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 September 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 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: 3,427,915 shares of Common Stock, without par value, were outstanding at October 31, 2006.

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

 

 

FORM 10-QSB

SUPERCONDUCTIVE COMPONENTS, INC.

								Page No.
PART I. FINANCIAL INFORMATION
		Item 1.				Financial Statements
						Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005			3
						Statements of Operations For the Three Months and Nine Months Ended September 30, 2006 and 2005 (unaudited)			5
						Statements of Cash Flows For the Nine Months Ended September 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			15
		Item 3.				Controls and Procedures			22
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			N/A
		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

ITEM 1. FINANCIAL STATEMENTS

SUPERCONDUCTIVE COMPONENTS, INC.

BALANCE SHEETS

		September 30,				December 31,
		2006				2005
		(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash		$	1,368,743				1,161,369
Accounts receivable
Trade, less allowance for doubtful accounts of $25,000			388,783				243,130
Contract			52,760				50,710
Other			2,074				13,749
Inventories			675,713				584,140
Prepaid expenses			33,872				11,748
Total current assets			2,521,945				2,064,846
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment			2,599,148				2,221,298
Furniture and fixtures			23,643				23,643
Leasehold improvements			290,979				284,072
Construction in progress			741				101,075
			2,914,511				2,630,088
Less accumulated depreciation			(1,956,484	)			(1,814,959	)
			958,027				815,129
OTHER ASSETS
Deposits			15,031				10,765
Intangibles			31,666				33,982
Total other assets			46,697				44,747
TOTAL ASSETS		$	3,526,669				2,924,722

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 September 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 of the grant and, therefore, expects to retain the equipment at the end of the grant in 2007.

      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 No. 25, “Accounting for Stock Issued to Employees.” The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard “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 all periods prior to January 1, 2006, the Company utilized the fair value method as provided for in SFAS 123 to account for stock based compensation to non-employees.

The Company’s pro forma information for the nine months ended September 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 nine months ended September 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 No. 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 nine 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 123R. Stock based compensation expense recognized for the nine

SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

months ended September 30, 2006 was $5,744, which is included in the operating expenses in the accompanying statements of operations.

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 123R.

Note 3. Common Stock and Stock Options

The following stock options were granted under the 2006 Stock Option Plan during the nine months ended September 30, 2006:

The exercise prices for all outstanding stock options ranged from $1.00 to $4.00 at September 30, 2006. The weighted average option price for all options outstanding is $2.26 with a weighted average remaining contractual life of 6.5 years.

The weighted average fair values at date of grant for all 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.

Note 4. Inventory

     Inventory is comprised of the following:

SUPERCONDUCTIVE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 5. Earnings Per Share

Basic income (loss) per share is calculated as income av