##### 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 July 2, 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
    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. Disclosure Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    31ITEM 4  Submissions of Matters to a Vote of Security Holders
    
    
    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.
 
 CONSOLIDATED STATEMENT OF OPERATIONS
  Three Months Ended
    
    Six Months EndedJuly 3, 2004
    
    July 2, 2005
    
    July 3, 2004
    
    July 2, 2005Net revenues:Net commercial product revenues
    
    $
    4,552,000
    
    
    $
    7,581,000
    
    
    $
    7,735,000
    
    
    $
    11,349,000Government and other contract
revenues
    
    
    1,752,000
    
    
    
    972,000
    
    
    
    3,993,000
    
    
    
    1,543,000Sub license royalties
    
    
    8,000
    
    
    
    
    
    
    
    28,000
    
    
    
    15,000Total net revenues
    
    
    6,312,000
    
    
    
    8,553,000
    
    
    
    11,756,000
    
    
    
    12,907,000Costs and expenses:Cost of commercial product revenues
    
    
    5,576,000
    
    
    
    5,801,000
    
    
    
    9,359,000
    
    
    
    10,000,000Contract research and development
    
    
    1,165,000
    
    
    
    1,048,000
    
    
    
    2,677,000
    
    
    
    1,731,000Other research and development
    
    
    1,142,000
    
    
    
    775,000
    
    
    
    2,481,000
    
    
    
    1,936,000Selling, general and administrative
    
    
    4,336,000
    
    
    
    2,850,000
    
    
    
    8,953,000
    
    
    
    6,632,000Restructuring expenses and impairment charges
    
    
    1,967,000
    
    
    
    144,000
    
    
    
    1,967,000
    
    
    
    228,000Total costs and expenses
    
    
    14,186,000
    
    
    
    10,618,000
    
    
    
    25,437,000
    
    
    
    20,527,000Loss from operations
    
    
    (7,874,000
    )
    
    
    (2,065,000
    )
    
    
    (13,681,000
    )
    
    
    (7,620,000
    )Interest income
    
    
    23,000
    
    
    
    53,000
    
    
    
    47,000
    
    
    
    110,000Interest expense
    
    
    (1,033,000
    )
    
    
    (34,000
    )
    
    
    (1,160,000
    )
    
    
    (73,000
    )Net loss
    
    $
    (8,884,000
    )
    
    $
    (2,046,000
    )
    
    $
    (14,794,000
    )
    
    $
    (7,583,000
    )Basic and diluted loss per common share
    
    $
    (0.11
    )
    
    $
    (0.02
    )
    
    $
    (0.20
    )
    
    $
    (0.07
    )Weighted average number of common
shares outstanding
    
    
    79,166,809
    
    
    
    107,711,026
    
    
    
    73,994,379
    
    
    
    107,711,026
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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEET
  December 31,
    
    July 2,2004
    
    2005(See Note)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    12,802,000
    
    
    $
    6,741,000Accounts receivable, net
    
    
    1,434,000
    
    
    
    1,012,000Inventory, net
    
    
    9,327,000
    
    
    
    6,311,000Insurance settlement receivable
    
    
    4,000,000
    
    
    
    Prepaid expenses and other current assets
    
    
    906,000
    
    
    
    991,000Total Current Assets
    
    
    28,469,000
    
    
    
    15,055,000Property and equipment, net of accumulated depreciation of
$15,189,000 and $16,425,000, respectively
    
    
    10,303,000
    
    
    
    8,940,000Patents, licenses and purchased technology, net of accumulated
amortization
of $768,000 and $931,000, respectively
    
    
    2,833,000
    
    
    
    2,712,000Goodwill
    
    
    20,107,000
    
    
    
    20,107,000Other assets
    
    
    646,000
    
    
    
    410,000Total Assets
    
    $
    62,358,000
    
    
    $
    47,224,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Line of credit
    
    $
    938,000
    
    
    $
    Accounts payable
    
    
    2,691,000
    
    
    
    1,599,000Accrued expenses
    
    
    4,601,000
    
    
    
    3,259,000Legal settlement liability
    
    
    4,050,000
    
    
    
    Current portion of capitalized lease obligations and long term debt
    
    
    43,000
    
    
    
    20,000Total Current Liabilities
    
    
    12,323,000
    
    
    
    4,878,000Capitalized lease obligations and long term-debt
    
    
    33,000
    
    
    
    24,000Other long term liabilities
    
    
    753,000
    
    
    
    648,000Total Liabilities
    
    
    13,109,000
    
    
    
    5,550,000Commitments 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, 107,711,026 shares issued and outstanding
    
    
    108,000
    
    
    
    108,000Capital in excess of par value
    
    
    196,983,000
    
    
    
    196,991,000Notes receivable from stockholder
    
    
    (820,000
    )
    
    
    (820,000
    )Accumulated deficit
    
    
    (147,022,000
    )
    
    
    (154,605,000
    )Total Stockholders Equity
    
    
    49,249,000
    
    
    
    41,674,000Total Liabilities and Stockholders Equity
    
    $
    62,358,000
    
    
    $
    47,224,000
   5




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SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
  Six Months EndedJuly 3, 2004
    
    July 2, 2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (14,794,000
    )
    
    $
    (7,583,000
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,757,000
    
    
    
    1,454,000Non-cash restructuring and impairment charges
    
    
    1,834,000
    
    
    
    137,000Warrant and options charges
    
    
    893,000
    
    
    
    7,000Provision for excess and obsolete inventories
    
    
    178,000
    
    
    
    180,000Forgiveness of note receivable
    
    
    
    
    
    
    150,000Changes in assets and liabilities:Accounts receivable
    
    
    6,912,000
    
    
    
    422,000Inventory
    
    
    (5,100,000
    )
    
    
    2,836,000Prepaid expenses and other current assets
    
    
    (567,000
    )
    
    
    36,000Patents, licenses and purchased technology
    
    
    (218,000
    )
    
    
    (43,000
    )Other assets
    
    
    30,000
    
    
    
    (34,000
    )Accounts payable, accrued expenses and other long-term liabilities
    
    
    (2,957,000
    )
    
    
    (1,792,000
    )Net cash used in operating activities
    
    
    (12,032,000
    )
    
    
    (4,230,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (1,326,000
    )
    
    
    (64,000
    )Net cash used in investing activities
    
    
    (1,326,000
    )
    
    
    (64,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings
    
    
    4,577,000
    
    
    
    662,000Payments on short-term borrowings
    
    
    (7,110,000
    )
    
    
    (1,600,000
    )Payments on long-term obligations
    
    
    (611,000
    )
    
    
    (32,000
    )Proceeds
from sale of common stock and exercise of stock options and warrants
    
    
    17,241,000
    
    
    
    Payment of common stock issuance costs
    
    
    
    
    
    
    (797,000
    )Net cash
provided by (used in) financing activities
    
    
    14,097,000
    
    
    
    (1,767,000
    )Net increase/(decrease) in cash and cash equivalents
    
    
    739,000
    
    
    
    (6,061,000
    )Cash and cash equivalents at beginning of period
    
    
    11,144,000
    
    
    
    12,802,000Cash and cash equivalents at end of period
    
    $
    11,883,000
    
    
    $
    6,741,000
  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
  Guarantees
 8




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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
    
    Six Months EndedJuly 3, 2004
    
    July 2, 2005
    
    July 3, 2004
    
    July 2, 2005Net loss:As reported
    
    $
    (8,884,000
    )
    
    $
    (2,046,000
    )
    
    $
    (14,794,000
    )
    
    $
    (7,583,000
    )Stock-based employee
compensation included in net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense determined under fair
value method
    
    
    (1,600,000
    )
    
    
    (451,000
    )
    
    
    (3,200,000
    )
    
    
    (2,373,000
    )Pro forma
    
    $
    (10,484,000
    )
    
    
    (2,497,000
    )
    
    $
    (17,994,000
    )
    
    
    (9,956,000
    )Basic and Diluted Loss per ShareAs reported
    
    $
    (0.11
    )
    
    $
    (0.02
    )
    
    $
    (0.20
    )
    
    $
    (0.07
    )Stock-based compensation
expense determined under fair
value method
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Pro forma
    
    $
    (0.13
    )
    
    $
    (0.02
    )
    
    $
    (0.24
    )
    
    $
    (0.09
    )
 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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5. Stockholders Equity
 Stock Options
     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
    
    
    $
    5.521
    
    
    
    5,001,189
    
    
    $
    6.202Granted
    
    
    3,591,500
    
    
    $
    0.67 - $  1.33
    
    
    $
    0.811Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (1,116,733
    )
    
    $
    1.00 - $49.375
    
    
    $
    4.41Balance at July 2, 2005
    
    
    11,942,015
    
    
    $
    0.67 - $49.375
    
    
    $
    4.206
    
    
    
    6,645,182
    
    
    $
    6.426
   Warrants
  13




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##### Table of Contents



Common SharesTotal and
    
    
    PriceCurrently
    
    
    perExercisable
    
    
    Share
    
    
    Expiration DateWarrant related to issuance of Series E
Preferred Stock
    
    
    1,204,327
    
    
    $
    18.91
    
    
    September 29, 2005**Warrants related to issuance of common stock
    
    
    397,857
    
    
    
    5.50
    
    
    March 10, 20071,406,581
    
    
    
    1.19
    
    
    December 17, 2007*1,162,790
    
    
    
    2.90
    
    
    June 24, 2008*Warrants related to April 2004 Bridge Loans
    
    
    633,562
    
    
    
    1.46
    
    
    April 28, 2011* **100,000
    
    
    
    1.85
    
    
    April 28, 2011*Warrants assumed in connection with the Conductus,
    
    
    72,756
    
    
    
    22.383
    
    
    August 7, 2005Inc. acquisition
    
    
    1,095,000
    
    
    
    4.583
    
    
    September 27, 20076,000
    
    
    
    31.25
    
    
    September 1, 2007Total
    
    
    6,078,873
 
 *
    
    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 antidilution adjustment provisions. 6. Legal Proceedings
 Patent Litigation
   Class Action Lawsuits
    Derivative Lawsuit
  14




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Routine Litigation
  7. Earnings Per Share
  8. Commitments and Contingencies
 Operating Leases
   Capital Leases
  Patents and Licenses
   OperatingYear ending December 31,
    
    Licenses
    
    
    Leases
    
    
    Capital LeasesRemainder of 2005
    
    $
    150,000
    
    
    $
    1,203,000
    
    
    $
    14,0002006
    
    
    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
    
    
    
    
 15




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##### Table of Contents



OperatingYear ending December 31,
    
    Licenses
    
    
    Leases
    
    
    Capital LeasesThereafter
    
    
    1,500,000
    
    
    
    2,652,000
    
    
    
    Total payments
    
    $
    2,250,000
    
    
    $
    9,081,000
    
    
    
    51,000Less: amount representing
interest
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Present value of minimum lease
    
    
    
    
    
    
    
    
    
    
    44,000Less current portion
    
    
    
    
    
    
    
    
    
    
    (20,000
    )Long term portion
    
    
    
    
    
    
    
    
    
    $
    24,000
  9  Contractual Guarantees and Indemnities
 Warranties
    Intellectual Property Indemnities
  Director and Officer Indemnities and Contractual Guarantees
  16




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##### Table of Contents



General Contractual Indemnities/Products Liability
  Short Term Borrowings
  Contractual Contingency
  10. Restructuring Expenses
   Quarter and SixMonths Ended
    
    Quarter ended July
    
    Six Months EndedJuly 3, 2004
    
    2, 2005
    
    July 2, 2005Severance costs
    
    $
    679,000
    
    
    $
    60,000
    
    
    $
    178,000Fixed assets write-off
    
    
    783,000
    
    
    
    137,000
    
    
    
    137,000Purchased technology write off
    
    
    1,051,000
    
    
    
    
    
    
    
    Facility consolidation costs
    
    
    
    
    
    
    1,000
    
    
    
    6,000Employee relocation cost
    
    
    
    
    
    
    6,000
    
    
    
    16,000Total
    
    $
    2,513,000
    
    
    $
    204,000
    
    
    
    337,000Severance costs included in
cost of goods sold
    
    
    (546,000
    )
    
    
    (60,000
    )
    
    
    (109,000
    )Restructuring expenses
    
    $
    1,967,000
    
    
    $
    144,000
    
    
    $
    228,000
 17




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##### Table of Contents



11. Details of Certain Financial Statement Components and Supplemental Disclosures of Cash
Flow Information and Non-Cash Activities
 Balance Sheet Data
 December 31,
    
    July 2,2004
    
    2005Accounts receivable:Accounts receivable-trade
    
    $
    1,043,000
    
    
    $
    713,000U.S. government accounts receivable-billed
    
    
    468,000
    
    
    
    373,000Less: allowance for doubtful accounts
    
    
    (77,000
    )
    
    
    (74,000
    )$
    1,434,000
    
    
    $
    1,012,000
 December 31,
    
    July 2,2004
    
    2005Inventories:Raw materials
    
    $
    3,954,000
    
    
    $
    3,575,000Work-in-process
    
    
    3,441,000
    
    
    
    3,085,000Finished goods
    
    
    7,334,000
    
    
    
    4,480,000Less inventory reserve
    
    
    (5,402,000
    )
    
    
    (4,829,000
    )$
    9,327,000
    
    
    $
    6,311,000
 December 31,
    
    July 2,2004
    
    2005Property and Equipment:Equipment
    
    $
    18,805,000
    
    
    $
    18,265,000Leasehold improvements
    
    
    6,236,000
    
    
    
    6,649,000Furniture and fixtures
    
    
    451,000
    
    
    
    451,00025,492,000
    
    
    
    25,365,000Less: accumulated depreciation and amortization
    
    
    (15,189,000
    )
    
    
    (16,425,000
    )$
    10,303,000
    
    
    $
    8,940,000
  December 31,
    
    July 2,2004
    
    2005Patents and Licenses:Patents pending
    
    $
    433,000
    
    
    $
    417,000Patents issued
    
    
    899,000
    
    
    
    957,000Less accumulated amortization
    
    
    (203,000
    )
    
    
    (231,000
    )Net patents issued
    
    
    696,000
    
    
    
    726,000Licenses
    
    
    563,000
    
    
    
    563,000Less accumulated amortization
    
    
    (33,000
    )
    
    
    (50,000
    )Net licenses
    
    
    530,000
    
    
    
    513,000Purchased technology
    
    
    1,706,000
    
    
    
    1,706,000Less accumulated amortization
    
    
    (532,000
    )
    
    
    (650,000
    )Net purchased technology
    
    
    1,174,000
    
    
    
    1,056,000$
    2,833,000
    
    
    $
    2,712,000
 18




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##### Table of Contents



December 31,
    
    July 2,2004
    
    2005Accrued Expenses and Other Long TermLiabilities:Compensation related
    
    $
    1,285,000
    
    
    $
    1,456,000Warranty reserve
    
    
    419,000
    
    
    
    578,000Lease abandonment costs
    
    
    1,336,000
    
    
    
    779,000Product line exit costs
    
    
    885,000
    
    
    

    429,000Severance costs
    
    
    36,000
    
    
    
    32,000Other
    
    
    1,393,000
    
    
    
    633,0005,354,000
    
    
    
    3,907,000Less current portion
    
    
    (4,601,000
    )
    
    
    (3,259,000
    )Long term portion
    
    $
    753,000
    
    
    $
    648,000
 For the six months ended,July 3,
    
    July 2,2004
    
    2005Warranty Reserve Activity:Beginning balance
    
    $
    494,000
    
    
    $
    419,000Additions
    
    
    40,000
    
    
    
    92,000Deductions
    
    
    
    
    
    
    (74,000
    )Change in estimate relating to previous warranty accruals
    
    
    
    
    
    
    141,000Ending balance
    
    $
    534,000
    
    
    $
    578,000Unfavorable Lease Costs:Beginning balance
    
    $
    823,000
    
    
    $
    Additions
    
    
    
    
    
    
    Deductions
    
    
    (174,000
    )
    
    
    Transfer to lease abandonment costs
    
    
    
    
    
    
    Ending balance
    
    $
    649,000
    
    
    $
    Lease Abandonment Costs:Beginning balance
    
    $
    1,329,000
    
    
    $
    1,336,000Additions
    
    
    
    
    
    
    Transfers from unfavorable lease costs
    
    
    
    
    
    
    Deductions
    
    
    (340,000
    )
    
    
    (557,000
    )Ending balance
    
    $
    989,000
    
    
    $
    779,000Product Line Exit Costs:Beginning balance
    
    $
    913,000
    
    
    $
    885,000Additions
    
    
    
    
    
    
    Deductions
    
    
    (73,000
    )
    
    
    (456,000
    )Ending balance
    
    $
    840,000
    
    
    $
    429,000
 19




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##### Table of Contents



For the six months ended,July 3,
    
    July 2,2004
    
    2005Severance Costs:Beginning balance
    
    $
    285,000
    
    
    $
    36,000Additions
    
    
    213,000
    
    
    
    198,000Deductions
    
    
    (266,000
    )
    
    
    (202,000
    )Ending balance
    
    $
    232,000
    
    
    $
    32,000
  For the six months endedJuly 3, 2004
    
    July 2, 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
  20




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##### Table of Contents



Critical Accounting Policies and Estimates
        21




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJuly 3, 2004
    
    July 2, 2005
    
    July 3, 2004
    
    July 2, 2005Net loss:As reported
    
    $
    (8,884,000
    )
    
    $
    (2,046,000
    )
    
    $
    (14,794,000
    )
    
    $
    (7,583,000
    )Stock-based employee
compensation included in net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense determined under fair
value method
    
    
    (1,600,000
    )
    
    
    (451,000
    )
    
    
    (3,200,000
    )
    
    
    (2,373,000
    )Pro forma
    
    $
    (10,484,000
    )
    
    
    (2,497,000
    )
    
    $
    (17,994,000
    )
    
    
    (9,956,000
    )Basic and Diluted Loss per ShareAs reported
    
    $
    (0.11
    )
    
    $
    (0.02
    )
    
    $
    (0.20
    )
    
    $
    (0.07
    )Stock-based compensation
expense determined under fair
value method
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Pro forma
    
    $
    (0.13
    )
    
    $
    (0.02
    )
    
    $
    (0.24
    )
    
    $
    (0.09
    )
 22




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##### Table of Contents



Legal Proceedings
  Backlog
  Results of Operations
 Quarter and six months ended July 2, 2005 as compared to the quarter and six months ended July 3,
2004
     23




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##### Table of Contents



Dollars in thousands
    
    Three Months Ended
    
    Six Months EndedJuly 3,
    
    
    
    
    
    July 2,
    
    
    
    
    
    July 3,
    
    
    
    
    
    July 2,2004
    
    
    
    
    
    2005
    
    
    
    
    
    2004
    
    
    
    
    
    2005Net commercial product sales
    
    $
    4,552
    
    
    
    100
    %
    
    $
    7,581
    
    
    
    100
    %
    
    $
    7,735
    
    
    
    100
    %
    
    $
    11,349
    
    
    
    100
    %Cost of commercial product
sales
    
    
    5,576
    
    
    
    122
    %
    
    
    5,801
    
    
    
    77
    %
    
    
    9,359
    
    
    
    121
    %
    
    
    10,000
    
    
    
    88
    %Gross profit
    
    $
    (1,024
    )
    
    
    (22
    %)
    
    $
    1,780
    
    
    
    23
    %
    
    $
    (1,624
    )
    
    
    (21
    %)
    
    $
    1,349
    
    
    
    12
    %
     24




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##### Table of Contents



AdditionalCharges ToBe IncurredIn Remainderof 2005 forQuarter and Six
    
    
    
    
    
    Six Months
    

    PriorMonths Ended
    
    Quarter ended
    
    Ended July 2,
    

    RestructuringJuly 3, 2004
    

    July 2, 2005.
    

    2005
    

    ActivitiesSeverance costs
    
    $
    679,000
    
    
    $
    60,000
    
    
    $
    178,000
    
    
    
    Fixed assets write-off
    
    
    783,000
    
    
    
    137,000
    
    
    
    137,000
    
    
    
    Purchased technology write
off
    
    
    1,051,000
    
    
    
    
    
    
    
    
    
    
    
    Facility consolidation costs
    
    
    
    
    
    
    1,000
    
    
    
    6,000
    
    
    
    Employee relocation cost
    
    
    
    
    
    
    6,000
    
    
    
    16,000
    
    
    $
    20,000Total
    
    $
    2,513,000
    
    
    $
    204,000
    
    
    
    337,000
    
    
    
    Severance costs included in
cost of goods sold
    
    
    (546,000
    )
    
    
    (60,000
    )
    
    
    (109,000
    )
    
    
    Restructuring expenses
    
    $
    1,967,000
    
    
    $
    144,000
    
    
    $
    228,000
    
    
    
    
     Liquidity and Capital Resources
 Cash Flow Analysis
   25




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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
  26




---



##### Table of Contents




    
    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
    
    $
    51,000
    
    
    $
    25,000
    
    
    $
    26,000
    
    
    $
    
    
    
    $
    Operating leases
    
    
    9,081,000
    
    
    
    2,010,000
    
    
    
    2,467,000
    
    
    
    2,631,000
    
    
    
    1,973,000Minimum license commitment
    
    
    2,250,000
    
    
    
    150,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    1,500,000Fixed asset and inventory
purchase commitments
    
    
    1,514,000
    
    
    
    1,514,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    12,896,000
    
    
    $
    3,699,000
    
    
    $
    2,793,000
    
    
    $
    2,931,000
    
    
    $
    3,473,000
 Capital Expenditures
  Future Liquidity
      27




---



##### Table of Contents



Net Operating Loss Carryforward
    Future Accounting Requirements
   Forward-Looking Statements
  28




---



##### Table of Contents




    
    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
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Patent Litigation
  Class Action Lawsuits
  29




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##### Table of Contents



Derivative Lawsuit
  Routine Litigation
  
 Item 4. Submission of Matters to a Vote of Securities Holders
  (1)
    
    The two (2) Class 1 nominated directors were elected to serve for the ensuing
three years and until their successors are duly elected and qualified.
 NUMBER OFNUMBER OF
    
    % OF SHARES
    
    SHARES
    
    % OF SHARESSHARES FOR
    
    VOTING
    
    WITHHELD
    
    VOTINGJeffrey A. Quiram
    
    
    96,987,986
    
    
    
    98.8
    
    
    
    1,176,597
    
    
    
    1.2Charles E. Shalvoy
    
    
    96,987,986
    
    
    
    98.8
    
    
    
    1,176,597
    
    
    
    1.2
 (2)
    
    The amendment to our Certificate of Incorporation increasing the shares of
its authorized common stock from one hundred twenty five thousand (125,000,000) to two
hundred fifty million (250,000,000) common shares was passed.
 30




---



##### Table of Contents



NUMBER OF SHARES FOR
    
    % OF SHARES VOTINGVotes For
    
    
    92,785,574
    
    
    
    94.5Votes Against
    
    
    5,082,957
    
    
    
    5.2Votes Abstaining
    
    
    296,052
    
    
    
    0.3
 (3)
    
    The amendment to our Certificate of Incorporation authorizing a reverse stock
split ranging from a one-for-two (1:2) to one-for-ten (1:10) stock exchange, with the
exact ratio to be determined within this range by the Board of Directors if and when it
elects to affect a reverse stock split within one year of May 25, 2005 was passed.
 NUMBER OF SHARES FOR
    
    % OF SHARES VOTINGVotes For
    
    
    92,951,017
    
    
    
    94.7Votes Against
    
    
    4,869,619
    
    
    
    5.0Votes Abstaining
    
    
    343,987
    
    
    
    0.3
 (4)
    
    The amendment to our 2003 Equity Incentive Plan was passed.
 NUMBER OF SHARES FOR
    
    % OF SHARES ELIGIBLE TO VOTEVotes For
    
    
    20,913,851
    
    
    
    80.7Votes Against
    
    
    4,325,103
    
    
    
    16.7Votes Abstaining
    
    
    663,694
    
    
    
    2.6Broker Non-Votes
    
    
    72,261,935
 (5)
    
    The appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company was ratified for the year ending December 31, 2005.
 NUMBER OF SHARES FOR
    
    % OF SHARES VOTINGVotes For
    
    
    97,089,482
    
    
    
    98.9Votes Against
    
    
    557,114
    
    
    
    0.6Votes Abstaining
    
    
    517,987
    
    
    
    0.5
 31




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##### Table of Contents



Item 5. Other Information
 (a)
    
    Additional Disclosures
  (b)
    
    Stockholder Nominations
 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 (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)
 32




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##### Table of Contents



Number
    
    Description of Document4.25
    
    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)10.1
    
    2003 Equity Incentive Plan, as amended May 25, 2005 (19)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
 
 (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.*
    
    Confidential treatment has been previously granted for certain portions of these exhibits. 33




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##### Table of Contents



SIGNATURES
  SUPERCONDUCTOR TECHNOLOGIES INC.Dated: August 5, 2005
    

/s/ Martin S. McDermutMartin S. McDermutSenior Vice President, Chief Financial
Officer and Secretary/s/ Jeffrey A. QuiramJeffrey A. QuiramPresident and Chief Executive Officer
 34