and the few noted  deficiencies  have been  corrected.  To date, the
Company is not under any EPA strictures.

         The Company  does not handle  "hazardous  materials"  as defined on the
Materials Safety and Data Sheets  ("MSDS").  The Company supplies MSDS sheets to
its customers with all shipments as a routine  procedure.  The TMI Division also
does not offer products made from "hazardous materials" (as defined by the MSDS,
for the materials).

COLLECTIONS AND WRITE-OFFS

         The Company collected its receivables in an average of 44 days in 2000.
The Company has  occasionally  been forced to write-off a few small  invoices as
uncollectible. The Company considers credit management critical to its success.

SEASONAL TRENDS

         The Company has not  experienced  and does not in the future  expect to
experience seasonal trends in its business operations.

RISK FACTORS

         The Company  desires to take advantage of the "safe harbor"  provisions
of the Private  Securities  Litigation Reform Act of 1995. The following factors
have affected or could affect the Company's  actual results and could cause such
results  to  differ  materially  from  those  expressed  in any  forward-looking
statements  made  by  the  Company.  Investors  should  consider  carefully  the
following risks and speculative  factors  inherent in and affecting the business
of the Company and an investment in the Company's common stock.

WE HAVE EXPERIENCED SIGNIFICANT OPERATING LOSSES IN THE PAST AND MAY CONTINUE TO
DO SO IN THE FUTURE.

         We commenced  business in May of 1987 and have never been profitable on
an annual  basis.  We have  reported  net  losses  for each of the  years  ended
December 31, 2000, 1999, and 1998, respectively, as detailed below.

                                                   Research and
                Period              Sales          Development          Loss
            ---------------    --------------    ---------------    ------------

                 12/31/00         3,205,163           17,623          (153,694)
                 12/31/99         2,678,362           15,392          (138,420)
                 12/31/98         2,498,162           41,421          (232,887)


         We have  financed  these losses  primarily  from:  (i) several  private
offerings of debt and equity securities;  (ii) additional  investments and loans
by our major  shareholders;  and (iii) a private  offering  of common  stock and
warrants  to  purchase  common  stock in October  2000.  We can not assure  you,
however,  that we will be able to raise additional capital in the future to fund
our operations.

                                      -22-

<PAGE>


WE HAVE LIMITED MARKETING AND SALES CAPABILITIES.

         To  successfully  market  our  products,  we must  continue  to develop
appropriate  marketing,  sales,  technical,  customer  service and  distribution
capabilities,  or enter  into  agreements  with third  parties to provide  these
services.  Our  failure  to develop  these  capabilities  or obtain  third-party
agreements could adversely affect us.

OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN KEY MANAGEMENT PERSONNEL, INCLUDING
OUR CURRENT PRESIDENT AND CHIEF EXECUTIVE OFFICER.

         Our success  depends in large part on our ability to attract and retain
highly qualified management, administrative,  manufacturing, sales, and research
and development personnel. Due to the specialized nature of the our business, it
may be difficult to locate and hire qualified personnel. The loss of services of
one our executive officers or other key personnel, or our failure to attract and
retain other executive officers or key personnel,  could have a material adverse
effect on our business, operating results and financial condition.

         Our success also depends substantially on the knowledge, expertise, and
continued financial contributions of our President,  Chief Executive Officer and
major  shareholder,  Dr.  Edward R. Funk.  The loss of the  services of Dr. Funk
would likely have a material adverse effect on our operations,  especially if we
cannot find a qualified replacement.

WE MAY NEED TO SEEK ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY REDUCE THE VALUE
OF OUR COMMON STOCK.

         The Company has incurred  substantial  operating  losses,  and numerous
factors  could require that the Company seek  additional  capital in the future.
Unless the Company increases sales in the near future, additional capital may be
needed,  and there is no assurance that the it will be available or that it will
be  available  on the terms  that will not  result in  substantial  dilution  or
reduction in value of the Company's common stock.

OUR COMPETITORS HAVE FAR GREATER FINANCIAL AND OTHER RESOURCES THAN WE HAVE.

         The superconductive  industry is in its early formative state and there
is substantial competition in the current market for superconductors,  including
superconductive  ceramic materials and related  products.  While we believe that
our  superconductive  products enjoy certain  competitive  advantages in design,
function,  quality,  and  availability,  considerable  competition  exists  from
well-established   firms  such  as  a  division  of  Praxair's  Surface  Science
Technology group as well as MCR,  Johnson  Matthey,  Pure Tech and CERAC, all of
which have more resources than we have.

         In  addition,  a  significant  portion of our  business  is in the very
competitive market for sputtering targets made of ceramics,  metals, and alloys.
We face  substantial  competition  in this area from  companies with far greater
financial  and  other  resources  than  we  have.  We  cannot  assure  you  that
developments by others will not render our products or technologies  obsolete or
less competitive.

WE DEPEND ON  GOVERNMENT  SPONSORED  RESEARCH AND  DEVELOPMENT  CONTRACTS  FOR A
SIGNIFICANT AMOUNT OF REVENUE.

         We are,  and expect to  continue to be in the near term,  dependent  on
government  funding  for  our  research  and  development  projects.  Government
contracts may be reduced or  eliminated  at any time,  and receipt of all or any
part  of the  funds  under  any of our  existing  government  contracts  not yet
performed is not  guaranteed.  If we fail to increase  revenues from  commercial
sales, a significant loss of government funding would severally harm us.

GOVERNMENT  CONTRACTS MAY BE TERMINATED OR SUSPENDED FOR  NONCOMPLIANCE OR OTHER
EVENTS BEYOND OUR CONTROL.

         The government may cancel virtually all of our government contracts and
are  terminable  at the option of the  government.  While we have  complied with
applicable government rules and regulations and contract provisions in the past,
we could fail to comply in the future. Noncompliance with government procurement
regulations or contract provisions could result in the termination of government
contracts.  The  termination  of our  significant  government  contracts  or the
adoption of new or modified procurement regulations or practices could adversely
affect us.

                                      -23-

<PAGE>


         Inventions conceived or actually reduced to practice under a government
contract   generally   result  in  the  government   obtaining  a  royalty-free,
non-exclusive  license  to  practice  the  invention.  Similarly,   technologies
developed  in whole or in part at  government  expense  generally  result in the
government  obtaining  unlimited rights to use,  duplicate or disclose technical
data produced under the contract. These licenses and rights may result in a loss
of potential revenues or the disclosure of our proprietary  information,  either
of which could adversely affect us.

OUR  REVENUES  DEPEND  ON  PATENTS  AND  PROPRIETARY  RIGHTS  WHICH  MAY  NOT BE
ENFORCEABLE.

         We  rely  on  a  combination  of  patent  and  trademark  law,  license
agreements,  internal  procedures  and  nondisclosure  agreements to protect our
intellectual property. These may be invalidated,  circumvented or challenged. In
addition,  the laws of some  foreign  countries  in which  our  products  may be
produced  or sold do not protect our  intellectual  property  rights to the same
extent as the laws of the United States.  Our failure to protect our proprietary
information could adversely affect us.

RIGHTS WE HAVE TO PATENTS AND PENDING PATENT APPLICATIONS MAY BE CHALLENGED.

         We have received  from the United States Patent and Trademark  Office a
patent  for  Fine-Particle  Bi-Sr-Ca-Cu-O  Having  High Phase  Purity  made by a
Chemical  Precipitation  and  Low-Pressure  Calcination  method,  and have  also
applied for a patent covering Large Weld-Connected Superconducting Monoliths and
Process for Making the Same. In addition, in the future we may submit additional
patent  applications  covering  various  aspects  of the HTS  field.  The patent
application we filed and patent  applications that we may file in the future may
not  result in  patents  being  issued,  and any  patents  issued may not afford
meaningful  protection against competitors with similar  technology,  and may be
challenged by third parties.  Because U.S. patent applications are maintained in
secret until patents are issued, and because  publications of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by several
months, we may not be the first creator of inventions  covered by issued patents
or pending patent applications or the first to file patent applications for such
inventions.   Moreover,   other  parties  may   independently   develop  similar
technologies,  duplicate  our  technologies  or, if patents  are issued to us or
rights licensed by us, design around the patented aspects of any technologies we
developed or licensed.  We may have to participate in  interference  proceedings
declared by the U.S.  Patent and  Trademark  Office to determine the priority of
inventions,  which could result in  substantial  costs.  Litigation  may also be
necessary  to enforce any patents  held by or issued to us or to  determine  the
scope  and  validity  of  others'  proprietary  rights,  which  could  result in
substantial costs.

THE RAPID RATE OF INVENTIONS AND DISCOVERIES IN THE SUPERCONDUCTIVITY  FIELD HAS
RAISED MANY UNRESOLVED PATENT ISSUES THAT MAY NEGATIVELY AFFECT OUR BUSINESS.

         The claims in granted  patents  often  overlap  and there are  disputes
involving  rights to inventions  claimed in pending  patent  applications.  As a
result,  the patent  situation in the high temperature  superconductor  field is
unusually  complex.  It is  possible  that there  will be patents  held by third
parties relating to our products or technology.  We may need to acquire licenses
to design around or successfully contest the validity or enforceability of those
patents.  It is also  possible  that  because of the number and scope of patents
pending or issued,  we may be required to obtain  multiple  licenses in order to
use a single material. If we are required to obtain multiple licenses, our costs
will  increase.  Furthermore,  licenses  may not be  available  on  commercially
reasonable  terms or at all.  The  likelihood  of  successfully  contesting  the
validity  or  enforceability  of those  patents is also  uncertain;  and, in any
event,  we could incur  substantial  costs in defending the validity or scope of
our patents or challenging the patents of others.

THE RAPID TECHNOLOGICAL CHANGES OF OUR INDUSTRY MAY ADVERSELY AFFECT US IF WE DO
NOT KEEP PACE WITH ADVANCING TECHNOLOGY.

         The field of  superconductivity  is characterized by rapidly  advancing
technology.  Our  success  depends on our  ability  to keep pace with  advancing
superconductor technology, including superconducting materials and processes and
industry  standards.  To date,  we have focused our  development  efforts on HTS
superconducting  powders and  targets,  as well as  sputtering  targets  made of
non-superconducting  ceramics, metals and metal alloys. We intend to continue to
develop and integrate advances in the thin film coatings industry.  However, our
development   efforts  may  be  rendered   obsolete  by  research   efforts  and
technological  advances  made by  others,  and  materials  other

                                      -24-

<PAGE>

than   those  we   currently   use  may   prove   more   advantageous   for  the
commercialization of high-temperature superconductor products.

THE MARKET FOR OUR COMMON STOCK IS LIMITED.

         There is  presently  only a limited  public  market  for  shares of our
common stock.  Our common stock currently is traded over the counter through the
National Quotation Bureau (a.k.a. - the "pink sheets"). While we are applying to
have our shares re-listed on the OTC Bulletin Board,  there is no guarantee that
our application  will be approved.  Even if our common stock is re-listed on the
OTC Bulletin Board, we cannot assure you that market makers will continue to buy
and sell our  securities.  Further,  even if these market makers continue to buy
and sell our securities,  we cannot assure you that one of our  shareholders who
desires to sell a specified  number of shares will be able to all such shares at
the price quoted by the market maker.

         The market prices for securities of superconductive  material companies
have been volatile throughout the Company's existence. Most of the companies are
traded  over the  counter  through  the  National  Quotation  Bureau or National
Association of Securities Dealers Automated Quotation System. Historical trading
characteristics  for public  companies in this industry  include  limited market
support,  low trading volume,  and wide spreads (on a percentage  basis) between
the  bid  and  ask  prices.   Announcements   regarding  product   developments,
technological  advances,  significant  customer  orders,  and financial  results
significantly influence per share prices.

OUR COMMON STOCK IS SUBJECT TO THE SECURITIES AND EXCHANGE  COMMISSION'S  "PENNY
STOCK"  REGULATIONS,  WHICH  LIMITS THE  LIQUIDITY  OF COMMON  STOCK HELD BY OUR
SHAREHOLDERS.

         Based on its trading  price,  our common  stock is  considered a "penny
stock" for  purposes of federal  securities  laws,  and  therefore is subject to
regulations  which affect the ability of  broker-dealers  to sell the  Company's
securities.  Broker-dealers who recommend a "penny stock" to persons (other than
established  customers and  accredited  investors)  must make a special  written
suitability  determination  and receive the purchaser's  written  agreement to a
transaction prior to sale.

         As long as the penny stock  regulations  apply to our common stock,  it
may be difficult to trade such stock because compliance with the regulations can
delay and/or  preclude  certain  trading  transactions.  Brokers-dealers  may be
discouraged from effecting transactions in our common stock because of the sales
practice  and  disclosure  requirements  for penny stock.  This could  adversely
effect the liquidity  and/or price of our common  stock,  and impede the sale of
our common stock in the secondary market.

WE HAVE NOT PAID  DIVIDENDS ON OUR COMMON STOCK IN THE PAST AND DO NOT EXPECT TO
DO SO IN THE FUTURE.

         We cannot  assure you that our  operations  will  result in  sufficient
revenues to enable us to operate at  profitable  levels or to generate  positive
cash flow  sufficient  to pay  dividends.  We have never paid  dividends  on our
common shares in the past and do not expect to do so in the foreseeable future.

ITEM 2.  DESCRIPTION OF PROPERTY.

         The Company's office and  manufacturing  facilities are located at 1145
Chesapeake Avenue,  Columbus,  Ohio, where it occupies about 20,000 square feet.
Additional  space of 10,000  square feet is currently  sub-leased by the Company
and can be reclaimed for Company use on three months notice. The Company's lease
on the property currently is month-to-month,  and negotiations for a longer term
lease are pending.

         There is adequate  power  running to several  locations in the building
and other utilities are adequate for the projected growth.

         The Company is current on all operating lease liabilities.

                                      -25-

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         There are no known legal proceedings against the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET FOR COMMON STOCK

         The Company's  common stock traded on the OTC Bulletin  Board under the
symbol "SCCI" until April 2000, at which time it began to trade over the counter
through the National  Quotation  Bureau.  The following table sets forth for the
periods indicated the high and low bid quotations for the Company's common stock
as reported on the OTC Bulletin  Board,  except for the Quarters  ended June 30,
2000,  September 30, 2000,  and December 31, 2000,  which set forth the high and
low bid  quotations  for the  Company's  common stock on the National  Quotation
Bureau.

                                                     HIGH             LOW
                                                     ----             ---

FISCAL 1999

         Quarter ended March 30, 1999                4 1/4              3/4

         Quarter ended June 30, 1999                 3 1/4            1 1/2

         Quarter ended September 30, 1999            2 1/2            1 1/4

         Quarter ended December 31, 1999             2 3/4            1 1/2

FISCAL 2000

         Quarter Ended March 31, 2000                29               1 1/2

         Quarter Ended June 30, 2000                 5                2

         Quarter Ended September 30, 2000            3 3/5            1 3/4

         Quarter Ended December 31, 2000             3 3/4            1


         The quotations provided herein may reflect  inter-dealer prices without
retail  mark-up,  markdown,  or  commissions,   and  may  not  represent  actual
transactions.

         As discussed  above, at the present time, the Company's common stock is
not listed on The Nasdaq  SmallCap  Stock Market or on any stock  exchange,  but
trades over the counter  through the  National  Quotation  Bureau.  Based on its
trading  price,  the  Company's  common stock is  considered a "penny stock" for
purposes  of  federal  securities  laws,  and  therefore  is  subject to certain
regulations which are summarized below.

         The Securities  Enforcement and Penny Stock Reform Act of 1990 requires
special  disclosure  relating to the market for penny stocks in connection  with
trades  in any stock  defined  as a "penny  stock."  Specifically,  Rules  15g-1
through 15g-9 under the  Securities  Exchange Act of 1934 (the  "Exchange  Act")
impose sales practice and


                                      -26-

<PAGE>

disclosure  requirements on NASD  brokers-dealers  who make a market in a "penny
stock." Securities and Exchange Commission  regulations generally define a penny
stock to be an equity  security  that has a market  price of less than $5.00 per
share and that is not  listed on The  Nasdaq  SmallCap  Stock  Market or a major
stock exchange.  These regulations  affect the ability of broker-dealers to sell
the  Company's  securities  and also may affect the ability of purchasers of the
Company's common stock to sell their shares in the secondary market.

         Under the penny stock regulations,  a broker-dealer selling penny stock
to  anyone  other  than  an  established  customer  or  "accredited   investor,"
generally,  an  individual  with net worth in excess of  $1,000,000 or an annual
income exceeding  $200,000,  or $300,000  together with his or her spouse,  must
make a special suitability  determination for the purchaser and must receive the
purchaser's  written  consent  to the  transaction  prior  to sale,  unless  the
broker-dealer  or the transaction is otherwise  exempt.  In addition,  the penny
stock regulations require the broker-dealer to deliver, prior to any transaction
involving a penny  stock,  a  disclosure  schedule  prepared  by the  Commission
relating to the penny stock market,  unless the broker-dealer or the transaction
is otherwise  exempt. A broker-dealer  is also required to disclose  commissions
payable to the  broker-dealer  and the  registered  representative  and  current
quotations for the  securities.  Finally,  a  broker-dealer  is required to send
monthly statements disclosing recent price information with respect to the penny
stock held in a customer's  account and information  with respect to the limited
market in penny stocks.

         As long as the penny stock regulations apply to the Company's stock, it
may be difficult to trade such stock because compliance with the regulations can
delay and/or  preclude  certain  trading  transactions.  Brokers-dealers  may be
discouraged  from effecting  transactions  in the Company's stock because of the
sales practice and disclosure requirements for penny stock. This could adversely
effect the liquidity  and/or price of the Company's common stock, and impede the
sale of the Company's stock in the secondary market.

HOLDERS OF RECORD

         As of December 31, 2000, there were approximately 762 holders of record
of the  common  stock of the  Company  and  1,816,977  shares  outstanding,  and
approximately  69  holders  of  Series B  Preferred  and one  holder of Series A
Preferred  stock.  The Company  has come to have  approximately  762  registered
holders  of common  stock as a result of  various  unregistered  exempt  private
offerings of its common stock since the Company's  inception in 1987,  including
issuances of stock options to employees and to members of the Company's board of
directors,  and subsequent trading of the common stock on the OTC Bulletin Board
and over the  counter  through  the  National  Quotation  Bureau.  The number of
holders  of  common  stock has also  increased  due to  conversions  of Series B
preferred shares into shares of common stock.  There is no public market for the
Series A and B preferred shares.

         The  Company's 69 Series B Preferred  holders  acquired  their Series B
Preferred  Stock in an private  offering by the Company  that was  completed  in
1996.  The total amount of this  offering was $700,000.  The Company  issued the
Series B Preferred  Shares in reliance on an  exemption  pursuant to Rule 504 of
Regulation D under the  Securities  Act of 1933, and the offering was registered
by  qualification in the State of Ohio under Section 1707.09 of the Ohio Revised
Code.  As of  December  31,  2000,  there  were 99 shares of Series A  Preferred
outstanding and 26,648 Series B Preferred Shares outstanding.

DIVIDENDS

         The Company has never paid cash  dividends on its common stock and does
not expect to pay any  dividends in the  foreseeable  future.  Furthermore,  the
Company's bank loan prohibits it from paying cash dividends. The Company intends
to retain future earnings, if any, for use in the business.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

RESULTS OF OPERATIONS

         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 $5,660,276 from inception to December
31, 2000.

                                      -27-

<PAGE>

Fiscal Year 2000 As Compared to Fiscal Year 1999

         Revenues

         Revenues  in fiscal  2000  increased  by 19.6% to  $3,205,163  from the
fiscal 1999 level of $2,678,362.  Contract  research  revenue in fiscal 2000 was
$525,566 compared to $425,153 in fiscal 1999, an increase of 23.6%.

         TMI Division sales  increased to $2,069,895 in 2000 from  $1,779,519 in
1999 or an increase of 16.3%.  SCI Division sales for product sales increased to
$609,702 from $473,690 or an increase of 28.7%. Increase in sales is credited to
increased  sales of existing  customers and efforts by management to expand into
additional markets creating new customers.

         In 2000, total contract  research revenues were $525,566 as compared to
$425,153 in 1999. Government development contract revenue was $494,373, or 15.4%
of total revenues in 2000 and $392,617 or 14.7% of total revenues in 1999.  NASA
has been,  and is expected  in the near term to  continue  to be, the  Company's
largest  customer,  accounting  for 8.3% and 8.1% of the  Company's  revenues in
fiscal 2000 and 1999, respectively. Significant loss of government funding would
have a material adverse effect on the Company's  financial condition and results
of operations.

         Gross Margin

         Total gross  margin in 2000 was  $771,745 or 24.1% of total  revenue as
compared to $477,179 or 17.8% in 1999.

         Gross  margin on sales  revenue for the TMI  Division was 27.5% in 2000
versus  23.3% in 1999.  The  improvement  in gross  margin is due  primarily  to
increased  sales as the gross margin is impacted by  utilization  of  production
capacity.

         Gross margin on sales  revenue for the SCI Division  product  sales was
16.5% for 2000 compared to 13.9% in 1999.  The gross margin on product sales has
improved as a result of improved manufacturing processes.

         Gross  margins on the  Company's  products vary widely and are impacted
from period to period by sales mix and utilization of production  capacity.  The
gross  margin  on the  contract  research  is  generally  lower  than the  other
products. The Company expects that gross margins will improve as sales grow.

         Inventory  reserves are established  for obsolete  inventory and excess
inventory  quantities  based on management's  estimate of net realizable  value.
Changes in this reserve are  expensed to cost of goods sold or reduce  inventory
and approximated  $122,500 and $9,000 for the years ended December 31, 2000, and
1999, respectively.  During 2000, management completed a review of inventory for
both divisions in an effort to identify obsolete inventory.  As a result of this
detailed analysis,  management has valued the obsolete inventory at zero for the
TMI and SCI division of $73,553 and  $31,522,  respectively.  Inventory  and the
inventory  reserve accounts were reduced by the same dollar amounts.  Management
has  segregated  the  inventory  and is  identifying  methods  to dispose of the
inventory in compliance with all regulatory  agencies.  Management  believes the
total cost to dispose, net of scrap values, will be insignificant. Additionally,
management reviewed the inventory reserve and determined that the reserve should
be increased by approximately  $17,000 which was expensed to cost of goods sold.
During  1999,  changes in the  reserve  were  expensed to cost of goods sold and
totaled  $9,000  and  $6,000  for  the  TMI  and  SCI  Divisions,  respectively.
Management  deems the  inventory  reserve,  after  its  assessment  of  obsolete
inventory,  at December 31, 2000,of $61,000 to be adequate for excess  inventory
and a lower of cost-or-market analysis.

         Gross margin on contract  research revenue reported in the SCI Division
in segment reporting was 31.1% for 2000 compared to 13.9%. The increase in gross
margin on contract  research  revenue of 17.2% was due  primarily  to a $100,000
credit obtained from a third party  subcontractor  in 2000 which resulted in the
higher margins.

                                      -28-

<PAGE>

         Selling Expense

         Selling  expense in fiscal 2000  increased to $309,969 from $265,631 in
fiscal  1999,  a increase of $44,338,  or 16.7%.  This  increase is  primarily a
result of increased staffing for an additional sales  representative for the SCI
Division,  and a more aggressive sales and marketing campaign related to the TMI
Division.

         General and Administrative Expense

         General  and  Administrative   expense  in  fiscal  2000  increased  to
$560,653,  from $325,195 in fiscal 1999, an increase of $235,458,  or 72.4%. The
increase in these costs related to the expansion of the Company  infrastructure.
Legal and  accounting  increased  $127,000  related  to the  audit of  financial
statements and preparation for regulatory filings.

         Research and Development Expenses.

         Internal  research  and  development  costs are  expensed as  incurred.
Research and development costs, including testing, for 2000 was $17,623 compared
to $15,392 in 1999.  Internal  research  and  development  costs  decrease  when
government funded projects are available.

         Interest Expense.

         Interest  expense was  $57,901,  or 1.8% of Company  revenues in fiscal
2000,  up 30.1%  from  $44,473 in fiscal  1999.  Subordinated  notes  payable to
shareholders  increased by $89,408 during 2000. Additional borrowings of $75,000
on a bank line of credit also occurred  throughout  the year,  with all balances
repaid by year end.

LOSS APPLICABLE TO COMMON SHARES

         Net loss per common share based on the loss applicable to common shares
was $(0.15) and $(0.20) per common  share for the years ended  December 31, 2000
and 1999,  respectively.  The loss  applicable to common shares includes the net
loss from operations, Series A and B preferred stock dividends and the accretion
of Series A and B preferred stock. The net loss per common share from operations
was $(0.10) and $.011),  respectively.  The difference between the net loss from
operations  and the loss  applicable  to common  shares of $(0.05) and  $(0.09),
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
$8,668 and  $14,716,  respectively.  Dividends  on the Series B preferred  stock
totaled $76,637 and $76,637, respectively.

         The  accretion of Series A preferred  stock  represents  issue costs of
$70,277 that were netted against the proceeds of Series A preferred  stock.  The
issue costs are being amortized on a straight-line  basis over the payout period
of seven  years to loss  applicable  to common  shares  and  additional  paid-in
capital. The annual accretion totaled $11,713 and $11,713, respectively.

         The Series B preferred stock  accretion  represents a discount of $5.00
per share at the time of issuance of these shares. The original discount totaled
$350,000. The discount is being accreted to loss applicable to common shares and
additional  paid-in capital through the period that the Series B preferred stock
can be  converted  to common  stock  which is after the third  anniversary.  The
discount was fully amortized at December 31, 1998.

LIQUIDITY AND WORKING CAPITAL

         At December 31, 2000,  working capital was $760,595 compared to $57,991
at December 31, 1999. The increase in working capital of $702,604 was due mainly
to the  proceeds of sales of common  stock and  warrants  totaling  $528,000 and
accounts payable paid by a shareholder  which increased  long-term  subordinated
notes payable.  The Company  provided  (used) cash from operations for the years
ended  December 31,  2000,  and 1999 of $(95,370)  and  $107,633,  respectively.
Significant non-cash expenses included depreciation,  amortization and inventory
reserve on excess and obsolete  inventory  approximate  $281,000  and  $274,000,
respectively, for the years ended December 31, 2000, and 1999. Overall, accounts
receivable,  inventory and prepaids increased in excess of increases in accounts
payable  and  accrued   expenses  by   approximately   $226,000   and   $27,000,
respectively.  The overall  change  between years was due to the ability to make
payments on accrued  expenses with the cash  available from the common stock and
warrant  sales and the purchase of  additional  inventory  to restore  inventory
levels.

         For  investing  activities,  the  Company  used  cash of  approximately
$107,000  and  $66,000  for  the  years  ended  December  31,  2000,  and  1999,
respectively.  The  amounts  invested  in 2000 and 1999  were  used to  purchase
machinery and equipment for increased production capacity.

         For  financing  activities  for the year ended  December 31, 2000,  the
Company provided cash of approximately  $405,000. Cash payments to third parties
for debt and capital lease obligations  approximated $106,000. Cash payments for
accrued  cumulative  dividends  on Series A and B preferred  stock  approximated
$27,000.  Proceeds from the sale of common stock and warrants totaled  $528,000.
Proceeds from the exercise of common stock options totaled $80,000. The proceeds
from these were used to redeem  $70,000 of Series A preferred  stock and accrued
dividends.

         For  financing  activities  for the year ended  December 31, 1999,  the
Company used cash of  approximately  $46,000.  Due to tight cash flow,  cash was
overdrawn by approximately  $31,000. Cash payments to third parties for debt and
capital  lease  obligations  approximated  $73,000.  Proceeds  from  issuance of
subordinated  notes payable of approximately  $80,000 to a shareholder were used
to pay  accrued  cumulative  dividends  approximating  $84,000 on Series A and B
preferred stock.

                                     -29-

<PAGE>


         During fourth quarter 2000, the Company received proceeds from the sale
of common stock totaling $500,000 for 200,000 shares of common stock and $28,000
for the sale of warrants to purchase 140,000 shares of common stock at $3.50 per
share.  Additionally,  the  Company  has  available  $100,000  on a bank line of
credit.  In conjunction with the sale of common stock and common stock warrants,
Dr. and Mrs. Funk converted approximately $506,000 to common stock.

         Bank  debt  is  guaranteed  by the Dr.  Funk,  President  and  majority
shareholder of the Company.  Subordinated  notes payable are payable to majority
shareholders. During fourth quarter 2000, the subordinated debt was converted to
equity.

         Dr. Funk held all of the  outstanding  Series A  preferred  stock as of
December 31, 2000.  Additionally,  Dr. and Mrs. Funk have pledged  collateral as
security for the payment of Series B preferred stock dividends, which is held by
a third party. The Series B preferred  shareholders have the option to force the
sale of the secured collateral.

         While  officers  of the  Company  have  advanced  funds  in the form of
subordinated  debt,  accounts  payable and  guaranteeing  bank debt in the past,
there is no commitment by these  individuals to continue  funding the Company or
guaranteeing  bank  debt  in the  future.  However,  the  Company  believes  the
combination of increased  capital from these two common stock  transactions  and
the reduction of debt by the  conversion  to equity allows  management to pursue
its current  plans.  The Company will  continue to seek new  financing or equity
financing  arrangements.  However, the Company cannot be certain that it will be
successful in efforts to raise additional new funds.

INFLATION

         The Company believes that there has not been a significant  impact from
inflation on the Company's operations during the past three fiscal years.

FUTURE OPERATING RESULTS

         The Company has improved cash provided from operations in 1999.  During
2000,  the  Company  used cash to  increase  inventory  levels  and pay  accrued
expenses.  The  Company  is  currently  looking  to  relocate  from its  present
facilities in 2001.  The  relocation  will provide the Company with the space to
expand its production facilities.

         The Company has improved its equity and debt position in 2000. Series A
preferred stock has been reduced by $79,000  through  redemption by the Company.
Dr. and Mrs. Funk hold the remaining 99 outstanding shares of Series A preferred
stock.  Series B preferred stock was converted to equity during 2000 with 26,648
shares  of  Series B  preferred  stock  outstanding  as of  December  31,  2000.
Effective  October 10, 2000, the Company sold 200,000 shares of common stock for
total proceeds of $500,000,  and subordinated notes payable to Dr. and Mrs. Funk
approximating  $506,000 were  converted to common  stock.  These debt and equity
transactions  improve the Company's cash and equity position to allow for future
relocation,  plant  expansion  and  increasing  employees  as  management  deems
necessary to provide for a business  strategy  being  developed.  This  business
strategy  anticipates  material and device  development using the Company's core
skills in the area of  electronic  ceramics,  spinning  off the SCI Division and
offering a minority interest to the public and cooperation with its investors to
establish  the necessary  relationships  for the  capitalization  of the various
projects.

         The Company plans to place some of its larger  purchase  commitments on
an  annualized  basis  for  raw  materials  which  can be  purchased  in  larger
quantities  at  reduced  prices.  In  general,  the  Company  attempts  to limit
inventory  price  increases  by making an annual  commitment,  but  drawing  the
material  either as required,  or on a monthly or quarterly  basis.  Such annual
commitments  may reach  $500,000 in 2000 and greater in 2001  depending on sales
volume increases.  The terms of payment for such commitments are worked out with
the  vendor on a  case-by-case  basis,  but in all cases are  cancelable  at the
Company's discretion without penalty to the Company.

                                      -30-

<PAGE>


Development   Stage  of  the  Company's   Products  and  Uncertainty   Regarding
Development of Markets

         Some  of  the   Company's   products   are  in  the  early   stages  of
commercialization  and the Company believes that it will be several years before
products  will  have  significant  commercial  end-use  applications,  and  that
significant  additional  development  work  may  be  necessary  to  improve  the
commercial feasibility and acceptance of its products. There can be no assurance
that the Company will be able to  commercialize  any of the  products  currently
under development.

         To date, there has been no widespread commercial use of HTS products.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         This  document  contains  forward-looking  statements  that reflect the
views of management  with respect to future  events and  financial  performance.
These forward-looking  statements are subject to certain uncertainties and other
factors  that  could  cause  actual  results  to  differ  materially  from  such
statements.  These uncertainties and other factors include,  but are not limited
to,  the  words  "anticipates,"  "believes,"  "estimates,"  "expects,"  "plans,"
"projects,"  "targets" and similar  expressions  which identify  forward-looking
statements.  You  should  not  place  undue  reliance  on these  forward-looking
statements,  which  speak  only as of the date the  statements  were  made.  The
Company   undertakes   no   obligation   to   publicly   update  or  revise  any
forward-looking statements.

ITEM 7.  FINANCIAL STATEMENTS

         The  following  financial  statements  are  included  in this Report in
response to this Item:

         o Independent Auditors' Report.

         o Balance Sheet as of December 31, 2000.

         o Statements of Operations for the two years ended December 31, 2000.

         o Statements of  Stockholders'  Equity for the two years ended December
           31, 2000.

         o Statements of Cash Flows for the two years ended December 31, 2000.

         o Notes to the Financial Statements.



                                      -31-

<PAGE>


To the Board of Directors and Shareholders
Superconductive Components, Inc.
Columbus, Ohio

                          INDEPENDENT AUDITORS' REPORT

         We have  audited  the  accompanying  balance  sheet of  Superconductive
Components,  Inc.  as of  December  31,  2000,  and the  related  statements  of
operations, shareholders' equity and cash flows for the two years ended December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the financial  position of  Superconductive
Components,  Inc. as of December 31, 2000, and the results of its operations and
its cash  flows  for the two  years  then  ended in  conformity  with  generally
accepted accounting principles.

                                                /s/  HAUSSER  + TAYLOR LLP



Columbus, Ohio
March 7, 2001


                                      -32-


<PAGE>

                      SUPERCONDUCTIVE COMPONENTS, INC.

                               BALANCE SHEETS

                             DECEMBER 31, 2000
                             -----------------

<TABLE>
<CAPTION>
                      ASSETS
                      ------
CURRENT ASSETS
<S>                                                                                  <C>
  Cash (Note 2)                                                                      $           202,406
  Accounts and notes receivable (Notes 2 and 11):
    Trade, less allowance for doubtful accounts of $26,000                                       386,567
    Related party receivables                                                                      4,283
  Inventories (Notes 2 and 3):                                                                   617,468
  Prepaid expenses                                                                                39,766
                                                                                     -------------------
        Total current assets                                                                   1,250,490
                                                                                     -------------------

PROPERTY AND EQUIPMENT,
 AT COST (Notes 2, 4 and 5)
  Machinery and equipment                                                                      1,959,086
  Furniture and fixtures                                                                          15,250
  Leasehold improvements                                                                         305,586
                                                                                     -------------------
                                                                                               2,279,922
  Less accumulated depreciation                                                                1,701,150
                                                                                     -------------------
                                                                                                 578,772
                                                                                     -------------------

OTHER ASSETS (Note 2)                                                                             38,688
                                                                                     -------------------

                                                                                     $         1,867,950
                                                                                     ===================
</TABLE>

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


                                      -33-
<PAGE>
                      SUPERCONDUCTIVE COMPONENTS, INC.

                               BALANCE SHEETS

                             DECEMBER 31, 2000
                             -----------------

<TABLE>
<CAPTION>
   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------

<S>                                                                                  <C>
CURRENT LIABILITIES
  Capital lease obligation, current portion (Note 5)                                 $          26,279
  Note payable shareholders, current portion (Note 6)                                           10,869
  Accounts payable                                                                             294,028
  Accounts payable, shareholders (Note 11)                                                       1,803
  Accrued expenses                                                                             156,916
                                                                                     -----------------
        Total current liabilities                                                              489,895
                                                                                     -----------------

CAPITAL LEASE OBLIGATION, NET OF
 CURRENT PORTION (Note 5)                                                                       57,965
                                                                                     -----------------

NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
 PORTION (Note 6)                                                                              121,401
                                                                                     -----------------

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 ($260.96) (Note 7)                                                               87,658
                                                                                     -----------------

COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)

SHAREHOLDERS' EQUITY (Notes 7, 8, and 9)
  Convertible preferred stock, Series B, 10% cumulative,
     nonvoting, no par value, $10 stated value, optional
      redemption at 103%                                                                       338,424
  Common stock, no par value, authorized 15,000,000
     shares; 1,816,977 shares issued and outstanding                                         6,334,696
  Additional paid-in capital                                                                    98,187
  Accumulated deficit                                                                       (5,660,276)
                                                                                     -----------------
                                                                                             1,111,031
                                                                                     -----------------
                                                                                     $       1,867,950
                                                                                     =================
</TABLE>

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


                                      -34-
<PAGE>
                      SUPERCONDUCTIVE COMPONENTS, INC.

                          STATEMENTS OF OPERATIONS

                   YEARS ENDED DECEMBER 31, 2000 AND 1999
                   --------------------------------------

<TABLE>
<CAPTION>
                                                                                    2000                  1999
                                                                                    ----                  ----
<S>                                                                          <C>                   <C>
SALES REVENUE                                                                $       2,679,597     $     2,253,209
CONTRACT RESEARCH REVENUE                                                              525,566             425,153
                                                                             -----------------     ---------------
                                                                                     3,205,163           2,678,362
                                                                             -----------------     ---------------

COST OF SALES REVENUE                                                                2,071,309           1,835,027
COST OF CONTRACT RESEARCH                                                              362,109             366,156
                                                                             -----------------     ---------------
                                                                                     2,433,418           2,201,183
                                                                             -----------------     ---------------

GROSS MARGIN                                                                           771,745             477,179

GENERAL AND ADMINISTRATIVE EXPENSES                                                    560,653             325,195

SALES AND PROMOTIONAL EXPENSES                                                         309,969             265,631
                                                                             -----------------     ---------------

LOSS FROM OPERATIONS                                                                   (98,877)           (113,647)
                                                                             -----------------     ---------------

OTHER INCOME (EXPENSE)
  Interest                                                                             (57,901)            (44,473)
  Miscellaneous, net                                                                     3,084              19,700
                                                                             -----------------     ---------------
                                                                                       (54,817)            (24,773)
                                                                             -----------------     ---------------

LOSS BEFORE INCOME TAX                                                                (153,694)           (138,420)

INCOME TAX EXPENSE (Note 10)                                                                --                  --
                                                                             -----------------     ---------------

NET LOSS                                                                              (153,694)           (138,420)

DIVIDENDS ON PREFERRED STOCK                                                           (60,783)            (91,353)
ACCRETION OF REDEEMABLE CONVERTIBLE
 PREFERRED (SERIES A)                                                                  (11,713)            (11,713)
                                                                             -----------------     ---------------

LOSS APPLICABLE TO COMMON SHARES                                             $        (226,190)    $      (241,486)
                                                                             =================     ===============

EARNINGS PER SHARE - BASIC
 AND DILUTIVE (NOTE 2)

NET LOSS PER COMMON SHARE                                                    $           (0.15)    $         (0.20)
                                                                             =================     ===============

WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING                                                                  1,471,456           1,226,138
                                                                             =================     ===============
</TABLE>

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


                                      -35-
<PAGE>
                  SUPERCONDUCTIVE COMPONENTS, INC.

                 STATEMENTS OF SHAREHOLDERS' EQUITY

               YEARS ENDED DECEMBER 31, 1999 AND 2000
               --------------------------------------

<TABLE>
<CAPTION>
                                                     CONVERTIBLE
                                                      PREFERRED                        ADDITIONAL
                                                       STOCK,            COMMON          PAID-IN        ACCUMULATED
                                                      SERIES B           STOCK           CAPITAL          DEFICIT           TOTAL
                                                      --------           -----           -------          -------           -----
<S>                                                   <C>           <C>             <C>              <C>              <C>
Balance - December 31, 1998                           $  876,182    $  4,681,363    $    245,749     $ (5,368,162)    $    435,132

Accretion of cumulative dividends                         76,637              --         (91,353)              --          (14,716)

Accretion of Series A offering costs                          --              --         (11,713)              --          (11,713)

Conversion of preferred stock to common stock
 (35,522 shares)                                        (177,610)        177,610              --               --               --

Common stock issued in exchange for services received
 (1920 shares @ $1.25/share)                                  --           2,400              --               --            2,400

Payment of cumulative dividends                          (83,537)             --              --               --          (83,537)

Net loss                                                      --              --              --         (138,420)        (138,420)
                                                      ----------    ------------     -----------     ------------     ------------

Balance - December 31, 1999                              691,672       4,861,373         142,683       (5,506,582)         189,146

Accretion of cumulative dividends                         52,115              --         (60,783)              --           (8,668)

Accretion of Series A offering costs                          --              --         (11,713)              --          (11,713)

Exercise of options (31,920 shares @ $2.50/share)             --          79,800              --               --           79,800

Conversion of Series A preferred (1,379 shares)               --           8,275              --               --            8,275

Conversion of Series B preferred (113,418 shares)       (378,715)        378,715              --               --               --

Payment of cumulative dividends                          (26,648)             --              --               --          (26,648)

Issuance of stock (200,000 shares at $2.50/share)             --         500,000              --               --          500,000

Conversion of subordinated notes payable to equity
 (202,613 shares at $2.50/share)                              --         506,533              --               --          506,533

Issuance of warrants (Note 7)                                 --              --          28,000               --           28,000

Net loss                                                      --              --              --         (153,694)        (153,694)
                                                      ----------    ------------    ------------     ------------     ------------

Balance - December 30, 2000                           $  338,424    $  6,334,696    $     98,187     $ (5,660,276)    $  1,111,031
                                                      ==========    ============    ============     ============     ============
</TABLE>

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


                                      -36-
<PAGE>
                      SUPERCONDUCTIVE COMPONENTS, INC.

                          STATEMENTS OF CASH FLOWS

                   YEARS ENDED DECEMBER 31, 2000 AND 1999
                   --------------------------------------

<TABLE>
<CAPTION>
                                                                                     2000                   1999
                                                                                     ----                   ----
<S>                                                                          <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                   $          (153,694)   $        (138,420)
                                                                             -------------------    ------------------
  Adjustments to reconcile net loss to net cash provided by
   operating activities:
    Depreciation                                                                         260,819              255,180
    Amortization                                                                           2,463                2,605
    Inventory reserve                                                                     17,431                9,220
    Provision for doubtful accounts                                                        2,000                6,643
    Changes in operating assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable                                                              (66,766)             (75,054)
        Inventories                                                                     (103,218)             (61,674)
        Prepaid expenses                                                                 (18,962)               8,861
        Other assets                                                                          --                1,302
      Increase (decrease) in liabilities:
        Accounts payable                                                                  76,563              (34,615)
        Accrued expenses                                                                (112,006)             133,585
                                                                             -------------------    ------------------
          Total adjustments                                                               58,324              246,053
                                                                             -------------------    ------------------
              Net cash provided by (used in) operating activities                        (95,370)             107,633
                                                                             -------------------    ------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                                   (107,073)             (66,322)
                                                                             -------------------    ------------------
              Net cash used in investing activities                                     (107,073)             (66,322)
                                                                             -------------------    ------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Bank overdraft                                                                         (30,735)              30,735
  Principal repayments on notes payable, bank                                             (5,617)              (3,330)
  Principal repayments on long-term debt                                                      --              (12,677)
  Proceeds from subordinated notes payable                                                    --               80,000
  Principal payments on capital lease obligation                                         (69,801)             (57,083)
  Proceeds from exercise of common stock options                                          79,800                   --
  Proceeds from the sale of common stock                                                 500,000                   --
  Proceeds from sale of common stock warrants                                             28,000
  Payment of cummulative dividends                                                       (26,648)             (83,536)
  Redemption of Series A preferred stock                                                 (70,150)                  --
                                                                             -------------------    ------------------
              Net cash provided by (used in) financing activities                        404,849              (45,891)
                                                                             -------------------    ------------------
</TABLE>

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


                                      -37-
<PAGE>
                        SUPERCONDUCTIVE COMPONENTS, INC.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2000 AND 1999
                     --------------------------------------

<TABLE>
<CAPTION>
                                                                                     2000                   1999
                                                                                     ----                   ----
<S>                                                                          <C>                    <C>
NET INCREASE (DECREASE) IN CASH                                                          202,406                (4,580)

CASH - Beginning of period                                                                    --                 4,580
                                                                             -------------------    ------------------

CASH - End of period                                                         $           202,406    $               --
                                                                             ===================    ==================

SUPPLEMENTAL DISCLOSURES OF CASH
 FLOW INFORMATION
  Cash paid during the years for:
    Interest                                                                 $            69,614    $           14,681
    Income taxes                                                             $                --    $               --

SUPPLEMENTAL DISCLOSURES OF NONCASH
 INVESTING AND FINANCING ACTIVITIES

  Property and equipment was purchased by capital lease                      $                --    $           63,344

  Subordinated debt was issued to a shareholder as reimbursement
   for the shareholder paying accounts payable of the Company and
   for accrued interest payable                                                          132,270                55,000

  Common stock was issued as partial payment for accounts payable                             --                 2,400

  Preferred stock, Series A was redeemed by issuing additional
   subordinated notes payable                                                                 --                70,125

  Preferred stock, series A converted to common stock                                      8,275                    --

  Subordinate debt was issued to a shareholder as reimbursement for the
  shareholders paying a notes payable to the Company                                      89,408                    --

  Subordinated debt was converted into common stock                                      506,533                    --

  Reduction of inventory and inventory reserve                                           105,075                    --
</TABLE>

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


                                      -38-
<PAGE>


                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1.           BUSINESS ORGANIZATION AND PURPOSE

                  Superconductive  Components,  Inc.  (the  Company)  is an Ohio
                  corporation that was incorporated in May 1987. The Company was
                  formed  to  develop,  manufacture  and  sell  materials  using
                  superconductive   principles.   Operations   have  since  been
                  expanded   to   include   the    manufacture   and   sale   of
                  non-superconductive  materials.  The  Company's  domestic  and
                  international  customer  base is  primarily  in the  research,
                  education, electronics and computer industries.

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       A.         Inventories -  Inventories  are stated at the lower of cost or
                  market on an acquired or  internally  produced lot basis,  and
                  consist of raw materials,  work-in-process and finished goods.
                  Cost includes material, labor and applied overhead.  Inventory
                  reserves are  established  for obsolete  inventory  and excess
                  inventory  quantities  based on  management's  estimate of net
                  realizable value.

                  The  Company  enters  into  cancelable   purchase   commitment
                  arrangements   for   some   suppliers.    Estimated   purchase
                  commitments to these suppliers  approximate $150,000 for 2000.
                  The  Company can cancel  these  commitments  at the  Company's
                  discretion without penalty.

       B.         Property and Equipment - Property and equipment are carried at
                  cost.  Depreciation  is provided on the  straight-line  method
                  based  on  the  estimated  useful  lives  of  the  assets  for
                  financial reporting purposes and allowable accelerated methods
                  for tax purposes. Useful lives range from ten years on certain
                  furniture   and   fixtures   to  three   years  on   leasehold
                  improvements and computer software.  Expenditures for renewals
                  and betterments are capitalized and  expenditures  for repairs
                  and maintenance are charged to operations as incurred.

                  Long-lived assets are reviewed for impairment  whenever events
                  or changes in circumstances  indicate that the carrying amount
                  may not be  recoverable.  If the fair  value is less  than the
                  carrying  amount of the asset,  a loss is  recognized  for the
                  difference. There have been no such impairment adjustments.


                                      -39-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       C.         Research and  Development - Internal  research and development
                  costs are  expensed  as  incurred.  Research  and  development
                  expenses,  including testing, for the years ended December 31,
                  2000 and 1999 were $17,623 and $15,392, respectively.

                  Third-party  research and development  costs are expensed when
                  the contracted work has been performed or as milestone results
                  have  been  achieved.   These   contracts  vary  from  six  to
                  twenty-four  months in duration.  The terms of the  contracts,
                  which are fixed  price,  require the  Company to submit  final
                  reports  and/or  progress  reports to the  sponsor.  While the
                  contracts  are subject to  cancellation,  management  believes
                  that the Company  will comply with all terms of the  contracts
                  and that all of the  amounts  awarded to the  Company  will be
                  collected.

                  Research revenue and expenses  associated to third parties are
                  separately identified in the Statements of Operations.

                  During 2000, the Company earned $532,276 in contract  revenue.
                  At December 31, 2000, accounts receivable from these contracts
                  approximated $24,000.

                  During 2000,  the Company was awarded a new six month contract
                  in the amount of $100,000, to begin January 1, 2001.

                  During 1999, the Company was awarded  contracts  approximating
                  $1,084,000  with $409,000 of the total contract  amount earned
                  during 1999. At December 31, 1999,  accounts  receivable  from
                  these contracts approximated $45,000.

          D.      Licenses - The Company has secured licenses to produce various
                  superconductive  materials for periods up to the expiration of
                  the applicable  patents.  The license fees, included in "Other
                  Assets" on the balance  sheet,  are being  amortized  over the
                  expected life of the  agreement or applicable  patent which is
                  seventeen years. Cost and accumulated amortization of licenses
                  at December 31, 2000 are $21,000 and $6,420, respectively.

          E.      Patent - The Company has secured a patent for a  manufacturing
                  process used in its  operations.  Costs incurred to secure the
                  patent have been  capitalized,  included in "Other  Assets" on
                  the balance  sheet,  and are being  amortized over the life of
                  the patent. Cost and accumulated amortization of the patent at
                  December 31, 2000 are $26,492 and $2,384, respectively.

          F.      Income Taxes - Income taxes are provided for by utilizing  the
                  asset and liability  method which requires the  recognition of
                  deferred tax assets and  liabilities  for the expected  future
                  tax consequences of temporary differences between the carrying
                  amounts  and the tax bases of  assets  and  liabilities  using
                  presently   enacted  tax  rates.   Deferred   tax  assets  are
                  recognized for net operating loss carryforwards,  reduced by a
                  valuation  allowance  which  is  established  when "it is more
                  likely than not" that some  portion or all of the deferred tax
                  assets will not be recognized.


                                      -40-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          G.      Stock Based  Compensation -The Company utilizes the provisions
                  of Accounting Principles Board ("APB") No. 25, "Accounting for
                  Stock Issued to Employees"  which  utilized a fair value based
                  method.  The Financial  Accounting  Standards  Board  ("FASB")
                  Statement No. 123, "Accounting for Stock-Based  Compensation",
                  utilized  a  fair  value  based  method.   The  FASB  requires
                  disclosure for new employee stock options of the impact to the
                  financial  statements of utilizing the intrinsic  value versus
                  the fair value  based  method  (see Note 8).  For stock  based
                  compensation  other than employees,  the Company  utilizes the
                  fair value method as provided for in FASB #123.

          H.      Loss Per Common  Share - Loss per  common  share  amounts  are
                  based on the weighted  average  number of shares  outstanding.
                  Due to the net loss the assumed  conversion of preferred stock
                  and exercise of stock  options and warrants are  anti-dilutive
                  and have not been  considered in the  calculation of per share
                  amounts.

          I.      Statements  of Cash Flows - For purposes of the  statements of
                  cash  flows,   the  Company   considers   all  highly   liquid
                  investments  purchased with a maturity of three months or less
                  to be cash. No such investments were purchased.

          J.      Concentrations  of Credit Risk - The Company's  cash balances,
                  which are at times in excess of federally insured levels,  are
                  maintained  at a large  regional  bank,  and  are  continually
                  monitored  to minimize  the risk of loss.  The Company  grants
                  credit  to its  customers,  who are  varied  in terms of size,
                  geographic location and financial strength.  Customer balances
                  are continually monitored to minimize the risk of loss.

          K.      Use of Estimates - 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  and
                  disclosure of contingent assets and liabilities at the date of
                  the financial  statements and the reported amounts of revenues
                  and expenses during the reporting period. Actual results could
                  differ from those estimates.

          L.      Fair Value - The estimated  fair value of amounts  reported in
                  the financial  statements have been determined using available
                  market information and valuation methodologies,  as applicable
                  (see Note 12).

          M.      Revenue Recognition - Revenue from product sales is recognized
                  upon shipment to customers.  Provisions for discounts, returns
                  and others  adjustments are provided for in the same period as
                  the related sales are recorded.

                  Revenue from contract  research  provided for third parties is
                  recognized  when the contracted  work has been performed or as
                  milestone results have been achieved.


                                      -41-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          N.      Effects  of Recent  Accounting  Pronouncements  - In  December
                  1999,  the  Securities  and Exchange  Commission  issued Staff
                  Accounting  Bulletin ("SAB") No. 101, "Revenue  Recognition in
                  Financial Statements." The guidance in SAB 101 must be adopted
                  during the fourth  quarter of fiscal 2000 and the effects,  if
                  any,  are  required  to be  recorded  through  a  retroactive,
                  cumulative-effect adjustment as of the beginning of the fiscal
                  year, with a restatement of all prior interim  quarters in the
                  year.  Management  has  reviewed  their  policies  for revenue
                  recognition in comparison to the  requirements  in SAB 101 and
                  no  change  occurred  to its  income  statement  presentation,
                  operating  results  or  financial  position  as  a  result  of
                  implementing SAB 101.

NOTE 3.           INVENTORIES


<TABLE>
<CAPTION>

                  Inventories consist of the following at December 31, 2000:

<S>                                                                          <C>
                  Raw materials                                              $           413,657
                  Work-in-process                                                        111,978
                  Finished goods                                                         152,833
                                                                                ------------------
                                                                                         678,468
                  Less reserve for obsolete inventory                                     61,000
                                                                                ------------------
                                                                             $           617,468
                                                                                ==================
</TABLE>


NOTE 4.           NOTES PAYABLE - BANK

                  The  Company  had a note  payable  to a bank in the  amount of
                  $95,025 at December 31, 1999,  due June 30, 2000.  On February
                  28, 2000, an officer and major shareholder of the Company paid
                  the bank note payable  totaling  $89,408 in full.  The Company
                  increased  the  subordinated  note  payable to the  officer as
                  reimbursement for payment on the bank note payable.

                  On June 30, 2000,  the Company  obtained a bank line of credit
                  in the  amount  of  $100,000,  interest  at  prime,  (9.5%  at
                  December 31, 2000)  maturing June 30, 2001. As of December 31,
                  2000,  $-0-  has  been  drawn  on  this  line  of  credit.  No
                  collateral,  other than the  personal  guarantee by an officer
                  and major shareholder of the Company,  collateralizes the bank
                  line of credit.


                                      -42-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 5.           LEASE OBLIGATIONS

                  Operating

                  The Company  leases  certain  office  equipment and a building
                  under  agreements  classified as operating  leases.  All lease
                  terms  remaining  are less than one year.  Rent expense  which
                  includes  various monthly rentals for the years ended December
                  31, 2000 and 1999 totaled $59,818 and $56,022, respectively.

                  Capital

                  The  Company  also  leases  certain  equipment  under  capital
                  leases.  The future  minimum  lease  payments by year with the
                  present value of such payments,  as of December 31, 2000 is as
                  follows:

<TABLE>
<CAPTION>

<S>                                                                       <C>
                  2001                                                    $          33,408
                  2002                                                               28,660
                  2003                                                               24,459
                  2004                                                               12,042
                                                                             ---------------
                  Total minimum lease payments                                       98,569
                  Less amount representing interest                                  14,325
                                                                             ---------------
                  Present value of minimum lease payments                            84,244
                  Less current portion                                               26,279
                                                                            ---------------
                  Long-term capital lease obligations                     $          57,965
                                                                            ===============

</TABLE>

                  The  equipment  under  capital  lease at December  31, 2000 is
                  included in the accompanying balance sheet under the following
                  captions:

<TABLE>
<CAPTION>

<S>                                                                       <C>
                  Machinery and equipment                                 $         288,154
                  Less accumulated depreciation                                     171,271
                                                                            ---------------
                  Net book value                                          $         116,883
                                                                            ===============


</TABLE>

                  These assets are amortized  over four to seven years using the
                  straight-line   method  and   amortization   is   included  in
                  depreciation expense.


                                      -43-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 6.           RELATED PARTY NOTES PAYABLE

                  SUBORDINATED NOTES PAYABLE
                  --------------------------

                  Two officers and major  shareholders  have loaned funds to the
                  Company from September 30, 1991 through  December 31, 2000 for
                  working capital.  These  subordinated notes payable are due on
                  December 31, 2009.  The notes payable bear interest at 10% per
                  annum and are  subordinate  to other senior  indebtedness,  as
                  defined in the agreement.

                  The Board of Directors  authorized that the subordinated notes
                  payable can be  converted  to shares of common  stock at $2.50
                  per share. On October 10, 2000 the subordinated  notes payable
                  totaling  $506,533 were converted to common stock at $2.50 per
                  share which totaled 202,613 shares of common stock.

                  Interest  expense  totaled  $36,439  and $29,972 for the years
                  ended  December 31, 2000 and 1999.  Accrued  interest  payable
                  totaled  $36,439  December  31, 2000 which is included in note
                  payable, shareholder.

                  The Company has issued common stock purchase warrants at $2.50
                  per common share for 150,000 shares of common stock related to
                  the  subordinated  notes  payable to Dr.  Edward and  Ingeborg
                  Funk.  The  warrants  are 100%  vested and expire in ten years
                  from the date of grant of January 7, 2000.

                  NOTES PAYABLE SHAREHOLDERS
                  --------------------------

                  Effective  December 31, 2000, the Company  converted  accounts
                  payable and accrued interest payable to two officers and major
                  shareholders   totaling   $132,270   to  a  note   p   payable
                  shareholders.  The  note  provides  for  monthly  payments  of
                  principal  and  interest of $2,000 per month for the period of
                  February 1, 2001 through December 1, 2002 and, thereafter,  in
                  monthly  installments  of $4,000 for  principal  and  interest
                  until the entire outstanding balance is paid in full. The note
                  bears interest at prime (9.5% at December 31, 2000).

                  The  aggregate  long-term  debt  payments for each of the next
                  five years are:

                                 2001                 $          10,869
                                 2002                            13,024
                                 2003                            39,390
                                 2004                            43,299
                                 2005                            25,688
                                                        ----------------
                                                                132,270
                                   Current                       10,869
                                                        ----------------
                                   Long-term          $         121,401
                                                        ================


                                      -44-
<PAGE>



                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 7.           COMMON AND PREFERRED STOCK

                  Common Stock Issues
                  -------------------

                  On October 10,  2000,  the Company  issued  200,000  shares of
                  common  stock  at  $2.50  per  share  for  total  proceeds  of
                  $500,000.  The same  investors  were issued  warrants  for the
                  purchase of up to an additional 140,000 shares of common stock
                  for an aggregate  purchase price of $28,000,  or $.20 for each
                  warrant, exercisable at $3.50 per share for a period of twelve
                  months from the date of issuance.

                  In conjunction  with the sale of common stock and common stock
                  warrants  on October 10,  2000,  Dr. and Mrs.  Funk  converted
                  their  subordinated notes payable totaling $506,533 to 202,613
                  shares  of  common  stock at a  conversion  rate of $2.50  per
                  share.

                  During 2000,  Series A and B preferred  stock was converted to
                  common  stock  totaling  1,379  and  113,418  shares of common
                  stock,   respectively.   Additionally,   stock   options  were
                  exercised  for a total of 31,920  shares of common  stock with
                  total proceeds of $79,800.

                  During  1999,  960  shares  of  common  stock  were  issued in
                  exchange as partial  payment for consulting  services at $2.50
                  per  share.   Additionally,   Series  B  preferred  stock  was
                  converted  to common  stock  for a total of  35,522  shares of
                  common stock.

                  Preferred Stock
                  ---------------

                  Shares  of  preferred  stock  authorized  and  outstanding  at
                  December 31, 2000 are as follows:

                                          SHARES            SHARES
                                        AUTHORIZED        OUTSTANDING
                                        ----------        -----------
SERIES A
--------
10% Convertible/voting                      10,000                 -

10% Convertible/nonvoting                      215                99

SERIES B
--------
Nonvoting                                  125,000            26,648

Voting                                     125,000                 -
                                       --------------     --------------
                                           260,215            26,747
                                       --------------     --------------


                                      -45-

<PAGE>





                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 7.           COMMON AND PREFERRED STOCK (CONTINUED)

                  In June 1995, the Company  completed an offering of 215 shares
                  of  $1,000   stated   value  1995  Series  A  10%   non-voting
                  convertible  preferred  stock.  In January  1996,  the Company
                  completed  an  offering of 70,000  shares of $10 stated  value
                  1995 Series B 10% non-voting  convertible preferred stock. For
                  the first  three  years,  the  dividends  on both  issues were
                  payable by issuing  additional  Series A or B preferred shares
                  or in cash.  The  Series A shares  are  convertible  to common
                  shares at the rate of $6.00  per share and  Series B shares at
                  the rate of $5.00 per share. At the Company's option, Series A
                  and  Series  B  shares  are   redeemable  at  103%  after  the
                  respective third anniversary dates.

                  Series A has a  mandatory  redemption  at 25%  annually of the
                  issued  Series A shares at their stated value plus accrued and
                  unpaid dividends commencing on the fourth anniversary date. As
                  security for cash dividends,  or mandatory redemption payments
                  due on the Series A preferred shares, and to collateralize the
                  preference  upon a  liquidation,  dissolution or winding up of
                  the  affairs  of the  Company,  Dr. and Mrs.  Funk  pledged an
                  aggregate of 60,000 shares of common stock,  $.01 par value of
                  Interpore/Cross International (Cross) (formerly known as Cross
                  Medical Products, Inc.).

                  Issue  costs of $70,277 on Series A were  netted  against  the
                  proceeds and are being amortized over the term of the Series A
                  payout period of seven years using the  straight-line  method.
                  Unamortized  costs  at  December  31,  2000  is  $23,345.  The
                  amortized (accreted) amount is reflected in loss applicable to
                  common  shares  and  additional  paid-in-capital.  The  annual
                  accretion  totaled  $11,713  and  $11,713  for the years ended
                  December 31, 2000 and 1999, respectively

                  Series B preferred  stock was  originally  issued with a $5.00
                  per share  discount  which has been recorded as a reduction of
                  Series  B  preferred  stock.  The  original  discount  totaled
                  $350,000. The discount is being accreted to loss applicable to
                  common  shares and  additional  paid-in  capital  through  the
                  period that the Series B preferred  stock can be  converted to
                  common stock which is after the third  anniversary  date.  The
                  discount was fully amortized at December 31, 1998.

                  As  security  for cash  dividends  on the  Series B  preferred
                  shares,  Dr. and Mrs. Funk pledged an aggregate 131,000 shares
                  of $.01 par  value  common  stock  of  Cross.  Issue  costs of
                  approximately  $116,110  on Series B were  netted  against the
                  proceeds of that issue.

                  Cumulative  dividends  in arrears on Series A preferred  stock
                  are $25,835 ($260.96 per share) at December 31, 2000.

                  During 2000 and 1999, Series B cash dividends totaling $83,539
                  and $26,648 were paid, respectively.  Additionally,  preferred
                  stock was  converted  to 113,418  and 35,522  shares of common
                  stock, respectively.

                  During 2000, a Series A preferred  stockholder converted 8.275
                  shares of preferred  stock for 1,379  shares of common  stock.
                  Additionally,  Series A preferred  stockholders  holding 54.45
                  shares of  preferred  stock were  redeemed for cash of $70,125
                  (principal - $54,150, accrued dividends - $15,650).


                                      -46-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 7.           COMMON AND PREFERRED STOCK (CONTINUED)

                  During  1999,  the Company  redeemed  41.25 shares of Series A
                  preferred  stock  for  $41,250  which   represented  an  early
                  redemption of the mandatory redemption requirement for certain
                  shareholders. Series A accrued dividends totaling $28,875 were
                  paid in connection with the Series A redemption.

                  Earnings Per Share

                  All  outstanding   common  stock   equivalents  which  include
                  preferred  stock Series A and B,  employee and director  stock
                  options and  warrants  are  antidilutive  due to the net loss.
                  Common  stock  equivalents  that were  excluded in the diluted
                  loss per share calculation were as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      DECEMBER 31,
                                                            2000                1999
                                                            ----                ----
<S>                                                             <C>            <C>
                  Options                                    111,790                 -
                  Warrants                                   150,000                 -
                  Preferred Series A                               -                 -
                  Preferred Series B                               -                 -
                  Subordinated debt                                -           166,850
                                                       ---------------     ----------------
                                                             261,790           166,850
                                                       ===============     ================

</TABLE>

                  Additional  common stock  equivalents  were not  considered as
                  equivalents as they were not  "in-the-money"  and,  therefore,
                  not   considered   a  common  stock   equivalent.   Additional
                  outstanding common stock equivalents excluded were as follows:

<TABLE>
<CAPTION>
                 <S>                                 <C>                  <C>
                                                         DECEMBER 31,        DECEMBER 31,
                                                            2000                1999
                                                            ----                ----

                  Options                                        -             171,190
                  Warrants                                 165,000              32,000
                  Preferred Series A                        16,500              22,292
                  Preferred Series B                        29,600             173,857
                  Subordinated debt                              -                   -
                                                     ---------------     ----------------
                                                           211,100             399,339
                                                     ===============     ================
</TABLE>


NOTE 8.           INCENTIVE STOCK OPTION PLANS

                  In November 1987, the Company adopted the 1987 Incentive Stock
                  Option Plan (the Incentive Plan) for key employees under which
                  options  to  purchase  up to 40,000  shares  of the  Company's
                  common stock may be granted to qualified employees, subject to
                  the  execution  of stock  option  agreements.  Options  may be
                  exercised for periods up to 10 years from the date of grant at
                  prices not less than 100% of fair market  value on the date of
                  grant.


                                      -47-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 8.           INCENTIVE STOCK OPTION PLANS (CONTINUED)

                  In February 1991, the Company  adopted the 1991  Non-Statutory
                  Stock Option Plan (the Non-Statutory Plan) under which options
                  to purchase up to 20,000 shares of the Company's  common stock
                  may be  granted  to  key  employees,  directors,  consultants,
                  advisors and sales  representatives,  subject to the execution
                  of stock  option  agreements.  Options  may be  exercised  for
                  periods  up to 10 years from the date of grant at prices to be
                  determined by the Board of Directors. The Company has reserved
                  2,000 of the  shares  subject  to the  Non-Statutory  Plan for
                  options to be granted to sales representatives.

                  On  September  29,  1995,  the Company  adopted the 1995 Stock
                  Option  Plan (the 1995 Plan) as  incentive  to key  employees,
                  directors and  consultants  under which options to purchase up
                  to  600,000  shares  of  the  Company's  common  stock  may be
                  granted,  subject to the execution of stock option agreements.
                  Incentive  stock  options may be granted to key  associates of
                  the  Company  and  Non-Statutory  options  may be  granted  to
                  directors  who  are  not  employees  and  to  consultants  and
                  advisors who render  services to the  Company.  Options may be
                  exercised for periods up to 10 years from the date of grant at
                  prices not less than 100% of fair market  value on the date of
                  grant.

                  The cumulative status at December 31, 2000 and 1999 of options
                  granted  and  outstanding,  as well as  options  which  became
                  exercisable   in  connection   with  the  Incentive   Plan  is
                  summarized as follows:

<TABLE>
<CAPTION>

                  Employee Stock Option Plans
                  ---------------------------
                                                                                              WEIGHTED
                                                                                               AVERAGE
                                                                           STOCK OPTIONS   EXERCISE PRICE
                                                                           -------------   --------------
<S>                                                                        <C>             <C>
                  Outstanding at December 31, 1998                           127,100         $   2.50
                    Granted                                                   65,000             2.00
                    Exercised                                                      -                -
                    Forfeited                                                 (4,000)            2.00
                                                                            --------         --------
                  Outstanding at December 31, 1999                           188,100             2.42
                    Granted                                                  148,700             2.51
                    Exercised                                                (35,000)            2.36
                    Forfeited                                                 (2,100)            2.50
                                                                            --------         --------
                  Outstanding at December 31, 2000                           299,700         $   2.47
                                                                            ========         ========

                  Shares exercisable at December 31, 1999                     48,990         $   2.50
                  Shares exercisable at December 31, 2000                     62,290         $   2.43

</TABLE>

                                      -48-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 8.           INCENTIVE STOCK OPTION PLANS (CONTINUED)


<TABLE>
<CAPTION>

                  Non-Employee Director Option Plans
                  ----------------------------------

                                                                                               WEIGHTED
                                                                                                AVERAGE
                                                                           STOCK OPTIONS    EXERCISE PRICE
                                                                           -------------    --------------
<S>                                                                        <C>            <C>
                  Outstanding at December 31, 1998                            67,750         $   2.50
                    Granted                                                   23,500             2.50
                    Exercised                                                      -                -
                    Forfeited                                                      -                -
                                                                            --------         --------
                  Outstanding at December 31, 1999                            91,250             2.50
                    Granted                                                   72,000             2.55
                    Exercised                                                 (5,750)           2.174
                    Forfeited                                                      -                -
                                                                            --------         --------
                  Outstanding at December 31, 2000                           157,500         $   2.53
                                                                            ========         ========

                  Shares exercisable at December 31, 1999                     33,250         $   2.50
                  Shares exercisable at December 31, 2000                     49,500         $   2.43
</TABLE>
                  Exercise  prices  for  options  range  from $2.00 to $3.00 for
                  options outstanding at December 31, 2000. The weighted average
                  option  price  for all  options  outstanding  is $2.42  with a
                  weighted average remaining contractual life of 6.6 years.

                  The exercise price for all options exercisable at December 31,
                  2000 range from $2.125 to $3.00.

                  In  electing  to  continue  to  follow  APB  #25  for  expense
                  recognition  purposes,  the  Company is obliged to provide the
                  expanded  disclosures required under SFAS #123 for stock-based
                  compensation  including disclosure of pro-forma net income and
                  earnings  per share had  compensation  expense  been  measured
                  under the fair value recognition provisions.


                                      -49-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                         NOTES TO FINANCIAL STATEMENTS.

NOTE 8.           INCENTIVE STOCK OPTION PLANS (CONTINUED)

                  The weighted  average fair values at date of grant for options
                  granted   during   2000  and  1999  were   $2.52  and   $2.13,
                  respectively and were estimated using the Black-Scholes option
                  valuation   model   with  the   following   weighted   average
                  assumptions:

                                                   2000           1999
                                                -------         ------
                  Expected life in years           7.06           4.6
                  Interest rate                     6%             6%
                  Volatility                      105.7%         108.7%
                  Dividend yield                    0%             0%

                  The  Company's  pro  forma  information  for the  years  ended
                  December 31, 2000 and 1999 in accordance  with the  provisions
                  of FASB #123 is  provided  below.  For  purposes  of pro forma
                  disclosures,  stock-based compensation is amortized to expense
                  on  a  straight-line   basis  over  the  vesting  period.  The
                  following  table compares 2000 and 1999 results as reported to
                  the results had the  Company  adopted the expense  recognition
                  provisions of FSAB #123.

<TABLE>
<CAPTION>

                                                                      2000              1999
                                                                   ----------        ----------
<S>                                                          <C>                 <C>
                  Net loss applicable to common
                   shares
                    As reported                              $     (226,190)     $     (241,489)
                    Pro forma under SFAS #123                      (232,410)           (247,950)
                  Basic and diluted loss per share
                    As reported                              $        (0.15)     $        (0.20)
                    Pro forma under SFAS #123                         (0.16)              (0.20)
</TABLE>


                                      -50-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                         NOTES TO FINANCIAL STATEMENTS.

NOTE 9.           WARRANTS ISSUED

                  Warrants  unexercised at December 31, 2000,  issued to related
                  parties and others are as follows:

<TABLE>


       # OF                                                             ISSUE                   EXERCISE
      SHARES        ISSUED TO           CONSIDERATION                   DATE      EXPIRATION      PRICE
      ------        ---------           -------------                   ----      ----------      -----

      COMMON
      SHARES
      ------
<S>                 <C>                 <C>                             <C>       <C>           <C>
Related Parties
---------------
15,000              Edward Funk         Officer Incentive                 12-94          12-01      $ 6.00
10,000              Edward Funk         Lease Guarantee                    3-96           3-03      $ 5.00
75,000              Edward Funk         Subordinated notes payable         1-00           1-10      $ 2.50
75,000              Ingeborg Funk       Subordinated notes payable         1-00           1-10      $ 2.50

Other
-----
70,000              Mangart Global
                     Fund Limited       Purchase of common stock          10-00          10-01      $ 3.50
70,000              Windcom
                     Investment SA      Purchase of common stock          10-00          10-01      $ 3.50

</TABLE>


NOTE 10.           INCOME TAXES

                  Deferred  tax assets and  liabilities  result  from  temporary
                  differences  in the  recognition of income and expense for tax
                  and financial  reporting purposes.  Significant  components of
                  the  Company's  deferred  tax  assets and  liabilities  are as
                  follows at December 31:
<TABLE>
                      <S>                                              <C>

                                                                                  2000
                      Deferred tax assets                                        ------
                        NOL Carryforward                                $        1,576,000
                        UNICAP                                                      85,000
                        Allowance for doubtful accounts                              9,000
                        Reserve for obsolete inventory                              21,000
                        Property and equipment                                      38,000
                                                                          -----------------
                                                                                 1,729,000

                      Valuation allowance                                        1,729,000
                                                                          -----------------
                      Net                                               $                -
                                                                          =================
</TABLE>


                                      -51-
<PAGE>


                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 10.          INCOME TAXES (CONTINUED)

                  A  valuation   allowance   has  been   recorded   against  the
                  realizability  of the net  deferred  tax  asset,  such that no
                  value is recorded for the asset in the accompanying  financial
                  statements.  The valuation  allowance  totaled  $1,729,000 and
                  $1,663,200 at December 31, 2000 and 1999, respectively .

                  The Company has net operating  loss  carryovers  available for
                  federal and state tax  purposes of  approximately  $4,636,000,
                  which expire in varying amounts from 2003 through 2020.

                  For  the  years  ended   December   31,   2000  and  1999,   a
                  reconciliation  of the statutory  rate and effective  rate for
                  the provisions for income taxes consists of the following:

                                                            PERCENTAGE
                                                  -----------------------------

                                                     2000           1999
                                                     ----           ----
                        Federal statutory rate      (34.0)         (34.0)
                        Valuation allowance          34.0           34.0
                                                 --------------- -------------
                        Effective rate                  -      %       -     %
                                                 =============== =============

                  The  expense  (benefit) for  income  taxes  consists  of  the
                  following:

                       Current expense       $          -        $     -
                       Deferred expense                 -              -
                                                --------------- ---------------

                        Total                $          -        $     -
                                               ================ ===============


NOTE 11.          RELATED PARTY TRANSACTIONS

                  Sales to a related  party  amounted  to  $17,423  and  $16,962
                  during 2000 and 1999,  respectively.  At December 31, 2000 and
                  1999,  $17,423  and  $44,607  were  written  off as  bad  debt
                  expense, related to sales of inventory, rent and reimbursement
                  of expenses.

                  The  Company  has a note  receivable  from an  officer  of the
                  Company in the amount of $4,283. The note bears interest at 4%
                  per annum.

                  The  Company  has  trade  payables,   shareholders  of  $1,803
                  pertaining to reimbursement for purchase of goods and services
                  obtained for Company purposes.

                  For   additional    information    regarding   related   party
                  transactions, see Notes 4, 6 and 9.

                                      -52-
<PAGE>


                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The fair value of financial instruments  represents the amount
                  at which  the  instrument  could  be  exchanged  in a  current
                  transaction  between willing  parties,  other than in a forced
                  sale or liquidation. Significant differences can arise between
                  the fair value and carrying  amount of  financial  instruments
                  that are recognized at historical cost amounts.

                  The following methods and assumptions were used by the Company
                  in   estimating   fair   value   disclosures   for   financial
                  instruments:

                   o  Cash and cash  equivalents,  short-term  debt and  current
                      maturities  of  long-term  debt:  Amounts  reported in the
                      balance  sheet  approximate  fair market  value due to the
                      short maturity of these instruments.

                   o  Long-term capital lease  obligations:  Amounts reported in
                      the balance sheet  approximate  fair value as the interest
                      rates  on  these  obligations  approximate  current  rates
                      available based on the relative stability of prime.

                   o  Note payable shareholder:  Amounts reported in the balance
                      sheet  represent debt to officers and major  shareholders.
                      Amounts  reported in the balance  sheet  approximate  fair
                      market  value as the  interest  rates  on this  obligation
                      approximates current rates available based on the relative
                      stability of prime.

                   o  Redeemable  convertible  preferred stock: Amounts reported
                      in the balance sheet are in excess of fair market value as
                      the conversion price is $6.00 per share and average market
                      price at 12/31/00 was $1.20 for  difference  in fair value
                      of $19,800 at December 31, 2000.

                                      -53-
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                         NOTES TO FINANCIAL STATEMENTS.

NOTE 13.              SEGMENT INFORMATION

                      The Company utilizes FASB Statement No. 131,  "Disclosures
                      about  Segments  of  a  Business  Enterprise  and  Related
                      Information".  The  Company is  managed  in two  operating
                      segments:  TMI and SCI. While the Company sells  overseas,
                      management  does  not  separately  identify  and  evaluate
                      financial   information   pertaining  to  overseas  sales,
                      therefore,   revenue  by   geographic   location   is  not
                      available.  For 2001 management has implemented  processes
                      to track this data going forward.

                      Corporate  operations  include  administrative  and  sales
                      functions. Corporate assets include cash and general fixed
                      assets.

                      The following is a summary of key segment  information for
                      the years ended December 31, 2000 and 1999, respectively.

                      <TABLE>
                      <S>                                                <C>               <C>             <C>             <C>
                                                                          SCI              TMI           CORPORATE        TOTAL
                                                                         -----            -----          ---------        -----

                      December 31, 2000
                      -----------------
                      Revenues                                       $ 1,135,268      $ 2,069,895               -     $3,205,163
                      Segment profit (loss)                              232,933          243,597        (630,224)      (153,694)
                      Interest expense                                         -                -          57,901         57,901
                      Depreciation and amortization                       51,271           96,067         115,944        263,282
                      Segment assets                                     570,599          912,068         385,283      1,867,950
                      Expenditures for segment assets                     67,429           27,237          12,407        107,073

                      December 31, 1999
                      -----------------
                      Revenues                                         $ 898,843      $ 1,779,519       $       -     $2,678,362
                      Segment profit (loss)                              (33,705)         231,617        (336,332)      (138,420)
                      Interest expense                                         -                -          44,473         44,473
                      Depreciation and amortization                       35,317           48,598         173,870        257,785
                      Segment assets                                     451,780          634,246         566,213      1,652,239
                      Expenditures for segment assets                     38,263           17,366          10,693         66,322
                      </TABLE>

NOTE 14.              FOURTH QUARTER ADJUSTMENTS

                      The  Statement of Operations  for the year ended  December
                      31, 2000  included the following  adjustments  recorded in
                      fourth  quarter 2000 which  resulted in  increased  fourth
                      quarter earnings by $130,876. Accumulated depreciation and
                      depreciation  expense  was  decreased  by  $30,429  as the
                      Company's  monthly  depreciation  expense  was  too  high.
                      Additionally,   the  Company  obtained  a  credit  from  a
                      subcontractor  which  resulted  in a  decrease  in cost of
                      contract research totaling $100,447.

                                      -54-
<PAGE>

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.

         None.

                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS AND CONTROL  PERSONS;  COMPLIANCE  WITH
         SECTION 16(A) OF THE EXCHANGE ACT.

         The  information  required by this item is included under the captions,
"ELECTION OF  DIRECTORS,"  "EXECUTIVE  OFFICERS" and "SECTION  16(a)  BENEFICIAL
OWNERSHIP  REPORTING  COMPLIANCE"  in our proxy  statement  relating to our 2001
Annual Meeting of  Stockholders to be held on June 21, 2001, and is incorporated
herein by reference.

ITEM 10. EXECUTIVE COMPENSATION.

         The  information  required by this item is  included  under the caption
"EXECUTIVE  COMPENSATION"  in our proxy statement and is incorporated  herein by
reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The  information  required by this item is included  under the captions
"OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE  OFFICERS," and "OWNERSHIP
OF  COMMON  STOCK BY  PRINCIPAL  STOCKHOLDERS"  in our  proxy  statement  and is
incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The  information  required by this item is  included  under the caption
"CERTAIN  RELATIONSHIPS AND RELATED  TRANSACTIONS" in our proxy statement and is
incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  The following documents are filed as part of this Annual Report on
Form 10-KSB:

              (1) The following financial statements are included in this report
                  pursuant to Item 7:

                  Independent Auditors' Report.

                  Balance Sheet as of December 31, 2000.

                  Statements of Operations  for the two years ended December 31,
                  2000.

                  Statements  of  Stockholders'  Equity for the two years  ended
                  December 31, 2000.

                  Statements of Cash Flows for the two years ended  December 31,
                  2000.

                  Notes to the Financial Statements.

                                      -55-

<PAGE>

                  (2)      Exhibits:

      EXHIBIT                               EXHIBIT
      NUMBER                              DESCRIPTION
     ---------                           -------------

         3(a)     *        Amended  and  Restated  Articles  of Incorporation of
                           Superconductive Components, Inc.

         3(b)     *        Restated   Code  of  Regulations  of  Superconductive
                           Components, Inc.

         10(a)    *        Lease Agreement between  Superconductive  Components,
                           Inc.   and   University  Area  Rentals  dated  as  of
                           February 7, 1997.

         10(b)    *        Subcontract    Agreement    between   Superconductive
                           Components,   Inc.   and  The  Ohio  State University
                           effective as of April 1, 2000.

         10(c)    *        1987 Incentive Stock Option Plan.

         10(d)    *        1991 Non-Statutory Stock Option Plan.

         10(e)    *        1995 Stock Option Plan.

         10(f)    **       License  Agreement  with  Sandia  Corporation   dated
                           February 26, 1996.

         10(g)    **       Nonexclusive  License  with The University of Chicago
                           (as Operator of  Argonne  National  Laboratory) dated
                           October 12, 1995.

         10(h)    **       Nonexclusive License  with  The University of Chicago
                           (as Operator of Argonne  National  Laboratory)  dated
                           October 12, 1995.

         10(i)    **       Sales Distribution Agreement with Earth Chemical Co.,
                           Ltd.

         10(j)    **       National  Aeronautics  Space  Administration Contract
                           dated April 8, 1999.

         10(k)    **       National  Science  Foundation  award dated August 26,
                           1999.

         10(l)    **       National Science Foundation award dated November  27,
                           2000.

         10(m)    **       10% Subordinated Promissory Note dated March 1, 1993.

         24                Powers of Attorney.
--------------

*   Filed with the Company's initial Form 10-SB on September 28, 2000.
**  Filed with the Company's Form 10-SB Amendment No. 1 on January 3, 2001.


         (B)      REPORTS ON FORM 8-K

                  None.


         (C)      EXHIBITS

                  The exhibits to this report follow the Signature Page.

                                      -56-

<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              SUPERCONDUCTIVE COMPONENTS, INC.

Date:  March 29, 2001         By:         /s/ Edward R. Funk
                                   ---------------------------------------------
                                   Edward R. Funk, President and Chief Executive
                                   Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 22nd day of March, 2001.

<TABLE>
<CAPTION>

         Signature                                                              Title

<S>                                                  <C>

         /s/ Edward R. Funk                          President, Chief Executive Officer, Treasurer and
--------------------------------------------         Director
         Edward R. Funk                              (Principal Executive Officer)

         Ingeborg V. Funk*                           Vice President
--------------------------------------------
         Ingeborg V. Funk

         James R. Gaines, Jr.*                       Vice President and General Manager - SCI Division
--------------------------------------------         and Director
         James R. Gaines, Jr.

         Donald D. Raifsnider*                       Vice President and General Manager - TMI Division
--------------------------------------------
         Donald D. Raifsnider

         Curtis A. Loveland*                         Secretary and Director
--------------------------------------------
         Curtis A. Loveland

--------------------------------------------         Chief Scientist
         Suvankar Sengupta

         Robert J. Baker*                            Director
--------------------------------------------
         Robert J. Baker

         Lloyd E. Hackman*                           Director
--------------------------------------------
         Lloyd E. Hackman

         Robert H. Peitz*                            Director
--------------------------------------------
         Robert H. Peitz

         Edward W. Ungar*                            Director
--------------------------------------------
         Edward W. Ungar

         Charles E. Washbush*                        Director
--------------------------------------------
         Charles E. Washbush

*By:     /s/ Edward R. Funk
    ----------------------------------------
          Edward R. Funk, Attorney-in-Fact

</TABLE>


                                      -57-