United States
Securities and Exchange Commission
Washington, DC 20549 FORM 10–Q
(Mark One) x
  Quarterly report pursuant to Section 13 or
  15(d) of the Securities Exchange Act of 1934 for the three month period ended
  March 31, 2001 oro
  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 
#0–11915 Conductus, Inc.(Exact name of registrant as specified in its charter)Delaware
  77–0162388(State
  or other jurisdiction of Incorporation or organization)
  (I.R.S. Employer Identification No.)969 W. Maude Ave., Sunnyvale,
  California
  94085(Address
  of principal executive offices)
  (Zip Code)(408) 523–9950(Registrant's Telephone Number, including
  area code)Not Applicable(Former name, former address and former
  fiscal year, if changed since last report) Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days YesxNoo APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the
number of shares outstanding of each of the issuer's classes of Common Stock,
as of the latest practicable date. Common shares
outstanding at April 30, 2001: 16,111,917 Total pages: 
Index to Exhibits to be found on page   Conductus, Inc
Index



Part I: Financial
  InformationItem 1: Financial
  StatementsCondensed Balance Sheets
   March 31, 2001 (unaudited) and December 31, 2000Unaudited Condensed
  Statements of Operations  Three months ended March 31, 2001 and 2000Unaudited Condensed
  Statements of Cash FlowsNotes To
  Condensed Financial Statements (Unaudited)Item
  2: Management's Discussion and Analysis of Financial Condition and  Results of OperationsItem
  3: Quantitative and Qualitative Disclosures About Market RiskPart II: Other InformationItem 1:
  Legal ProceedingsItem
  2: Changes in SecuritiesItem
  3: Default Upon Senior SecuritiesItem
  4: Submission of Matters to a Vote of Security HoldersItem 5:
  Other InformationItem
  6: Exhibits and Reports on Form 8-KSIGNATURESPart I: 
Financial InformationItem I: 
Financial Statements



Conductus, Inc.

Condensed Balance Sheets



(in thousands)

March 31, 2001
  December 31, 2000(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
  $8,773
  $7,202Short-term investments
  1,600
  7,965Accounts receivable, net
  985
  563Inventories
  5,025
  3,273Prepaid expenses and other current assets
  432
  341Total current assets
  16,815
  19,344Property and equipment, net
  2,707
  2,135Restricted cash
  514
  514Other assets
  371
  390Total assets
  $20,407
  $22,383LIABILITIESCurrent liabilities:Current portion of long-term debt
  $547
  $597Accounts payable
  3,192
  1,477Other accrued liabilities
  1,978
  1,523Total current liabilities
  5,717
  3,597Long-term debt, net of current portion
  334
  Total liabilities
  6,051
  3,597STOCKHOLDERS EQUITYCommon stock
  2
  2Additional paid-in capital
  91,228
  91,161Receivable from stockholder
  (460)
  (460)Accumulated deficit
  (76,414)
  (71,917)Total stockholders equity
  14,356
  18,786Total liabilities, redeemable equity and stockholders equity
  $20,407
  $22,383The accompanying notes are an integral part of
these condensed financial statements.


Conductus, Inc. Condensed Statements Of Operations (In thousands except per share
amounts)
(Unaudited) Three Months Ended March 31,2001
  2000Revenues:Product
  $542
  $88Contract
  730
  251Total revenues
  1,272
  339Costs and expenses:Cost of product sales
  2,034
  701Research and development
  2,261
  1,081Selling, general and administrative
  1,662
  1,210Total costs and expense
  5,957
  2,992Loss from operations
  (4,685)
  (2,653)Interest and other income
  229
  358Interest expense
  (41)
  (63)Net loss
  (4,497)
  (2,358)Dividend accretion and deemed dividend on preferred stock
  
  (3,015)Net loss attributable to common stockholders
  $(4,497)
  $(5,373)Net loss per share:Basic and diluted
  $(0.28)
  $(0.56)Shares used in per share calculations:Basic and diluted
  16,087
  9,535 The accompanying notes are an integral part of
these condensed financial statements. CONDUCTUS, INC.

Condensed Statements of Cash Flows

(in
thousands)

(unaudited)

Three
  Months Ended March 31,2001
  2000Cash
  flows from operating activities:Net loss
  $(4,497)
  $(2,358)Adjustments to reconcile net loss to
  net cash used in operating activities:Depreciation and amortization
  188
  187Amortization of discount on long
  term debt
  10
  10Gain on disposal of equipment
  (20)
  Non-cash charge for warrants
  vesting upon commercial product sales
  40
  Changes
  in operating assets and liabilities:Accounts receivable
  (422)
  535Inventories
  (1,752)
  (314)Prepaid expenses and other current assets
  (91)
  210Other assets
  11
  Accounts payable and other accrued
  liabilities
  2,170
  264Net cash used in operating
  activities
  (4,363)
  (1,466)Cash
  flows from investing activities:Maturities of short-term investments
  6,365
  2,142Purchases of short-term investments
  
  (21)Acquisition of property and equipment
  (238)
  (200)Net proceeds from disposal of property
  and equipment
  20
  Net cash provided by investing
  activities
  6,147
  1,921Cash
  flows from financing activities:Net proceeds from issuance of common
  stock
  27
  14,493Principal payments on long-term debt
  (240)
  (187)Net cash provided by (used in)
  financing activities
  (213)
  14,306Net increase in cash and cash
  equivalents
  1,571
  14,761Cash
  and cash equivalents at beginning of period
  7,202
  11,957Cash
  and cash equivalents at end of period
  $8,773
  $26,718The accompanying notes are an integral part of
these condensed financial statements.

Conductus, Inc.

Notes To Condensed Financial Statements(Unaudited)

1.          Summary of
Significant Accounting Policies:

UNAUDITED INTERIM FINANCIAL INFORMATION:

The accompanying unaudited interim
financial statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Report on Form 10-K for the year ended December 31, 2000, and filed
with the Securities and Exchange Commission. The unaudited financial statements
as of March 31, 2001, and for the three months ended March 31, 2001 and 2000,
include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial information
set forth herein. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for an entire year. The
December 31, 2000, balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.

RECENT PRONOUNCEMENTS:

In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities.  SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes and amends
a number of existing accounting standards. 
SFAS No. 133 requires that all derivatives be recognized in the
balance sheet at their fair market value and the corresponding derivative gains
or losses be either reported in the statement of operations or as a deferred
item, depending on the type of hedge relationship that exists with respect to
such derivatives.  In July 1999,
the FASB issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging ActivitiesDeferral of the Effective
Date of FASB Statement No. 133.  SFAS No. 137 deferred the effective date until the year
beginning after June 30, 2000.  In
June 2000, the FASB issued SFAS No. 138, Accounting
for Derivative Instruments and Hedging ActivitiesAn Amendment of FASB
Statement No. 133.  SFAS
No. 138 amends the accounting and reporting standards for certain
derivatives and hedging activities such as net settlement contracts, foreign
currency transactions and intercompany derivatives.  Conductus has adopted SFAS No. 133 in its quarter ended March 31,
2001, which did not have a material impact on the financial statements.

2.          Supplemental
Schedule of Non-Cash Investing and Financing Activities:

Three Months Ended March 31,2001
  2000Conversion of preferred shares to common stock
  
  5,736Conversion of preferred dividend to common
  stock
  
  516Dividend accretion and deemed dividend on
  preferred stock
  
  3,015Equipment acquired under capital lease
  514
  3.          Basic and
Diluted Net Loss Per Share:

A reconciliation of the numerator
and denominator of the basic and diluted loss per share is provided as follows
(in thousands except per share data):

Three Months Ended March 31,2001
  2000Numerator - basic and diluted net loss per
  share:Net loss attributable to common stockholders
  $(4,497)
  $(5,373)Denominator  basic and diluted net lossWeighted average common shares outstanding
  16,087
  9,535Net loss per share:Basic and diluted
  $(0.28)
  $(0.56)In the above computations,
potentially dilutive common equivalent shares are excluded from the diluted
loss per share as their effect is anti-dilutive. Common equivalent shares
including common stock options, warrants and convertible preferred stock that
could potentially dilute basic earnings per share in the future and that were
not included in the computations of diluted loss per share because of
anti-dilution were approximately 1,133,000 and 7,741,000 for the three months
ended March 31, 2001 and 2000, respectively.

5.          Inventories:

Inventories consist of the
following (in thousands):

March 31 2001
  December 31, 2000Raw
  materials
  $3,655
  $2,156Work
  in process
  887
  640Finished
  goods
  483
  477Total
  $5,025
  $3,273

Item 2: Management's
Discussion and Analysis of Financial Condition and  Results of Operations.

THIS REPORT ON FORM 10-Q CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. CONDUCTUS,
INC.'S (THE "COMPANY" OR "CONDUCTUS") ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "RISK FACTORS" IN PART 1 OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000. THE FOLLOWING
DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT ON FORM 10-Q.

Overview

We develop, manufacture and market
electronic components and systems based on superconductors for applications in
the worldwide telecommunications markets. As of March 31, 2001, we had
accumulated losses of approximately $76,414,000 and we expect to incur
significant additional losses during the remainder of 2001. We, alone or with
collaborative partners, must successfully develop, manufacture, introduce and
market our potential products in order to achieve profitability. We do not
expect to recognize meaningful product sales until we successfully develop and
commercialize superconductive components, systems and subsystems that address
significant market needs.

Results of Operations for the Three Months Ended March 31,
2001 and 2000

Total revenues consist of contract
and product revenues. Our total revenues increased by 275% to $1,272,000 for
the quarter ended March 31, 2001, from $339,000 in the comparable period of
2000. The increase in total revenues from the prior year is primarily due to
increases in both product and contract revenues.  Product revenues increased by 516% to $542,000, compared to
product revenues of $88,000 for the comparable period of 2000, and contract
revenues increased by 191% to $730,000, compared to contract revenues of
$251,000 for the first quarter of 2000. 
The increase in product revenues is primarily due to increased unit shipments
during the comparison periods.  Product
revenues for the quarter ended March 31, 2001, were offset by non-cash
sales discounts in the amount of $40,000 related to the fair market value of
15,760 warrants, which vested during the first quarter, 2001.  The increase in contract revenues is due to
increases related to the new contracts, which started in late 2000 and early
2001.

Cost of product sales was primarily
composed of costs of products related to our wireless telecommunications
products. Cost of product sales was $2,034,000 for the period ended March 31,
2001, compared to $701,000 for the comparable period of 2000.  This increase in cost and corresponding
decrease in gross margin is primarily attributable to an increase in expenses
relating to continued development of the Company's manufacturing infrastructure
to meet future demand, and to a lesser extent to a write off of obsolete
inventory.

Research and development expenses
include both externally and internally funded projects. Research and
development expenses were $2,261,000 in the quarter ended March 31, 2001,
compared to $1,081,000 in the comparable period of the prior year. Research and
development, as a percentage of revenue, represented 178% and 319% in the
quarters ended March 31, 2001 and 2000, respectively. The increase in research
and development expenses was primarily attributable to an increase in personnel
related spending due to increased head count, increased spending on internally
funded projects related to new product development and an increase in spending
on externally funded research and development contracts. We expect to continue
to incur significant research and development expenses on internally funded
programs as we seek to develop additional commercial products and, as a result,
anticipate increases in research and development expenses compared to the prior
year.

Selling, general and administrative
expenses include costs associated with marketing, sales, and various
administrative activities. Selling, general and administrative expenses were
$1,662,000 and $1,210,000 in the quarters ended March 31, 2001 and 2000,
respectively. The increase in spending was primarily due to increases in sales,
marketing and administrative headcount, recruiting costs, travel and tradeshow
expenses compared to the prior year. We expect sales and marketing expenses to
continue to increase during 2001 to the extent we increase sales of commercial
products.

Interest expense was $41,000 and $63,000
for the periods ended March 31, 2001 and 2000, respectively. Interest charges
related primarily to our loan from a leasing company as well as our bank term
loan. The decrease in interest expense was primarily the result of lower
average debt levels during the comparison periods.

Interest and other income were
$229,000 and $358,000 for the periods ended March 31, 2001 and 2000,
respectively. The decrease in interest income was primarily the result of lower
average cash balances in 2001 compared to 2000.

We do not believe that inflation
has had a material effect on our financial condition or results of operations
during the past two fiscal years. However, we cannot assure you that our
business will not be affected by inflation in the future.

Liquidity and Capital Resources

As of March 31, 2001, our
aggregate cash, cash equivalents and short-term investments, excluding $514,000
of restricted cash, totaled $10,373,000, compared to $15,167,000 as of
December 31, 2000.  Additionally,
we have entered into a bank line of credit facility and equipment lease
line.  The bank line of credit is
subject to renewal in 2001 and the equipment lease line expires in 2001.  We may borrow up to a maximum of $2,000,000
under the bank line of credit based on a limitation of 80% of certain eligible
receivables and we may purchase up to $2,000,000 in capital equipment under the
equipment line.  As of March 31,
2001, we have used $267,000 under the equipment line of credit of which
$257,000 is still outstanding.

Net cash used in operations was
$4,363,000 during the quarter ended March 31, 2001. Net cash used in operations
was primarily the result of the net loss of $4,497,000, an increase in accounts
receivable and inventories of $422,000 and $1,752,000, respectively.  Net cash from operations was partially
offset by the effect of non-cash charges of $218,000 and an increase in
accounts payable of  $2,170,000 during
the quarter. We anticipate that we will incur significant additional net losses
during 2001 and anticipate that our accounts receivable and inventories may
increase during 2001. As a result, we anticipate the use of additional cash in
operating activities during the remainder of 2001.  We have purchased inventory during the quarter to support our
projected sales during 2001 and to secure volume discounts.  The increase in accounts payable is
principally a result of inventory purchases. 
Should actual sales for 2001 be less than our projections, the carrying
value of inventory may be adversely affected.

Net cash provided by investing
activities was $6,147,000 during the quarter ended March 31, 2001. The balance
was primarily related to the proceeds from sales of short-term investments
during the quarter partially offset by investments in additional property and
equipment of $238,000. We anticipate significant spending on capital
expenditures during the remainder of 2001.

Net cash used in financing
activities was $213,000 during the quarter ended March 31, 2001, and was
primarily the result of principal payments on long-term debt.

All of our credit arrangements
contain reporting and financial covenants that we are required to satisfy. We
cannot assure you that we will satisfy all such covenants in the future. We
cannot assure you that if we default on any of the covenants, we could obtain a
waiver of the default from the lender. In the event of default on any of these
covenants, no further amounts would be advanced to us under any facility, the
entire amounts outstanding could become due and payable immediately upon
default, and those assets that are collateral could be seized, unless such
default is waived by the lender.

To date we have received limited revenues
from product sales. The continued development of our products will require a
commitment of substantial funds to conduct further research and development and
testing, to establish commercial-scale manufacturing and to market these
products. We expect to use significant amounts of cash for capital equipment
and to support operations until product revenues increase. Our future capital
requirements will depend on many factors, including:

 continued progress in our
research and development programs,

 the magnitude of these programs,

 the time and cost involved in
obtaining any required regulatory approvals,

 the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patents,

 successful completion of
technological, manufacturing and market requirements,

 changes in existing research
relationships,

 the availability of funding under
government contracts,

 our ability to establish
collaborative arrangements, and

 the cost of manufacturing
scale-up and the amount and timing of future revenues.

We anticipate that existing sources
of liquidity and anticipated revenue, primarily from government contracts will
satisfy our projected working capital and other cash requirements through the
fiscal year 2001. However, there can be no assurance that changes in our plans
or other events affecting Conductus will not result in the expenditure of our
resources before then.

Item 3: Quantitative and Qualitative Disclosures About
Market Risk

Conductus general policy is to
limit the risk of principal loss and ensure the safety of invested funds by
limiting market and credit risk.  Our
exposure to financial market risks relates primarily to our exposure to the
impact of changes in interest rates on our fixed income investment portfolio
and long-term debt obligations.

Fixed Income Investments

The primary objective of our
investment activities is to preserve our principal while maximizing yields
without significantly increasing risk. 
To achieve this objective, we maintain a portfolio that consists
primarily of short-term, high-quality commercial paper and foreign debt.  All of our fixed income investments have
maturities of less than one year. 
Hence, our exposure related to changes in interest rates is somewhat
limited due to the short-term nature of our portfolio.  We do not use derivative financial
instruments in our investment portfolio.

Debt Obligations

Conductus outstanding debt
consists of term loan obligations that are primarily based on fixed rates.  Therefore, our exposure to changes in
interest rates is limited because any increase or decrease in interest rates
would not significantly increase or decrease interest expense on our debt
obligations.

Part II:  Other
  InformationItem 1:

  Legal ProceedingsNot Applicable.Item 2:

  Changes in SecuritiesNot Applicable.Item 3:

  Default Upon Senior SecuritiesNot Applicable
  .Item 4:

  Submission of Matters to a Vote of Security HoldersNot Applicable.Item 5:

  Other InformationNot Applicable.





Item 6:

  Exhibits and Reports
  on Form 8-K(A) ExhibitsNone(B) Reports on Form 8-K.The Company filed no reports on Form 8-K
  during the quarter for which this report is filed.SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

CONDUCTUS,
  INC.RegistrantDated: 
  May 11, 2001
  /s/ Ron
  WilderinkRon WilderinkVice President
  of Finance
  Chief Financial Officer
  and Secretary/s/ Charles
  E. ShalvoyCharles E.
  ShalvoyPresident and
  Chief Executive Officer 
  and Duly Authorized Officer