##### 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 March 29, 2008
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 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
    
    
    15ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21ITEM 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    21ITEM 1A. Risk Factors
    
    
    21ITEM 2. Unregistered Sales of Equity Securities
    
    
    21ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    22ITEM 5. Other Information
    
    
    22ITEM 6. Exhibits
    
    
    22SIGNATURE
    
    
    23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 This Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. You can find many (but not all) of these statements by looking for words such as
approximates, believes, expects, anticipates, estimates, intends, plans would,
may or other similar expressions in this Report. We claim the protection of the safe harbor
contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any
forward-looking statements presented in this Report, or which we may make orally or in writing from
time to time, are based on the beliefs of, assumptions made by, and information currently available
to, us. Such statements are based on assumptions and the actual outcome will be affected by known
and unknown risks, trends, uncertainties and factors that are beyond our control or ability to
predict. Although we believe that our assumptions are reasonable, they are not guarantees of future
performance and some will inevitably prove to be incorrect. As a result, our actual future results
can be expected to differ from our expectations, and those differences may be material.
Accordingly, investors should use caution in relying on past forward-looking statements, which are
based on known results and trends at the time they are made, to anticipate future results or
trends.
 Some of the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by forward-looking statements
include the following: limited assets and a history of losses; limited number of potential
customers; limited number of suppliers for some of our components; no significant backlog from
quarter to quarter; and our market is characterized by rapidly advancing technology. For further
discussion of these and other factors see Part I, Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations and Part II, Item 1A. Risk Factors in this Report
and in our 2007 Annual Report on Form 10-K .
 This Report and all subsequent written and oral forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect events or circumstances after
the date of this Report.
 
 WHERE YOU CAN FIND MORE INFORMATION
  1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months EndedMarch 31, 2007
    
    
    March 29, 2008Net revenues:Commercial product revenues
    
    $
    3,534,000
    
    
    $
    1,993,000Government and other contract revenues
    
    
    649,000
    
    
    
    1,479,000Total net revenues
    
    
    4,183,000
    
    
    
    3,472,000Costs and expenses:Cost of commercial product revenues
    
    
    3,902,000
    
    
    
    2,019,000Contract research and development
    
    
    445,000
    
    
    
    1,243,000Other research and development
    
    
    913,000
    
    
    
    408,000Selling, general and administrative
    
    
    1,901,000
    
    
    
    2,200,000Total costs and expenses
    
    
    7,161,000
    
    
    
    5,870,000Loss from operations
    
    
    (2,978,000
    )
    
    
    (2,398,000
    )Interest income
    
    
    52,000
    
    
    
    99,000Interest expense
    
    
    (11,000
    )
    
    
    (9,000
    )Net loss
    
    $
    (2,937,000
    )
    
    $
    (2,308,000
    )Basic and diluted loss per common share
    
    $
    (0.24
    )
    
    $
    (0.17
    )Weighted average number of common
shares outstanding
    
    
    12,483,367
    
    
    
    13,636,083
  2




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    March 29,2007
    
    
    2008(See Note)
    
    
    (Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    3,939,000
    
    
    $
    11,708,000Accounts receivable, net
    
    
    2,413,000
    
    
    
    1,886,000Inventory, net
    
    
    3,415,000
    
    
    
    5,380,000Prepaid expenses and other current assets
    
    
    442,000
    
    
    
    414,000Total Current Assets
    
    
    10,209,000
    
    
    
    19,388,000Property and equipment, net of accumulated depreciation of
$19,129,000 and $18,857,000, respectively
    
    
    3,961,000
    
    
    
    3,711,000Patents, licenses and purchased technology, net of accumulated amortization
of $1,722,000 and $1,805,000, respectively
    
    
    2,236,000
    
    
    
    2,228,000Other assets
    
    
    219,000
    
    
    
    226,000Total Assets
    
    $
    16,625,000
    
    
    $
    25,553,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,467,000
    
    
    $
    2,080,000Accrued expenses
    
    
    1,405,000
    
    
    
    945,000Proceeds for shares to be issued
    
    
    4,000,000
    
    
    
    Current portion of capitalized lease obligations and long term debt
    
    
    45,000
    
    
    
    46,000Total Current Liabilities
    
    
    6,917,000
    
    
    
    3,071,000Other long term liabilities
    
    
    518,000
    
    
    
    546,000Total Liabilities
    
    
    7,435,000
    
    
    
    3,617,000Commitments and contingencies-Notes 6 and 7Stockholders Equity:Preferred stock, $.001 par value, 2,000,000 shares authorized,
611,523 shares issued and outstanding
    
    
    
    
    
    
    1,000Common stock, $.001 par value, 250,000,000 shares authorized,
12,511,414 and 15,612,775 shares issued and outstanding, respectively
    
    
    12,000
    
    
    
    15,000Capital in excess of par value
    
    
    209,163,000
    
    
    
    224,213,000Accumulated deficit
    
    
    (199,985,000
    )
    
    
    (202,293,000
    )Total Stockholders Equity
    
    
    9,190,000
    
    
    
    21,936,000Total Liabilities and Stockholders Equity
    
    $
    16,625,000
    
    
    $
    25,553,000
   3




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months EndedMarch 31, 2007
    
    
    March 29, 2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,937,000
    )
    
    $
    (2,308,000
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    617,000
    
    
    
    396,000Warrants-Options
    
    
    90,000
    
    
    
    118,000Provision for excess and obsolete inventories
    
    
    90,000
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (440,000
    )
    
    
    525,000Inventory
    
    
    1,292,000
    
    
    
    (1,965,000
    )Prepaid expenses and other current assets
    
    
    (405,000
    )
    
    
    28,000Patents, licenses and purchased technology
    
    
    (36,000
    )
    
    
    (76,000
    )Other assets
    
    
    6,000
    
    
    
    (6,000
    )Accounts payable, accrued expenses and other long-
term liabilities
    
    
    (583,000
    )
    
    
    208,000Net cash used in operating activities
    
    
    (2,306,000
    )
    
    
    (3,080,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (45,000
    )
    
    
    (62,000
    )Proceeds from sale of PP&E
    
    
    18,000
    
    
    
    Net cash used in investing activities
    
    
    (27,000
    )
    
    
    (62,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on long-term obligations
    
    
    (5,000
    )
    
    
    Proceeds from preferred and common stock
    
    
    
    
    
    
    10,911,000Net cash provided by (used in) financing activities
    
    
    (5,000
    )
    
    
    10,911,000Net increase (decrease) in cash and cash equivalents
    
    
    (2,338,000
    )
    
    
    7,769,000Cash and cash equivalents at beginning of period
    
    
    5,487,000
    
    
    
    3,939,000Cash and cash equivalents at end of period
    
    $
    3,149,000
    
    
    $
    11,708,000
  4




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 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
  Revenue Recognition/Contract Accounting
     6




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Warranties
  Guarantees
  Research and Development Costs
  Inventories
  Property and Equipment
  Patents, Licenses and Purchased Technology
  Long-Lived Assets
  7




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Loss Contingencies
  Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109
 Marketing Costs
  Net Loss Per Share
  Stock-based Compensation
  Three months endedMarch 29, 2008
    
    March 31, 2007Expected life in years
    
    
    4.0
    
    
    
    4.0Risk free interest rate
    
    
    2.4
    %
    
    
    4.8
    %Expected volatility
    
    
    110
    %
    
    
    95
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
  8




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Use of Estimates
  Fair Value of Financial Instruments
  Comprehensive Income (Loss)
  Segment Information
  Certain Risks and Uncertainties
     Recent Accounting Pronouncements
  9




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3. Short Term Borrowings
   4. Stockholders Equity
 Stock Options
   10




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Weighted
    
    
    
    
    
    WeightedAverage
    
    Number of
    
    AverageNumber of
    
    
    
    
    
    Exercise
    
    Options
    
    ExerciseShares
    
    Price Per Share
    
    Price
    
    Exercisable
    
    PriceBalance at December 31, 2007
    
    
    741,858
    
    
    $
    1.43 - $493.75
    
    
    $
    34.24
    
    
    
    663,174
    
    
    $
    37.87Granted
    
    
    499,590
    
    
    $
    3.74 -  $6.08
    
    
    $
    5.00Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (6,759
    )
    
    $
    6.90 - $66.40
    
    
    $
    26.30Balance at March 29, 2008
    
    
    1,234,689
    
    
    $
    1.43 - $493.75
    
    
    $
    22.45
    
    
    
    663,376
    
    
    $
    37.63
  Restricted Stock Awards
   Warrants
  Common SharesTotal and
    
    PriceCurrently
    
    perExercisable
    
    Share
    
    Expiration DateWarrants related to the issuance of common stock
    
    
    116,279
    
    
    
    29.00
    
    
    June 27, 2008 *342,466
    
    
    
    7.08
    
    
    August 16, 2010*
    
    
    *
    *Warrants related to April 2004 Bridge Loans
    
    
    10,000
    
    
    
    18.50
    
    
    April 28, 2011*Total
    
    
    468,745
 
 *
    
    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.**
    
    These warrants contain anti-dilution adjustment provisions. 11




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5. Earnings Per Share
  6. Commitments and Contingencies
 Operating Leases
   Capital Leases
  Patents and Licenses
   Year ending December 31,
    
    Licenses
    
    
    Operating LeasesRemainder of 2008
    
    $
    150,000
    
    
    $
    1,050,0002009
    
    
    150,000
    
    
    
    1,474,0002010
    
    
    150,000
    
    
    
    1,525,0002011
    
    
    150,000
    
    
    
    1,436,0002012
    
    
    150,000
    
    
    
    9,000Thereafter
    
    
    1,050,000
    
    
    
    1,000Total payments
    
    $
    1,800,000
    
    
    $
    5,495,000
 7. Contractual Guarantees and Indemnities
  12




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Warranties
  Intellectual Property Indemnities
  Director and Officer Indemnities and Contractual Guarantees
   General Contractual Indemnities/Products Liability
  Short Term Borrowings
 See Note 3Short Term Borrowings.
 Contractual Contingency
  13




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8. Details of Certain Financial Statement Components and Supplemental Disclosures of Cash Flow
Information and Non-Cash Activities
 Balance Sheet Data
 December 31, 2007
    
    
    March 29, 2008Accounts receivable:Accounts receivable-trade
    
    $
    1,242,000
    
    
    $
    819,000United States government accounts receivable-billed
    
    
    1,246,000
    
    
    
    1,142,000Less: allowance for doubtful accounts
    
    
    (75,000
    )
    
    
    (75,000
    )$
    2,413,000
    
    
    $
    1,886,000
 December 31, 2007
    
    
    March 29, 2008Inventories:Raw materials
    
    $
    1,934,000
    
    
    $
    2,685,000Work-in-process
    
    
    679,000
    
    
    
    1,323,000Finished goods
    
    
    1,817,000
    
    
    
    2,272,000Less inventory reserve
    
    
    (1,015,000
    )
    
    
    (900,000
    )$
    3,415,000
    
    
    $
    5,380,000
 December 31, 2007
    
    
    March 29, 2008Property and Equipment:Equipment
    
    $
    15,951,000
    
    
    $
    15,429,000Leasehold improvements
    
    
    6,732,000
    
    
    
    6,732,000Furniture and fixtures
    
    
    407,000
    
    
    
    407,00023,090,000
    
    
    
    22,568,000Less: accumulated depreciation and amortization
    
    
    (19,129,000
    )
    
    
    (18,857,000
    )$
    3,961,000
    
    
    $
    3,711,000
  December 31, 2007
    
    
    March 29, 2008Patents and Licenses:Patents pending
    
    $
    705,000
    
    
    $
    770,000Patents issued
    
    
    983,000
    
    
    
    993,000Less accumulated amortization
    
    
    (345,000
    )
    
    
    (361,000
    )Net patents issued
    
    
    638,000
    
    
    
    632,000Licenses
    
    
    563,000
    
    
    
    563,000Less accumulated amortization
    
    
    (134,000
    )
    
    
    (142,000
    )Net licenses
    
    
    429,000
    
    
    
    421,000Purchased technology
    
    
    1,706,000
    
    
    
    1,706,000Less accumulated amortization
    
    
    (1,242,000
    )
    
    
    (1,301,000
    )Net purchased technology
    
    
    464,000
    
    
    
    405,000$
    2,236,000
    
    
    $
    2,228,000
  14




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December 31, 2007
    
    
    March 29, 2008Accrued Expenses and Other Long Term Liabilities:Salaries Payable
    
    $
    307,000
    
    
    $
    197,000Compensated Absences
    
    
    371,000
    
    
    
    422,000Compensation related
    
    
    369,000
    
    
    
    43,000Warranty reserve
    
    
    380,000
    
    
    
    307,000Deferred Rent
    
    
    373,000
    
    
    
    362,000Other
    
    
    123,000
    
    
    
    206,0001,923,000
    
    
    
    1,537,000Less current portion
    
    
    (1,405,000
    )
    
    
    (991,000
    )Long term portion
    
    $
    518,000
    
    
    $
    546,000
 For the three months ended,March 31, 2007
    
    
    March 29, 2008Warranty Reserve Activity:Beginning balance
    
    $
    428,000
    
    
    $
    380,000Additions
    
    
    28,000
    
    
    
    12,000Deductions
    
    
    (33,000
    )
    
    
    (85,000
    )Ending balance
    
    $
    423,000
    
    
    $
    307,000Lease Abandonment Costs:Beginning balance
    
    $
    8,000
    
    
    
    Additions
    
    
    
    
    
    
    Deductions
    
    
    
    
    
    
    Ending balance
    
    $
    8,000
    
    
    $
    Product Line Exit Costs:Beginning balance
    
    $
    319,000
    
    
    
    Additions
    
    
    
    
    
    
    Deductions
    
    
    
    
    
    
    Ending balance
    
    $
    319,000
    
    
    $
    
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   15




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 SuperLink
  AmpLink
  SuperPlex
     Recent Developments
 BAOLI Investment
   BAOLI Joint Venture
 ®
 16




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Critical Accounting Policies and Estimates
   Backlog
  Results of Operations
 Quarter Ended March 29, 2008 as compared to the Quarter Ended March 31, 2007
     17




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For the quarters endedMarch 31, 2007
    
    
    March 29, 2008(Dollars in thousands)Net commercial product sales
    
    $
    3,534
    
    
    
    100.0
    %
    
    $
    1,993
    
    
    
    100.0
    %Total cost of commercial
product sales
    
    
    3,902
    
    
    
    110.4
    %
    
    
    2,019
    
    
    
    101.3
    %Gross profit
    
    $
    (368
    )
    
    
    (10.4
    %)
    
    $
    (26
    )
    
    
    (1.3
    %)
         18




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Liquidity and Capital Resources
 Cash Flow Analysis
      Financing Activities
    Contractual Obligations and Commercial Commitments
  Capital Expenditures
  Future Liquidity
   19




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Net Operating Loss Carryforward
 ,
   Recent Accounting Pronouncements
    Forward-Looking Statements
  20




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
    
    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
 
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities.
  21




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Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
 (a)
    
    Additional Disclosures.None.(b)
    
    Stockholder Nominations.
  
 Item 6. Exhibits.
 Number
    
    Description of Document31.1
    
    Statement of CEO Pursuant to 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Statement of CFO 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 CFO Pursuant to 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed herewith. 22




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SIGNATURES
  SUPERCONDUCTOR TECHNOLOGIES INC.Dated:  May 12, 2008
    /s/ William J. BuchananWilliam J. BuchananController/s/ Jeffrey A. QuiramJeffrey A. QuiramPresident and Chief Executive Officer 23