##### 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
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended
    December 31, 2007ORo

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.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0158076(State or other jurisdiction
    of
    incorporation or organization)

(IRS Employer
    Identification No.)  460 Ward Drive, Santa Barbara, California
    93111-2310
  (Address of principal executive
    offices) (Zip Code)
  805) 690-4500
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon stock, $0.001 par value

The NASDAQ Capital Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    Accelerated
    Filer o
    Accelerated
    Filer o
    Non-Accelerated
    Filer o
    Smaller
    reporting
    company þ  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





SUPERCONDUCTOR
    TECHNOLOGIES INC.
  FORM 10-K
    ANNUAL REPORT
 Year Ended
    December 31, 2007
  Unless otherwise noted, the terms we,
    us, our and STI 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


8Item 1B.


Unresolved Staff Comments


17Item 2.


Properties


17Item 3.


Legal Proceedings


17Item 4.


Submission of Matters to a Vote of Security
    Holders


18PART IIItem 5.


Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


18Item 6.


Selected Financial Data


21Item 7


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


22Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


34Item 8.


Financial Statements and Supplementary Data


34Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


34Item 9A


Controls and Procedures


35Item 9B


Other Information


35PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


35Item 11.


Executive Compensation


36Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


36Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


36Item 14.


Principal Accountant Fees and Services


36PART IVItem 15.


Exhibits and Financial Statement Schedules


36EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 10.25EXHIBIT 21EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS  This Report contains forward-looking statements within the
    meaning of Section 27A of the Securities Act of 1933, as
    amended, and Section 21E of the Securities Exchange Act of
    1934, as amended. You can find many (but not all) of these
    statements by looking for words such as
    approximates, believes,
    expects, anticipates,
    estimates, intends, plans,
    would, may or other similar expressions
    in this Report. We claim the protection of the safe harbor
    contained in the Private Securities Litigation Reform Act of
    1995. We caution investors that any forward-looking statements
    presented in this Report, or which we may make orally or in
    writing from time to time, are based on the beliefs of,
    assumptions made by, and information currently available to, us.
    Such statements are based on assumptions and the actual outcome
    will be affected by known and unknown risks, trends,
    uncertainties and factors that are beyond our control or ability
    to predict. Although we believe that our assumptions are
    reasonable, they are not guarantees of future performance and
    some will inevitably prove to be incorrect. As a result, our
    actual future results can be expected to differ from our
    expectations, and those differences may be material.
    Accordingly, investors should use caution in relying on past
    forward-looking statements, which are based on known results and
    trends at the time they are made, to anticipate future results
    or trends.
  Some of the risks and uncertainties that may cause our actual
    results, performance or achievements to differ materially from
    those expressed or implied by forward-looking statements include
    the following: limited assets and a history of losses; limited
    number of potential customers; limited number of suppliers for
    some of our components; no significant backlog from quarter to
    quarter; our market is characterized by rapidly advancing
    technology. For further discussion of these and other factors
    see Item 1A. Risk Factors of 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.
 WHERE
    YOU CAN FIND MORE INFORMATION  http://www.sec.gov. 1-800-SEC-0330 Forms 8-K, 10-K, 10-Q,
 1




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Our
    Company
      T-Mobile, T-Mobile
  Industry Background.
    Our Solution.
  
    reduction of dropped calls and network access failures;
    elimination of interference from other sources such as
    specialized mobile radio handsets and other base stations;
    increased in-building penetration;
    reduction in base station noise figure; and
    improved handset power consumption  Our Products.
  
    SuperLinkcombines HTS filters with a proprietary
    cryogenic cooler and an ultra low-noise amplifier to create a
    highly compact and reliable receiver front-end that can
    simultaneously deliver both high selectivity (interference
    rejection) and high sensitivity (detection of low level signals). 2




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
    AmpLinkis a ground-mounted unit which includes a
    high-performance amplifier that provides increased sensitivity.
    SuperPlexis a line of multiplexers that provides
    extremely low insertion loss and excellent cross-band isolation.  Our Strategy.
  
    diversifying our customer base,
    expanding our current product offerings,
    enhancing our productivity and lowering our costs,
    maintaining our focus on technical excellence and
    innovation, and
    pursuing strategic partnerships, alliances and acquisitions.  Government Contracts.
  Corporate Information. (805) 690-4500.
  Our
    Wireless Products
      
    SuperLink.  In order to receive uplink signals
    from wireless handsets, base stations require a filter system to
    eliminate out-of-band interference, and amplification to enhance
    the base stations sensitivity. To address this need, we
    offer the SuperLink product line for the receiver front-end of
    base stations. These products combine specialized filters using
    HTS technology with a proprietary cryogenic cooler and ultra
    low-noise amplifiers. The result is a highly compact and
    reliable receiver front-end that can simultaneously deliver both
    high selectivity (interference rejection) and high sensitivity
    (detection of low level signals). SuperLink products offer
    significant performance advantages over conventional filter and
    amplifier systems.
    AmpLink.  AmpLink is designed to address the
    sensitivity requirements of wireless base stations. AmpLink is a
    ground-mounted unit which utilizes a high-performance amplifier.
    The enhanced uplink performance provided by AmpLink improves
    network coverage immediately and avoids the installation and
    maintenance costs associated with tower mounted alternatives.
    SuperPlex.  SuperPlex is our line of
    multiplexers that provides extremely low insertion loss and
    excellent cross-band isolation. Products in our SuperPlex family
    of high-performance multiplexers are designed to facilitate base
    station antenna sharing and reduce infrastructure costs.
    SuperPlex can be used in conjunction 3




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##### Table of Contents



with AmpLink and SuperLink products to optimize performance in
    networks where 1900 MHz EV-DO capabilities are added to
    existing 850 MHz networks. Relative to competing
    technologies, this portfolio of STI solutions offers increased
    transmit power delivered to the base station antenna, higher
    sensitivity to subscriber handset signals, interference
    rejection and fast and cost-effective network overlays.  Marketing
    and Sales
    T-Mobile
          Backlog
    How We
    Use Government Contracts to Fund Technology
    Development
   4




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Our
    Manufacturing Capabilities
              Intellectual
    Property
   5




---



##### Table of Contents




    6 patents for technologies directed toward producing thin-film
    materials and structures expiring in 2010 to 2024;
    26 patents for cryogenic and non-microwave circuit designs
    expiring in 2010 to 2024;
    16 patents covering cryogenics, packaging and systems expiring
    in 2013 to 2024; and
    5 patents covering other superconducting technologies expiring
    in 2013 to 2015.               6




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Competition
     7




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##### Table of Contents



Employees
    Environmental
    Issues
    ITEM 1A.
    RISK
    FACTORS    Risks
    Related to Our Business
  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.
     8




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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.
  T-Mobile
    
    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.    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.
   9




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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.    work-in-progress
    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.
   10




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##### Table of Contents



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.
      Our
    reliance on a limited number of suppliers exposes us to quality
    control issues.
    We
    expect 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.
   11




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##### Table of Contents



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.
      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.
   12




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##### Table of Contents



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;
    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.
   13




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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.
      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; 14




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##### Table of Contents




    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.    If we
    are unable to implement appropriate controls and procedures to
    manage our expected 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.
  ®
 15




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
    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.  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.
   16




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Our
    corporate governance structure may prevent our acquisition by
    another company at a premium over the public trading price of
    STI shares.
        We do
    not anticipate declaring any cash dividends on our common
    stock.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS  Settlement
    of Shalvoy Litigation
       17




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##### Table of Contents



Routine
    Litigation
    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS      Directors

Votes For


Votes WithheldJohn D. Lockton


10,279,801



210,743David W. Vellequette


10,287,800



202,744     In Favor Of

Against


Abstain2,425,588


148,018



18,737     In Favor Of

Against


Abstain10,277,793


53,137



159,614  PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    for Common Stock
    High


Low2007Quarter 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


$
5.502006Quarter ended April 1, 2006

$
6.70


$
3.21Quarter ended July 1, 2006

$
4.54


$
1.90Quarter ended September 30, 2006

$
2.10


$
1.30Quarter ended December 31, 2006

$
3.24


$
1.43  18




---



##### Table of Contents



Holders
    of Record
    Dividends
      Sales of
    Unregistered Securities
    Repurchases
    of Equity Securities
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
  Number ofSecuritiesNumber of





Remaining AvailableSecurities to Be





for Future IssuanceIssued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(ExcludingOptions, Warrants


Options, Warrants


SecuritiesPlan Category

and Rights


and Rights


Reflected in Column(a))Equity compensation plans approved by security holders


741,858


$
34.24



1,575,397Equity compensation plans not approved by security holders










Total


741,858


$
34.24



1,575,397  19




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##### Table of Contents



Stock
    Performance Graph
    
  31-Dec-02


31-Dec-03


31-Dec-04


31-Dec-05


31-Dec-06


31-Dec-07Superconductor Technologies


$
100.00



$
591.49



$
147.87



$
45.74



$
18.83



$
59.04Nasdaq Composite



100.00




150.01




162.89




165.13




180.85




198.60Nasdaq-Telecommunications



100.00




168.74




182.23




169.09




216.03




235.85  20




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2003


2004


2005


2006


2007(In thousands, except per share data)Statement of Operations Data:Net revenues:Net commercial product revenues

$
38,577


$
16,787


$
21,080


$
17,697


$
12,787Government contract revenues


10,759



6,189



3,107



3,361



5,115Sub license royalties


58



28



22



20



Total net revenues


49,394



23,004



24,209



21,078



17,902Costs and expenses:Cost of commercial product revenues


28,249



23,421



18,989



15,922



12,944Contract research and development


6,899



4,465



2,806



2,407



2,906Other research and development


4,697



5,036



4,214



3,488



3,172Selling, general and administrative


20,567



16,051



11,442



9,086



8,123Restructuring expenses and impairment charges






4,128



1,197



38



Write off of Goodwill














20,107



Total costs and expenses


60,412



53,101



38,648



51,048



27,145Loss from operations


(11,018
)


(30,097
)


(14,439
)


(29,970
)


(9,243
)Other income (expense), net


(327
)


(1,120
)


226



346



117Net loss

$
(11,345
)

$
(31,217
)

$
(14,213
)

$
(29,624
)

$
(9,126
)Basic and diluted net loss per share:Net loss per common share

$
(1.81
)

$
(3.71
)

$
(1.24
)

$
(2.37
)

$
(0.73
)Weighted average number of shares Outstanding


6,269



8,424



11,419



12,483



12,488   December 31,2003


2004


2005


2006


2007Balance Sheet Data:Cash and cash equivalents

$
11,144


$
12,802


$
13,018


$
5,487


$
3,939Working capital


15,576



16,146



17,218



10,158



3,293Total assets


68,123



62,358



52,045



21,904



16,625Long-term debt, including current portion


721



76



33



618



563Total stockholders equity


52,220



49,249



47,257



17,951



9,190  21




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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
        
    SuperLink.  In order to receive uplink
    signals from wireless handsets, base stations require a wireless
    filter system to eliminate out-of-band interference. SuperLink
    combines HTS filters with a proprietary cryogenic cooler and an
    ultra low-noise amplifier. The result is a highly compact and
    reliable receiver front-end that can simultaneously deliver both
    high selectivity (interference rejection) and high sensitivity
    (detection of low level signals). SuperLink delivers significant
    performance advantages over conventional filter systems.
    AmpLink.  AmpLink is designed to address
    the sensitivity requirements of wireless base stations. AmpLink
    is a ground-mounted unit which utilizes a high-performance
    amplifier. The enhanced uplink performance provided by AmpLink
    improves network coverage immediately and avoids the
    installation and maintenance costs associated with tower mounted
    alternatives.
    SuperPlex.  SuperPlex is our line of
    multiplexers that provides extremely low insertion loss and
    excellent cross-band isolation. SuperPlex high-performance
    multiplexers are designed to eliminate the need for additional
    base station antennas and reduce infrastructure costs. Relative
    to competing technologies, these products offer increased
    transmit power delivered to the base station antenna, higher
    sensitivity to subscriber handset signals, and fast and
    cost-effective network overlays.  T-Mobile, T-Mobile
     22




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Recent
    Developments
  BAOLI
    Investment.
    http://www.sec.gov.
    BAOLI
    Joint Venture.
  ®
   23




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
      and/or
       24




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96-18.
   25




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For the Year EndedDecember 31, 2005(In thousands, exceptper share data)Net loss:As reported

$
(14,213
)Stock-based employee compensation included in net loss


Stock-based compensation expense determined under fair value
    method


(6,459
)Pro forma


(20,672
)Basic and Diluted Loss per Share:As reported

$
(1.24
)Stock-based compensation expense determined under fair value
    method


(0.57
)Pro forma

$
(1.81
)         Backlog
    Results
    of Operations
  2007
    Compared to 2006
     26




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##### Table of Contents



and/or
    For the Years Ended December 31,2006


2007Dollars in thousandsNet 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
)%        27




---



##### Table of Contents



For the Year Ended December 31,Restructuring


Impairment





Restructuring


ImpairmentCharges for


Charges for


Total for


Charges for


Charges for


Total for2006


2006


2006


2007


2007


2007Severance costs

$



$



$



$



$



$
Fixed assets write offs






















Facility consolidation costs






















Employee relocation cost






















Goodwill 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











Fixed Asset write off and severance costs included in cost of
    goods sold






















Expense included in operating expenses

$



$
20,145,000


$
20,145,000


$



$



$
           2006
    Compared to 2005
     28




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##### Table of Contents



and/or
    For the Years Ended December 31,2005


2006Dollars in thousandsNet commercial product sales

$
21,080



100.0
%

$
17,697



100.0
%Cost of commercial product sales


18,989



90.1
%


15,922



90
%Gross profit

$
2,091



9.9
%

$
1,775



10
%     Contractual
    Contingency
   29




---



##### Table of Contents



For the Year Ended December 31,Restructuring


Impairment





Restructuring


ImpairmentCharges for


Charges for


Total for


Charges for


Charges for


Total for2005


2005


2005


2006


2006


2006Severance costs

$
178,000


$



$
178,000


$



$



$
Fixed assets write offs


137,000







137,000







Facility consolidation costs


6,000







6,000







Employee relocation cost


16,000







16,000







Goodwill Write-off


















20,107,000



20,107,000Impairment charge for notes receivable from shareholder and
    board member






969,000



969,000







38,000



38,000Total

$
337,000


$
969,000


$
1,306,000







20,145,000



20,145,000Fixed Asset write off and severance costs included in cost of
    goods sold


(109,000
)






(109,000
)










Expense included in operating expenses

$
228,000


$
969,000


$
1,197,000


$



$
20,145,000


$
20,145,000           Liquidity
    and Capital Resources
  Cash
    Flow Analysis
   30




---



##### Table of Contents



See notes below in Financing Activities and Future
    Liquidity
        Financing
    Activities
       31




---



##### 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 PeriodLess than








AfterContractual Obligations

Total


1 year


2-3 years


4-5 years


5 yearsOperating leases


5,870,000



1,425,000



2,999,000



1,445,000



1,000Minimum license commitment


1,800,000



150,000



300,000



300,000



1,050,000Fixed asset and inventory purchase commitments


3,184,000



3,184,000











Total contractual cash obligations

$
10,854,000


$
4,759,000


$
3,299,000


$
1,745,000


$
1,051,000   Capital
    Expenditures
    Future
    Liquidity
       32




---



##### Table of Contents



Net
    Operating Loss Carryforward
  ,
      Future
    Accounting Requirements
  FSP 157-2 (FSP 157-2). FSP 157-2
    No. 07-3, EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities EITF 07-3
 33




---



##### Table of Contents



EITF 07-3 EITF 07-3
  EITF 06-11 (EITF 06-11). EITF 06-11 EITF 06-11 EITF 06-11
  FIN 48-1 FIN 48-1). FIN 48-1 FIN 48-1
    Market
    Risk
      Inflation
   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   34




---



##### Table of Contents



ITEM 9A.
    CONTROLS
    AND PROCEDURES  Controls
    and Procedures
  Rule 13a-15
      Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f)
 ITEM 9B.  OTHER
    INFORMATION  Form 8-K
 PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Directors and Executive Officers
   35




---



##### 



93111-2310,
  ITEM 11.
    EXECUTIVE
    COMPENSATION  Executive Compensation
  ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Security Ownership of
    Certain Beneficial Owners and Management
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Transactions With Related
    Persons Corporate Governance 
    Director Independence
  ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND DISCLOSURES  Fees Paid to Independent Auditors
 PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Index to Financial Statements
   
 PageReports of Independent Registered Public
    Accounting Firms


F-1Consolidated Balance Sheets as of
    December 31, 2006 and 2007


F-3Consolidated Statement of Operations for the
    years ended December 31, 2005, 2006 and 2007


F-4Consolidated Statement of Stockholders
    Equity for the years ended December 31, 2005, 2006
    and 2007


F-5Consolidated Statement of Cash Flows for the
    years ended December 31, 2005, 2006 and 2007


F-6Notes to Consolidated Financial Statements


F-7    Financial Statement Schedule Covered by the
    Foregoing Report of Independent Registered Public Accounting
    Firms
 36




---



##### 



Schedule II  Valuation and
    Qualifying Accounts


F-29      Exhibits
  Number

Description of Document3
.1

Amended and Restated Certificate of Incorporation of the
    registrant(1)3
.2

Certificate of Amendment of Restated Certificate of
    Incorporation(2)3
.3

Certificate of Amendment of Restated Certificate of
    Incorporation(3)3
.4

Certificate of Designations of the Registrant relating to the
    Series A Preferred Stock(26)3
.5

Amended and Restated Bylaws of the Registrant(4)4
.1

Form of Common Stock Certificate(5)4
.2

Third Amended and Restated Stockholders Rights Agreement(6)4
.3

Form of Warrant to Purchase Common Stock dated March 28,
    2003, issued to Silicon Valley Bank(8)4
.4

Form of Warrant(9)4
.5

Form of Registration Rights Agreement(9)4
.6

Silicon Valley Bank Warrant dated May 2004(10)4
.7

Form of Warrant dated August 2005(11)10
.1

Amended and Restated 1988 Stock Option Plan, as amended, with
    form of stock option agreement(12)10
.2

1999 Stock Option Agreement(7)***10
.3

1998 Stock Option Plan (13)***10
.4(a)

Form of Change of Control Agreement dated March 28, 2003
    (14)***10
.4(b)

Form of Amendment to Change of Control Agreement dated as of
    May 24, 2005 (12)***10
.4(c)

Form of Amendment to Change of Control Agreement dated as of
    December 31, 2006 (23)***10
.5(a)

Accounts Receivable Purchase Agreement dated March 28, 2003
    by and between Registrant and Silicon Valley Bank(14)10
.5(b)

Accounts Receivable Purchase Modification Agreement with Silicon
    Valley Bank dated March 17, 2004(15)10
.5(c)

Accounts Receivable Purchase Modification Agreement with Silicon
    Valley Bank dated March 29, 2005(16)10
.6

Unconditional Guaranty dated March 27, 2003 issued by
    Conductus, Inc. to Silicon Valley Bank(14)10
.7

Patent License Agreement between Telcordia Technologies, Inc.
    and Registrant dated July 13, 2002(14)10
.8(a)

Securities Purchase Agreement dated June 23, 2003(17)10
.8(b)

Form of Investor Warrant(17)10
.9

Form of Registration Rights Agreement(17)10
.10

Patent License Agreement by and between Lucent Technologies and
    the registrant**(18)10
.11

License Agreement with Sunpower**(23)10
.12(a)

Employment Agreement with Jeffrey Quiram (20)***10
.12(b)

Option Agreement with Jeffrey Quiram (20)***10
.12(c)

Amendment to Employment Agreement with Jeffrey Quiram dated as
    of December 31, 2006 (24)***10
.13(a)

2003 Equity Management Incentive Plan (as amended May 25,
    2005)(4)***10
.13(b)

Form of Option Agreement for 2003 Equity Incentive Plan (20)***10
.13(c)

Management Incentive Plan (22)***10
.14(a)

Employment Agreement with Terry White (23)***10
.14(b)

Amendment to Employment Agreement with Terry White dated as of
    December 31, 2006 (24)*** 37




---



##### Table of Contents



Number

Description of Document10
.15

Compensation Policy for Non-Employee Directors dated
    March 18, 2005 (23)***10
.15

Stipulation of Settlement to Class Action dated
    August 10, 2005(23)10
.16(a)

Placement Agency Agreement for August 2005(11)10
.16(b)

Form of Subscription Agreement for August 2005 offering(22)10
.17

Form of Director and Officer Indemnification Agreement(21)10
.18

Code of Business Conduct and Ethics(21)10
.19

Master Services Agreement dated as of September 8, 2006
    with Cingular Wireless, LLC(24)10
.20

August 17, 2007 investment agreement with Hunchun BaoLi
    Communication Co. Ltd. (BAOLI)(25)10
.21

November 9, 2007 first amendment to investment agreement
    with BAOLI*10
.22

January 8, 2008 second amendment to investment agreement
    with BAOLI*10
.23

November 8, 2007 Framework Agreement with BAOLI*10
.24

December 8, 2007 Sino-Foreign Equity Joint Venture between
    the Registrant and BAOLI (Exhibit A to Framework Agreement
    with BAOLI)*10
.25

Form of License Agreement between the Registrant and BAOLI
    (Exhibit B to Framework Agreement with BAOLI)*21


List of Subsidiaries*23
.1

Consent of Stonefield Josephson Inc, Independent Registered
    Public Accounting Firm*23
.2

Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm*31
.1

Statement of CEO Pursuant to 302 of the Sarbanes-Oxley Act of
    2002*31
.2

Statement of CFO Pursuant to 302 of the Sarbanes-Oxley Act of
    2002*32
.1

Statement of CEO Pursuant to 906 of the Sarbanes-Oxley Act of
    2002*32
.2

Statement of CFO Pursuant to 906 of the Sarbanes-Oxley Act of
    2002*     (1)
    
    Incorporated by reference from the Registrants Quarterly
    Report on Form
    10-Q filed
    for the quarter ended April 3, 1999.(2)
    
    Incorporated by reference from the Registrants Quarterly
    Report on Form
    10-Q filed
    for the quarter ended June 30, 2001.(3)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated March 13, 2006.(4)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated May 25, 2005.(5)
    
    Incorporated by reference from the Registrants
    Registration Statement on
    Form S-1
    (Reg.
    No. 33-56714).(6)
    
    Incorporated by reference from the Registrants Quarterly
    Report on Form
    10-Q filed
    for the quarter ended July 3, 1999.(7)
    
    Incorporated by reference from the Registrants
    Registration Statement on
    Form S-8
    (Reg.
    No. 333-90293).(8)
    
    Incorporate by reference from Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended March 29, 2003.(9)
    
    Incorporated by reference from Registrants Current Report
    on
    Form 8-K
    filed June 25, 2003.(10)
    
    Incorporated by reference from Registrants Registration
    Statement of
    Form S-3
    (Reg.
    333-89184).(11)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated August 10, 2005.(12)
    
    Incorporated by reference from the Registrants Annual
    Report on Form
    10-K filed
    for the year ended December 31, 1994.(13)
    
    Incorporated by reference from the Registrants
    Registration Statement on
    Form S-8
    (Reg.
    No. 333-56606)
    filed March 6, 2001.(14)
    
    Incorporate by reference from Registrants Quarterly Report
    on Form 10-Q
    for the quarter ended March 29, 2003. 38




---



##### Table of Contents



(15)
    
    Incorporated by reference from Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended April 3, 2004.(16)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated March 29, 2005.(17)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated June 25, 2003.(18)
    
    Incorporated by reference from Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2003.(19)
    
    Incorporated by reference from Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended October 2, 2004.(20)
    
    Incorporated by reference from Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2004.(21)
    
    Incorporated by reference from Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2005(22)
    
    Incorporated by reference from Registrants
    Form 8-K
    dated July 27, 2006.(23)
    
    Incorporated by reference from Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended April 2, 2005.(24)
    
    Incorporated by reference from Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006.(25)
    
    Incorporated by reference from Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 29, 2007.(26)
    
    Incorporated by reference from Registrants Report on
    Form 8-K/A
    dated February 25, 2008.*
    
    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
 39




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm             Stonefield
    Josephson, Inc.
    F-1




---



##### Table of Contents



PricewaterhouseCoopers LLP
      F-2




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,


December 31,2006


2007ASSETSCurrent Assets:Cash and cash equivalents

$
5,487,000


$
3,939,000Accounts receivable, net


1,535,000



2,413,000Inventory, net


5,978,000



3,415,000Prepaid expenses and other current assets


507,000



442,000Total Current Assets


13,507,000



10,209,000Property and equipment, net of accumulated depreciation of
    $18,599,000 and $19,129,000, respectively


5,770,000



3,961,000Patents, licenses and purchased technology, net of accumulated
    amortization of $1,391,000 and $1,722,000, respectively


2,409,000



2,236,000Other assets


218,000



219,000Total Assets

$
21,904,000


$
16,625,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
1,725,000


$
1,467,000Accrued expenses


1,610,000



1,405,000Proceeds for shares to be issued






4,000,000Current portion of capitalized lease obligations and long term
    debt


14,000



45,000Total Current Liabilities


3,349,000



6,917,000Other long term liabilities


604,000



518,000Total Liabilities


3,953,000



7,435,000Commitments and contingencies (Notes 9, 10 and 11)Stockholders Equity:Preferred stock, $.001 par value, 2,000,000 shares
    authorized, none issued and outstanding






Common stock, $.001 par value, 250,000,000 shares
    authorized, 12,483,367 and 12,511,414 shares issued and
    outstanding, respectively


12,000



12,000Capital in excess of par value


208,825,000



209,163,000Notes receivable from stockholder and board member


(27,000
)


Accumulated deficit


(190,859,000
)


(199,985,000
)Total Stockholders Equity


17,951,000



9,190,000Total Liabilities and Stockholders Equity

$
21,904,000


$
16,625,000    F-3




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.



CONSOLIDATED
    STATEMENT OF OPERATIONS  For the Year Ended December 31,2005


2006


2007Net revenues:Net commercial product revenues

$
21,080,000


$
17,697,000


$
12,787,000Government and other contract revenues


3,107,000



3,361,000



5,115,000Sub license royalties


22,000



20,000



Total net revenues


24,209,000



21,078,000



17,902,000Costs and expenses:Cost of commercial product revenues


18,989,000



15,922,000



12,944,000Contract research and development


2,806,000



2,407,000



2,906,000Other research and development


4,214,000



3,488,000



3,172,000Selling, general and administrative


11,442,000



9,086,000



8,123,000Restructuring expenses and impairment charges


1,197,000



38,000



Write off Goodwill






20,107,000



Total costs and expenses


38,648,000



51,048,000



27,145,000Loss from operations


(14,439,000
)


(29,970,000
)


(9,243,000
)Interest income


342,000



391,000



156,000Interest expense


(116,000
)


(45,000
)


(39,000
)Net loss

$
(14,213,000
)

$
(29,624,000
)

$
(9,126,000
)Basic and diluted net loss per common share

$
(1.24
)

$
(2.37
)

$
(0.73
)Basic and diluted weighted average number of common shares
    outstanding


11,418,504



12,483,367



12,487,593    F-4




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.



CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY  Convertible








Capital in


ReceivablePreferred Stock


Common Stock


Excess of


From


AccumulatedShares


Amount


Shares


Amount


Par Value


Stockholder


Deficit


TotalBalance at December 31, 2004










10,771,103


$
11,000


$
197,080,000


$
(820,000
)

$
(147,022,000
)

$
49,249,000Exercise of stock options Issuance of common stock










1,712,329



1,000



11,440,000











11,441,000Issuance of options and warrants


















25,000











25,000Reserve for impairment






















755,000







755,000Net loss


























(14,213,000
)


(14,213,000
)Balance 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
)

$
9,190,000    F-5




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.



CONSOLIDATED
    STATEMENT OF CASH FLOWS  For the Year Ended December 312005


2006


2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(14,213,000
)

$
(29,624,000
)

$
(9,126,000
)Adjustments to reconcile net loss to net cash used for operating
    activities:Depreciation and amortization


3,225,000



2,600,000



2,333,000Warrants and options charges


25,000



280,000



339,000Provision for excess and obsolete inventories


984,000



360,000



160,000Forgiveness of note receivable from former CEO


150,000







Reserve for impairment of note and interest receivable from
    stockholder


924,000



38,000



(583,000
)Write off Goodwill






20,107,000



Gain on disposal of property and equipment


(138,000
)






Changes in assets and liabilities:Accounts receivable


(732,000
)


631,000



(877,000
)Inventory


2,979,000



(974,000
)


2,403,000Prepaid expenses and other current assets


112,000



115,000



574,000Patents and licenses


(154,000
)


(217,000
)


(169,000
)Other assets


(23,000
)


128,000



16,000Accounts payable and accrued expenses


(2,543,000
)


(727,000
)


(465,000
)Net cash used in operating activities


(9,404,000
)


(7,283,000
)


(5,395,000
)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from the sale of property and equipment


216,000







26,000Purchase of property and equipment


(261,000
)


(229,000
)


(191,000
)Net cash used in investing activities


(45,000
)


(229,000
)


(165,000
)CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from Shares to be issued










4,000,000Proceeds from short-term borrowings


662,000







Payments on short-term borrowings


(1,600,000
)






Payments on long-term obligations


(43,000
)


(19,000
)


(14,000
)Gross proceeds from sale of common stock and exercise of
    warrants and options


12,500,000







26,000Payment of common stock issuance costs


(1,854,000
)






Net cash provided by (used in) financing activities


9,665,000



(19,000
)


4,012,000Net increase (decrease) in cash and cash equivalents


216,000



(7,531,000
)


(1,548,000
)Cash and cash equivalents at beginning of year


12,802,000



13,018,000



5,487,000Cash and cash equivalents at end of year

$
13,018,000


$
5,487,000


$
3,939,000    F-6




---



##### 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
   F-7




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash
    and Cash Equivalents
    Accounts
    Receivable
    Revenue
    Recognition
        Gross
    versus Net Presentation
  06-03
  Shipping
    and Handling Fees and Costs
    Warranties
   F-8




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Guarantees
    Research
    and Development Costs
    Inventories
  first-in, and/or
  Property
    and Equipment
    Patents,
    Licenses and Purchased Technology
   F-9




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill
      Long-Lived
    Assets
    Restructuring
    Expenses
    Loss
    Contingencies
    Income
    Taxes
  Accounting for Income Taxes
  Accounting for Uncertainty in Income
    Taxes  An Interpretation of FASB Statement
    No. 109
 F-10




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Marketing
    Costs
    Net
    Loss Per Share
    Stock-based
    Compensation
      96-18.
 F-11




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Year EndedDecember 31,2005Net loss:As reported

$
(14,213,000
)Stock-based employee compensation included in net loss


Stock-based compensation expense determined under fair value
    method


(6,459,000
)Pro forma

$
(20,672,000
)Basic and diluted loss per shareAs reported

$
(1.24
)Stock-based compensation expense determined under fair value
    method


(0.57
)Pro forma

$
(1.81
)   Use of
    Estimates
    Fair
    Value of Financial Instruments
    Comprehensive
    Income
    Segment
    Information
   F-12




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reverse
    Stock Split
    Certain
    Risks and Uncertainties
          Recent
    Accounting Pronouncements
  FSP 157-2 (FSP 157-2). FSP 157-2
    No. 07-3, EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities EITF 07-3
 F-13




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 07-3 EITF 07-3
  EITF 06-11 (EITF 06-11). EITF 06-11 EITF 06-11 EITF 06-11
  FIN 48-1 FIN 48-1). FIN 48-1 FIN 48-1
    Note 3 
    Short
    Term Borrowings        Note 4 
    Retirement
    of Companys Chief Executive Officer   F-14




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5 
    Notes
    Receivable From Stockholder    Note 6 
    Income
    Taxes      For the Year Ending December 312005


2006


2007Tax benefit computed at Federal statutory rate


34.0
%


34.0
%


34.0
%Increase (decrease) in taxes due to:Change in valuation allowance


(39.8
)


(16.7
)


(39.8
)State taxes, net of federal benefit


5.8



5.8



5.8Impairment of Goodwill (not deductible for tax)






(23.1
)



%



%



%     For the Year EndedDecember 31,2006


2007Loss carryforwards

$
101,519,000


$
105,460,000Capitalized research and development


3,972,000



2,710,000Depreciation


2,430,000



2,582,000Tax credits


3,226,000



3,822,000Inventory


559,000



415,000Purchase accounting adjustments


93,000



46,000Acquired intellectual property


(286,000
)


(190,000
)Other


640,000



437,000Less: valuation allowance


(112,153,000
)


(115,282,000
)$



$
     ,
 F-15




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 7 
    Stockholders
    Equity  Preferred
    Stock
    Common
    Stock
      5-year
 F-16




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock
    Options
           F-17




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2006


2007Per share fair value at grant date

$
2.55


$
2.15Risk free interest rate


4.82
%


4.34
%Expected volatility


95
%


98
%Dividend yield


0
%


0
%Expected life in years


4.0



4.0      F-18




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedNumber


Averageof Shares


Exercise PriceOutstanding at December 31, 2004


946,725


$
55.21Granted


453,206



8.02Canceled


(197,555
)


37.18Exercised






Outstanding 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


$
34.24     Weighted





ExercisableAverage


Weighted





WeightedRange of

Number


Remaining


Average


Number


AverageExercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise Price$1.43    $5.90


102,800



8.62


$
3.28



35,367


$
3.85$6.10    $7.52


248,670



7.50


$
6.91



238,670


$
6.89$8.00   $10.40


97,615



4.96


$
9.66



96,364


$
9.68$10.80   $38.75


111,645



4.11


$
28.06



111,645


$
28.06$39.00  $493.75


181,128



2.67


$
106.40



181,128


$
106.40741,858



5.64


$
34.24



663,174


$
37.87        F-19




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Restricted
    Stock Awards
      Warrants
    Common SharesCurrently


Price perTotal


Exercisable


Share


Expiration DateWarrants and options related to issuance of common stock


342,466



342,466


$
7.08



August 16, 2010
* **116,279



116,279



29.00



June 24, 2008
*Warrants related to April 2004 Bridge Loans


10,000



10,000



18.50



April 28, 2011
*Total


468,745



468,745     *
    
    The terms of these warrants contain net exercise provisions,
    wherein instead of a cash exercise holders can elect to receive
    common stock equal to the difference between the exercise price
    and the average closing sale price for common shares over
    10-30 days
    immediately preceding the exercise date.**
    
    The terms of these warrants contain antidilution adjustment
    provisions related to issuances at certain prices.      Common Shares IssuedWarrants





In Accordance WithWarrants


Price per





Net ExerciseExercised


Share


For Cash


ProvisionsWarrants related to issuance of common stock


24,697


$
10.73







24,697   Note 8 
    Employee
    Savings Plan   F-20




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 9 
    Commitments
    and Contingencies  Operating
    Leases
      Capital
    Leases
    Patents
    and Licenses
      OperatingYear Ending December 31,

Licenses


Leases2008

$
150,000


$
1,425,0002009


150,000



1,474,0002010


150,000



1,525,0002011


150,000



1,436,0002012


150,000



9,000Thereafter


1,050,000



1,000Total payments

$
1,800,000


$
5,870,000   Note 10 
    Contractual
    Guarantees and Indemnities    Warranties
   F-21




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Intellectual
    Property Indemnities
    Director
    and Officer Indemnities and Contractual Guarantees
      General
    Contractual Indemnities/Products Liability
    Short
    Term Borrowings
  See
    Note 3)
  Contractual
    Contingency
   F-22




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 11 
    Legal Proceedings
  Settlement
    of Shalvoy Litigation
        Routine
    Litigation
    Note 12 
    Earnings
    Per Share    Note 13 
    Restructuring
    Expenses and Impairment Charges     F-23




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31,Restructuring


Impairment





Restructuring


Impairment





Restructuring


ImpairmentCharges for


Charges for


Total for


Charges for


Charges for


Total for


Charges for


Charges for


Total for2005


2005


2005


2006


2006


2006


2007


2007


2007Severance costs

$
178,000


$



$
178,000


$



$



$



$



$



$
Fixed assets write-offs


137,000







137,000























Patent, licenses and purchased technology write-off


































Lease abandonment costs


































Facility consolidation costs


6,000







6,000























Employee relocation costs


16,000







16,000























Goodwill write-off


















20,107,000



20,107,000











Impairment charge for notes receivable from shareholder and
    board member






969,000



969,000







38,000



38,000











Total


337,000



969,000



1,306,000







20,145,000



20,145,000











Fixed assets write-off and severance costs included in cost of
    goods sold


109,000







109,000























Expense included in operating expenses

$
228,000


$
969,000


$
1,197,000


$



$
20,145,000


$
20,145,000


$



$



$
   Note 14 
    Details
    of Certain Financial Statement Components and Supplemental
    Disclosures of Cash Flow Information and Non-Cash
    Activities  Balance
    Sheet Data:
  December 31,


December 31,2006


2007Accounts receivable:Accounts receivable-trade

$
1,117,000


$
1,242,000U.S. government accounts receivable-billed


493,000



1,246,000Less: allowance for doubtful accounts


(75,000
)


(75,000
)$
1,535,000


$
2,413,000   December 31,


December 31,2006


2007Inventories:Raw materials

$
2,242,000


$
1,934,000Work-in-process


569,000



679,000Finished goods


4,534,000



1,817,000Less: inventory reserves


(1,367,000
)


(1,015,000
)$
5,978,000


$
3,415,000   F-24




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,


December 31,2006


2007Property and Equipment:Equipment

$
17,186,000


$
15,951,000Leasehold improvements


6,732,000



6,732,000Furniture and fixtures


451,000



407,00024,369,000



23,090,000Less: accumulated depreciation and amortization


(18,599,000
)


(19,129,000
)$
5,770,000


$
3,961,000     December 31,


December 31,2006


2007Patents and Licenses:Patents pending

$
632,000


$
705,000Patents issued


899,000



983,000Less accumulated amortization


(286,000
)


(345,000
)Net patents issued


613,000



638,000Licenses


563,000



563,000Less accumulated amortization


(100,000
)


(134,000
)Net licenses


463,000



429,000Purchased technology


1,706,000



1,706,000Less accumulated amortization


(1,005,000
)


(1,242,000
)Net purchased technology


701,000



464,000$
2,409,000


$
2,236,000     F-25




---



##### Table of Contents



SUPERCONDUCTOR
    TECHNOLOGIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,


December 31,2006


2007Accrued Expenses and Other Long Term Liabilities:Salaries payable

$
287,000



307,000Compensated absences


379,000



371,000Compensation related


299,000



369,000Warranty reserve


428,000



380,000Lease abandonment costs


8,000



Product line exit costs


319,000



Deferred rent


390,000



373,000Other


104,000



123,0002,214,000



1,923,000Less current portion


(1,610,000
)


(1,405,000
)Long term portion

$
604,000


$
518,000   For the Year EndedDecember 31,


December 31,


December 31,2005


2006


2007Warranty Reserve Activity:Beginning balance

$
419,000


$
491,000


$
428,000Additions


204,000



140,000



75,000Deductions


(273,000
)


(203,000
)


(123,000
)Change in estimate relating to previous warranty accruals


141,000







Ending balance

$
491,000


$
428,000


$
380,000Lease Abandonment Costs:Beginning balance

$
1,336,000


$
225,000


$
8,000Additions










Transfers from unfavorable lease costs










Deductions


(1,111,000
)


(217,000
)


(8,000
)Ending balance

$
225,000


$
8,000


$
Product Line Exit Costs:Beginning balance

$
885,000


$
402,000


$
319,000Additions










Deductions


(483,000
)


(83,000
)


(319,000
)Change in estimate relating to previous exit costs accrual










Ending balance

$
402,000


$
319,000


$
 F-26




---



##### Table of Contents



For the Year EndedDecember 31,


December 31,


December 31,2005


2006


2007Severance Costs:Beginning balance

$
36,000


$
32,000Additions


218,000



Deductions


(222,000
)


(32,000
)Ending balance

$
32,000


$



$
   Dec. 31,


Dec. 31,


Dec. 31,2005


2006


2007Supplemental Cash Flow Information:Cash paid for interest

$
116,000


$
45,000


$
39,000Cash paid for taxes

$
(5,190
)

$
15,592


$
183,249   Note 15 
    Subsequent
    Event  Unregistered
    Sales of Equity Securities
       F-27




---



##### Table of Contents



Quarterly
    Financial Data (Unaudited)
  First Quarter


Second Quarter


Third Quarter


Fourth Quarter2007Net revenues(1)

$
4,183,000


$
4,685,000


$
4,120,000


$
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
)


(2,020,000
)


(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



12,500,1342006Net revenues(1)

$
4,840,000


$
5,021,000


$
5,910,000


$
5,307,000Loss from operations(4)(5)


(3,340,000
)


(22,755,000
)


(2,164,000
)


(1,712,000
)Net loss


(3,226,000
)


(22,659,000
)


(2,092,000
)


(1,647,000
)Basic and diluted loss per common share

$
(0.26
)

$
(1.81
)

$
(0.17
)

$
(0.13
)Weighted average number of shares outstanding


12,483,367



12,483,367



12,483,367



12,483,367     (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)
    
    Includes sale of previously written-off inventory of none,
    $138,000, $57,000 and none, respectively.(3)
    
    Includes increased reserve for inventory obsolescence of
    $90,000, $70,000, none and none, respectively.(4)
    
    Includes increased reserve for inventory obsolescence of
    $90,000, $90,000, $90,000 and $90,000, respectively.(5)
    
    Includes sale of previously written-off inventory of $119,000,
    $273,000, $309,000 and none, respectively. F-28




---



##### 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


BalanceYear Ended December 31, 2007Allowance 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











115,282,000Year Ended December 31, 2006Allowance 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











112,153,000Year Ended December 31, 2005Allowance for Uncollectible Accounts


77,000











(2,000
)


75,000Impairment for Notes Receivable from Stockholder






969,000











969,000Reserve for Inventory Obsolescence


5,402,000



984,000







(3,177,000
)


3,209,000Reserve for Warranty


419,000



204,000







(132,000
)


491,000Deferred Tax Asset Valuation Allowance

$
106,589,000


$
(290,000
)

$



$



$
106,299,000  F-29




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Jeffrey
    A. Quiram     POWER OF
    ATTORNEY
  Form 10-K,
  Form 10-K
  Signature

Title

Date/s/  Jeffrey
    A. QuiramJeffrey
    A. Quiram

President, Chief Executive Officer and Director (Principal
    Executive Officer)

March 27, 2008/s/  William
    J. BuchananWilliam
    J. Buchanan

Controller (Principal Accounting Officer) (Principal Financial
    Officer)

March 27, 2008/s/  David
    W. VellequetteDavid
    W. Vellequette

Director

March 27, 2008/s/  Lynn
    J. DavisLynn
    J. Davis

Director

March 27, 2008/s/  Dennis
    J. HorowitzDennis
    J. Horowitz

Director

March 27, 2008/s/  Martin
    A. KaplanMartin
    A. Kaplan

Director

March 27, 2008/s/  John
    D. LocktonJohn
    D. Lockton

Chairman of the Board

March 27, 2008  F-30