##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-21074
 SUPERCONDUCTOR TECHNOLOGIES INC.
  Delaware
    
    77-0158076(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 460 Ward Drive,
Santa Barbara, California 93111-2356
 (805) 690-4500
 
 þ o
  o þ o
 o þ




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##### 



SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
    
    
    1WHERE YOU CAN FIND MORE INFORMATION
    
    
    1PART I  FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Consolidated Statement of Operations
    
    
    2Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statement of Cash Flows
    
    
    4Notes to Unaudited Interim Condensed Consolidated
Financial Statements
    
    
    5ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26ITEM 4. Disclosure Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    27ITEM 1A. Risk Factors
    
    
    27ITEM 2. Unregistered Sales of Equity Securities
    
    
    27ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    28ITEM 5. Other Information
    
    
    28ITEM 6. Exhibits
    
    
    28SIGNATURE
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  i




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Managements Discussion and Analysis of
Financial Condition and Results of Operations Risk Factors Risk Factors
 
 WHERE YOU CAN FIND MORE INFORMATION
  1




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    September 30,
    
    
    October 1,
    
    
    September 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Net revenues:Net commercial product revenues
    
    $
    3,052,000
    
    
    $
    4,897,000
    
    
    $
    14,401,000
    
    
    $
    13,319,000Government and other contract
revenues
    
    
    865,000
    
    
    
    1,002,000
    
    
    
    2,408,000
    
    
    
    2,432,000Sub license royalties
    
    
    
    
    
    
    11,000
    
    
    
    15,000
    
    
    
    20,000Total net revenues
    
    
    3,917,000
    
    
    
    5,910,000
    
    
    
    16,824,000
    
    
    
    15,771,000Costs and expenses:Cost of commercial product revenues
    
    
    3,507,000
    
    
    
    4,220,000
    
    
    
    13,507,000
    
    
    
    11,736,000Contract research and development
    
    
    576,000
    
    
    
    651,000
    
    
    
    2,307,000
    
    
    
    1,658,000Other research and development
    
    
    1,102,000
    
    
    
    767,000
    
    
    
    3,038,000
    
    
    
    2,698,000Selling, general and administrative
    
    
    2,428,000
    
    
    
    2,436,000
    
    
    
    9,060,000
    
    
    
    7,831,000Restructuring expenses
    
    
    
    
    
    
    
    
    
    
    228,000
    
    
    
    Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,107,000Total costs and expenses
    
    
    7,613,000
    
    
    
    8,074,000
    
    
    
    28,140,000
    
    
    
    44,030,000Loss from operations
    
    
    (3,696,000
    )
    
    
    (2,164,000
    )
    
    
    (11,316,000
    )
    
    
    (28,259,000
    )Interest income
    
    
    98,000
    
    
    
    83,000
    
    
    
    208,000
    
    
    
    317,000Interest expense
    
    
    (25,000
    )
    
    
    (11,000
    )
    
    
    (98,000
    )
    
    
    (35,000
    )Net loss
    
    $
    (3,623,000
    )
    
    $
    (2,092,000
    )
    
    $
    (11,206,000
    )
    
    $
    (27,977,000
    )Basic and diluted loss per common share
    
    $
    (0.31
    )
    
    $
    (0.17
    )
    
    $
    (1.01
    )
    
    $
    (2.24
    )Weighted average number of common
shares outstanding
    
    
    11,655,492
    
    
    
    12,483,367
    
    
    
    11,064,823
    
    
    
    12,483,367
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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  December 31,
    
    
    September 30,2005
    
    
    2006(See Note)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    13,018,000
    
    
    $
    5,414,000Accounts receivable, net
    
    
    2,166,000
    
    
    
    2,554,000Inventory, net
    
    
    5,364,000
    
    
    
    6,468,000Prepaid expenses and other current assets
    
    
    723,000
    
    
    
    601,000Total Current Assets
    
    
    21,271,000
    
    
    
    15,037,000Property and equipment, net of accumulated depreciation of
$17,295,000 and $18,064,000, respectively
    
    
    7,803,000
    
    
    
    6,276,000Patents, licenses and purchased technology, net of accumulated
amortization
of $1,065,000 and $1,309,000, respectively
    
    
    2,514,000
    
    
    
    2,417,000Goodwill
    
    
    20,107,000
    
    
    
    Other assets
    
    
    350,000
    
    
    
    213,000Total Assets
    
    $
    52,045,000
    
    
    $
    23,943,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    
    2,036,000
    
    
    
    1,982,000Accrued expenses
    
    
    1,998,000
    
    
    
    1,845,000Current portion of capitalized lease obligations and long term debt
    
    
    19,000
    
    
    
    19,000Total Current Liabilities
    
    
    4,053,000
    
    
    
    3,846,000Capitalized lease obligations and long term-debt
    
    
    14,000
    
    
    
    Other long term liabilities
    
    
    721,000
    
    
    
    591,000Total Liabilities
    
    
    4,788,000
    
    
    
    4,437,000Commitments and contingencies-Notes 7and 9Stockholders Equity:Preferred stock, $.001 par value, 2,000,000 shares authorized,
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 250,000,000 shares
authorized, 12,483,367 shares issued and outstanding
    
    
    12,000
    
    
    
    12,000Capital in excess of par value
    
    
    208,545,000
    
    
    
    208,728,000Notes receivable from stockholder net
    
    
    (65,000
    )
    
    
    (22,000
    )Accumulated deficit
    
    
    (161,235,000
    )
    
    
    (189,212,000
    )Total Stockholders Equity
    
    
    47,257,000
    
    
    
    19,506,000Total Liabilities and Stockholders Equity
    
    $
    52,045,000
    
    
    $
    23,943,000
 
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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
  Nine Months EndedOctober 1,
    
    
    September 30,2005
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (11,206,000
    )
    
    $
    (27,977,000
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    2,214,000
    
    
    
    1,982,000Non-cash restructuring charges
    
    
    137,000Non-cash goodwill impairment charges
    
    
    
    
    
    
    20,107,000Warrants-Options
    
    
    24,000
    
    
    
    183,000Provision for excess and obsolete inventories
    
    
    612,000
    
    
    
    270,000Forgiveness of note receivable
    
    
    150,000
    
    
    
    Gain on disposal of property and equipment
    
    
    (126,000
    )
    
    
    Reserve for impairment of note and interest receivable
from Stockholder
    
    
    
    
    
    
    43,000Changes in assets and liabilities:Accounts receivable
    
    
    58,000
    
    
    
    (388,000
    )Inventory
    
    
    2,291,000
    
    
    
    (1,374,000
    )Prepaid expenses and other current assets
    
    
    30,000
    
    
    
    122,000Patents, licenses and purchased technology
    
    
    (82,000
    )
    
    
    (148,000
    )Other assets
    
    
    (35,000
    )
    
    
    137,000Accounts payable, accrued expenses and other long-
term liabilities
    
    
    (1,782,000
    )
    
    
    (336,000
    )Net cash used in operating activities
    
    
    (7,715,000
    )
    
    
    (7,379,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of property and equipment
    
    
    202,000
    
    
    
    Purchases of property and equipment
    
    
    (100,000
    )
    
    
    (211,000
    )Net cash provided by (used in) investing activities
    
    
    102,000
    
    
    
    (211,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings
    
    
    662,000
    
    
    
    Payments on short-term borrowings
    
    
    (1,600,000
    )
    
    
    Payments on long-term obligations
    
    
    (39,000
    )
    
    
    (14,000
    )Proceeds from sale of common stock and exercise of stock
options and warrants
    
    
    12,500,000
    
    
    
    Payment of common stock issuance costs
    
    
    (1,818,000
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    9,705,000
    
    
    
    (14,000
    )Net decrease in cash and cash equivalents
    
    
    2,092,000
    
    
    
    (7,604,000
    )Cash and cash equivalents at beginning of period
    
    
    12,802,000
    
    
    
    13,018,000Cash and cash equivalents at end of period
    
    $
    14,894,000
    
    
    $
    5,414,000
  4




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED
 1. General
     2. Summary of Significant Accounting Policies
 Basis of Presentation
    5




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Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
  Revenue Recognition
    Warranties
  Guarantees
  6




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Research and Development Costs
  Inventories
  Property and Equipment
  Patents, Licenses and Purchased Technology
  Goodwill
   7




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##### Table of Contents



Long-Lived Assets
  Restructuring Expenses
  Loss Contingencies
  Income Taxes
  Marketing Costs
  Net Loss Per Share
  Stock-based Compensation
  8




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Three months ended
    
    Nine months endedOctober 1, 2005
    
    October 1, 2005Risk free interest rate
    
    
    4.62
    %
    
    
    4.47
    %Expected volatility
    
    
    94
    %
    
    
    94
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    None
    
    NoneExpected life in years
    
    
    4.0
    
    
    
    4.0
   Three Months Ended
    
    
    Nine Months EndedOctober 1, 2005
    
    
    October 1, 2005Net loss:As reported
    
    $
    (3,623,000
    )
    
    $
    (11,206,000
    )Stock-based employee compensation included in net loss
    
    
    
    
    
    
    Stock-based compensation expense determined under
fair value method
    
    
    (584,000
    )
    
    
    (2,846,000
    )Pro forma
    
    $
    (4,207,000
    )
    
    $
    (14,052,000
    )Basic and Diluted Loss per ShareAs reported
    
    $
    (0.31
    )
    
    $
    (1.01
    )Stock-based compensation expense determined under
fair value method
    
    
    (0.5
    )
    
    
    (0.26
    )Pro forma
    
    $
    (0.36
    )
    
    $
    (1.27
    )
 Use of Estimates
  Fair Value of Financial Instruments
  9




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Comprehensive Income (Loss)
  Segment Information
  Certain Risks and Uncertainties
     Recent Accounting Pronouncements
 Fair Value Measurements Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  An Amendment of FASB Statements No. 87, 88, 106, and
132(R)
   10




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3. Short Term Borrowings
   4. Retirement of the Companys Chief Executive Officer
  5. Notes Receivable From Stockholder
 Shalvoy Litigation
 6. Stockholders Equity
  11




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Stock Options
   Three months ended
    
    Nine months endedSeptember 30, 2006
    
    September 30, 2006Per share fair value at grant date
    
    $
    1.14
    
    
    $
    2.58Risk free interest rate
    
    
    4.88
    %
    
    
    4.82
    %Expected volatility
    
    
    95
    %
    
    
    95
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    10
    %
    
    
    10
    %Expected life in years
    
    
    4.0
    
    
    
    4.0
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageNumber of
    
    
    
    
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Price Per Share
    
    Price
    
    Options Exercisable
    
    PriceBalance at December 31, 2005
    
    
    1,202,376
    
    
    $
    5.80 - $493.75
    
    
    $
    40.38
    
    
    
    1,162,330
    
    
    $
    41.32Granted
    
    
    77,700
    
    
    $
    1.43 -  $5.20
    
    
    $
    3.74Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (104,596
    )
    
    $
    5.90 - $493.75
    
    
    $
    40.34Balance at September 30, 2006
    
    
    1,175,480
    
    
    $
    1.43 - $493.75
    
    
    $
    38.05
    
    
    
    1,077,331
    
    
    $
    41.03
 12




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##### Table of Contents



Restricted Stock Awards
   Warrants
  Common SharesTotal and
    
    PriceCurrently
    
    perExercisable
    
    Share
    
    Expiration DateWarrants related to issuance of common stock
    
    
    39,786
    
    
    
    55.00
    
    
    March 10, 2007140,658
    
    
    
    11.90
    
    
    December 17, 2007*116,279
    
    
    
    29.00
    
    
    June 24, 2008*342,466
    
    
    
    11.10
    
    
    August 16, 2010Warrants related to April 2004 Bridge Loans
    
    
    69,549
    
    
    
    13.30
    
    
    April 28, 2011* **10,000
    
    
    
    18.50
    
    
    April 28, 2011*Warrants assumed in connection with the Conductus,
    
    
    109,500
    
    
    
    45.83
    
    
    September 27, 2007Inc. acquisition
    
    
    600
    
    
    
    312.50
    
    
    September 1, 2007Total
    
    
    828,838
 
 *
    
    The terms of these warrants contain net exercise provisions, wherein instead of a cash
exercise holders can elect to receive common stock equal to the difference between the
exercise price and the average closing sale price for common shares over 10-30 days
immediately preceding the exercise date.**
    
    The terms of these warrants contain anti-dilution adjustment provisions. 7. Legal Proceedings
 Shalvoy Litigation
   13




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Class Action Lawsuits
   8. Earnings Per Share
  9. Commitments and Contingencies
 Operating Leases
   Capital Leases
  Patents and Licenses
   14




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##### Table of Contents



OperatingYear ending December 31,
    
    Licenses
    
    
    Leases
    
    
    Capital LeasesRemainder of 2006
    
    $
    150,000
    
    
    $
    307,000
    
    
    $
    5,0002007
    
    
    150,000
    
    
    
    1,257,000
    
    
    
    15,0002008
    
    
    150,000
    
    
    
    1,294,000
    
    
    
    2009
    
    
    150,000
    
    
    
    1,339,000
    
    
    
    2010
    
    
    150,000
    
    
    
    1,386,000
    
    
    
    Thereafter
    
    
    1,350,000
    
    
    
    1,309,000
    
    
    
    Total payments
    
    $
    2,100,000
    
    
    $
    6,892,000
    
    
    
    20,000Less: amount representing interest
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Present value of minimum lease
    
    
    
    
    
    
    
    
    
    
    19,000Less current portion
    
    
    
    
    
    
    
    
    
    
    (19,000
    )Long term portion
    
    
    
    
    
    
    
    
    
    $
    0
  10. Contractual Guarantees and Indemnities
  Warranties
  Intellectual Property Indemnities
  15




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##### Table of Contents



Director and Officer Indemnities and Contractual Guarantees
   General Contractual Indemnities/Products Liability
  Short Term Borrowings
  Contractual Contingency
  11. Restructuring Expenses
  12. Details of Certain Financial Statement Components and Supplemental Disclosures of Cash Flow
Information and Non-Cash Activities
 Balance Sheet Data
 December 31,
    
    
    September 30,2005
    
    
    2006Accounts receivable:Accounts receivable-trade
    
    $
    1,930,000
    
    
    $
    2,199,000U.S. government accounts receivable-billed
    
    
    311,000
    
    
    
    430,000Less: allowance for doubtful accounts
    
    
    (75,000
    )
    
    
    (75,000
    )$
    2,166,000
    
    
    $
    2,554,000
 16




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##### Table of Contents



December 31,
    
    
    September 30,2005
    
    
    2006Inventories:Raw materials
    
    $
    3,328,000
    
    
    $
    2,704,000Work-in-process
    
    
    2,384,000
    
    
    
    1,169,000Finished goods
    
    
    2,861,000
    
    
    
    4,239,000Less inventory reserve
    
    
    (3,209,000
    )
    
    
    (1,644,000
    )$
    5,364,000
    
    
    $
    6,468,000
 December 31, 2005
    
    
    September 30,2006
    
    
    2006Property and Equipment:Equipment
    
    $
    18,000,000
    
    
    $
    17,157,000Leasehold improvements
    
    
    6,647,000
    
    
    
    6,732,000Furniture and fixtures
    
    
    451,000
    
    
    
    451,00025,098,000
    
    
    
    24,340,000Less: accumulated depreciation and amortization
    
    
    (17,295,000
    )
    
    
    (18,064,000
    )$
    7,803,000
    
    
    $
    6,276,000
  December 31, 2005
    
    
    September 30,2006
    
    
    2006Patents and Licenses:Patents pending
    
    $
    435,000
    
    
    $
    560,000Patents issued
    
    
    875,000
    
    
    
    897,000Less accumulated amortization
    
    
    (230,000
    )
    
    
    (271,000
    )Net patents issued
    
    
    645,000
    
    
    
    626,000Licenses
    
    
    563,000
    
    
    
    563,000Less accumulated amortization
    
    
    (66,000
    )
    
    
    (92,000
    )Net licenses
    
    
    497,000
    
    
    
    471,000Purchased technology
    
    
    1,706,000
    
    
    
    1,706,000Less accumulated amortization
    
    
    (769,000
    )
    
    
    (946,000
    )Net purchased technology
    
    
    937,000
    
    
    
    760,000$
    2,514,000
    
    
    $
    2,417,000
  17




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##### Table of Contents



December 31,
    
    
    September 30,2005
    
    
    2006Accrued Expenses and Other Long Term
Liabilities:Salaries Payable
    
    $
    365,000
    
    
    $
    175,000Compensated Absences
    
    
    423,000
    
    
    
    433,000Compensation related
    
    
    253,000
    
    
    
    440,000Warranty reserve
    
    
    491,000
    
    
    
    404,000Lease abandonment costs
    
    
    225,000
    
    
    
    8,000Product line exit costs
    
    
    402,000
    
    
    
    319,000Severance costs
    
    
    32,000
    
    
    
    Deferred Rent
    
    
    378,000
    
    
    
    389,000Other
    
    
    150,000
    
    
    
    268,0002,719,000
    
    
    
    2,436,000Less current portion
    
    
    (1,998,000
    )
    
    
    (1,845,000
    )Long term portion
    
    $
    721,000
    
    
    $
    591,000
 For the nine months ended,October 1,
    
    
    September 30,2005
    
    
    2006Warranty Reserve Activity:Beginning balance
    
    $
    419,000
    
    
    $
    491,000Additions
    
    
    151,000
    
    
    
    107,000Deductions
    
    
    (215,000
    )
    
    
    (194,000
    )Change in estimate relating to previous warranty accruals
    
    
    141,000
    
    
    
    Ending balance
    
    $
    496,000
    
    
    $
    404,000Lease Abandonment Costs:Beginning balance
    
    $
    1,336,000
    
    
    $
    225,000Additions
    
    
    
    
    
    
    Deductions
    
    
    (826,000
    )
    
    
    (217,000
    )Ending balance
    
    $
    510,000
    
    
    $
    8,000Product Line Exit Costs:Beginning balance
    
    $
    885,000
    
    
    
    402,000Additions
    
    
    
    
    
    
    Deductions
    
    
    (461,000
    )
    
    
    (83,000
    )Ending balance
    
    $
    424,000
    
    
    $
    319,000Severance Costs:Beginning balance
    
    $
    36,000
    
    
    $
    32,000Additions
    
    
    218,000
    
    
    
    81,000Deductions
    
    
    (202,000
    )
    
    
    (113,000
    )Ending balance
    
    $
    52,000
    
    
    $
    0
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   18




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##### Table of Contents



 SuperLink
  AmpLink
  SuperPlex
     Reverse Stock Split
   19




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##### Table of Contents



Critical Accounting Policies and Estimates
         20




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##### Table of Contents



Backlog
  21




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##### Table of Contents



Results of Operations
 Quarter and nine months ended September 30, 2006 as compared to the quarter and nine months ended
October 1, 2005
       Three Months Ended
    
    
    Nine Months EndedOctober
    
    
    
    
    
    
    September
    
    
    
    
    
    
    October 1,
    
    
    
    
    
    
    SeptemberDollars in thousands
    
    1, 2005
    
    
    
    
    
    
    30, 2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    30, 2006Net commercial
product sales
    
    $
    3,052
    
    
    
    100
    %
    
    $
    4,897
    
    
    
    100
    %
    
    $
    14,401
    
    
    
    100
    %
    
    $
    13,319
    
    
    
    100
    %Cost of commercial
product sales
    
    
    3,507
    
    
    
    115
    %
    
    
    4,220
    
    
    
    86
    %
    
    
    13,507
    
    
    
    94
    %
    
    
    11,736
    
    
    
    88
    %Gross profit
    
    $
    (455
    )
    
    
    (15
    %)
    
    $
    677
    
    
    
    14
    %
    
    $
    894
    
    
    
    6
    %
    
    $
    1,583
    
    
    
    12
    %
  22




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##### Table of Contents



Managements Discussion and Analysis of
Financial Condition and Results of Operations  Critical Accounting Policies and Estimates.
     Liquidity and Capital Resources
 Cash Flow Analysis
    23




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##### Table of Contents



Financing Activities
   Contractual Obligations and Commercial Commitments
  
    
    Capital Lease Obligations
  
    
    Operating Lease Obligations
  
    
    Patents and Licenses
  
    
    Purchase Commitments
  
    
    Quantitative Summary of Contractual Obligations and Commercial Commitments
  24




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##### Table of Contents



Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    After 5 yearsCapital lease obligations
    
    $
    20,000
    
    
    $
    20,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    6,892,000
    
    
    
    1,248,000
    
    
    
    2,611,000
    
    
    
    2,795,000
    
    
    
    238,000Minimum license
commitment
    
    
    2,100,000
    
    
    
    150,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    1,350,000Fixed asset and
inventory purchase
commitments
    
    
    2,126 ,000
    
    
    
    2,126,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    11,138,000
    
    
    $
    3,544,000
    
    
    $
    2,911,000
    
    
    $
    3,095,000
    
    
    $
    1,588,000
 Capital Expenditures
  Future Liquidity
     Net Operating Loss Carryforward
    25




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##### Table of Contents



Recent Accounting Requirements
 Fair Value Measurements Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  An Amendment of FASB Statements No. 87, 88, 106, and
132(R)
   Forward-Looking Statements
   
    
    fluctuations in product demand from quarter to quarter which can be significant,
    
    the impact of competitive filter products, technologies and pricing,
    
    manufacturing capacity constraints and difficulties,
    
    market acceptance risks, and
    
    general economic conditions.
 Risk Factors
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Managements Discussion and Analysis of
Financial Condition and Results of Operations  Market Risk
 26




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##### Table of Contents



Item 4. Disclosure Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Shalvoy Litigation
    Routine Litigation
  
 Item 1A. Risk Factors.
 Risk
Factors
 
 Item 2. Unregistered Sales of Equity Securities.
   27




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information
 (a) Additional Disclosures.
   (b) Stockholder Nominations.
 Board Meetings and Committees www.sec.gov
 
 Item 6. Exhibits.
 Number
    
    Description of Document3.1
    
    Amended and Restated Certificate of Incorporation of the Company (1)3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation (2)3.3
    
    Amended and Restated Bylaws of the Registrant (3)4.1
    
    Form of Common Stock Certificate (4)4.2
    
    Third Amended and Restated Stockholders Rights Agreement (5)4.3
    
    Warrant Issued to PNC Bank, National Association in connection with Credit Agreement
(5)4.4
    
    Warrant Purchase Agreement dated December 1, 1999 with PNC Bank (6)4.5
    
    Warrant Purchase Agreement dated January 12, 2000 with PNC Bank (6)4.6
    
    Certificate of Designations, Preferences and Rights of Series E Convertible Stock (7)4.7
    
    Securities Purchase Agreement dated as of September 29, 2000 between the Company and
RGC International Investors, LDC. (Exhibits and Schedules Omitted) (7)4.8
    
    Registration Rights Agreement dated as of September 29, 2000 between the Company and
RGC International Investors, LDC. (7)4.9
    
    Initial Stock Purchase Warrant dated as of September 29, 2000 between the Company
and RGC International Investors, LDC. (7)4.10
    
    Incentive Stock Purchase Warrant dated as of September 29, 2000 between the Company
and RGC International Investors, LDC. (7)4.11
    
    Registration Rights Agreement, dated March 6, 2002 (8)4.12
    
    Warrants to Purchase Shares of Common Stock, dated March 11, 2002 (8)4.13
    
    Registration Rights Agreement dated October 10, 2002 (9)4.14
    
    Warrants to Purchase Common Stock dated October 10, 2002 (9)4.15
    
    Common Stock Purchase Agreement, dated March 8, 2002 between Conductus, Inc. and the
investors signatory thereto (10)4.16
    
    Warrant to Purchase Common Stock, dated March 8, 2002 by Conductus, Inc. to certain
investors (11)4.17
    
    Registration Rights Agreement, dated March 26, 2002, between Conductus, Inc. and
certain investors (11)4.18
    
    Warrant to Purchase Common Stock, dated August 7, 2000, issued by Conductus to
Dobson Communications Corporation (12) *4.19
    
    Form of Series B Preferred Stock and Warrant Purchase Agreement dated September 11,
1998 and September 22, 1998 between Conductus and Series B Investors (13)
 28




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##### Table of Contents



Number
    
    Description of Document4.20
    
    Form of Warrant to Purchase Common Stock between Conductus and Series B investors,
dated September 28, 1998, issued by Conductus in a private placement (13)4.21
    
    Form of Series C Preferred Stock and Warrant Purchase Agreement, dated December 10,
1999, between Conductus and Series C Investors (14)4.22
    
    Form of Warrant Purchase Common Stock between Conductus and Series C investors,
dated December 10, 1999, issued by Conductus in a private placement (14)4.23
    
    Form of Warrant to Purchase Common Stock dated March 28, 2003, issued to Silicon
Valley Bank (15)4.24
    
    Form of Warrant (16)4.25
    
    Form of Registration Rights Agreement (16)4.26
    
    Agility Capital Warrant dated May 2004 (17)4.27
    
    Silicon Valley Bank Warrant dated
May 2004 (17)4.28
    
    Form of Warrant dated August 2005 (18)31.1
    
    Statement of CEO Pursuant to 302 of the Sarbanes-Oxley Act of 2002 (*)31.2
    
    Statement of Principal Financial Officer Pursuant to 302 of the Sarbanes-Oxley Act
of 2002 (*)32.1
    
    Statement of CEO Pursuant to 906 of the Sarbanes-Oxley Act of 2002 (*)32.2
    
    Statement of Principal Financial Officer Pursuant to 906 of the Sarbanes-Oxley Act
of 2002 (*)
 
 (1)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q filed for the
quarter ended April 3, 1999.(2)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 2001.(3)
    
    Incorporated by reference from Registrants Form 8-K dated May 25, 2005.(4)
    
    Incorporated by reference from the Registrants Registration Statement on Form S-1 (Reg. No.
33-56714).(5)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q filed for the
quarter ended July 3, 1999.(6)
    
    Incorporated by reference from the Registrants Registration Statement on Form S-8 (Reg. No.
333-90293).(7)
    
    Incorporated by reference from the Registrants Annual Report on Form 10-K for the year ended
December 31, 1999.(8)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended
December 31, 2001.(9)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed October 2,
2002.(10)
    
    Incorporated by reference from the Registrants Annual Report on Form 10-K filed for the year
ended December 31, 1997.(11)
    
    Incorporated by reference from the Conductus, Inc.s Registration Statement on Form S-3 (Reg.
No. 333-85928) filed on April 9, 2002.(12)
    
    Incorporated by reference from Conductus, Inc.s Quarterly Report on Form 10-Q, filed with
the SEC on November 16, 1998.(13)
    
    Incorporated by reference from Conductus, Inc.s Annual Report on Form 10-K for the year
ended December 31, 1999.(14)
    
    Incorporated by reference from Conductus, Inc.s Annual Report on Form 10-K for the year
ended December 31, 1999.(15)
    
    Incorporate by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended March 29, 2003.(16)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed June 25, 2003.(17)
    
    Incorporated by reference from Registrants Registration Statement of Form S-3 (Reg.
333-89184).(18)
    
    Incorporated by reference from Registrants Form 8-K filed August 11, 2005.*
    
    Filed herewith.**
    
    Confidential treatment has been previously granted for certain portions of these exhibits. 29




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##### Table of Contents



SIGNATURES
  SUPERCONDUCTOR TECHNOLOGIES INC.Dated: November 9, 2006
    
    /s/ William J. BuchananWilliam J. BuchananController (Principal Financial Officer)/s/ Jeffrey A. QuiramJeffrey A. QuiramPresident and Chief Executive Officer
 30