UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2006

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

For the transition period from                      to                     

Commission file number: 0-31641

2839 Charter Street, Columbus, Ohio 43228
(Address of principal executive offices, including zip code)

(614) 486-0261
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer o     Non-accelerated filer o

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

     State the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 3,425,915 shares of Common Stock, without par value, were outstanding at July 31, 2006.

     Transitional Small Business Disclosure Format (Check one): YES  o NO  þ

 

 

FORM 10-QSB

SUPERCONDUCTIVE COMPONENTS, INC.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005			3
Statements of Operations For the Three Months and Six Months Ended June 30, 2006 and 2005 (unaudited)			5
Statements of Cash Flows For the Three Months and Six Months Ended June 30, 2006 and 2005 (unaudited)			6
Notes to Financial Statements (unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Controls and Procedures			21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			N/A
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities			N/A
Item 3. Defaults Upon Senior Securities			N/A
Item 4. Submission of Matters to a Vote of Security Holders			21
Item 5. Other Information			N/A
Item 6. Exhibits			22
Signatures			22
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

PART I. FINANCIAL INFORMATION

SUPERCONDUCTIVE COMPONENTS, INC.

BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

		June 30,				December 31,
		2006				2005
		(UNAUDITED)
CURRENT LIABILITIES
Capital lease obligation, current portion		$	64,921			$	39,949
Accounts payable			150,479				295,640
Accrued contract expenses			122,627				145,104
Accrued personal property taxes			27,215				35,000
Deferred revenue			94,854				—
Accrued expenses			119,717				105,773
Total current liabilities			579,813				621,466
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION			151,349				71,381
COMMITMENTS AND CONTINGENCIES			—				—
SHAREHOLDERS’ EQUITY
Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par value, $10 stated value, optional redemption at 103%; 25,185 issued and outstanding			347,554				334,961
Common stock, no par value, authorized 15,000,000 shares; 3,425,915 shares issued and outstanding			8,997,624				9,047,550
Additional paid-in capital			999,562				1,010,719
Accumulated deficit			(8,250,536	)			(8,161,355	)
			2,094,204				2,231,875
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,825,366			$	2,924,722

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

SUPERCONDUCTIVE COMPONENTS, INC.

STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 AND 2005 AND
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)

		THREE MONTHS ENDED								SIX MONTHS ENDED
		2006				2005				2006				2005
SALES REVENUE		$	1,158,434			$	624,002			$	2,316,965			$	1,110,628
CONTRACT RESEARCH REVENUE			—				89,533				42,092				177,966
			1,158,434				713,535				2,359,057				1,288,594
COST OF SALES REVENUE			877,894				469,946				1,788,137				850,416
COST OF CONTRACT RESEARCH			—				36,355				17,407				74,090
			877,894				506,301				1,805,544				924,506
GROSS MARGIN			280,540				207,234				553,513				364,088
GENERAL AND ADMINISTRATIVE EXPENSES			232,524				189,725				445,254				375,744
RESEARCH AND DEVELOPMENT EXPENSES			39,216				58,268				86,392				100,336
SALES AND PROMOTIONAL EXPENSES			65,993				58,412				134,096				110,934
LOSS FROM OPERATIONS			(57,193	)			(99,171	)			(112,229	)			(222,926	)
OTHER INCOME (EXPENSE)
Interest income			10,258				326				21,053				670
Interest expense			(3,482	)			(24,687	)			(5,506	)			(40,209	)
Gain (loss) on disposal of equipment			—				—				—				250
Miscellaneous, net			8,213				(234	)			7,501				(468	)
			14,989				(24,595	)			23,048				(39,757	)
LOSS BEFORE PROVISION FOR INCOME TAX			(42,204	)			(123,766	)			(89,181	)			(262,683	)
INCOME TAX EXPENSE			—				—				—				—
NET LOSS			(42,204	)			(123,766	)			(89,181	)			(262,683	)
DIVIDENDS ON PREFERRED STOCK			(6,296	)			(6,296	)			(12,592	)			(12,592	)
LOSS APPLICABLE TO COMMON SHARES		$	(48,500	)		$	(130,062	)		$	(101,773	)		$	(275,275	)
EARNINGS PER SHARE — BASIC AND DILUTED (Note 5)
NET LOSS PER COMMON SHARE BEFORE DIVIDENDS ON PREFERRED STOCK
Basic		$	(0.01	)		$	(0.05	)		$	(0.03	)		$	(0.11	)
Diluted		$	(0.01	)		$	(0.05	)		$	(0.03	)		$	(0.11	)
NET LOSS PER COMMON SHARE AFTER DIVIDENDS ON PREFERRED STOCK
Basic		$	(0.01	)		$	(0.05	)		$	(0.03	)		$	(0.11	)
Diluted		$	(0.01	)		$	(0.05	)		$	(0.03	)		$	(0.11	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			3,425,915				2,439,360				3,425,915				2,439,360
Diluted			3,425,915				2,439,360				3,425,915				2,439,360

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

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

SUPERCONDUCTIVE COMPONENTS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1.		Business Organization and Purpose
		Superconductive Components, Inc. (the “Company”) is an Ohio corporation that was incorporated in May 1987. The Company was formed to develop, manufacture and sell materials using superconductive principles. Operations have since been expanded to include the manufacture and sale of non-superconductive materials. The Company’s domestic and international customer base is primarily in the thin film battery, high temperature superconductor, photonics and optical coatings industries.
Note 2.		Summary of Significant Accounting Policies
		The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2005. Interim results are not necessarily indicative of results for the full year.
		The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
		Equipment purchased with grant funding
		In 2004, the Company received funds of $517,935 from the Ohio Department of Development’s Third Frontier Action Fund (TFAF) for the purpose of purchasing equipment related to the grant’s purpose. The Company elected to record the funds received as a liability; therefore, the equipment is not reflected in the Company’s financial statements. As equipment was purchased, the liability initially created when the cash was received was reduced with no revenue recognized or equipment recorded on the balance sheet. In 2005 the Company purchased equipment in the amount of $25,945 that was reimbursed by TFAF in the first quarter of 2006. As of June 30, 2006, the Company had disbursed the entire amount received. The grant provides that as long as the Company performs in compliance with the grant, the Company retains the rights to the equipment. Management anticipates that the Company will be in compliance with the requirements and, therefore, expects to retain the equipment at the end of the grant in 2006.
		Reclassification
		Certain amounts in the prior year financial statements pertaining to research and development have been reclassified to conform to the current year presentation.

SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 2.		Summary of Significant Accounting Policies (continued)
		Stock Based Compensation
		During 2005 the Company accounted for stock based compensation using the intrinsic value method prescribed in APB Opinion #25, “Accounting for Stock Issued to Employees.” The Financial Accounting Standards Board issued Statement of Financial Accounting Standard #123, “Accounting for Stock Based Compensation” (SFAS #123), which established accounting and disclosure requirements using a fair value based methodology. SFAS #123 allowed the intrinsic value method to be used, and required disclosure of the impact to the financial statements of utilizing the intrinsic value versus the fair value based method on a pro forma basis, as set forth in the table below. For stock based compensation to non-employees, the Company utilizes the fair value method as provided for in SFAS #123.
		The Company’s pro forma information for the six months ended June 30, 2005, in accordance with the provisions of SFAS #123 is provided below. For purposes of pro forma disclosures, stock based compensation was amortized to expense on a straight-line basis over the vesting period.

		For the six months ended June 30, 2005, there was no stock based employee compensation cost included in the determination of net loss as reported.
		Recently Issued Accounting Standards — In December 2004, the FASB issued SFAS #123 (Revised), “Shared Based Payment” (SFAS #123R). SFAS #123R replaced SFAS #123, and superseded APB Opinion #25. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS #123R and related interpretations using the modified-prospective transition method. Under this method, compensation cost recognized in the first six months of 2006 includes (a) compensation cost for all stock-based awards granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS #123 and (b) compensation cost for all stock-based awards granted on or subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS #123(R). Stock based compensation expense recognized for the six months ended June 30, 2006 was $1,436, which is included in the operating expenses in the accompanying statements of operations.

SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 2.		Summary of Significant Accounting Policies (continued)
		In December 2005, the Board of Directors approved the acceleration of vesting of unvested stock options previously awarded to employees and officers of the Company. As a result of this action, options to purchase 149,500 shares of common stock that would otherwise have vested over the next one to five years became fully vested. The decision to accelerate the vesting of these options was considered to be in the best interest of the Company’s shareholders and, was made primarily to reduce non-cash compensation expense that would have been recorded in future periods following the adoption of FAS 123(R).
Note 3.		Common Stock and Stock Options
		The following stock options were granted under the 2006 Stock Option Plan during the six months ended June 30, 2006:

		Exercise prices for options range from $1.00 to $4.00 at June 30, 2006. The weighted average option price for all options outstanding is $2.26 with a weighted average remaining contractual life of 6.9 years.
		The weighted average fair values at date of grant for options granted during 2006 and 2005 were $3.03 and $2.28, respectively, and were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

Due to minimal historical exercise data, the Company used the option contract term as the expected life. The approximate interest rate was based on the implied yield available on U.S. Treasury bills. The Company used the historical price volatility of the Company’s stock price beginning in 2000 for purposes of determining the expected volatility factor. The Company does not expect to pay dividends on its common stock; therefore, a dividend yield of zero was used in the model.