<PAGE>

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

                                   FORM 10-QSB

(Mark One)
[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
      For the quarterly period ended June 30, 2004

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
For the transition period from __________________to____________________

                         Commission file number: 0-31641

                        SUPERCONDUCTIVE COMPONENTS, INC.
             (Exact name of registrant as specified in its charter)

                    OHIO                               31-1210318
      (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)              Identification No.)

                    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)

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

      State the number of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date: 2,431,360 shares of Common
Stock, without par value, were outstanding at July 31, 2004.

<PAGE>

                                   FORM 10-QSB

                        SUPERCONDUCTIVE COMPONENTS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                PAGE NO.
                                                                                                --------
<S>                                                                                             <C>
PART I.  FINANCIAL INFORMATION

      Item 1.  Financial Statements.

                   Balance Sheets as of June 30, 2004 (unaudited)
                        and December 31, 2003                                                      3 - 4

                   Statements of Operations For the Three Months and Six Months
                        Ended June 30, 2004 and 2003 (unaudited)                                       5

                   Statements of Cash Flows For the Three Months and Six Months
                        Ended June 30, 2004 and 2003 (unaudited)                                   6 - 7

                   Notes to Financial Statements (unaudited)                                      8 - 12

      Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations.                                          13 - 22

      Item 3.  Controls and Procedures                                                                23

PART II. OTHER INFORMATION

      Item 1.  Legal Proceedings.                                                                    N/A

      Item 2.  Changes in Securities and Small Business Issuer Purchases of Equity Securities.        24

      Item 3.  Defaults Upon Senior Securities.                                                      N/A

      Item 4.  Submission of Matters to a Vote of Security Holders.                                   24

      Item 5.  Other Information.                                                                    N/A

      Item 6.  Exhibits and Reports on Form 8-K.                                                   24-25

      Signatures.                                                                                     25
</TABLE>

                                       2
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                         JUNE 30,             DECEMBER 31,
                                                                          2004                   2003
                                                                          ----                   ----
                                                                       (UNAUDITED)
<S>                                                                    <C>                   <C>
CURRENT ASSETS
  Cash                                                                 $   280,622           $   266,940
  Cash, restricted for equipment                                           247,902                     -
  Accounts and notes receivable
    Trade, less allowance for doubtful accounts of $7,000 and
      $25,000 respectively                                                 281,657               119,566
    Employees                                                                  300                 6,995
    Other                                                                        -                   119
 Inventories                                                               539,530               500,533
 Prepaid expenses                                                           20,337                30,198
                                                                       -----------           -----------
       Total current assets                                              1,370,348               924,351
                                                                       -----------           -----------

PROPERTY AND EQUIPMENT,
 AT COST
  Machinery and equipment                                                2,081,477             2,031,437
  Furniture and fixtures                                                    22,586                22,124
  Leasehold improvements                                                   192,337               347,349
  Construction In Process                                                   77,952                     -
                                                                       -----------           -----------
                                                                         2,374,352             2,400,910
  Less accumulated depreciation                                         (1,547,099)           (1,827,076)
                                                                       -----------           -----------
                                                                           827,253               573,834
                                                                       -----------           -----------
OTHER ASSETS
  Deposits                                                                   8,125                 7,863
  Intangibles                                                               38,615                40,159
                                                                       -----------           -----------
                                                                            46,740                48,022
                                                                       -----------           -----------
TOTAL ASSETS                                                           $ 2,244,341           $ 1,546,207
                                                                       ===========           ===========
</TABLE>

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

                                      - 3 -
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                                 BALANCE SHEETS

                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                          JUNE 30,             DECEMBER 31,
                                                                                           2004                   2003
                                                                                           ----                   ----
                                                                                        (UNAUDITED)
<S>                                                                                     <C>                   <C>
CURRENT LIABILITIES
  Capital lease obligation, current portion                                             $    30,429           $    31,994
  Capital lease obligation, shareholder, current portion                                     68,428                68,428
  Note payable shareholders, current portion                                                154,000               130,000
  Accounts payable                                                                          342,817               222,117
  Accounts payable, shareholders                                                              7,920                 7,920
  Accrued contract expenses                                                                 388,694                86,049
  Accrued personal property taxes                                                            45,637                43,263
  Accrued interest, shareholders                                                             27,631                39,760
  Deferred contract revenue                                                                  71,373                50,742
  Accrued expenses                                                                           77,216                72,195
                                                                                        -----------           -----------
        Total current liabilities                                                         1,214,145               752,468
                                                                                        -----------           -----------
CAPITAL LEASE OBLIGATION, NET OF
  CURRENT PORTION                                                                            30,210                31,727
                                                                                        -----------           -----------

NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
  PORTION                                                                                    14,270               767,625
                                                                                        -----------           -----------
COMMITMENTS AND CONTINGENCIES                                                                     -                     -
                                                                                        -----------           -----------

SHAREHOLDERS' EQUITY (DEFICIT)
  Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par
    value, $10 stated value, optional redemption at 103%                                    297,183               284,591
  Common stock, no par value, authorized 15,000,000
     shares; 2,418,860 shares issued and outstanding                                      7,501,474             6,378,216
  Additional paid-in capital                                                                552,119                59,893
  Accumulated deficit                                                                    (7,365,060)           (6,728,313)
                                                                                        -----------           -----------
                                                                                            985,716                (5,613)
                                                                                        -----------           -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                    $ 2,244,341           $ 1,546,207
                                                                                        ===========           ===========
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                      - 4 -
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                            STATEMENTS OF OPERATIONS

                  THREE MONTHS ENDED JUNE 30, 2004 AND 2003 AND
                     SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                    2004            2003             2004             2003
                                                    ----            ----             ----             ----
<S>                                             <C>              <C>              <C>              <C>
SALES REVENUE                                   $   591,788      $   562,607      $ 1,056,644      $ 1,187,153
CONTRACT RESEARCH REVENUE                            69,374           65,158          114,295           98,491
                                                -----------      -----------      -----------      -----------
                                                    661,162          627,765        1,170,939        1,285,644
                                                -----------      -----------      -----------      -----------

COST OF SALES REVENUE                               452,325          438,272          863,031          913,600
COST OF CONTRACT RESEARCH                            78,210          (15,664)         123,131           17,669
                                                -----------      -----------      -----------      -----------
                                                    530,535          422,608          986,162          931,269
                                                -----------      -----------      -----------      -----------

GROSS MARGIN                                        130,627          205,157          184,777          354,375

GENERAL AND ADMINISTRATIVE EXPENSES                 231,744          237,245          493,000          416,315

SALES AND PROMOTIONAL EXPENSES                       67,933           49,318          133,170           97,574
                                                -----------      -----------      -----------      -----------

LOSS FROM OPERATIONS                               (169,050)         (81,406)        (441,393)        (159,514)
                                                -----------      -----------      -----------      -----------

OTHER INCOME (EXPENSE)
  Interest income                                       533              613              750            1,206
  Interest expense                                   (6,916)          (6,049)         (17,646)         (12,488)
  Debt conversion expense                          (175,362)               -         (175,362)               -
  Gain/(loss) on disposal of equipment                  300            2,100           (2,181)           5,300
  Miscellaneous, net                                   (458)          (1,318)            (915)          (1,776)
                                                -----------      -----------      -----------      -----------
                                                   (181,903)          (4,654)        (195,354)          (7,758)
                                                -----------      -----------      -----------      -----------

LOSS BEFORE INCOME TAX                             (350,953)         (86,060)        (636,747)        (167,272)

INCOME TAX EXPENSE                                        -                -                -                -
                                                -----------      -----------      -----------      -----------

NET LOSS BEFORE CUMULATIVE EFFECT OF A
  CHANGE IN ACCOUNTING                             (350,953)         (86,060)        (636,747)        (167,272)

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING               -                -                -          (15,886)
                                                -----------      -----------      -----------      -----------
NET LOSS                                           (350,953)         (86,060)        (636,747)        (183,158)

DIVIDENDS ON PREFERRED STOCK                         (6,296)          (6,885)         (12,592)         (13,770)
                                                -----------      -----------      -----------      -----------
LOSS APPLICABLE TO COMMON SHARES                $  (357,249)     $   (92,945)     $  (649,339)     $  (196,928)
                                                ===========      ===========      ===========      ===========


EARNINGS PER SHARE - BASIC AND DILUTIVE
(Note 2)

NET LOSS PER COMMON SHARE BEFORE CUMULATIVE
  EFFECT OF A CHANGE IN ACCOUNTING
  Basic                                         $     (0.16)     $     (0.05)     $     (0.32)     $     (0.09)
                                                ===========      ===========      ===========      ===========
  Dilutive                                      $     (0.16)     $     (0.05)     $     (0.32)     $     (0.09)
                                                ===========      ===========      ===========      ===========

NET LOSS PER COMMON SHARE AFTER CUMULATIVE
  EFFECT OF A CHANGE IN ACCOUNTING
  Basic                                         $     (0.17)     $     (0.05)     $     (0.33)     $     (0.11)
                                                ===========      ===========      ===========      ===========
  Dilutive                                      $     (0.17)     $     (0.05)     $     (0.33)     $     (0.11)
                                                ===========      ===========      ===========      ===========

WEIGHTED AVERAGE SHARES OUTSTANDING
  Basic                                           2,149,865        1,823,256        1,987,394        1,823,256
                                                ===========      ===========      ===========      ===========
  Dilutive                                        2,149,865        1,823,256        1,987,394        1,823,256
                                                ===========      ===========      ===========      ===========
</TABLE>

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

                                      - 5 -
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                            STATEMENTS OF CASH FLOWS

                     SIX MONTHS ENDED JUNE 30, 2004 AND 2003

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          2004                2003
                                                                                          ----                ----
<S>                                                                                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                             $(636,747)          $(183,158)
                                                                                       ---------           ---------
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation                                                                         102,969             118,848
    Amortization and accretion                                                             1,544               1,544
    Warrants issued for consulting                                                        35,586                   -
    Debt conversion expense                                                              175,362                   -
    Cumulative effect of a change in accounting                                                -              15,886
    (Gain) Loss on sale of equipment                                                       2,181              (5,300)
    Inventory reserve                                                                     (2,760)            (21,695)
    Provision for doubtful accounts                                                       18,000               3,000
    Changes in operating assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable                                                             (173,277)               (974)
        Inventories                                                                      (36,237)            (19,552)
        Prepaid expenses                                                                   9,861               8,643
        Other assets                                                                        (261)                  -
      Increase (decrease) in liabilities:
        Accounts payable                                                                 120,700              71,562
        Accrued expenses                                                                 342,376               1,247
                                                                                       ---------           ---------
          Total adjustments                                                              596,044             173,209
                                                                                       ---------           ---------
              Net cash used in operating activities                                      (40,703)             (9,949)
                                                                                       ---------           ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds on sale of equipment                                                            1,602               5,300
  Purchases of property and equipment                                                   (342,871)           (119,011)
                                                                                       ---------           ---------
              Net cash used in investing activities                                     (341,269)           (113,711)
                                                                                       ---------           ---------
CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from note payable, shareholders                                               150,000             500,000
  Principal payments on notes payable, shareholders                                     (150,000)                  -
  Proceeds from exercise of common stock options                                           3,500                   -
  Proceeds from sale of common stock (net)                                               658,782                   -
  Principal payments on capital lease obligations                                        (18,726)            (22,232)
                                                                                       ---------           ---------
              Net cash provided by financing activities                                  643,556             477,768
                                                                                       ---------           ---------
</TABLE>

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

                                     - 6 -
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                     SIX MONTHS ENDED JUNE 30, 2004 AND 2003

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    2004             2003
                                                                    ----             ----
<S>                                                               <C>               <C>
NET INCREASE  IN CASH                                             261,584           354,108

CASH - Beginning of period                                        266,940            48,908
                                                                 --------          --------
CASH - End of period                                             $528,524          $403,016
                                                                 ========          ========

SUPPLEMENTAL DISCLOSURES OF CASH

 FLOW INFORMATION
    Cash paid during the years for:
    Interest, net                                                $  2,854             4,184
    Income taxes                                                 $      -                 -

SUPPLEMENTAL DISCLOSURES OF NONCASH
 FINANCING ACTIVITIES
  Property and equipment was purchased by capital lease          $ 15,644                 -
  Note payable converted to equity                               $729,700
  Accrued interest converted to equity                           $ 25,491
</TABLE>

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

                                     - 7 -
<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 thin film battery, high temperature superconductor, lens and
            optical coatings, electronics, functional coatings industries and
            research.

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 fiscal year ended December 31, 2003. 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/CONTRACT FUNDING

            The Company has received a grant of $513,264 from the Ohio
            Department of Development's Third Frontier Action Fund (TFAF) for
            the purchase of equipment related to the grant's purpose.
            Additionally, the Company received $27,500 as part of its contract
            with the Department of Energy for the purchase of equipment related
            to the contract's purpose. The Company has elected to record the
            funds disbursed as a contra asset; therefore, the assets are not
            reflected in the Company's financial statements. As assets are
            purchased, the liability initially created when the cash was
            received is reduced with no revenue being recognized or fixed asset
            recorded on the balance sheet. At June 30, 2004, the Company has
            disbursed $264,946. Funds received and not disbursed totaling
            $247,902 are included in accrued contract expenses with $12,892 in
            accounts payable at June 30, 2004. The grant and contract both
            provide that as long as the Company performs in compliance with the
            grant/contract, the Company retains the rights to the equipment.
            Management states that the Company will be in compliance with the
            requirements and, therefore, will retain the equipment at the end of
            the contract/grant.

                                       8
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

            STOCK BASED COMPENSATION

            The Company's pro forma information for the six months ended June
            30, 2004 and 2003 in accordance with the provisions of SFAS No. 123,
            "Accounting for Stock-Based Compensation" 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 the 2004 and 2003 results as
            reported to the results had the Company adopted the expense
            recognition provisions of SFAS #123.

<TABLE>
<CAPTION>
                                                June 30,            June 30,
                                                  2004               2003
<S>                                            <C>                 <C>
Net loss applicable to common shares:
As reported                                    $(649,339)          $(196,928)
Stock-based compensation, net of tax              (3,120)             (3,220)
                                               ---------           ---------
Pro forma net loss under SFAS #123             $(652,459)          $(200,148)

Basic and diluted loss per share:

As reported                                    $   (0.33)          $   (0.11)
Pro forma under SFAS #123                      $   (0.33)          $   (0.11)
</TABLE>

            For the periods ended June 30, 2004 and 2003, there was no
            stock-based employee compensation cost included in the determination
            of net loss as reported.

NOTE 3.     INVENTORY

            Inventory is comprised of the following:

<TABLE>
<CAPTION>
                             JUNE 30,           DECEMBER 31,
                               2004                 2003
                           -----------          -----------
                           (unaudited)
<S>                        <C>                 <C>
Raw materials              $ 371,694            $ 361,238
Work-in-progress             136,059              101,274
Finished goods               173,470              182,474
Inventory reserve           (141,693)            (144,453)
                           ---------            ---------
                           $ 539,530            $ 500,533
                           =========            =========
</TABLE>

                                        9
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 4.     COMMON STOCK, STOCK OPTIONS AND WARRANTS

            The following options and warrants were granted under the 1995 Stock
            Option Plan during the six months ended June 30, 2004:

<TABLE>
<CAPTION>
GRANT DATE             # OPTIONS GRANTED    OPTION PRICE
----------             -----------------    ------------
<S>                    <C>                  <C>
January 21, 2004            50,000             $2.60
April 27, 2004              45,000             $2.85
</TABLE>

<TABLE>
<CAPTION>
GRANT DATE                # WARRANTS GRANTED        WARRANT PRICE
----------                ------------------        -------------
<S>                      <C>                        <C>
May 13, 2004                 114,567                    $2.88
June 1, 2004                  17,500                    $2.88
</TABLE>

NOTE 5.     EARNINGS PER SHARE

            Basic income (loss) per share is calculated as income available to
            common stockholders divided by the weighted average of common shares
            outstanding. Diluted earnings per share is calculated as diluted
            income (loss) available to common stockholders divided by the
            diluted weighted average number of common shares. Diluted weighted
            average number of common shares has been calculated using the
            treasury stock method for Common Stock equivalents, which includes
            Common Stock issuable pursuant to stock options and Common Stock
            warrants. At June 30, 2004 and 2003, all Common Stock options and
            warrants are anti-dilutive due to the net loss. The following is
            provided to reconcile the earnings per share calculations:

<TABLE>
<CAPTION>
                                 Three months ended June 30,                   Six months ended June 30,
                                   2004                 2003                   2004                 2003
                                   ----                 ----                   ----                 ----
<S>                            <C>                   <C>                   <C>                   <C>
Loss applicable
 to common shares              $  (357,249)          $   (92,945)          $  (649,339)          $  (196,928)
                               ===========           ===========           ===========           ===========

Weighted average
 common shares
 outstanding - basic             2,149,865             1,823,256             1,987,394             1,823,256

Effect of dilutions -
 stock options                           -                     -                     -                     -
                               -----------           -----------           -----------           -----------

Weighted average
 shares outstanding -
 diluted                         2,149,865             1,823,256             1,987,394             1,823,256
                               ===========           ===========           ===========           ===========
</TABLE>

                                       10
<PAGE>

                        SUPERCONDUCTIVE COMPONENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 6.     CAPITAL REQUIREMENTS; RISK OF CURTAILMENT OF BUSINESS OPERATIONS

            The Company's accumulated deficit since inception was $7,365,060
            (unaudited) at June 30, 2004. The losses have been financed
            primarily from: (i) several private offerings of debt and equity
            securities; (ii) additional investments and loans by major
            shareholders; and (iii) a private offering of common stock and
            warrants to purchase common stock in October 2000. The Company
            cannot assure that it will be able to raise additional capital in
            the future to fund its operations. The Company expects to continue
            to incur significant operating and net losses in 2004, and it is
            possible that it will never be able to sustain or develop the
            revenue levels necessary to attain profitability.

            As of June 30, 2004, cash on-hand was $528,524 with $247,902
            restricted for equipment purchases in accordance with the TFAF
            grant. Cash available for operations at June 30, 2004 was $280,622.
            Management believes, based on currently available financing and
            forecasted sales and expenses, that funding will be adequate to
            sustain operations through December 2004. During the first quarter
            of 2004 the Company began to raise additional funds through further
            offerings of debt and equity. The Company received additional debt
            financing of $150,000. This debt was repaid in the second quarter.
            During the first six months of 2004 the Company received $513,264
            from the State of Ohio's Third Frontier Action Fund to begin
            purchasing capital equipment required to commercialize the Company's
            Lithium Thin Film Battery sputtering target manufacturing process.
            At June 30, 2004, $247,902 of these funds have not been expended and
            are included on the balance sheet as accrued contract expenses. In
            March 2004 the Company was approved by the Ohio Department of
            Development's Industrial Technology Enterprise Advisory Council
            Committee as an eligible entity for the Technology Investment Tax
            Credit program. The program is intended to benefit small Ohio-based
            research and development and technology-oriented companies. This
            approval permits individuals and businesses to receive state tax
            incentives for up to twenty-five percent of their qualified
            investments in the Company through September 2004. Through June 30,
            2004, the Company, in a private placement to five accredited
            investors sold 279,584 shares of its common stock without par value
            at a purchase price of $2.40 per share. The total offering price
            paid in cash was $671,000. As part of the private placement, the
            accredited investors also received warrants to purchase 55,917
            shares of the Company's common stock, without par value, at a
            purchase price of $2.88 per share. The Company received an
            additional $49,200 from the sale of common stock and warrants on
            the same terms in the third quarter through August 13, 2004.
            Because the Company completed equity financing of at least $500,000
            prior to June 30, 2004, the principal and accrued interest totaling
            $754,845.86 due on convertible promissory notes issued on June
            30, 2003, converted to 314,519 shares of common stock without par
            value at a conversion rate of $2.40 per share. As part of the
            conversion, the holders of the convertible promissory notes also
            received warrants to purchase an aggregate of 62,901 shares of the
            Company's common stock, without par value, at a purchase price of
            $2.88 per share.

                                      11
<PAGE>

            The Company has incurred substantial operating losses through June
            30, 2004, and numerous factors make it necessary for the Company to
            seek additional capital. In order to support the initiatives
            envisioned in its business plan, it will need to raise additional
            funds through the sale of assets, public or private financing,
            collaborative relationships or other arrangements. Its ability to
            raise additional financing depends on many factors beyond its
            control, including the state of capital markets, the market price of
            its common stock and the development or prospects for development of
            competitive products by others. Because the common stock is not
            listed on a major stock exchange, many investors may not be willing
            or allowed to purchase it or may demand steep discounts. The
            necessary additional financing may not be available or may be
            available only on terms that would result in further dilution to the
            current owners of the common stock.

NOTE 7.     CONVERSION OF CONVERTIBLE DEBT

            During second quarter 2004, the Company completed equity financing
            of at least $500,000 prior to June 30, 2004, thereby requiring the
            principal and accrued interest on the convertible promissory notes
            totaling $754,846 to convert to equity. Pursuant to the terms of
            the promissory notes, the promissory notes converted to common
            stock, without par value, at a rate of $2.40 per share and entitled
            the holders of the promissory notes to receive warrants under the
            same terms as provided in the 2004 private equity financing. See
            "Conversion of Debt to Equity Securities in Part II, Item 2 -
            Changes in Securities and Small Business Issuer Purchases of Equity
            Securities." Therefore, the Company has recorded the debt
            conversion in accordance with SFAS #84 - "Induced Conversions of
            Convertible Debt" which requires recognition of an expense equal
            to the fair value of the additional securities issued with
            conversion. The Company has expensed $175,362 of debt
            conversion expense.

                                      12
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

      The following discussion should be read in conjunction with the Financial
      Statements and Notes contained herein.

      The following section contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995. Any
      statements that express, or involve discussions as to expectations,
      beliefs, plans, objectives, assumptions or future events or performance
      (often, but not always, through the use of words or phrases such as will
      likely result, are expected to, will continue, is anticipated, estimated,
      projection, outlook) are not statements of historical fact and may be
      forward looking. Forward-looking statements involve estimates, assumptions
      and uncertainties that could cause actual results to differ materially
      from those expressed in the forward-looking statements. These
      forward-looking statements are based largely on the Company's expectations
      and are subject to a number of risks and uncertainties, including but not
      limited to economic, competitive, regulatory, growth strategies, available
      financing and other factors discussed elsewhere in this report and in
      other documents filed by the Company with the Securities and Exchange
      Commission. Many of these factors are beyond the Company's control. Actual
      results could differ materially from the forward-looking statements made.
      In light of these risks and uncertainties, there can be no assurance that
      the results anticipated in the forward-looking information contained in
      this report will, in fact, occur.

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

      RESULTS OF OPERATIONS

      CRITICAL ACCOUNTING POLICIES

      The preparation of financial statements and related disclosures in
      conformity with accounting principles generally accepted in the United
      States of America requires management to make judgments, assumptions and
      estimates that affect the amounts reported in the Financial Statements and
      accompanying notes. Note 2 to the Financial Statements in the Annual
      Report on Form 10-KSB for the year ended December 31, 2003 describes the
      significant accounting policies and methods used in the preparation of the
      Financial Statements. Estimates are used for, but not limited to,
      accounting for doubtful accounts, inventory allowances, property and
      equipment depreciable lives, patents and licenses useful lives, asset
      retirement obligations and assessing changes in which impairment of
      certain long-lived assets may occur. Actual results could differ from
      these estimates. The following critical accounting policies are impacted
      significantly by judgments, assumptions and estimates used in the
      preparation of the Financial Statements. The allowance for doubtful
      accounts is based on our assessment of the collectibility of specific
      customer accounts and the aging of the accounts receivable.

                                      13
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS (CONTINUED)

      If there is a deterioration of a major customer's credit worthiness or
      actual defaults are higher than our historical experience, our estimates
      of the recoverability of amounts due us could be adversely affected.
      Inventory purchases and commitments are based upon future demand
      forecasts. If there is a sudden and significant decrease in demand for our
      products or there is a higher risk of inventory obsolescence because of
      rapidly changing technology and customer requirements, we may be required
      to increase our inventory allowances and our gross margin could be
      adversely affected. Depreciable and useful lives estimated for property
      and equipment, licenses and patents are based on initial expectations of
      the period of time these assets and intangibles will provide benefit to
      our Company. Cost estimates for removal and repair of the current leased
      building or a change in timing of the relocation could impact the
      estimate. Changes in circumstances related to a change in our business,
      change in technology or other factors could result in these assets
      becoming impaired, which could adversely affect the value of these assets.

      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 $7,365,060 from
      inception to June 30, 2004.

      SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) COMPARED TO SIX MONTHS ENDED
      JUNE 30, 2003 (UNAUDITED):

      REVENUES

      Revenues for the six months ended June 30, 2004 were $1,170,939 compared
      to $1,285,644, a decrease of $114,705 or 8.9% from the six months ended
      June 30, 2003.

      Product revenues decreased to $1,056,644 in 2004 from $1,187,153 in 2003
      or a decrease of 11.0%. The decline in revenues for the first six months
      is due to lower product shipments as a result of the weak U.S. economy and
      the relocation of the Company's facilities. The Company intends to
      intensify its marketing efforts by increasing the number of manufacturers
      representatives representing the Company.

      Contract research revenues were $114,295 in 2004 as compared to $98,491 in
      2003. The increase was due to a Phase II Small Business Innovation
      Research grant for $523,612 from the Department of Energy that was awarded
      in 2003. This award was to develop an advanced method to manufacture
      continuous reacted lengths of High Tc Superconductor: Bismuth Strontium
      Calcium Copper Oxide - 2212 Wire. Revenues of $103,805 from this grant are
      included in revenues for the first six months of 2004.

      The Company became a member of a team led by Oxford Instruments
      Superconducting Technology, which was awarded a grant from the Department
      of Energy Superconductivity Partnership Initiative Program. Revenues of
      $10,490 were generated in the first six months of 2004. The focus of this
      program is being changed. A member of the team has determined that the
      technology is not as suitable for the future MRI market segment as
      originally projected in 2001. As a result, this member has decided to
      withdraw from the program. Oxford Instruments Superconducting Technology
      is currently working with the DOE SPI program coordinator to determine
      where the focus of the program could be shifted.

                                      14
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS (CONTINUED)

      GROSS MARGIN

      Total gross margin in 2004 was $184,777 or 15.8% of total revenue compared
      to $354,375 or 27.6% in 2003. Gross margin on product revenue was 18.3% in
      2004 versus 23.0% in 2003. The decrease was due to lower sales as well as
      the product mix. Gross margin on contract research revenue was (7.7)% for
      2004 and 82.1% for 2003. The gross margin in 2003 includes the purchase of
      equipment funded by the SPI grant. The gross margin in 2004 includes the
      Company's share of costs expended.

      SELLING EXPENSE

      Selling expense in 2004 increased to $133,170 from $97,574 in 2003, an
      increase of 36.5%. The increase was due to the addition of a sales manager
      at January 1, 2004. This was partially offset by a reduction in commission
      costs and decreased trade show attendance.

      GENERAL AND ADMINISTRATIVE EXPENSE

      General and administrative expense in 2004 increased to $493,000 from
      $416,315 in 2003, or 18.4%. The increase was due to the relocation of the
      Company's facility in the first quarter of 2004. $76,051 was expensed for
      this purpose. Rent expense increased from $33,297 to $66,525, or 99.8% due
      to the relocation. Also, non-employee stock warrants were granted as
      compensation for consulting services. This value of $35,586 was expensed
      in 2004.

      RESEARCH AND DEVELOPMENT EXPENSE

      Internal research and development costs are expensed as incurred. Research
      and development costs for 2004 were $6,577 compared to $73,220 in 2003.
      Internal research and development costs decreased due to a reduction in
      staff and also have been absorbed by the Department of Energy grant.

      INTEREST EXPENSE

      Interest expense was $17,646 for the six months ended June 30, 2004
      compared to $12,488 for the six months ended June 30, 2003. Interest
      expense to related parties was $13,361 and $5,791 for the six months ended
      June 30, 2004, and June 30, 2003, respectively. The increase was due to
      the accrued interest incurred as a result of the financing completed in
      June and July of 2003. The accrued interest and related notes were
      converted to equity during the second quarter of 2004 and no further
      related party interest expense was incurred beginning in June 2004.

      LOSS APPLICABLE TO COMMON SHARES

      BASIC

      Net loss per common share based on the loss applicable to common shares
      for the six months ended June 30, 2004 and 2003 was $0.33 and $0.11,
      respectively. The loss applicable to common shares includes the net loss
      from operations, Series B preferred stock dividends and the cumulative
      effect of the change in accounting. The net loss per common share from
      operations was $0.32 and $0.09 for the six months ended June 30, 2004 and
      2003, respectively. The difference between the net loss from operations
      and the loss applicable to common shares of

                                      15
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS (CONTINUED)

      $0.01 and $0.02 for the six months ended June 30, 2004 and 2003,
      respectively, was a result of the preferred position that the preferred
      shareholders have in comparison to the common shareholders and the
      cumulative effect of the change in accounting.

      Dividends on the Series B preferred stock accrue at 10% annually on the
      outstanding shares. Dividends on the Series B preferred stock totaled
      $12,592 for the six months ended June 30, 2004 and $13,770 for the six
      months ended June 30, 2003.

      Basic loss per common share for the six months ended June 30, 2004, was
      $0.33 per share with 1,987,394 weighted average common shares outstanding
      as compared to $0.11 per share and 1,823,256 weighted average common
      shares outstanding for the six months ended June 30, 2003.

      DILUTED

      Diluted loss per common share for the six months ended June 30, 2004 was
      $0.33 per share with 1,987,394 average common shares outstanding as
      compared to $0.11 per share and 1,823,256 weighted average common shares
      outstanding for the six months ended June 30, 2003. For the six months
      ended June 30, 2004 and 2003, all outstanding common stock equivalents are
      anti-dilutive due to the net loss.

      LIQUIDITY AND WORKING CAPITAL

      At June 30, 2004, working capital was $156,203 compared to $608,617 at
      June 30, 2003. The decrease was due to a reduction in inventory, and an
      increase in accrued contract expenses and notes payable. Accrued contract
      expenses increased as a result of the monies received from the Third
      Frontier Action Fund that had not been disbursed as of June 30, 2004. The
      Company used cash from operations of approximately $41,000 and $10,000 for
      the six months ended June 30, 2004 and June 30, 2003, respectively.
      Significant non-cash items including depreciation, inventory reserve on
      excess and obsolete inventory, warrants issued for consulting, debt
      conversion expense, allowance for doubtful accounts and the cumulative
      effect of the change in accounting were approximately $329,000 and
      $116,000, respectively, for the six months ended June 30, 2004 and
      2003. Accounts payable and accrued expenses increased in excess of
      increases in accounts receivable, inventory and prepaids by approximately
      $238,000 for the six months ended June 30, 2004. Accounts payable and
      accrued expenses increased in excess of decreases in accounts receivable,
      inventory and prepaids by approximately $61,000 for the six months ended
      June 30, 2003, as a result of timing of receipt of inventory versus
      required scheduled payments on this inventory and increased prepaid
      expenses.

      For investing activities, the Company used cash of approximately $341,000
      and $114,000, for the six months ended June 30, 2004 and June 30, 2003,
      respectively. The amounts invested were used to purchase machinery and
      equipment for increased production capacity, new product lines and for
      leasehold improvements for the new facility. Proceeds on sale of equipment
      totaled $1,602 and $5,300 for the six months ended June 30, 2004 and June
      30, 2003, respectively.

      For financing activity for the six months ended June 30, 2004, the Company
      provided cash of approximately $669,000. Cash payments to third parties
      for capital lease obligations approximated $19,000; proceeds from notes
      payable totaled $150,000. Net proceeds from sale of common stock was
      $659,000 and proceeds from the exercise of stock options totaled $3,500.
      Cash payments for note payable were $150,000.

                                      16
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS (CONTINUED)

      For financing activity for the six months ended June 30, 2003, the Company
      provided cash of approximately $478,000. Cash payments to third parties
      for capital lease obligations approximated $22,000. Proceeds from notes
      payable to shareholders were $500,000.

      While certain major shareholders 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. 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.

      The Company completed two private financing transactions in 2003 including
      (i) the issuance of convertible promissory notes in the aggregate amount
      of $600,000 and 122,000 warrants to purchase shares of common stock in
      exchange for $600,000 in cash and (ii) the redemption of the Company's
      entire $129,770 obligation on its Series A redeemable convertible
      preferred stock in exchange for convertible promissory notes in the
      aggregate amount of $129,770, which represented the face amount of the
      preferred stock plus accrued and unpaid dividends and interest, and 26,302
      warrants to purchase shares of common stock. Four present shareholders
      invested the $600,000 of new money in the Company. $500,000 in cash and
      the redemption of the Series A redeemable preferred stock was received and
      recorded on June 30, 2003. $100,000 in cash was received and recorded on
      July 1, 2003. During second quarter 2004, the Company completed equity
      financing of at least $500,000 prior to June 30, 2004, thereby requiring
      the principal and accrued interest totaling $754,846 on the convertible
      promissory notes to convert to equity. Pursuant to the terms of the
      promissory notes, the promissory notes converted to common stock at a
      rate of $2.40 per share and entitled the holders of the promissory notes
      to receive warrants under the same terms as the private placement. See
      "Conversion of Debt to Equity Securities in Part II, Item 2 - Changes in
      Securities and Small Business Issuer Purchases of Equity Securities."
      Therefore, the Company has recorded the debt conversion in accordance with
      SFAS #84 - "Induced Conversions of Convertible Debt" which requires
      recognition of an expense equal to the fair value of the additional
      securities issued with conversion. The Company has expensed $175,362 of
      debt conversion expense.

      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. Our accumulated deficit since
      inception was $7,365,060 (unaudited) at June 30, 2004.

      We have financed the losses primarily from: (i) several private offerings
      of debt and equity securities; and (ii) additional investments and loans
      by our major shareholders.

                                      17
<PAGE>

      We cannot assure you, however, that we will be able to raise additional
      capital in the future to fund our operations. We expect to continue to
      incur significant operating and net losses in 2004, and it is possible
      that we will never be able to sustain or develop the revenue levels
      necessary to attain profitability.

      IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS WE MAY HAVE TO SIGNIFICANTLY
      CURTAIL THE SCOPE OF OUR OPERATIONS OR LIQUIDATE THE COMPANY.

      As of June 30, 2004, cash on-hand was $528,524 with $247,902 restricted
      for equipment purchases in accordance with the TFAF grant. Cash available
      for operations at June 30, 2004 was $280,622. Management believes, based
      on currently available financing and forecasted sales and expenses, that
      funding will be adequate to sustain operations through December 2004.

      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.

      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 our
      business, it may be difficult to locate and hire qualified personnel. The
      loss of services of one of 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. Although the Company has been successful
      in planning for and retaining highly capable and qualified successor
      management in the past, there can be no assurance that it will be able to
      do so in the future.

                                      18
<PAGE>

      WE NEED ADDITIONAL CAPITAL, WHICH MAY REDUCE THE VALUE OF OUR COMMON
      STOCK.

      Although the Company was successful in raising $701,000 through the first
      seven months of 2004 numerous factors make it necessary for the Company to
      seek additional capital. In order to support the initiatives envisioned in
      our business plan, we will need to raise additional funds through the sale
      of assets, public or private financing, collaborative relationships or
      other arrangements. Our ability to raise additional financing depends on
      many factors beyond our control, including the state of capital markets,
      the market price of our common stock and the development or prospects for
      development of competitive products by others. Because our common stock is
      not listed on a major stock exchange, many investors may not be willing or
      allowed to purchase it or may demand steep discounts. The necessary
      additional financing may not be available to us or may be available only
      on terms that would result in further dilution to the current owners of
      our common stock.

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

      The market for Thin Film Materials is a substantial market with
      significant competition in both ceramic and metal materials. While we
      believe that our 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.

      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 which
      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.

      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 THAT 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.

                                       19
<PAGE>

      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
      received a patent for a new process to join two individual strongly linked
      super-conductors utilizing a melt processing technique. In addition, in
      the future we may submit additional patent applications covering various
      applications. 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 Thin Film Market is characterized by rapidly advancing technology. Our
      success depends on our ability to keep pace with advancing technology,
      processes and industry standards. To date, we have focused our development
      efforts on powders and targets. 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 than those we
      currently use may prove more advantageous.

      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 High Temperature
      Superconductive (HTS) products. Additionally, the market for the Thin Film
      Battery materials is still in its nascent stages.

                                      20
<PAGE>

      THE MARKET FOR OUR COMMON STOCK IS LIMITED, AND AS SUCH OUR SHAREHOLDERS
      MAY HAVE DIFFICULTY RESELLING THEIR SHARES WHEN DESIRED OR AT ATTRACTIVE
      MARKET PRICES.

      Our stock price and our listing may make it more difficult for our
      shareholders to resell shares when desired or at attractive prices. From
      April 2000 until September 2001, our common stock traded on the National
      Quotation Bureau (the "pink sheets"). In September 2001, our stock once
      again began trading on The Over the Counter Bulletin Board ("OTC Bulletin
      Board"). Nevertheless, our common stock has continued to trade in low
      volumes and at low prices. Some investors view low-priced stocks as unduly
      speculative and therefore not appropriate candidates for investment. Many
      institutional investors have internal policies prohibiting the purchase or
      maintenance of positions in low-priced stocks. This has the effect of
      limiting the pool of potential purchasers of our common stock at present
      price levels. Shareholders may find greater percentage spreads between bid
      and asked prices, and more difficulty in completing transactions and
      higher transaction costs when buying or selling our common stock than they
      would if our stock were listed on a major stock exchange, such as The New
      York Stock Exchange or The NASDAQ National Market.

      Additionally, 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. Broker-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.

      OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE ADDITIONAL SHARES OF
      STOCK.

      We are authorized to issue up to 15,000,000 shares of common stock, which
      may be issued by our board of directors for such consideration, as they
      may consider sufficient without seeking shareholders approval. The
      issuance of additional shares of common stock in the future will reduce
      the proportionate ownership and voting power of current shareholders.

      Our Articles of Incorporation also authorize us to issue up to 260,000
      shares of preferred stock. The issuance of preferred stock in the future
      could create additional securities which would have dividend and
      liquidation preferences prior in right to the outstanding shares of common
      stock. These provisions could also impede a non-negotiated change in
      control.

                                      21
<PAGE>

      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.

      WE MAY HAVE DIFFICULTY RAISING ADDITIONAL CAPITAL, WHICH COULD DEPRIVE US
      OF NECESSARY RESOURCES.

      We require substantial capital resources to maintain existing operations.

      OFF BALANCE SHEET ARRANGEMENTS

      The Company has no off balance sheet arrangements including special
      purpose entities.

                                      22
<PAGE>

ITEM 3.     CONTROLS AND PROCEDURES

      As of the end of the period covered by this report, the Company's Chief
      Executive Officer and Chief Financial Officer evaluated the effectiveness
      of the design and operation of the Company's disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under
      the Securities Exchange Act of 1934). Based upon this evaluation, the
      Chief Executive Officer and Chief Financial Officer concluded that the
      disclosure controls and procedures were effective as of the period covered
      by this report in ensuring that information required to be disclosed by
      the Company in the reports that it files or submits under the Securities
      and Exchange Act of 1934, as amended, is recorded, processed, summarized
      and reported within the time period specified by the Securities and
      Exchange Commission's rules and forms.

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

                                      23
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.     CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
            SECURITIES.

      SALES OF UNREGISTERED SECURITIES: During the second quarter ending June
      30, 2004, the Company, in a private placement to four accredited investors
      sold units consisting of 1,000 shares of the Company's common stock
      without par value and warrants to purchase 200 shares of common stock.
      The total offering price paid in cash by accredited investors was
      $620,000 for an aggregate of 258,334 shares of the Company's common stock
      and warrants an aggregate of 51,666 shares of the Company's common stock,
      without par value, at a purchase price of $2.88 per share.

      In our opinion, the issuance of these shares was exempt from registration
      pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
      thereunder due to the fact the shares were sold to less than 35 purchasers
      all of whom were accredited investors. The Company did not use a placement
      agent or underwriter for the transaction.

      CONVERSION OF DEBT TO EQUITY SECURITIES: Because the Company completed
      equity financing of at least $500,000 prior to June 30, 2004, the
      principal and accrued interest totaling $754,845.86 due on six convertible
      promissory notes issued on June 30, 2003, converted to 314,519 shares of
      common stock without par value at a conversion rate of $2.40 per share. As
      part of the conversion, the holders of the convertible promissory notes
      also received warrants to purchase an aggregate of 62,901 shares of the
      Company's common stock, without par value, at a purchase price of $2.88
      per share.

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

      (a)   The Company held its Annual Meeting of Shareholders on May 20, 2004
            for the purpose of electing three directors.

      (b)   The following nominees were elected as directors of the Company at
            the Annual Meeting of Shareholders: Robert J. Baker, Daniel Rooney,
            and Edward W. Ungar.

      (c)   The table shows the voting tabulations for the matter voted upon at
            the Annual Meeting of Shareholders.

<TABLE>
<CAPTION>
                            FOR               WITHHELD
<S>                      <C>                  <C>
Robert J. Baker          1,223,645              2,330

Daniel Rooney            1,223,665              2,310

Edward W. Ungar          1,170,435             55,540
</TABLE>

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   EXHIBITS.

            31.1  Rule 13a-14(a) Certification of Principal Executive Officer.

            31.2  Rule 13a-14(a) Certification of Principal Financial Officer.

            32.1  Section 1350 Certification of Principal Executive Officer.

            32.2  Section 1350 Certification of Principal Financial Officer.

                                      24
<PAGE>

      (b)   REPORTS ON FORM 8-K.

            None.

                                   SIGNATURES

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

                                        SUPERCONDUCTIVE COMPONENTS, INC.

Date:  August 13, 2004                  /s/ Daniel Rooney
                                        ----------------------------------------
                                        Daniel Rooney, President and Chief
                                        Executive Officer
                                        (Principal Executive Officer)

                                        /s/ Gerald S. Blaskie
                                        ----------------------------------------
                                        Gerald S. Blaskie, Chief Financial
                                        Officer
                                        (Principal Financial Officer)

                                      25