##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 For the fiscal year ended December 31, 2008
 OR
 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 93111-2310
 (805) 690-4500
  Title of each class
    
    Name of each exchange on which registeredCommon stock, $0.001 par value
    
    The NASDAQ Stock Market, LLC
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Unless otherwise noted, the terms we, us, our refer to the combined and ongoing business
operations of Superconductor Technologies Inc. and its subsidiaries
 PageSPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
    
    
    1WHERE YOU CAN FIND MORE INFORMATION
    
    
    1PART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    
    16Item 2.
    
    Properties
    
    
    16Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16Item 6.
    
    Selected Financial Data
    
    
    19Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 8.
    
    Financial Statements and Supplementary Data
    
    
    30Item 9A(T)
    
    Controls and Procedures
    
    
    30Item 9B
    
    Other Information
    
    
    31PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    31Item 11.
    
    Executive Compensation
    
    
    31Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    31Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    32Item 14.
    
    Principal Accountant Fees and Services
    
    
    32PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    32EX-4.1EX-10.1EX-10.2EX-10.14EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  i




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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. We claim the protection of the safe harbor contained in the Private Securities Litigation
Reform Act of 1995 for these forward looking statements. Our forward-looking statements relate to
future events or our future performance and include, but are not limited to, statements concerning
our business strategy, future commercial revenues, market growth, capital requirements, new product
introductions, expansion plans and the adequacy of our funding. Other statements contained in this
Report that are not historical facts are also forward-looking statements. We have tried, wherever
possible, to identify forward-looking statements by terminology such as may, will, could,
should, expects, anticipates, intends, plans, believes, seeks, estimates and other
comparable terminology.
 We caution investors that any forward-looking statements presented in this Report, or that 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 cash 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;
    
    our market is characterized by rapidly advancing technology;
    
    fluctuations in product demand from quarter to quarter can be significant;
    
    the impact of competitive filter products, technologies and pricing;
    
    manufacturing capacity constraints and difficulties; and
    
    general economic conditions.
 For further discussion of these and other factors see, Managements Discussion and Analysis
of Financial Condition and Results of Operations and Risk Factors in this Report.
 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.
 1




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 General
  Our Proprietary Technology
  
    
    7 patents for technologies directed toward producing thin-film materials and
structures, which expire between 2010 and 2025. We have developed a proprietary
state-of-the-art manufacturing process for producing HTS thin-films of the highest
quality.
    
    29 patents for cryogenic and non-microwave circuit designs, which expire between 2010
and 2026. The expertise of our highly qualified team has allowed us to design and
fabricate extremely small, high-performance circuits including RF signal filters.
    
    17 patents covering cryogenics, packaging and systems, which expire between 2013 and
2025. Our proprietary and patented cryogenic packaging innovation provides us with a
significant competitive advantage in maintaining our HTS materials at their critical
temperatures.
    
    4 patents covering other superconducting technologies, which expire between 2013 and
2015.
   
    
    Wireless Networks. Our current commercial products help maximize the performance of
wireless telecommunications networks by improving the quality of uplink signals from
mobile wireless devices. Our products increase capacity utilization, lower dropped and
blocked calls, extend coverage, and enable higher wireless data throughput  all while
reducing capital and operating costs.
    
    Reconfigurable Handset Filters. The trend in the wireless handset industry is to
continually reduce size and cost, while adding more features and making the unit more
adaptable to different air interfaces and frequencies throughout the world. This drives
the need for more complex and reconfigurable transceivers. We believe our
 2




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##### Table of Contents



strong intellectual property and expertise in frequency agile and thin film filters
position us well to meet this demand.
    
    Superconducting Power Transmission Lines. We have entered into a collaborative
effort and signed a Material Transfer Agreement with the Department of Energys Los
Alamos National Laboratory (LANL) to apply our HTS expertise to LANLs research
initiative to develop HTS coated conductors for power transmission lines. If
successfully developed, HTS superconducting cables could replace copper power
transmission lines, resulting in higher capacity with less resistive cable losses.
    
    Government Products. As the worldwide leader in developing tunable HTS filter
systems for military applications, we continue to be a crucial partner in the U.S.
governments future success. Our high-performance HTS filter systems have been proven
to increase the detection range, reduce interference, and in some cases, detect signals
that were previously undetectable with conventional technology. Currently, we actively
participate in the development of technologies for application in military
communications, signals intelligence, and electronic warfare.
  Our Business Model
  Government Contracts
  
    
    terminate existing contracts for convenience, which affords the U.S. government the
right to terminate the contract in whole or in part anytime it wants for any
reason or no reason, as well as for default;
    
    reduce or modify contracts or subcontracts, if its requirements or budgetary
constraints change;
    
    cancel or reduce multi-year contracts and related orders, if funds for contract
performance for any subsequent year become unavailable;
    
    adjust reimbursable contract costs and fees on the basis of audits completed by its
agencies through exercise of its oversight rights; and
    
    control or prohibit the export of products.
  3




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Commercial Applications
  
    
    SuperLink, a highly compact and reliable receiver front-end HTS wireless filter
system to eliminate out-of-band interference for wireless base stations, combining
filters with a proprietary cryogenic cooler and a cooled low-noise amplifier.
    
    AmpLink, a ground-mounted unit for wireless base stations that includes a
high-performance amplifier and up to six dual duplexers.
    
    SuperPlex, a high-performance multiplexer that provides extremely low insertion
loss and excellent cross-band isolation designed to eliminate the need for additional
base station antennas and reduce infrastructure costs.
  Joint Ventures
 ® .
 Licenses
  4




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Manufacturing
   Marketing and Sales
  Competition
  Research and Development
  5




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Environmental Issues
  Corporate Information
  Employees
  Backlog
  
 ITEM 1A.
    
    RISK FACTORS
  6




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Risks Related to Our Business
 The current global financial crisis may adversely affect our business, operating results and
financial condition.
  We have a history of losses and may never become profitable.
  We may need to raise additional capital, and if we are unable to raise capital our ability to
implement our current business plan and ultimately our viability as a company could be adversely
affected.
   We rely on a small number of customers for the majority of our commercial revenues, and the loss
of any one of these customers, or a significant loss, reduction or rescheduling of orders from any
of these customers, could have a material adverse effect on our business, results of operations and
financial condition.
   7




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
    
    a slowdown or delay in the deployment, upgrading or improvement of wireless networks
by any one customer could significantly reduce demand for our products;
    
    reductions in a single customers forecasts and demand could result in excess
inventories;
    
    each of our customers have significant purchasing leverage over us to require
changes in sales terms including pricing, payment terms and product delivery schedules;
and
    
    concentration of accounts receivable credit risk, which could have a material
adverse effect on our liquidity and financial condition if one of our major customers
declared bankruptcy or delayed payment of their receivables.
  We face competition with respect to various aspects of our technology and product development.
  The wireless communication industry is highly concentrated, which limits the number of potential
customers, and further industry consolidation could result in the loss of key customers.
  We experience significant fluctuations in sales and operating results from quarter to quarter.
  
    
    the lack of any contractual obligation by our customers to purchase their forecasted
demand for our products;
    
    variations in the timing, cancellation, or rescheduling of customer orders and
shipments; and
    
    high fixed expenses that may disproportionately impact operating expenses,
especially during a quarter with a sales shortfall.
  8




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Our sales cycles are unpredictable, making future performance uncertain.
  We depend on the capital spending patterns of wireless network operators, and if capital spending
is decreased or delayed, our business may be harmed.
  Our reliance on a limited number of suppliers and the long lead time of components for our products
could impair our ability to manufacture and deliver our systems on a timely basis.
   9




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Our reliance on a limited number of suppliers exposes us to quality control issues.
  We expect continued decreases in average selling prices, requiring us to reduce product costs in
order to achieve and maintain profitability.
  Our ability to protect our patents and other proprietary rights is uncertain, exposing us to
possible losses of competitive advantage.
  We depend on specific patents and licenses to technologies, and we will likely need additional
technologies in the future that we may not be able to obtain.
  Intellectual property infringement claims against us could materially harm results of operations.
  10




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We currently rely on specific technologies and may not successfully adapt to the rapidly changing
wireless telecommunications equipment market.
   Other parties may have the right to utilize technology important to our business.
  Our failure to anticipate and respond to developments in the wireless telecommunications market
could substantially harm our business
  We may not be able to compete effectively against alternative technologies.
  We depend upon government contracts for a substantial amount of revenue and our business may suffer
if significant contracts are terminated, adversely modified, or we are unable to win new contracts.
   
    
    termination by the government;
 11




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
    
    reduction or modification in the event of changes in the governments requirements
or budgetary constraints;
    
    increased or unexpected costs causing losses or reduced profits under contracts
where prices are fixed or unallowable costs under contracts where the government
reimburses for costs and pays an additional premium;
    
    risks of potential disclosure of confidential information to third parties;
    
    the failure or inability of the main contractor to perform its contract in
circumstances where we are a subcontractor;
    
    the failure of the government to exercise options for additional work provided for
in the contracts; and
    
    the governments right in certain circumstances to freely use technology developed
under these contracts.
   Because competition for target employees is intense, we may be subject to claims of unfair hiring
practices, trade secret misappropriation or other related claims.
  If we are unable to forecast our inventory needs accurately, we may be unable to obtain sufficient
manufacturing capacity or may incur unnecessary costs and produce excess inventory.
  Our success depends on the attraction and retention of senior management and technical personnel
with relevant expertise.
  12




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Regulatory changes negatively affecting wireless communications companies could substantially harm
our business.
  We may acquire or make investments in companies or technologies that could cause loss of value to
stockholders and disruption of business.
  
    
    failure to integrate operations, services and personnel;
    
    the price paid may exceed the value eventually realized;
    
    loss of share value to existing stockholders as a result of issuing equity
securities to finance an acquisition;
    
    potential loss of key employees from either our then current business or any
acquired business;
    
    entering into markets in which we have little or no prior experience;
    
    diversion of financial resources and managements attention from other business
concerns;
    
    assumption of unanticipated liabilities related to the acquired assets; and
    
    the business or technologies acquired or invested in may have limited operating
histories and may be subjected to many of the same risks to which we are exposed.
  13




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If we are unable to implement appropriate controls and procedures to manage our potential growth,
we may not be able to successfully offer our products and implement our business plan.
  Compliance with environmental regulations could be especially costly due to the hazardous materials
used in the manufacturing process.
  The reliability of market data included in our public filings is uncertain.
  Our international operations expose us to certain risks.
 ®
 
    
    changes in exchange rates;
    
    international political and economic conditions;
    
    changes in government regulation in various countries;
    
    trade barriers;
    
    adverse tax consequences; and
    
    costs associated with expansion into new territories.
 14




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Risks Related to Our Common Stock
 Our stock price is volatile.
  
    
    our perceived prospects;
    
    variations in our operating results and whether we have achieved key business
targets;
    
    changes in, or our failure to meet, earnings estimates;
    
    changes in securities analysts buy/sell recommendations;
    
    differences between our reported results and those expected by investors and
securities analysts;
    
    announcements of new contracts by us or our competitors;
    
    market reaction to any acquisitions, joint ventures or strategic investments
announced by us or our competitors; and
    
    general economic, political or stock market conditions.
  We have a significant number of outstanding warrants and options, and future sales of these shares
could adversely affect the market price of our common stock.
  Our corporate governance structure may prevent our acquisition by another company at a premium over
the public trading price of our shares.
   15




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We do not anticipate declaring any cash dividends on our common stock.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market for Common Stock
  High
    
    Low2008Quarter ended March 29, 2008
    
    $
    6.80
    
    
    $
    3.22Quarter ended June 28, 2008
    
    $
    4.83
    
    
    $
    2.18Quarter ended September 27, 2008
    
    $
    2.43
    
    
    $
    0.73Quarter ended December 31, 2008
    
    $
    1.50
    
    
    $
    0.682007Quarter ended March 31, 2007
    
    $
    2.60
    
    
    $
    1.60Quarter ended June 30, 2007
    
    $
    2.16
    
    
    $
    1.40Quarter ended September 29, 2007
    
    $
    10.90
    
    
    $
    1.38Quarter ended December 31, 2007
    
    $
    13.77
    
    
    $
    5.50
 16




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Holders of Record
  Dividends
   Sales of Unregistered Securities
  Repurchases of Equity Securities
  Securities Authorized for Issuance Under Equity Compensation Plans
 Number of securitiesNumber of
    
    
    
    
    
    
    remaining availablesecurities to be
    
    
    
    
    
    
    for future issuanceissued upon
    
    
    Weighted-average
    
    
    under equityexercise of
    
    
    exercise price of
    
    
    compensation plansoutstanding
    
    
    outstanding
    
    
    (excludingoptions, warrants
    
    
    options, warrants
    
    
    securities reflectedPlan Category
    
    and rights
    
    
    and rights
    
    
    in column (a))Equity compensation
plans approved by
security holders
    
    
    1,234,025
    
    
    $
    22.18
    
    
    
    1,066,019Equity compensation
plans not approved
by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,234,025
    
    
    $
    22.18
    
    
    
    1,066,019
 Stock Performance Graph
 stock performance graph and related information presented below shall not be deemed
soliciting material or filed with the Securities and Exchange Commission or subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the Exchange Act),
or to the liabilities of Section 18 of the Exchange Act, and shall not be deemed incorporated by
reference into any filing under the Securities Act of 1933, as amended (the Securities Act), or
the Exchange Act, except to the extent that we specifically request that such information be
treated as soliciting material or specifically incorporate it by reference into such a filing.
 17




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31-Dec-03
    
    31-Dec-04
    
    31-Dec-05
    
    31-Dec-06
    
    31-Dec-07
    
    31-Dec-08Superconductor Technologies
    
    $
    100.00
    
    
    $
    25.00
    
    
    $
    7.73
    
    
    $
    3.18
    
    
    $
    9.98
    
    
    $
    1.82Nasdaq Composite
    
    
    100.00
    
    
    
    108.59
    
    
    
    110.08
    
    
    
    120.56
    
    
    
    132.39
    
    
    
    78.72Nasdaq-Telecommunications
    
    
    100.00
    
    
    
    108.00
    
    
    
    100.21
    
    
    
    128.03
    
    
    
    139.77
    
    
    
    79.69
 18




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##### Table of Contents



ITEM 6.
    
    SELECTED FINANCIAL DATA
  Years Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(In thousands, except per share data)Statement of Operations Data:Net revenues:Net commercial product revenues
    
    $
    16,787
    
    
    $
    21,080
    
    
    $
    17,697
    
    
    $
    12,787
    
    
    $
    6,768Government contract revenues
    
    
    6,189
    
    
    
    3,107
    
    
    
    3,361
    
    
    
    5,115
    
    
    
    4,525Sub license royalties
    
    
    28
    
    
    
    22
    
    
    
    20
    
    
    
    
    
    
    
    Total net revenues
    
    
    23,004
    
    
    
    24,209
    
    
    
    21,078
    
    
    
    17,902
    
    
    
    11,293Costs and expenses:Cost of commercial product revenues
    
    
    23,421
    
    
    
    18,989
    
    
    
    15,922
    
    
    
    12,944
    
    
    
    8,911Contract research and development
    
    
    4,465
    
    
    
    2,806
    
    
    
    2,407
    
    
    
    2,906
    
    
    
    3,649Other research and development
    
    
    5,036
    
    
    
    4,214
    
    
    
    3,488
    
    
    
    3,172
    
    
    
    3,394Selling, general and administrative
    
    
    16,051
    
    
    
    11,442
    
    
    
    9,086
    
    
    
    8,123
    
    
    
    8,151Restructuring expenses and
impairment charges
    
    
    4,128
    
    
    
    1,197
    
    
    
    38
    
    
    
    
    
    
    
    141Write off of Goodwill
    
    
    
    
    
    
    
    
    
    
    20,107
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    53,101
    
    
    
    38,648
    
    
    
    51,048
    
    
    
    27,145
    
    
    
    24,246Loss from operations
    
    
    (30,097
    )
    
    
    (14,439
    )
    
    
    (29,970
    )
    
    
    (9,243
    )
    
    
    (12,953
    )Other income (expense), net
    
    
    (1,120
    )
    
    
    226
    
    
    
    346
    
    
    
    117
    
    
    
    252Net loss
    
    $
    (31,217
    )
    
    $
    (14,213
    )
    
    $
    (29,624
    )
    
    $
    (9,126
    )
    
    $
    (12,701
    )Basic and diluted net loss per share:Net loss per common share
    
    $
    (3.71
    )
    
    $
    (1.24
    )
    
    $
    (2.37
    )
    
    $
    (0.73
    )
    
    $
    (0.77
    )Weighted average number of shares
Outstanding
    
    
    8,424
    
    
    
    11,419
    
    
    
    12,483
    
    
    
    12,488
    
    
    
    16,403
 Years Ended December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008Balance Sheet Data:Cash and cash equivalents
    
    $
    12,802
    
    
    $
    13,018
    
    
    $
    5,487
    
    
    $
    3,939
    
    
    $
    7,569Working capital
    
    
    16,146
    
    
    
    17,218
    
    
    
    10,158
    
    
    
    3,293
    
    
    
    12,253Total assets
    
    
    62,358
    
    
    
    52,045
    
    
    
    21,904
    
    
    
    16,625
    
    
    
    19,358Long-term debt, including current portion
    
    
    76
    
    
    
    33
    
    
    
    618
    
    
    
    563
    
    
    
    521Total stockholders equity
    
    
    49,249
    
    
    
    47,257
    
    
    
    17,951
    
    
    
    9,190
    
    
    
    17,552
 19




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 This Managements Discussion and Analysis of Financial Condition and Results of Operations
includes many forward-looking statements. For cautions about relying on such forward looking
statements, please refer to the section entitled Forward Looking Statements at the beginning of
this Report immediately prior to Item 1.
 General
  Our Proprietary Technology
  
    
    7 patents for technologies directed toward producing thin-film materials and
structures, which expire between 2010 and 2025. We have developed a proprietary
state-of-the-art manufacturing process for producing HTS thin-films of the highest
quality.
    
    29 patents for cryogenic and non-microwave circuit designs, which expire between 2010
and 2026. The expertise of our highly qualified team has allowed us to design and
fabricate extremely small, high-performance circuits including RF signal filters.
    
    17 patents covering cryogenics, packaging and systems, which expire between 2013 and
2025. Our proprietary and patented cryogenic packaging innovation provides us with a
significant competitive advantage in maintaining our HTS materials at their critical
temperatures.
    
    4 patents covering other superconducting technologies, which expire between 2013 and
2015.
   
    
    Wireless Networks. Our current commercial products help maximize the performance of
wireless telecommunications networks by improving the quality of uplink signals from
mobile wireless devices. Our products increase capacity utilization, lower dropped and
blocked calls, extend coverage, and enable higher wireless data throughput  all while
reducing capital and operating costs.
    
    Reconfigurable Handset Filters. The trend in the wireless handset industry is to
continually reduce size and cost, while adding more features and making the unit more
adaptable to different air interfaces and frequencies throughout the world. This drives
the need for more complex and reconfigurable transceivers. We believe our strong
intellectual property and expertise in frequency agile and thin film filters position
us well to meet this demand.
    
    Superconducting Power Transmission Lines. We have entered into a collaborative
effort and signed a Material Transfer Agreement with the Department of Energys Los
Alamos National Laboratory (LANL) to apply our
 20




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##### Table of Contents



HTS expertise to LANLs research
initiative to develop HTS coated conductors for power transmission lines. If
successfully developed, HTS superconducting cables could replace copper power
transmission lines, resulting in higher capacity with less resistive cable losses.
    
    Government Products. As the worldwide leader in developing tunable HTS filter
systems for military applications, we continue to be a crucial partner in the U.S.
governments future success. Our high-performance HTS filter systems have been proven
to increase the detection range, reduce interference, and in some cases, detect signals
that were previously undetectable with conventional technology. Currently, we actively
participate in the development of technologies for application in military
communications, signals intelligence, and electronic warfare.
  Our Business Model
  Government Contracts
  
    
    terminate existing contracts for convenience, which affords the U.S. government the
right to terminate the contract in            whole or in part anytime it wants for any
reason or no reason, as well as for default;
    
    reduce or modify contracts or subcontracts, if its requirements or budgetary
constraints change;
    
    cancel or reduce multi-year contracts and related orders, if funds for contract
performance for any subsequent year become unavailable;
    
    adjust reimbursable contract costs and fees on the basis of audits completed by its
agencies through exercise of its oversight rights; and
    
    control or prohibit the export of products.
 21




---



##### Table of Contents



Commercial Applications
  
    
    SuperLink, a highly compact and reliable receiver front-end HTS wireless filter
system to eliminate out-of-band interference for wireless base stations, combining
filters with a proprietary cryogenic cooler and a cooled low-noise amplifier.
    
    AmpLink, a ground-mounted unit for wireless base stations that includes a
high-performance amplifier and up to six dual duplexers.
    
    SuperPlex, a high-performance multiplexer that provides extremely low insertion
loss and excellent cross-band isolation designed to eliminate the need for additional
base station antennas and reduce infrastructure costs.
  Joint Ventures
 ® .
 Licenses
  22




---



##### Table of Contents



Recent Developments
 Operating Lease
  Contract Funding
  Backlog
  Results of Operations
 2008 Compared to 2007
      23




---



##### Table of Contents



Years Ended December 31,Dollars in Thousands
    
    2007
    
    
    2008Net commercial product sales
    
    $
    12,787
    
    
    
    100.0
    %
    
    $
    6,768
    
    
    
    100.0
    %Cost of commercial product sales
    
    
    12,944
    
    
    
    101.2
    %
    
    
    8,911
    
    
    
    131.7
    %Gross profit
    
    $
    (157
    )
    
    
    (1.2
    %)
    
    $
    (2,143
    )
    
    
    (31.7
    %)
          2007 Compared to 2006
  24




---



##### Table of Contents



Years Ended December 31,Dollars in Thousands
    
    2006
    
    
    2007Net commercial product sales
    
    $
    17,697
    
    
    
    100.0
    %
    
    $
    12,787
    
    
    
    100.0
    %Cost of commercial product sales
    
    
    15,922
    
    
    
    90
    %
    
    
    12,944
    
    
    
    101.2
    %Gross profit
    
    $
    1,775
    
    
    
    10
    %
    
    $
    (157
    )
    
    
    (1.2
    %)
       25




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flow Analysis
      Financing Activities
     26




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  
    
    Operating Lease Obligations
  
    
    Patents and Licenses
  
    
    Purchase Commitments
  
    
    Quantitative Summary of Contractual Obligations and Commercial Commitments
  Payments Due by Period2010 and
    
    
    2012 and
    
    
    2014 andContractual Obligations
    
    Total
    
    
    2009
    
    
    2011
    
    
    2013
    
    
    beyondOperating leases
    
    $
    4,463,000
    
    
    $
    1,480,000
    
    
    $
    2,973,000
    
    
    $
    10,000
    
    
    
    Minimum license
commitment
    
    
    1,650,000
    
    
    
    150,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    900,000Fixed asset and
inventory purchase
commitments
    
    
    310,000
    
    
    
    310,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
cash obligations
    
    $
    6,423,000
    
    
    $
    1,940,000
    
    
    $
    3,273,000
    
    
    $
    310,000
    
    
    $
    900,000
 Capital Expenditures
  Future Liquidity
   27




---



##### Table of Contents



Net Operating Loss Carryforward
 ,
   Recent Accounting Pronouncements
  Market Risk
   Inflation
  28




---



##### Table of Contents



Critical Accounting Policies and Estimates
        29




---



##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Managements Discussion and Analysis of Financial Condition and Results of Operations 
Market Risk
 
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T).
    
    CONTROLS AND PROCEDURES
 Controls and Procedures
   30




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
 The report below shall not be deemed filed for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section, and shall not be deemed incorporated by
reference into any filing under the Securities Act or the Exchange Act, except to the extent that
we specifically incorporate it by reference into such a filing.
  
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  31




---



##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND DISCLOSURES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Index to Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    F-2Consolidated Statement of Operations for the years ended December 31, 2006, 2007 and 2008
    
    F-3Consolidated Statement of Stockholders Equity for the years ended December 31, 2006, 2007 and 2008
    
    F-4Consolidated Statement of Cash Flows for the years ended December 31, 2006, 2007 and 2008
    
    F-5Notes to Consolidated Financial Statements
    
    F-6
 Financial Statement Schedule Covered by the Foregoing Report of Independent Registered
Public Accounting Firm
 Schedule II  Valuation and Qualifying Accounts
    
    F-23
  Exhibits
 Number
    
    Description of Document3.1
    
    Amended and Restated Certificate of Incorporation of Registrant (2)3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation (5)3.3
    
    Certificate of Amendment of Restated Certificate of Incorporation (17)3.4
    
    Certificate of Designations of Registrant relating to the Series A Convertible Preferred Stock (22)3.5
    
    Amended and Restated Bylaws of Registrant (14)4.1
    
    Form of Common Stock Certificate (23)4.2
    
    Form of Warrant to Purchase Common Stock dated March 28, 2003, issued to Silicon Valley Bank (7)4.3
    
    Form of Warrant dated August 2005 (15)
 32




---



##### Table of Contents



Number
    
    Description of Document10.1
    
    1992 Stock Option Plan (23) ***10.2
    
    Form of 1992 Stock Option Agreement (23) ***10.3
    
    1992 Director Option Plan (as amended through January 1997) (1)10.4
    
    Form of 1992 Director Stock Option Agreement (1)10.5
    
    1998 Non-Statutory Stock Option Plan, including Form of Stock Option Agreement (4)***10.6
    
    1999 Stock Option Plan (3) ***10.7
    
    Form of 1999 Stock Option Agreement (3) ***10.8
    
    Form of Change in Control Agreement dated March 28, 2003 (7) ***10.9
    
    Form of Amendment No. 1 to Change in Control Agreement dated as of May 24, 2005 (16) ***10.10
    
    Form of Amendment No. 2 to Change in Control Agreement dated as of December 31, 2006 (19) ***10.11
    
    Accounts Receivable Purchase Agreement by and between Registrant and Silicon Valley Bank dated March 28, 2003 (7)10.12
    
    Accounts Receivable Purchase Modification Agreement by and between Registrant and Silicon Valley Bank dated March
17, 2004 (9)10.13
    
    Accounts Receivable Purchase Modification Agreement by and between Registrant and Silicon Valley Bank dated March
16, 2005 (13)10.14
    
    Accounts Receivable Purchase Modification Agreement by and between Registrant and Silicon Valley Bank dated July 13,
2008 (23)10.15
    
    Patent License Agreement by and between Registrant and Lucent Technologies (8) **10.16
    
    License Agreement between Registrant and Sunpower dated May 2, 2005 (10) **10.17
    
    Employment Agreement between Registrant and Jeffrey Quiram dated as of February 14, 2005 (11) ***10.18
    
    Option Agreement between Registrant and Jeffrey Quiram dated February 14, 2005 (11) ***10.19
    
    Amendment to Employment Agreement between Registrant and Jeffrey Quiram dated as of December 31, 2006 (19) ***10.20
    
    2003 Equity Incentive Plan (as amended May 25, 2005) (14) ***10.21
    
    Form of Option Agreement for 2003 Equity Incentive Plan (11) ***10.22
    
    Management Incentive Plan (18) ***10.23
    
    Employment Agreement between Registrant and Terry White dated as of April 11, 2005 (12) ***10.24
    
    Amendment to Employment Agreement between Registrant and Terry White dated as of December 31, 2006 (19) ***10.25
    
    Form of Director and Officer Indemnification Agreement (16)10.26
    
    Code of Business Conduct and Ethics (15)10.27
    
    Lease Agreement between the Registrant and 1200 Enterprises LLC dated as of June 1, 2001 (6)10.28
    
    Investment agreement between Registrant and Hunchun BaoLi Communication Co. Ltd. (BAOLI) dated August 17, 2007 (20)10.29
    
    First amendment to investment agreement between Registrant and BAOLI dated November 9, 2007 (21)10.30
    
    Second amendment to investment agreement between Registrant and BAOLI dated January 8, 2008 (21)10.31
    
    Framework Agreement between Registrant and BAOLI dated November 8, 2007 (21)10.32
    
    Sino-Foreign Equity Joint Venture between Superconductor Investments (Mauritius) Limited and BAOLI dated December 8,
2007 (Exhibit A to Framework Agreement with BAOLI) (21)10.33
    
    Form of License Agreement between Registrant and BAOLI (Exhibit B to Framework Agreement) (21)21
    
    List of Subsidiaries (23)
 33




---



##### Table of Contents



Number
    
    Description of Document23.1
    
    Consent of Stonefield Josephson Inc, Independent Registered Public Accounting Firm (23)31.1
    
    Statement of CEO Pursuant to 302 of the Sarbanes-Oxley Act of 2002 (23)31.2
    
    Statement of CFO Pursuant to 302 of the Sarbanes-Oxley Act of 2002 (23)32.1
    
    Statement of CEO Pursuant to 906 of the Sarbanes-Oxley Act of 2002 (23)32.2
    
    Statement of CFO Pursuant to 906 of the Sarbanes-Oxley Act of 2002 (23)
 
 (1)
    
    Incorporated by reference from Registrants Registration Statement on Form S-8
filed April 15, 1998 (Reg. No. 33-50137).(2)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended April 3, 1999.(3)
    
    Incorporated by reference from Registrants Registration Statement on Form S-8 filed November
4, 1999 (Reg. No. 333-90293).(4)
    
    Incorporated by reference from Registrants Registration Statement on Form S-8 filed March 6,
2001 (Reg. No. 333-56606).(5)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.(6)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.(7)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended March 29, 2003.(8)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended
December 31, 2003.(9)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended April 3, 2004.(10)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the
quarter ended October 2, 2004(11)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended December 31, 2004.(12)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter ended April 2, 2005.(13)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed April 4, 2005.(14)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed May 27, 2005.(15)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed August 11, 2005.(16)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended December 31, 2005(17)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed March 13, 2006.(18)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed July 28, 2006.(19)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year
ended December 31, 2006(20)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q for the quarter
ended September 29, 2007.(21)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended
December 31, 2007.(22)
    
    Incorporated by reference from Registrants Current Report on Form 8-K/A filed February 25,
2008.(23)
    
    Filed herewith.**
    
    Confidential treatment has been previously granted for certain portions of these exhibits.***
    
    This exhibit is a management contract or compensatory plan or arrangement. Exhibits
 34




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
        F-1




---



##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.  CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2007
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    3,939,000
    
    
    $
    7,569,000Accounts receivable, net
    
    
    2,413,000
    
    
    
    355,000Inventory, net
    
    
    3,415,000
    
    
    
    5,278,000Prepaid expenses and other current assets
    
    
    442,000
    
    
    
    416,000Total Current Assets
    
    
    10,209,000
    
    
    
    13,618,000Property and equipment, net of accumulated depreciation of
$19,129,000 and $19,943,000, respectively
    
    
    3,961,000
    
    
    
    2,739,000Patents, licenses and purchased technology, net of accumulated
amortization
of $1,722,000 and $2,055,000, respectively
    
    
    2,236,000
    
    
    
    2,252,000Investment in joint venture
    
    
    
    
    
    
    521,000Other assets
    
    
    219,000
    
    
    
    228,000Total Assets
    
    $
    16,625,000
    
    
    $
    19,358,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,467,000
    
    
    $
    707,000Accrued expenses
    
    
    1,405,000
    
    
    
    578,000Proceeds for shares to be issued
    
    
    4,000,000
    
    
    
    Current portion of capitalized lease obligations
    
    
    45,000
    
    
    
    80,000Total Current Liabilities
    
    
    6,917,000
    
    
    
    1,365,000Other long term liabilities
    
    
    518,000
    
    
    
    441,000Total Liabilities
    
    
    7,435,000
    
    
    
    1,806,000Commitments and contingencies (Notes 9, 10 and 11)Stockholders Equity:Preferred stock, $.001 par value, 2,000,000 shares authorized,
zero and 611,523 issued and outstanding, respectively
    
    
    
    
    
    
    1,000Common stock, $.001 par value, 250,000,000 shares authorized,
12,511,414 and 17,869,030 shares issued and outstanding, respectively
    
    
    12,000
    
    
    
    18,000Capital in excess of par value
    
    
    209,163,000
    
    
    
    230,219,000Accumulated deficit
    
    
    (199,985,000
    )
    
    
    (212,686,000
    )Total Stockholders Equity
    
    
    9,190,000
    
    
    
    17,552,000Total Liabilities and Stockholders Equity
    
    $
    16,625,000
    
    
    $
    19,358,000
  F-2




---



##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 Years Ended December 31,2006
    
    
    2007
    
    
    2008Net revenues:Net commercial product revenues
    
    $
    17,697,000
    
    
    $
    12,787,000
    
    
    $
    6,768,000Government and other contract revenues
    
    
    3,361,000
    
    
    
    5,115,000
    
    
    
    4,525,000Sub license royalties
    
    
    20,000
    
    
    
    
    
    
    
    Total net revenues
    
    
    21,078,000
    
    
    
    17,902,000
    
    
    
    11,293,000Costs and expenses:Cost of commercial product revenues
    
    
    15,922,000
    
    
    
    12,944,000
    
    
    
    8,911,000Contract research and development
    
    
    2,407,000
    
    
    
    2,906,000
    
    
    
    3,649,000Other research and development
    
    
    3,488,000
    
    
    
    3,172,000
    
    
    
    3,394,000Selling, general and administrative
    
    
    9,086,000
    
    
    
    8,123,000
    
    
    
    8,151,000Restructuring expenses and impairment charges
    
    
    38,000
    
    
    
    
    
    
    
    141,000Write off Goodwill
    
    
    20,107,000
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    51,048,000
    
    
    
    27,145,000
    
    
    
    24,246,000Loss from operations
    
    
    (29,970,000
    )
    
    
    (9,243,000
    )
    
    
    (12,953,000
    )Interest income
    
    
    391,000
    
    
    
    156,000
    
    
    
    284,000Interest expense
    
    
    (45,000
    )
    
    
    (39,000
    )
    
    
    (32,000
    )Net loss
    
    $
    (29,624,000
    )
    
    $
    (9,126,000
    )
    
    $
    (12,701,000
    )Basic and diluted net loss per common share
    
    $
    (2.37
    )
    
    $
    (0.73
    )
    
    $
    (0.77
    )Basic and diluted weighted average number of
common shares outstanding
    
    
    12,483,367
    
    
    
    12,487,593
    
    
    
    16,402,509
  F-3




---



##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Convertible Preferred
    
    
    
    
    
    
    
    
    
    Capital in
    
    ReceivableStock
    
    Common Stock
    
    Excess of
    
    From
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Par Value
    
    Stockholder
    
    Deficit
    
    TotalBalance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    12,483,431
    
    
    $
    12,000
    
    
    $
    208,545,000
    
    
    $
    (65,000
    )
    
    $
    (161,235,000
    )
    
    $
    47,257,000Issuance of common stock and
warrants
    
    
    
    
    
    
    
    
    
    
    (64
    )Issuance of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    280,000
    
    
    
    
    
    
    
    
    
    
    
    280,000Reserve for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,000
    
    
    
    
    
    
    
    38,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,624,000
    )
    
    
    (29,624,000
    )Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    12,483,367
    
    
    
    12,000
    
    
    
    208,825,000
    
    
    
    (27,000
    )
    
    
    (190,859,000
    )
    
    
    17,951,000Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    3,350
    
    
    
    
    
    
    
    26,000
    
    
    
    
    
    
    
    
    
    
    
    26,000Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,000
    )
    
    
    
    
    
    
    
    
    
    
    (27,000
    )Issuance of options and warrants
    
    
    
    
    
    
    
    
    
    
    24,697
    
    
    
    
    
    
    
    339,000
    
    
    
    
    
    
    
    
    
    
    
    339,000Reserve for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    
    
    
    
    27,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,126,000
    )
    
    
    (9,126,000
    )Balance at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    12,511,414
    
    
    $
    12,000
    
    
    $
    209,163,000
    
    
    $
    
    
    
    $
    (199,985,000
    )
    
    $
    9,190,000Exercise of stock optionsIssuance of common stock
    
    
    
    
    
    
    
    
    
    
    5,101,361
    
    
    
    5,000
    
    
    
    10,563,000
    
    
    
    
    
    
    
    
    
    
    
    10,568,000Issuance of options/awards and
warrants
    
    
    
    
    
    
    
    
    
    
    256,255
    
    
    
    1,000
    
    
    
    593,000
    
    
    
    
    
    
    
    
    
    
    
    594,000Issuance of Series A Preferred
    
    
    611,523
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    9,900,000
    
    
    
    
    
    
    
    
    
    
    
    9,901,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,701,000
    )
    
    
    (12,701,000
    )Balance at December 31, 2008
    
    
    611,523
    
    
    $
    1,000
    
    
    
    17,869,030
    
    
    $
    18,000
    
    
    $
    230,219,000
    
    
    $
    
    
    
    $
    (212,686,000
    )
    
    $
    17,552,000
  F-4




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##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.
 CONSOLIDATED STATEMENT OF CASH FLOWS
 Years Ended December 31,2006
    
    
    2007
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (29,624,000
    )
    
    $
    (9,126,000
    )
    
    $
    (12,701,000
    )Adjustments to reconcile net loss to net cash used for
operating activities:Depreciation and amortization
    
    
    2,600,000
    
    
    
    2,333,000
    
    
    
    1,735,000Warrants and options charges
    
    
    280,000
    
    
    
    339,000
    
    
    
    587,000Provision for excess and obsolete inventories
    
    
    360,000
    
    
    
    160,000
    
    
    
    17,000Reserve for impairment of note and interest receivable from
stockholder
    
    
    38,000
    
    
    
    (583,000
    )
    
    
    Write off Goodwill
    
    
    20,107,000
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    631,000
    
    
    
    (877,000
    )
    
    
    2,057,000Inventory
    
    
    (974,000
    )
    
    
    2,403,000
    
    
    
    (1,880,000
    )Prepaid expenses and other current assets
    
    
    115,000
    
    
    
    574,000
    
    
    
    (26,000
    )Patents and licenses
    
    
    (217,000
    )
    
    
    (169,000
    )
    
    
    (315,000
    )Other assets
    
    
    128,000
    
    
    
    16,000
    
    
    
    9,000Accounts payable and accrued expenses
    
    
    (727,000
    )
    
    
    (465,000
    )
    
    
    (1,603,000
    )Net cash used in operating activities
    
    
    (7,283,000
    )
    
    
    (5,395,000
    )
    
    
    (12,120,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from the sale of property and equipment
    
    
    
    
    
    
    26,000
    
    
    
    Purchase of property and equipment
    
    
    (229,000
    )
    
    
    (191,000
    )
    
    
    (179,000
    )Investment in joint venture
    
    
    
    
    
    
    
    
    
    
    (521,000
    )Net cash used in investing activities
    
    
    (229,000
    )
    
    
    (165,000
    )
    
    
    (700,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from shares to be issued
    
    
    
    
    
    
    4,000,000
    
    
    
    Payments on long-term obligations
    
    
    (19,000
    )
    
    
    (14,000
    )
    
    
    Gross proceeds from sale of common stock and exercise of
warrants and options
    
    
    
    
    
    
    26,000
    
    
    
    16,450,000Net cash provided by (used in) financing activities
    
    
    (19,000
    )
    
    
    4,012,000
    
    
    
    16,450,000Net increase (decrease) in cash and cash equivalents
    
    
    (7,531,000
    )
    
    
    (1,548,000
    )
    
    
    3,630,000Cash and cash equivalents at beginning of year
    
    
    13,018,000
    
    
    
    5,487,000
    
    
    
    3,939,000Cash and cash equivalents at end of year
    
    $
    5,487,000
    
    
    $
    3,939,000
    
    
    $
    7,569,000
  F-5




---



##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  The Company
   Note 2  Summary of Significant Accounting Policies
 Basis of Presentation
    Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
  F-6




---



##### Table of Contents



Revenue Recognition
    Shipping and Handling Fees and Costs
  Warranties
  Guarantees
  Research and Development Costs
  Inventories
  F-7




---



##### Table of Contents



Property and Equipment
  Patents, Licenses and Purchased Technology
  Goodwill
   Long-Lived Assets
  Restructuring Expenses
  Loss Contingencies
  F-8




---



##### Table of Contents



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
   2006
    
    
    2007
    
    
    2008Cost of revenue
    
    
    6,000
    
    
    
    14,000
    
    
    
    22,000Research and development
    
    
    23,000
    
    
    
    56,000
    
    
    
    122,000Selling, general and administrative
    
    
    251,000
    
    
    
    269,000
    
    
    
    443,000Total
stock-based compensation expense
    
    $
    280,000
    
    
    $
    339,000
    
    
    $
    587,000
  Use of Estimates
 F-9




---



##### Table of Contents



Fair Value of Financial Instruments
  Comprehensive Income
  Segment Information
  Reverse Stock Split
  Certain Risks and Uncertainties
   F-10




---



##### Table of Contents



Recent Accounting Pronouncements
  Disclosures Related to
Asset Transfers,
and Interests in Variable Interest Entities
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting Principles
 Determination
of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
  F-11




---



##### Table of Contents



Note 3-Short Term Borrowings
    Note 4  Notes Receivable From Stockholder
  Note 5  Income Taxes
   2006
    
    2007
    
    2008Tax benefit computed at Federal statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Increase (decrease) in taxes due to:Change in valuation allowance
    
    
    (16.7
    )
    
    
    (39.8
    )
    
    
    (39.8
    )State taxes, net of federal benefit
    
    
    5.8
    
    
    
    5.8
    
    
    
    5.8Impairment of Goodwill (not deductible for tax)
    
    
    (23.1
    )
    
    
    
    
    
    
    
    %
    
    
    
    %
    
    
    
    %
  2007
    
    2008Loss carryforwards
    
    $
    105,460,000
    
    
    $
    108,940,000Capitalized research and development
    
    
    2,710,000
    
    
    
    1,468,000Depreciation
    
    
    2,582,000
    
    
    
    2,541,000Tax credits
    
    
    3,822,000
    
    
    
    3,916,000Inventory
    
    
    415,000
    
    
    
    343,000Purchase accounting adjustments
    
    
    46,000
    
    
    
    Acquired intellectual property
    
    
    (190,000
    )
    
    
    (90,000
    )Other
    
    
    437,000
    
    
    
    540,000Less: valuation allowance
    
    
    (115,282,000
    )
    
    
    (117,658,000
    )$
    
    
    
    $
    
  F-12




---



##### Table of Contents



,
   Note 6  Stockholders Equity
 Preferred Stock
  F-13




---



##### Table of Contents



Common Stock
   .
 Equity Awards
     2006
    
    2007
    
    2008Per share fair value
at grant date
    
    $
    2.55
    
    
    $
    2.15
    
    
    $
    3.57Risk free interest rate
    
    
    4.82
    %
    
    
    4.34
    %
    
    
    2.47
    %Expected volatility
    
    
    95
    %
    
    
    98
    %
    
    
    109
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected life in years
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
   F-14




---



##### Table of Contents



WeightedNumber of
    
    AverageShares
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    1,202,376
    
    
    $
    40.38Granted
    
    
    80,900
    
    
    
    3.70Canceled
    
    
    (128,335
    )
    
    
    34.64Exercised
    
    
    
    
    
    
    Outstanding at December 31, 2006
    
    
    1,154,941
    
    
    
    38.33Granted
    
    
    45,670
    
    
    
    2.96Canceled
    
    
    (455,403
    )
    
    
    41.68Exercised
    
    
    (3,350
    )
    
    
    7.42Outstanding at December 31, 2007
    
    
    741,858
    
    
    
    34.24Granted
    
    
    576,590
    
    
    
    4.83Canceled
    
    
    (84,423
    )
    
    
    9.60Exercised
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    1,234,025
    
    
    $
    22.18
  ExercisableWeighted Average
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$1.43 - $4.90
    
    
    205,600
    
    
    
    8.58
    
    
    $
    3.67
    
    
    
    56,992
    
    
    $
    3.54$5.12 - $5.80
    
    
    412,927
    
    
    
    9.13
    
    
    $
    5.12
    
    
    
    2,200
    
    
    $
    5.31$6.10 - $6.90
    
    
    236,500
    
    
    
    6.40
    
    
    $
    6.89
    
    
    
    236,500
    
    
    $
    6.89$7.02 - $39.38
    
    
    209,077
    
    
    
    3.44
    
    
    $
    19.87
    
    
    
    208,448
    
    
    $
    19.90$40.00
- $493.75
    
    
    169,921
    
    
    
    1.70
    
    
    $
    110.20
    
    
    
    169,921
    
    
    $
    110.201,234,025
    
    
    
    6.53
    
    
    $
    22.18
    
    
    
    674,061
    
    
    $
    36.67
     Warrants
 F-15




---



##### Table of Contents



Common SharesCurrently
    
    
    Price perTotal
    
    
    Exercisable
    
    
    Share
    
    
    Expiration DateWarrants related to August 2005 financing
    
    
    342,466
    
    
    
    342,466
    
    
    $
    6.74
    
    
    August 16, 2010*  **Warrants related to April 2004 financing
    
    
    10,000
    
    
    
    10,000
    
    
    
    18.50
    
    
    April 28, 2011*Total
    
    
    352,466
    
    
    
    352,466
 
 *
    
    The terms of these warrants contain net exercise provisions, under which holders can elect
to receive common stock equal to the difference between the exercise price and the sale
price for common shares on the exercise date or the date immediately preceding the exercise
date instead of paying the exercise price in cash.**
    
    These warrants contain special anti-dilution adjustment provisions relating to the price
of other issuances. Under the issuances in 2008, the exercise price of these warrants was
adjusted to $6.74.  Note 7  Employee Savings Plan
  Note 8  Commitments and Contingencies
 Operating Leases
   Capital Leases
  Patents and Licenses
 .
 F-16




---



##### Table of Contents



OperatingYears Ended December 31,
    
    Licenses
    
    
    Leases2009
    
    $
    150,000
    
    
    $
    1,480,0002010
    
    
    150,000
    
    
    
    1,531,0002011
    
    
    150,000
    
    
    
    1,442,0002012
    
    
    150,000
    
    
    
    9,0002013
    
    
    150,000
    
    
    
    1,000Thereafter
    
    
    900,000
    
    
    
    Total payments
    
    $
    1,650,000
    
    
    $
    4,463,000
 Note 9  Contractual Guarantees and Indemnities
  Warranties
  Intellectual Property Indemnities
  Director and Officer Indemnities and Contractual Guarantees
   General Contractual Indemnities/Products Liability
  F-17




---



##### Table of Contents



Short Term Borrowings
 See Note 3)
 Contractual Contingency
  Note 10-Legal Proceedings
 Settlement of Litigation
  Routine Litigation
  Note 11- Earnings Per Share
   2006
    
    
    2007
    
    
    2008Outstanding stock options
    
    
    1,154,941
    
    
    
    741,858
    
    
    
    1,234,025Outstanding stock awards
    
    
    331,000
    
    
    
    331,000
    
    
    
    20,000Outstanding warrants
    
    
    828,838
    
    
    
    468,745
    
    
    
    352,466Total
    
    
    2,314,779
    
    
    
    1,541,603
    
    
    
    1,606,491
 F-18




---



##### Table of Contents



Note 12- Restructuring Expenses and Impairment Charges
  Years Ended December 31,Restructuring
    
    
    Impairment
    
    
    
    
    
    
    Restructuring
    
    
    Impairment
    
    
    
    
    
    
    Restructuring
    
    
    ImpairmentCharges for
    
    
    Charges for
    
    
    
    
    
    
    Charges for
    
    
    Charges for
    
    
    Total for
    
    
    Charges for
    
    
    Charges for
    
    
    Total for2006
    
    
    2006
    
    
    Total for 2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008Severance costs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    141,000
    
    
    $
    
    
    
    $
    141,000Goodwill write-off
    
    
    
    
    
    
    20,107,000
    
    
    
    20,107,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment charge
for notes
receivable from
shareholder and
board member
    
    
    
    
    
    
    38,000
    
    
    
    38,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    20,145,000
    
    
    $
    20,145,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    141,000
    
    
    
    
    
    
    $
    141,000
 Note 13 Details of Certain Financial Statement Components and Supplemental Disclosures of Cash
Flow Information and Non-Cash Activities
 Balance Sheet Data
 December 31, 2007
    
    
    December 31, 2008Accounts receivable:Accounts receivable-trade
    
    $
    1,242,000
    
    
    $
    110,000U.S. government accounts receivable-billed
    
    
    1,246,000
    
    
    
    320,000Less: allowance for doubtful accounts
    
    
    (75,000
    )
    
    
    (75,000
    )$
    2,413,000
    
    
    $
    355,000
 December 31, 2007
    
    
    December 31, 2008Inventories:Raw materials
    
    $
    1,934,000
    
    
    $
    2,753,000Work-in-process
    
    
    679,000
    
    
    
    1,038,000Finished goods
    
    
    1,817,000
    
    
    
    2,348,000Less: inventory reserves
    
    
    (1,015,000
    )
    
    
    (861,000
    )$
    3,415,000
    
    
    $
    5,278,000
 December 31, 2007
    
    
    December 31, 2008Property and Equipment:Equipment
    
    $
    15,951,000
    
    
    $
    15,537,000Leasehold improvements
    
    
    6,732,000
    
    
    
    6,741,000Furniture and fixtures
    
    
    407,000
    
    
    
    404,00023,090,000
    
    
    
    22,682,000Less: accumulated depreciation and amortization
    
    
    (19,129,000
    )
    
    
    (19,943,000
    )$
    3,961,000
    
    
    $
    2,739,000
 F-19




---



##### Table of Contents



December 31, 2007
    
    
    December 31, 2008Patents and Licenses:Patents pending
    
    $
    705,000
    
    
    $
    940,000Licenses pending
    
    
    
    
    
    
    39,000Patents issued
    
    
    983,000
    
    
    
    1,059,000Less accumulated amortization
    
    
    (345,000
    )
    
    
    (409,000
    )Net patents issued
    
    
    638,000
    
    
    
    650,000Licenses
    
    
    563,000
    
    
    
    563,000Less accumulated amortization
    
    
    (134,000
    )
    
    
    (167,000
    )Net licenses Issued
    
    
    429,000
    
    
    
    396,000Purchased technology
    
    
    1,706,000
    
    
    
    1,706,000Less accumulated amortization
    
    
    (1,242,000
    )
    
    
    (1,479,000
    )Net purchased technology
    
    
    464,000
    
    
    
    227,000$
    2,236,000
    
    
    $
    2,252,000
  December 31, 2007
    
    
    December 31, 2008Accrued Expenses and Other Long Term Liabilities:Salaries payable
    
    $
    307,000
    
    
    $
    12,000Compensated absences
    
    
    371,000
    
    
    
    375,000Compensation related
    
    
    369,000
    
    
    
    12,000Warranty reserve
    
    
    380,000
    
    
    
    261,000Deferred rent
    
    
    373,000
    
    
    
    325,000Other
    
    
    123,000
    
    
    
    114,0001,923,000
    
    
    
    1,099,000Less current portion
    
    
    (1,405,000
    )
    
    
    (658,000
    )Long term portion
    
    $
    518,000
    
    
    $
    441,000
 2006
    
    
    2007
    
    
    2008Warranty Reserve Activity:Beginning balance
    
    $
    491,000
    
    
    $
    428,000
    
    
    $
    380,000Additions
    
    
    140,000
    
    
    
    75,000
    
    
    
    41,000Deductions
    
    
    (203,000
    )
    
    
    (123,000
    )
    
    
    (160,000
    )Ending balance
    
    $
    428,000
    
    
    $
    380,000
    
    
    $
    261,000Lease Abandonment Costs:Beginning balance
    
    $
    225,000
    
    
    $
    8,000
    
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    
 F-20




---



##### Table of Contents



2006
    
    
    2007
    
    
    2008Transfers from unfavorable lease costs
    
    
    
    
    
    
    
    
    
    
    Deductions
    
    
    (217,000
    )
    
    
    (8,000
    )
    
    
    Ending balance
    
    $
    8,000
    
    
    $
    
    
    
    $
    Product Line Exit Costs:Beginning balance
    
    $
    402,000
    
    
    $
    319,000
    
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    Deductions
    
    
    (83,000
    )
    
    
    (319,000
    )
    
    
    Change in estimate relating to previous exit costs accrual
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    $
    319,000
    
    
    $
    
    
    
    $
    Severance Costs:Beginning balance
    
    $
    36,000
    
    
    $
    32,000
    
    
    
    Additions
    
    
    218,000
    
    
    
    
    
    
    
    141,000Deductions
    
    
    (222,000
    )
    
    
    (32,000
    )
    
    
    Ending balance
    
    $
    32,000
    
    
    $
    
    
    
    $
    141,000
 Supplemental Cash Flow Information:
 2006
    
    2007
    
    2008Cash paid for interest
    
    $
    45,000
    
    
    $
    39,000
    
    
    $
    32,000
 Note 14 Subsequent Event
 Operating Lease
  Contract Funding
  F-21




---



##### Table of Contents



Quarterly Financial Data (Unaudited)
 First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2008Net revenues (1)
    
    $
    3,471,000
    
    
    $
    2,949,000
    
    
    $
    3,595,000
    
    
    $
    1,278,000Loss from operations (3)
    
    
    2,398,000
    
    
    
    3,411,000
    
    
    
    3,294,000
    
    
    
    3,850,000Net loss
    
    
    2,308,000
    
    
    
    3,349,000
    
    
    
    3,235,000
    
    
    
    3,809,000Basic and diluted loss per
common share
    
    
    (0.17
    )
    
    
    (0.21
    )
    
    
    (0.18
    )
    
    
    (0.21
    )Weighted average number of
shares outstanding
    
    
    13,636,083
    
    
    
    16,316,072
    
    
    
    17,750,761
    
    
    
    17,869,0302007Net revenues (1)
    
    $
    4,183,000
    
    
    $
    4,685,000
    
    
    $
    4,121,000
    
    
    $
    4,914,000Loss from operations (2)(3)
    
    
    (2,977,000
    )
    
    
    (2,006,000
    )
    
    
    (2,040,000
    )
    
    
    (2,220,000
    )Net loss
    
    
    (2,937,000
    )
    
    
    (1,982,000
    )
    
    
    (2,021,000
    )
    
    
    (2,187,000
    )Basic and diluted loss per
common share
    
    $
    (0.24
    )
    
    $
    (0.16
    )
    
    $
    (0.16
    )
    
    $
    (0.17
    )Weighted average number of
shares outstanding
    
    
    12,483,367
    
    
    
    12,483,367
    
    
    
    12483,367
    
    
    
    12,500,134
 
 (1)
    
    Our revenues vary from quarter to quarter as our customers provide minimal lead-time prior to
the release of their purchase orders and have non-binding commitments to purchase from us.(2)
    
    These quarters include sales of previously written-off inventory of $0, $138,000, $57,000
and $0, respectively.(3)
    
    Includes increased reserve for inventory obsolescence of $90,000, $70,000, $0 and $0,
respectively, in the 2007 quarters and $0, $15,000, $0, and $2,000, respectively, in the 2008
quarters. F-22




---



##### Table of Contents



SUPERCONDUCTOR TECHNOLOGIES INC.
 Schedule II
 Valuation and Qualifying
Accounts
 AdditionsCharge to
    
    
    Charge to
    
    
    Charge toBeginning
    
    
    Costs &
    
    
    Other
    
    
    Other
    
    
    EndingBalance
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    Balance2008Allowance for Uncollectible Accounts
    
    $
    75,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    75,000Reserve for Inventory Obsolescence
    
    
    1,015,000
    
    
    
    17,000
    
    
    
    
    
    
    
    (171,000
    )
    
    
    861,000Reserve for Warranty
    
    
    380,000
    
    
    
    41,000
    
    
    
    
    
    
    
    (160,000
    )
    
    
    261,000Deferred Tax Asset Valuation Allowance
    
    
    115,282,000
    
    
    
    2,376,000
    
    
    
    
    
    
    
    
    
    
    
    117,658,0002007Allowance for Uncollectible Accounts
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000Impairment for Notes Receivable from
Stockholder
    
    
    1,007,000
    
    
    
    (583,000
    )
    
    
    
    
    
    
    (424,000
    )
    
    
    Reserve for Inventory Obsolescence
    
    
    1,367,000
    
    
    
    (195,000
    )
    
    
    
    
    
    
    (157,000
    )
    
    
    1,015,000Reserve for Warranty
    
    
    428,000
    
    
    
    75,000
    
    
    
    
    
    
    
    (123,000
    )
    
    
    380,000Deferred Tax Asset Valuation Allowance
    
    
    112,153,000
    
    
    
    3,129,000
    
    
    
    
    
    
    
    
    
    
    
    115,282,0002006Allowance for Uncollectible Accounts
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000Impairment for Notes Receivable from
Stockholder
    
    
    969,000
    
    
    
    38,000
    
    
    
    
    
    
    
    
    
    
    
    1,007,000Reserve for Inventory Obsolescence
    
    
    
    
    
    
    3,209,000
    
    
    
    360,000
    
    
    
    (2,202,000
    )
    
    
    1,367,000Reserve for Warranty
    
    
    491,000
    
    
    
    140,000
    
    
    
    
    
    
    
    (203,000
    )
    
    
    428,000Deferred Tax Asset Valuation Allowance
    
    $
    106,299,000
    
    
    $
    5,854,000
    
    
    $
    
    
    
    $
    
    
    
    $
    112,153,000
 F-23




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##### Table of Contents



SIGNATURES
 th
 SUPERCONDUCTOR TECHNOLOGIES INC.By:
    /s/ Jeffrey A. QuiramJeffrey A. QuiramPresident and Chief Executive Officer POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Jeffrey A. Quiram

Jeffrey A. Quiram
    
    President, Chief Executive Officer and 
Director
(Principal Executive Officer)
    
    March 20, 2009/s/ William J. Buchanan

William J. Buchanan
    
    Controller (Principal Accounting Officer) 
(Principal Financial Officer)
    
    March 20, 2009/s/ David W. Vellequette

David W. Vellequette
    
    Director
    
    March 20, 2009/s/ Lynn J. Davis

Lynn J. Davis
    
    Director
    
    March 20, 2009/s/ Dennis J. Horowitz

Dennis J. Horowitz
    
    Director
    
    March 20, 2009/s/ Martin A. Kaplan

Martin A. Kaplan
    
    Director
    
    March 20, 2009/s/ John D. Lockton

John D. Lockton
    
    Chairman of the Board
    
    March 20, 2009