##### Table of Contents



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 October 1, 2005
 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
(State or other jurisdiction of
incorporation or organization)
    
    77-0158076
(IRS Employer
Identification No.)
 460 Ward Drive,
Santa Barbara, California 93111-2356
 (805) 690-4500
 
  þ o
  þ o
  o þ
    1




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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
    
    
    3WHERE YOU CAN FIND MORE INFORMATION
    
    
    3PART I  FINANCIAL INFORMATIONITEM
1  Financial Statements (Unaudited)Condensed Consolidated Statement of Operations
    
    
    4Condensed Consolidated Balance Sheet
    
    
    5Condensed Consolidated Statement of Cash Flows
    
    
    6Notes to Unaudited Interim Condensed Consolidated Financial Statements
    
    
    7ITEM
2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30ITEM 4. Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONITEM
1  Legal Proceedings
    
    
    31ITEM
5  Other Information
    
    
    31ITEM 6  Exhibits
    
    
    32SIGNATURE
    
    
    34Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Managements Discussion and Analysis of
Financial Condition and Results of Operations BusinessAdditional Factors That May Affect Our Future Results
 
 WHERE YOU CAN FIND MORE INFORMATION
  3




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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 2,
    
    
    October 1,
    
    
    October 2,
    
    
    October 1,2004
    
    
    2005
    
    
    2004
    
    
    2005Net revenues:Net commercial product revenues
    
    $
    6,053,000
    
    
    $
    3,052,000
    
    
    $
    13,788,000
    
    
    $
    14,401,000Government and other contract
revenues
    
    
    1,246,000
    
    
    
    865,000
    
    
    
    5,239,000
    
    
    
    2,408,000Sub license royalties
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    15,000Total net revenues
    
    
    7,299,000
    
    
    
    3,917,000
    
    
    
    19,055,000
    
    
    
    16,824,000Costs and expenses:Cost of commercial product revenues
    
    
    6,084,000
    
    
    
    3,507,000
    
    
    
    15,443,000
    
    
    
    13,507,000Contract research and development
    
    
    860,000
    
    
    
    576,000
    
    
    
    3,537,000
    
    
    
    2,307,000Other research and development
    
    
    1,327,000
    
    
    
    1,102,000
    
    
    
    3,808,000
    
    
    
    3,038,000Selling, general and administrative
    
    
    3,451,000
    
    
    
    2,428,000
    
    
    
    12,404,000
    
    
    
    9,060,000Restructuring expenses and
impairment charges
    
    
    715,000
    
    
    
    
    
    
    
    2,682,000
    
    
    
    228,000Total costs and expenses
    
    
    12,437,000
    
    
    
    7,613,000
    
    
    
    37,874,000
    
    
    
    28,140,000Loss from operations
    
    
    (5,138,000
    )
    
    
    (3,696,000
    )
    
    
    (18,819,000
    )
    
    
    (11,316,000
    )Interest income
    
    
    36,000
    
    
    
    98,000
    
    
    
    83,000
    
    
    
    208,000Interest expense
    
    
    (53,000
    )
    
    
    (25,000
    )
    
    
    (1,213,000
    )
    
    
    (98,000
    )Net loss
    
    $
    (5,155,000
    )
    
    $
    (3,623,000
    )
    
    $
    (19,949,000
    )
    
    $
    (11,206,000
    )Basic and diluted loss per common share
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.25
    )
    
    $
    (0.10
    )Weighted average number of common
shares outstanding
    
    
    92,103,424
    
    
    
    116,554,922
    
    
    
    79,697,019
    
    
    
    110,648,232
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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEET
  December 31,
    
    
    October 1,2004
    
    
    2005(See Note)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    12,802,000
    
    
    $
    14,894,000Accounts receivable, net
    
    
    1,434,000
    
    
    
    1,376,000Inventory, net
    
    
    9,327,000
    
    
    
    6,424,000Insurance settlement receivable
    
    
    4,000,000
    
    
    
    Prepaid expenses and other current assets
    
    
    906,000
    
    
    
    1,007,000Total Current Assets
    
    
    28,469,000
    
    
    
    23,701,000Property and equipment, net of accumulated depreciation of
$15,189,000 and $16,769,000, respectively
    
    
    10,303,000
    
    
    
    8,351,000Patents, licenses and purchased technology, net of accumulated
amortization
of $768,000 and $1,014,000, respectively
    
    
    2,833,000
    
    
    
    2,611,000Goodwill
    
    
    20,107,000
    
    
    
    20,107,000Other assets
    
    
    646,000
    
    
    
    328,000Total Assets
    
    $
    62,358,000
    
    
    $
    55,098,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Line of credit
    
    $
    938,000
    
    
    $
    Accounts payable
    
    
    2,691,000
    
    
    
    2,477,000Accrued expenses
    
    
    4,601,000
    
    
    
    2,423,000Legal settlement liability
    
    
    4,050,000
    
    
    
    Current portion of capitalized lease obligations and long term debt
    
    
    43,000
    
    
    
    18,000Total Current Liabilities
    
    
    12,323,000
    
    
    
    4,918,000Capitalized lease obligations and long term-debt
    
    
    33,000
    
    
    
    19,000Other long term liabilities
    
    
    753,000
    
    
    
    617,000Total Liabilities
    
    
    13,109,000
    
    
    
    5,554,000Commitments and contingencies-Notes 6, 8 and 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, 124,834,314 shares issued and outstanding
    
    
    108,000
    
    
    
    125,000Capital in excess of par value
    
    
    196,983,000
    
    
    
    208,467,000Notes receivable from stockholder
    
    
    (820,000
    )
    
    
    (820,000
    )Accumulated deficit
    
    
    (147,022,000
    )
    
    
    (158,228,000
    )Total Stockholders Equity
    
    
    49,249,000
    
    
    
    49,544,000Total Liabilities and Stockholders Equity
    
    $
    62,358,000
    
    
    $
    55,098,000
   5




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 Nine Months EndedOctober 2,
    
    
    October 1,2004
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (19,949,000
    )
    
    $
    (11,206,000
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    2,623,000
    
    
    
    2,214,000Non-cash restructuring and impairment charges
    
    
    1,862,000
    
    
    
    137,000Warrant and options charges
    
    
    925,000
    
    
    
    24,000Provision for excess and obsolete inventories
    
    
    618,000
    
    
    
    612,000Forgiveness of note receivable
    
    
    
    
    
    
    150,000Gain on disposal of property and equipment
    
    
    
    
    
    
    (126,000
    )Changes in assets and liabilities:Accounts receivable
    
    
    6,636,000
    
    
    
    58,000Inventory
    
    
    (4,469,000
    )
    
    
    2,291,000Prepaid expenses and other current assets
    
    
    (208,000
    )
    
    
    30,000Patents, licenses and purchased technology
    
    
    (354,000
    )
    
    
    (82,000
    )Other assets
    
    
    (63,000
    )
    
    
    (35,000
    )Accounts payable, accrued expenses and other long-
term liabilities
    
    
    (3,889,000
    )
    
    
    (1,782,000
    )Net cash used in operating activities
    
    
    (16,268,000
    )
    
    
    (7,715,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of property and equipment
    
    
    
    
    
    
    202,000Purchases of property and equipment
    
    
    (1,682,000
    )
    
    
    (100,000
    )Net cash provided by (used in) investing activities
    
    
    (1,682,000
    )
    
    
    102,000CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings
    
    
    5,246,000
    
    
    
    662,000Payments on short-term borrowings
    
    
    (7,885,000
    )
    
    
    (1,600,000
    )Payments on long-term obligations
    
    
    (627,000
    )
    
    
    (39,000
    )Proceeds from sale of common stock and exercise of stock
options and warrants
    
    
    18,908,000
    
    
    
    12,500,000Payment of common stock issuance costs
    
    
    (1,701,000
    )
    
    
    (1,818,000
    )Net cash provided by financing activities
    
    
    13,941,000
    
    
    
    9,705,000Net increase/(decrease) in cash and cash equivalents
    
    
    (4,009,000
    )
    
    
    2,092,000Cash and cash equivalents at beginning of period
    
    
    11,144,000
    
    
    
    12,802,000Cash and cash equivalents at end of period
    
    $
    7,135,000
    
    
    $
    14,894,000
  6




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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
     7




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Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
  Revenue Recognition
    Warranties
  8




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##### Table of Contents



Guarantees
  Research and Development Costs
  Inventories
  Property and Equipment
  Patents, Licenses and Purchased Technology
  Goodwill
   9




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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
   10




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Three Months Ended
    
    
    Nine Months EndedOctober 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005Net loss:As reported
    
    $
    (5,155,000
    )
    
    $
    (3,623,000
    )
    
    $
    (19,949,000
    )
    
    $
    (11,206,000
    )Stock-based employee
compensation included in net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense determined under fair
value method
    
    
    (1,158,000
    )
    
    
    (584,000
    )
    
    
    (4,323,000
    )
    
    
    (2,846,000
    )Pro forma
    
    $
    (6,313,000
    )
    
    
    (4,207,000
    )
    
    $
    (24,272,000
    )
    
    
    (14,052,000
    )Basic and Diluted Loss per ShareAs reported
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.25
    )
    
    $
    (0.10
    )Stock-based compensation
expense determined under fair
value method
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.05
    )
    
    
    (0.03
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.04
    )
    
    $
    (0.30
    )
    
    $
    (0.13
    )
 Use of Estimates
  Fair Value of Financial Instruments
  Comprehensive Income (Loss)
  Segment Information
  Certain Risks and Uncertainties
   11




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Recent Accounting Pronouncements
  )
  3. Short Term Borrowings
    4. Retirement of the Companys Chief Executive Officer
 12




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##### Table of Contents



5. Stockholders Equity
 Common Stock
    Stock Options
     13




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Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Number of
    
    
    AverageNumber of
    
    
    
    
    
    
    Exercise
    
    
    Options
    
    
    ExerciseShares
    
    
    Price Per Share
    
    
    Price
    
    
    Exercisable
    
    
    PriceBalance at December 31, 2004
    
    
    9,467,248
    
    
    $
    0.84 - $49.375
    
    
    $
    5.52
    
    
    
    5,001,189
    
    
    $
    6.20Granted
    
    
    4,408,057
    
    
    $
    0.67 -  $1.33
    
    
    $
    0.81Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (1,466,420
    )
    
    $
    0.80 - $49.375
    
    
    $
    4.40Balance at October 1, 2005
    
    
    12,408,885
    
    
    $
    0.67 - $49.375
    
    
    $
    3.98
    
    
    
    6,895,654
    
    
    $
    6.11
 .
  Warrants
  Common SharesPriceCurrently
    
    
    perTotal
    
    
    Exercisable
    
    
    Share
    
    
    Expiration DateWarrants and options related to issuance
of common stock
    
    
    3,424,658
    
    
    
    
    
    
    $
    1.11
    
    
    August 16, 20103,424,658
    
    
    
    3,424,658
    
    
    $
    0.73
    
    
    December 23, 2005***397,857
    
    
    
    397,857
    
    
    
    5.50
    
    
    March 10, 20071,406,581
    
    
    
    1,406,581
    
    
    
    1.19
    
    
    December 17, 2007*1,162,790
    
    
    
    1,162,790
    
    
    
    2.90
    
    
    June 24, 2008*Warrants related to April 2004 Bridge Loans
    
    
    695,489
    
    
    
    695,489
    
    
    
    1.33
    
    
    April 28, 2011* **100,000
    
    
    
    100,000
    
    
    
    1.85
    
    
    April 28, 2011*Warrants assumed in connection with the
Conductus, Inc. acquisition
    
    
    1,095,000
    
    
    
    1,095,000
    
    
    
    4.583
    
    
    September 27, 20076,000
    
    
    
    6,000
    
    
    
    31.25
    
    
    September 1, 2007Total
    
    
    11,713,033
    
    
    
    8,288,375
     6. Legal Proceedings
 Patent Litigation
  14




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Class Action Lawsuits
    Derivative Lawsuit
   Routine Litigation
  15




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##### Table of Contents



7. Earnings Per Share
  8. Commitments and Contingencies
 Operating Leases
   Capital Leases
  Patents and Licenses
   Year ending December 31,
    
    Licenses
    
    
    Operating Leases
    
    
    Capital LeasesRemainder of 2005
    
    $
    150,000
    
    
    $
    606,000
    
    
    $
    6,0002006
    
    
    150,000
    
    
    
    1,406,000
    
    
    
    22,0002007
    
    
    150,000
    
    
    
    1,234,000
    
    
    
    15,0002008
    
    
    150,000
    
    
    
    1,271,000
    
    
    
    2009
    
    
    150,000
    
    
    
    1,315,000
    
    
    
    Thereafter
    
    
    1,500,000
    
    
    
    2,652,000
    
    
    
    Total payments
    
    $
    2,250,000
    
    
    $
    8,484,000
    
    
    
    43,000Less: amount representing
interest
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Present value of minimum lease
    
    
    
    
    
    
    
    
    
    
    37,000Less current portion
    
    
    
    
    
    
    
    
    
    
    (18,000
    )Long term portion
    
    
    
    
    
    
    
    
    
    $
    19,000
  16




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##### Table of Contents



9  Contractual Guarantees and Indemnities
  Intellectual Property Indemnities
  Director and Officer Indemnities and Contractual Guarantees
   General Contractual Indemnities/Products Liability
  Short Term Borrowings
  17




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Contractual Contingency
  Warranties
  10. Restructuring Expenses
   Quarter Ended
    
    
    Nine Months
    
    
    
    
    
    
    Nine MonthsOctober 2,
    
    
    Ended
    
    
    Quarter ended
    
    
    Ended2004
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 1, 2005Severance costs
    
    $
    63,000
    
    
    $
    742,000
    
    
    $
    
    
    
    $
    178,000Fixed assets write-off
    
    
    20,000
    
    
    
    803,000
    
    
    
    
    
    
    
    137,000Purchased technology write
off
    
    
    
    
    
    
    1,051,000
    
    
    
    
    
    
    
    Facility consolidation costs
    
    
    188,000
    
    
    
    188,000
    
    
    
    
    
    
    
    6,000Employee relocation cost
    
    
    235,000
    
    
    
    235,000
    
    
    
    
    
    
    
    16,000Lease abandonment costs
    
    
    279,000
    
    
    
    279,000
    
    
    
    
    
    
    
    Total
    
    
    785,000
    
    
    $
    3,298,000
    
    
    
    
    
    
    
    337,000Severance costs included in
cost of goods sold
    
    
    (70,000
    )
    
    
    (616,000
    )
    
    
    
    
    
    
    (109,000
    )Restructuring expenses
    
    $
    715,000
    
    
    $
    2,682,000
    
    
    $
    
    
    
    $
    228,000
 11. Details of Certain Financial Statement Components and Supplemental Disclosures of Cash Flow
Information and Non-Cash Activities
 Balance Sheet Data
 18




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##### Table of Contents



December 31,
    
    
    October 1,2004
    
    
    2005Accounts receivable:Accounts receivable-trade
    
    $
    1,043,000
    
    
    $
    942,000U.S. government accounts receivable-billed
    
    
    468,000
    
    
    
    508,000Less: allowance for doubtful accounts
    
    
    (77,000
    )
    
    
    (74,000
    )$
    1,434,000
    
    
    $
    1,376,000
 December 31,
    
    
    October 1,2004
    
    
    2005Inventories:Raw materials
    
    $
    3,954,000
    
    
    $
    3,752,000Work-in-process
    
    
    3,441,000
    
    
    
    2,536,000Finished goods
    
    
    7,334,000
    
    
    
    4,824,000Less inventory reserve
    
    
    (5,402,000
    )
    
    
    (4,688,000
    )$
    9,327,000
    
    
    $
    6,424,000
 December 31,
    
    
    October 1,2004
    
    
    2005Property and Equipment:Equipment
    
    $
    18,805,000
    
    
    $
    18,020,000Leasehold improvements
    
    
    6,236,000
    
    
    
    6,649,000Furniture and fixtures
    
    
    451,000
    
    
    
    451,00025,492,000
    
    
    
    25,120,000Less: accumulated depreciation and amortization
    
    
    (15,189,000
    )
    
    
    (16,769,000
    )$
    10,303,000
    
    
    $
    8,351,000
  December 31,
    
    
    October 1,2004
    
    
    2005Patents and Licenses:Patents pending
    
    $
    433,000
    
    
    $
    386,000Patents issued
    
    
    899,000
    
    
    
    970,000Less accumulated amortization
    
    
    (203,000
    )
    
    
    (247,000
    )Net patents issued
    
    
    696,000
    
    
    
    723,000Licenses
    
    
    563,000
    
    
    
    563,000Less accumulated amortization
    
    
    (33,000
    )
    
    
    (58,000
    )Net licenses
    
    
    530,000
    
    
    
    505,000Purchased technology
    
    
    1,706,000
    
    
    
    1,706,000Less accumulated amortization
    
    
    (532,000
    )
    
    
    (709,000
    )Net purchased technology
    
    
    1,174,000
    
    
    
    997,000$
    2,833,000
    
    
    $
    2,611,000
  19




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##### Table of Contents



December
31,
    
    

October
1,2004
    
    

2005Accrued
Expenses and Other Long Term Liabilities:Compensation related
    
    $
    1,285,000
    
    
    $
    1,054,000Warranty reserve
    
    
    419,000
    
    
    
    496,000Lease abandonment costs
    
    
    1,336,000
    
    
    
    510,000Product line exit costs
    
    
    885,000
    
    
    
    424,000Severance costs
    
    
    36,000
    
    
    
    52,000Other
    
    
    1,393,000
    
    
    
    504,0005,354,000
    
    
    
    3,040,000Less current portion
    
    
    (4,601,000
    )
    
    
    (2,423,000
    )Long term portion
    
    $
    753,000
    
    
    $
    617,000
 For the nine months ended,October 2,
    
    
    October 1,2004
    
    
    2005Warranty Reserve Activity:Beginning balance
    
    $
    494,000
    
    
    $
    419,000Additions
    
    
    146,000
    
    
    
    151,000Deductions
    
    
    (115,000
    )
    
    
    (215,000
    )Change in estimate relating to previous warranty accruals
    
    
    
    
    
    
    141,000Ending balance
    
    $
    525,000
    
    
    $
    496,000Unfavorable Lease Costs:Beginning balance
    
    $
    823,000
    
    
    $
    Additions
    
    
    
    
    
    
    Deductions
    
    
    (265,000
    )
    
    
    Transfer to lease abandonment costs
    
    
    (558,000
    )
    
    
    Ending balance
    
    $
    
    
    
    $
    Lease Abandonment Costs:Beginning balance
    
    $
    1,329,000
    
    
    $
    1,336,000Additions
    
    
    279,000
    
    
    
    Transfers from unfavorable lease costs
    
    
    558,000
    
    
    
    Deductions
    
    
    (509,000
    )
    
    
    (826,000
    )Ending balance
    
    $
    1,657,000
    
    
    $
    510,000Product Line Exit Costs:Beginning balance
    
    $
    913,000
    
    
    $
    885,000Additions
    
    
    
    
    
    
    Deductions
    
    
    (73,000
    )
    
    
    (461,000
    )Ending balance
    
    $
    840,000
    
    
    $
    424,000Severance Costs:Beginning balance
    
    $
    285,000
    
    
    $
    36,000Additions
    
    
    742,000
    
    
    
    218,000Deductions
    
    
    (918,000
    )
    
    
    (202,000
    )Ending balance
    
    $
    109,000
    
    
    $
    52,000
 20




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##### Table of Contents



For the nine months endedOctober 2, 2004
    
    
    October 1, 2005Non-cash operating activitiesSettlement of insurance receivable
    
    
    
    
    
    $
    4,000,000Settlement of legal liability
    
    
    
    
    
    $
    4,000,000
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
     SuperLink
  AmpLink
  SuperPlex
   21




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##### Table of Contents



Critical Accounting Policies and Estimates
       22




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005Net loss:As reported
    
    $
    (5,155,000
    )
    
    $
    (3,623,000
    )
    
    $
    (19,949,000
    )
    
    $
    (11,206,000
    )Stock-based employee
compensation included in net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense determined under fair
value method
    
    
    (1,158,000
    )
    
    
    (584,000
    )
    
    
    (4,323,000
    )
    
    
    (2,846,000
    )
 23




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005Pro forma
    
    $
    (6,313,000
    )
    
    
    (4,207,000
    )
    
    $
    (24,272,000
    )
    
    
    (14,052,000
    )Basic and Diluted Loss per ShareAs reported
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.25
    )
    
    $
    (0.10
    )Stock-based compensation
expense determined under fair
value method
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.05
    )
    
    
    (0.03
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.04
    )
    
    $
    (0.30
    )
    
    $
    (0.13
    )
   Backlog
  Results of Operations
 Quarter and nine months ended October 1, 2005 as compared to the quarter and nine months ended
October 2, 2004
  %
   24




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##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    Nine Months EndedDollars in thousands
    
    October 2, 2004
    
    
    
    
    
    
    October 1, 2005
    
    
    
    
    
    
    October 2, 2004
    
    
    
    
    
    
    October 1, 2005Net commercial product sales
    
    $
    6,053
    
    
    
    100
    %
    
    $
    3,052
    
    
    
    100
    %
    
    $
    13,788
    
    
    
    100
    %
    
    $
    14,400
    
    
    
    100
    %Cost of commercial product
sales
    
    
    6,084
    
    
    
    101
    %
    
    
    3,507
    
    
    
    115
    %
    
    
    15,443
    
    
    
    112
    %
    
    
    13,507
    
    
    
    94
    %Gross profit
    
    $
    (31
    )
    
    
    (1
    %)
    
    $
    (455
    )
    
    
    (15
    %)
    
    $
    (1,655
    )
    
    
    (12
    %)
    
    $
    893
    
    
    
    6
    %
     25




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##### Table of Contents



27
  Nine MonthsNine Months
    
    
    
    
    
    
    EndedQuarter Ended
    
    
    Ended
    
    
    Quarter ended
    
    
    October 1,October 2, 2004
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    2005Severance costs
    
    $
    63,000
    
    
    $
    742,000
    
    
    $
    
    
    
    $
    178,000Fixed assets write-off
    
    
    20,000
    
    
    
    803,000
    
    
    
    
    
    
    
    137,000Purchased technology write
off
    
    
    
    
    
    
    1,051,000
    
    
    
    
    
    
    
    Facility consolidation costs
    
    
    188,000
    
    
    
    188,000
    
    
    
    
    
    
    
    6,000Employee relocation cost
    
    
    235,000
    
    
    
    235,000
    
    
    
    
    
    
    
    16,000Lease abandonment costs
    
    
    279,000
    
    
    
    279,000
    
    
    
    
    
    
    
    Total
    
    
    785,000
    
    
    $
    3,298,000
    
    
    
    
    
    
    
    337,000Severance costs included in
cost of goods sold
    
    
    (70,000
    )
    
    
    (616,000
    )
    
    
    
    
    
    
    (109,000
    )Restructuring expenses
    
    $
    715,000
    
    
    $
    2,682,000
    
    
    $
    
    
    
    $
    228,000
     Liquidity and Capital Resources
 Cash Flow Analysis
   26




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##### Table of Contents



Financing Activities
     Contractual Obligations and Commercial Commitments
  
    
    Capital Lease Obligations
  
    
    Operating Lease Obligations
  27




---



##### Table of Contents




    
    Patents and Licenses
  
    
    Purchase Commitments
  
    
    Quantitative Summary of Contractual Obligations and Commercial Commitments
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    After 5 yearsCapital lease obligations
    
    $
    43,000
    
    
    $
    23,000
    
    
    $
    20,000
    
    
    $
    
    
    
    $
    Operating leases
    
    
    8,484,000
    
    
    
    1,711,000
    
    
    
    2,486,000
    
    
    
    2,654,000
    
    
    
    1,633,000Minimum license commitment
    
    
    2,250,000
    
    
    
    150,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    1,500,000Fixed asset and inventory
purchase commitments
    
    
    1,713,000
    
    
    
    1,713,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    12,490,000
    
    
    $
    3,597,000
    
    
    $
    2,806,000
    
    
    $
    2,954,000
    
    
    $
    3,133,000
 Capital Expenditures
  Future Liquidity
 .
   28




---



##### Table of Contents



Net Operating Loss Carryforward
    Future Accounting Requirements
   29




---



##### Table of Contents



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.
 Business 
Additional Factors That May Affect Our Future Results
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Disclosure Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  30




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Class Action Lawsuits
   Derivative Lawsuit
   Routine Litigation
  
 Item 5.
Other Information
  31




---



##### Table of Contents



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 (19)4.1
    
    Form of Common Stock Certificate (4)4.2
    
    Third Amended and Restated Stockholders Rights Agreement (3)4.3
    
    Warrant Issued to PNC Bank, National Association in connection with Credit Agreement
(3)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)4.20
    
    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 (20)10.1
    
    Placement Agency Agreement dated 8/10/05 by and between the Company and SG Cowen &
Co., Inc. (20)10.2
    
    Form of Subscription Agreement for August 2005 offering (20)31.1
    
    Statement of CEO Pursuant to 302 of the Sarbanes-Oxley Act of 200231.2
    
    Statement of CFO Pursuant to 302 of the Sarbanes-Oxley Act of 200232.1
    
    Statement of CEO Pursuant to 906 of the Sarbanes-Oxley Act of 200232.2
    
    Statement of CFO Pursuant to 906 of the Sarbanes-Oxley Act of 2002
 32




---



##### Table of Contents



(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 the Registrants Quarterly Report on Form 10-Q filed for the
quarter ended July 3, 1999.(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 October 2, 1999. (Reference no longer used and to be removed in future.)(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, filed with the
SEC on March 30, 2000.(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 Registrants Form 8-K dated March 29, 2005(19)
    
    Incorporated by reference from Registrants Form 8-K dated May 25, 2005.(20)
    
    Incorporated by reference from Registrants Form 8-K dated August 10, 2005*
    
    Confidential treatment has been previously granted for certain portions of these exhibits.
 
 SIGNATURES
  SUPERCONDUCTOR TECHNOLOGIES INC.Dated: November 4, 2005
    /s/ Martin S. McDermut`                             Martin S. McDermutSenior Vice President, Chief Financial
Officer and Secretary /s/ Jeffrey A. QuiramJeffrey A. QuiramPresident and Chief Executive Officer 33