<PAGE>

                                   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, 1998 OR

/ /  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             (I.R.S. Employer Identification No.)
of Incorporation or organization)

969 W. Maude Ave., Sunnyvale, California                94086
--------------------------------------------------------------------------------
(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 Yes  X   No 
                                      ---     ---

                       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 May 4, 1998: 7,076,814

                                       Total pages: 17
                                       Index to Exhibits to be found on page 17

<PAGE>

                                CONDUCTUS, INC.
                                    Index

<TABLE>
<CAPTION>

<S>      <C>                                                                  <C>
PART I : FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 3
         ITEM 1 : FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 3

          Condensed Balance Sheets at March 31, 1998 and December 31, 1997 . . 3
          Condensed Statements of Operations for the Three Months 
             Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 4
          Condensed Statements of Cash Flows for the Three Months 
             Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 5
          Notes to Condensed Financial Statements. . . . . . . . . . . . . . . 6
          
          ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
          CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . .10

          ITEM 3 : QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14


Part II : OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .15
         ITEM 1 : LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . .15
         ITEM 2 : CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . .15
         ITEM 3 : DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . .15
         ITEM 4 : SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . .15
         ITEM 5 : OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . .15
         ITEM 6 : EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . .15
</TABLE>


                                        2
<PAGE>

PART I: FINANCIAL INFORMATION
Item 1: Financial Statements

                                  CONDUCTUS, INC. 
                              CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  March 31,     December 31,
                                                    1998            1997
                                                    ----            ----
                                                (UNAUDITED)
<S>                                             <C>             <C>
ASSETS

     Current assets:

     Cash and cash equivalents                      $691,646     $2,111,560
     Restricted cash                                 500,000        500,000
     Short-term investments                                -        556,633
     Accounts receivable, net                      1,492,269      2,055,255
     Inventories, net                                873,053        610,367
     Prepaid and other assets                        114,774        139,479
                                                     -------        -------
Total current assets                               3,671,742      5,973,294
                                                   ---------      ---------


     Property, plant and equipment, net            2,686,241      2,700,594
     Other assets                                     82,266         87,762
                                                      ------         ------
     Total assets                                 $6,440,249     $8,761,650
                                                  ----------     ----------
                                                  ----------     ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Current portion of long-term debt            $1,330,377     $1,547,507
     Accounts payable                              2,335,441      1,539,590
     Other accrued liabilities                       899,414      1,063,721
                                                     -------      ---------
Total current liabilities                          4,565,232      4,150,818

     Long-term debt, net of current portion          191,385        309,681
                                                     -------        -------

Total liabilities                                  4,756,617      4,460,499
                                                   ---------      ---------
Stockholders' equity:

     Common stock                                        718            702
     Additional paid-in capital                   41,087,305     41,070,636
     Accumulated deficit                         (39,404,391)   (36,770,187)
                                                 ------------   ------------
     Total stockholders' equity                    1,683,632      4,301,151
                                                   ---------     ----------
     Total liabilities and stockholders' equity   $6,440,249     $8,761,650
                                                  ----------     ----------
                                                  ----------     ----------
</TABLE>

                              See accompanying notes.

                                        3
<PAGE>

                               CONDUCTUS, INC. 
                      CONDENSED STATEMENTS OF OPERATIONS 
                                (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                         March 31,
                                                   1998           1997
                                                   ----           ----
 
<S>                                              <C>            <C>
Revenues:

     Contract                                       $863,614     $2,272,586

     Product                                         264,078        867,044
                                                     -------        -------
          Total revenues                           1,127,692      3,139,630
                                                   ---------      ---------

Operating expenses:

     Cost of product                                 338,817        435,073

     Research and development                      2,298,252      2,977,954

     Selling, general & adminstrative              1,097,803      1,125,359
                                                   ---------      ---------
          Total operating expenses                 3,734,872      4,538,386
                                                   ---------      ---------
     Loss from operations                         (2,607,180)    (1,398,756)


Interest income                                       28,599         96,715
Other income (expense)                                     -         (4,079)
Interest expense                                     (55,623)       (56,936)
                                                     --------       --------

     Net loss                                    $(2,634,204)   $(1,363,056)
                                                 ------------   ------------
                                                 ------------   -------------

Net loss per basic and diluted common
share                                                 $(0.38)        $(0.20)
                                                      -------        -------
                                                      -------        -------
Shares used in computing per share 
amounts                                            7,014,625      6,841,000
                                                   ----------     ----------
                                                   ----------     ----------

</TABLE>

                               See accompanying notes.


                                        4
<PAGE>

                                  CONDUCTUS, INC. 
                        CONDENSED STATEMENTS OF CASH FLOWS 
                                    (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             Three months ended
                                                                         --------------------------
                                                                          March 31,        March 31,
                                                                            1998             1997
                                                                            ----             ----
<S>                                                                       <C>            <C>         
Cash flows from operating activities:

     Net loss                                                             $(2,634,204)   $(1,363,056)

Adjustments to reconcile net loss to net cash used in 
operating activities:

     Depreciation and amortization                                            195,999        225,796
     Provision for excess and obsolete inventory                              109,895

(Increase) decrease in:

     Accounts receivable                                                      562,986        947,772
     Inventories                                                             (372,581)      (219,008)
     Prepaid expenses, other current assets, and other assets                  30,201       (115,020)

Increase (decrease) in:

     Accounts payable and other accrued liabilities                           631,544        (13,787)
                                                                              -------        --------
Net cash used in operating activities                                      (1,476,160)      (537,303)
                                                                           -----------      ---------


Cash flows from investing activities:

     Proceeds from sales of short-term investments                            556,633     11,599,336
     Purchases of short-term investments                                            -    (10,684,069)
     Acquisition of property and equipment                                   (181,646)      (252,216)
                                                                             ---------      ---------
Net cash provided by investing activities                                     374,987        663,051
                                                                              -------        -------

Cash flows from financing activities:

     Proceeds from borrowings                                                       -        207,573
     Net proceeds from issuance of common stock                                16,685        151,787
     Principal payments on long-term debt                                    (335,426)      (271,631)
                                                                             ---------      ---------
Net cash provided by (used in) financing activities                          (318,741)        87,729
                                                                             ---------        -------

Net increase (decrease) in cash and cash equivalents                       (1,419,914)       213,477

Cash and cash equivalents at beginning of period                            2,611,560      1,119,991
                                                                            ---------      ---------

Cash and cash equivalents at end of period                                 $1,191,646     $1,333,468
                                                                           -----------    -----------
                                                                           -----------    -----------

</TABLE>

                               See accompanying notes.


                                        5
<PAGE>

                                   CONDUCTUS, INC.
                           NOTES TO 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 generally accepted 
accounting principles have been condensed or omitted pursuant to such rules 
and regulations. The unaudited financial statements as of March 31, 1998 and 
for the three months ended March 31, 1998 and 1997 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, 1997 
balance sheet was derived from audited financial statements, but does not 
include all disclosures required by generally accepted accounting principles.

     CASH, CASH EQUIVALENTS, AND INVESTMENTS:

          At March 31, 1998, all of Conductus, Inc.'s (the Company or 
Conductus) highly liquid investments had original maturities of less than 
ninety days, and accordingly are considered cash equivalents.

     INVENTORIES:

          Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.  Appropriate consideration is given to obsolescence,
excessive levels and other factors in evaluating net realizable value. 

     BASIC AND DILUTED LOSS PER SHARE:

          In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share", a
reconciliation of the numerator and denominator of the basic and diluted EPS is
provided as follows:       


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                              Three months ended March 31,
-----------------------------------------------------------------------------
                                                  1998           1997
<S>                                               <C>            <C>
-----------------------------------------------------------------------------
Numerator - basic and diluted EPS:

-----------------------------------------------------------------------------
     Net loss                                     $(2,634,204)   $(1,363,056)

-----------------------------------------------------------------------------
Denominator - basic and diluted EPS:

-----------------------------------------------------------------------------
     Common Stock outstanding                      7,014,625      6,841,000

-----------------------------------------------------------------------------
Basic loss per share                                  $(0.38)        $(0.20)
                                                      -------        -------
                                                      -------        -------

-----------------------------------------------------------------------------
Diluted loss per share                                $(0.38)        $(0.20)
                                                      -------        -------
                                                      -------        -------
-----------------------------------------------------------------------------

</TABLE>


                                        6
<PAGE>

In the above computations, common equivalent shares are excluded from the 
basic and diluted loss per share as their effect is anti-dilutive.  Common 
equivalent shares 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 126,000 and 416,000 for the 
quarters ended March 31, 1998 and 1997 respectively.   

     RECENT PRONOUNCEMENTS:

     COMPREHENSIVE INCOME

          The Company has adopted the provisions of Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income," effective 
January 1, 1998. This statement requires the disclosure of comprehensive 
income and its components in a full set of general-purpose financial 
statements. Comprehensive income is defined as net income plus revenues, 
expenses, gains and losses that, under generally accepted accounting 
principles, are excluded from net loss. The component of comprehensive 
loss, which is excluded from net loss, is not significant and therefore, 
no separate statement of comprehensive income has been presented.

     SEGMENT REPORTING

          In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 131, "Disclosure about 
Segments of an Enterprise and Related Information" ("SFAS 131"), which 
supersedes Statement of Financial Accounting Standards No. 14, "Financial 
Reporting for Segments of a Business Enterprise" ("SFAS 14"). SFAS 131 
changes current practice under SFAS 14 by establishing a new framework on 
which to base segment reporting and also requires interim reporting of 
segment information. This statement is effective for fiscal years beginning 
after December 15, 1997. The statement's interim reporting disclosures are 
not required until the first quarter immediately subsequent to the fiscal 
year in which SFAS 131 is effective.

<TABLE>
<CAPTION>

2. ACCOUNTS RECEIVABLE :

Accounts receivable, net, consist of the following:

                                              March 31, 1998      December 31, 1997
                                              ---------------     -----------------
<S>                                           <C>                 <C>
U. S. government contracts:

        Unbilled                                    $878,584         $1,146,283

        Billed                                       796,194            793,382

Commercial                                            64,689            363,822

Reserves                                            (247,198)          (248,232)
                                                    ---------          ---------

                                                  $1,492,269         $2,055,255
                                                  ----------         -----------
                                                  ----------         -----------

3.  INVENTORIES:

Inventories, net, consist of the following:

                                              March 31, 1998      December 31, 1997
                                              --------------      -----------------
Raw materials and purchased parts             $ 634,326           $ 293,336
Work in process                                 295,683             366,550


                                        7
<PAGE>

Finished goods                                  333,784             231,326
Reserves                                       (390,740)           (280,845)
                                               ---------         -----------
                                             $ 873,053           $ 610,367
                                             ---------           --------
                                             ---------           --------

</TABLE>

4.   LONG TERM DEBT:

          At March 31, 1998, the Company's credit facilities consisted of a bank
line of credit and three equipment term loans.  The bank line of credit
agreement provides for borrowings of up to the lesser of $2,000,000 or 80% of
eligible receivables.  Borrowings under this facility bear interest at the
bank's prime rate plus 2.0% and are collateralized by  a $500,000 certificate of
deposit, accounts receivable, equipment and other assets of the Company.  At
March 31, there was $ 500,000 outstanding under this facility.

          The three equipment term loans bear interest at the bank's prime 
rate plus 2%, with principal and interest payments paid monthly, and are 
collateralized by the related equipment. After July 28, 1998, these loans 
must be collateralized by certificates of deposit or other restricted cash 
accounts. At March 31, 1998, there was $1,022,000 outstanding under these 
loans, and no further amounts were available.  

     All the credit facilities contain reporting and financial covenants.  In 
the event of default on any of these covenants, no further amounts would be 
advanced to the Company under the facility and the entire amounts outstanding 
could become due and payable immediately upon default, unless such default is 
waived by the lender.        

5.   SUBSEQUENT EVENTS:

          On April 17, 1998, the Company received a commitment letter from a 
current stockholder stating that the stockholder is prepared, if necessary, 
to participate in future financing efforts in the amount of at least 
$1,500,000. This commitment expires March 31, 1999.

          On April 22, 1998 the Company entered into a sale leaseback 
commitment with a leasing company.  Under the terms of this commitment, the 
Company will sell certain of its assets to the leasing company and lease the 
assets back from the leasing company.  The amount available under this 
facility is $2,000,000, with another $500,000 available contingent upon the 
Company achieving certain financial requirements in the future.  The facility 
grants to the leasing company warrants to purchase up to $125,000 of the 
Company's stock at a price equal to the average closing bid price for the 
five days immediately preceding and including April 22, 1998.  The effective 
interest rate would be 13.98% and there are certain reporting and financial 
covenants which the Company is required to satisfy.

          On April 23, 1998, the Company entered into a "bridge" loan credit
facility agreement with its bank.  The facility provides for borrowings of up to
$2,000,000, with interest at the bank's prime rate plus 2%.  The facility
matures in 120 days but may be paid off sooner at the Company's option.  The
agreement grants to the bank a warrant to purchase 15,000 shares of 


                                        8
<PAGE>

the Company's stock at $3.625 per share.  The agreement further provides for 
additional warrants to be granted based on the length of time the loan is 
outstanding, as follows:

               If the loan is outstanding after May 29, 1998, a warrant for an
               additional 10,000 shares, at the May 31, 1998 closing price, will
               be granted.

               If the loan is outstanding after June 30, 1998, a warrant for an
               additional 25,000 shares, at the June 30, 1998 closing price,
               will be granted.

Borrowings under this facility are collateralized by a first priority security
interest in all of the Company's property, including intellectual property
rights.


                                        9
<PAGE>

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/A as of and for the year ended 
December 31, 1997.  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

          Conductus develops, manufactures and markets electronic  components 
and systems based on superconductors for applications in the worldwide 
telecommunications markets. As of March 31, 1998, Conductus had accumulated 
losses of $39,404,000 and expects to incur significant additional losses at 
least during 1998. Conductus, alone or with collaborative partners, must 
successfully develop, manufacture, introduce and market its potential 
products in order to achieve profitability.  Conductus does not expect to 
recognize meaningful product sales until it successfully develops and 
commercializes superconductive components, systems and subsystems that 
address significant market needs. 

     RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997 

          The Company's total revenues decreased to $1,128,000 for the first 
quarter of 1998, a 64% decrease from $3,140,000 for the same period in 1997. 
Total revenue consists primarily of contract revenue and, to a lesser extent, 
product sales.  Revenues under U.S. government research and development 
contracts were $864,000 for the first quarter of 1998, a decrease of 62% from 
$2,273,000 in the same period in the prior year. This decrease reflects the 
focus of the Company's business interests on the wireless market, following 
the disposal of the Instrument and System division and the NMR product line 
in the third quarter of 1997, and a lower level of federal R & D funding in 
the Company's technology area.  At March 31, 1998, Conductus had a backlog of 
approximately $955,000 under existing U.S. government contracts, most of 
which is to be performed in the next 12 months, and approximately $5,413,000 
in awards from U. S. government agencies for which such agencies had not yet 
entered into research contracts with the Company.  The Company anticipates 
that contract revenues for the second quarter of 1998 may slightly exceed 
those of the first quarter of 1998, although there can be no assurance as to 
the level of contract revenue in any future period.  The recognition of 
revenue and receipt of payment pursuant to these contracts and awards are 
subject to numerous risks.

          Product revenues decreased to $264,000 in the first quarter of 1998, a
70% decrease from $867,000 of product sales in same period in the prior year.
The decrease in product revenues resulted primarily from decreased shipments of
products from the Instrument and Systems division, which the Company disposed of
during the third quarter of 1997, and lower volumes of other magnetic sensing
products, offset somewhat by increased volume of government wireless products,
as shown in the table below:


                                        10
<PAGE>

<TABLE>
<CAPTION>
                   
------------------------------------------------------------------------------------
                                           Three months ended:
------------------------------------------------------------------------------------
<S>                                 <C>              <C>              <C>
                                    March 31, 1998   March 31, 1997     Change
                                         (A)             (B)            (A)-(B)
------------------------------------------------------------------------------------
Government wireless product           $149,000          $-0-           $149,000
------------------------------------------------------------------------------------
San Diego division products              -0-           441,000         (441,000)
------------------------------------------------------------------------------------
Other magnetic sensing products        115,000         426,000         (311,000)
                                       -------         -------         ---------
------------------------------------------------------------------------------------
Total product sales                   $264,000        $867,000        $(603,000)
                                      --------        --------        ----------
                                      --------        --------        ----------
------------------------------------------------------------------------------------
</TABLE>

          Cost of product sales decreased to $339,000 for the first quarter 
of 1998, a 22% decrease over the same period in 1997, primarily due to 
decreased product sales, offset somewhat by higher unit production costs on 
wireless and magnetic sensing products, and a $110,000 increase in the 
inventory valuation reserve, related to higher levels of commercial wireless 
product inventories and customer demo units.  Gross margins decreased to -28% 
in the first quarter of 1998 from 50% in the same period in 1997, reflecting 
the higher unit production costs and the increase in the inventory valuation 
reserve due to the introduction of the wireless product. Margins are 
anticipated to improve to the extent unit volumes increase significantly, 
which could lead to lower per unit costs for purchased materials and 
overhead.   Costs of contract revenues are included in research and 
development expenses.

          Research and development expenses decreased to $2,298,000 in the 
first quarter of 1998, a 23% decrease from $2,978,000 for the same period in 
1997. The decrease is primarily attributable to lower levels of expenditures 
for government contracts, and decreased headcount and expenditures related to 
the Instruments and Systems division and NMR product lines, partially offset 
by increases in expenditures for telecommunications product development. The 
Company expects to continue to incur significant research and development 
expenses as it seeks to develop and market additional products.

          Selling, general and administrative expenses decreased to 
$1,098,000 for the first quarter of 1998, a 2% decrease over the same period 
in 1997.  This decrease reflects the disposal of the Instrument and System 
division, largely offset by higher spending in Sales and Marketing for 
wireless products.  As the Company begins to market commercial products, the 
Company anticipates that there will be additional sales and marketing costs 
above those incurred in 1997.

          Total headcount decreased to 79 at March 31, 1998 from 124 at March 
31, 1997, reflecting reductions in personnel in the Instrument and Systems 
division and the NMR product line, as well as recent reductions of 
approximately 11 people.  The headcount reductions are the result of the 
Company's continuing focus on telecommunications market opportunities, as 
well as the need to conserve cash and control expenses in line with 
anticipated revenue levels.

          The Company's total operating expenses were $3,735,000 for the 
first quarter of 1998, an 18% decrease from the $4,538,000 for the same 
period in 1997 for the reasons described above.

          The change in interest income and expense in the first quarter of 
1998 compared to the same period in the prior year reflects lower levels of 
cash and debt in the respective


                                        11
<PAGE>

periods.  The Company has not paid federal income taxes since inception due 
to its cumulative operating losses.

     LIQUIDITY AND CAPITAL RESOURCES

          The Company has financed its operations since inception primarily
through $13,251,000 in net proceeds from its initial public offering of Common
Stock in August 1993, $9,892,000 in net proceeds from its follow-on public
offering of Common Stock in June 1996, $14,645,000 raised in private placement
financings, $41,136,000 from U.S. government contracts, $6,556,000 in aggregate
borrowings under equipment lease lines of credit, equipment term loans, and bank
line of credit, and $3,715,000 in interest income.  As of March 31, 1998, the
Company's aggregate cash and cash equivalents totaled $1,192,000, including
$500,000 of restricted cash. 

          During the first quarter of 1998, the Company took several steps to
conserve cash and improve its liquidity.  The Company re-negotiated its bank
line of credit agreement to provide for borrowings of up to the lesser of
$2,000,000 or 80% of eligible receivables.  Borrowings under this facility bear
interest at the bank's prime rate plus 2.0% and are collateralized by  a
$500,000 certificate of deposit, accounts receivable, equipment and other assets
of the Company.  At March 31, there was $ 500,000 outstanding under this
facility.  The Company also implemented a cost reduction program that resulted
in headcount reductions of approximately 11 people and anticipated lower levels
of operating expenses, working capital requirements and capital expenditures
over the remainder of 1998.  

          Net cash used in operations was $1,476,000 for the first three 
months of 1998  compared to $537,000 for the same period in 1997.  The 
increase in net cash used in operating activities in the first three months 
of 1998 was primarily due to the larger net loss for the quarter and an 
increase in inventories, offset partially by the decrease in accounts 
receivable (though somewhat less than the decrease in accounts receivable for 
the first quarter of 1997), and the increase in accounts payable and other 
accrued liabilities.  The accounts receivable decrease for the quarter was 
due to lower levels of revenue, offset somewhat by slower than anticipated 
collections on certain government receivables.  The increase in inventories 
came primarily in the raw material and purchased parts for wireless 
commercial products.  The increase in accounts payable and other accrued 
liabilities was primarily due to general delays in the payments to vendors as 
the Company attempted to conserve cash while it continued to negotiate 
various financing arrangements during the quarter.  

          The Company anticipates that it will incur significant additional 
net losses during the balance of 1998. The Company anticipates that its 
accounts receivable and inventories may increase during 1998 as a result of 
increased working capital requirements to support telecommunications 
products.  The Company anticipates fewer delays in payments to vendors during 
the rest of 1998.  As a result, the Company anticipates the use of additional 
cash in operating activities during the balance of 1998.

          Net cash provided by investing activities was $375,000 for the 
first three months of 1998 compared to net cash provided by investing 
activities of $663,000 for the first three months of 1997.  In 1998, net cash 
was provided by net reductions in short-term investments, offset to some 
extent by purchases of property and equipment. In 1997, net cash was also 
primarily provided by net reductions in short-term investments offset 
somewhat by purchases of property and equipment. The Company anticipates that 
its purchases of property and equipment for the remainder of 1998 may be 
somewhat lower than 1997 levels.  The Company is pursuing leasing 
arrangements to finance further purchases of property and equipment, if any, 
during the remainder of 1998.  

                                        12
<PAGE>

          Net cash used in financing activities was $319,000 for the first 
three months of 1998 compared to net cash provided by financing activities 
$88,000 in the first three months of the prior year. Net cash used in 
financing activities in the first three months of 1998 was primarily for 
principal payments on debt, offset partially by net proceeds of the issuance 
of common stock. In the first three months of 1997, net cash provided by 
financing activities was primarily from the proceeds of the issuance of 
common stock and from borrowings under credit facilities, offset somewhat by 
principal payments on debt.   

          Subsequent to March 31, 1998, the Company has taken the following
actions to improve its liquidity.  There can be no assurance that any or all of
the actions taken by the Company will provide sufficient liquidity.  Failure 
to maintain adequate liquidity would have a material adverse effect on the 
Company.

          On April 17, 1998, the Company received a commitment letter from a
current stockholder stating that the stockholder is prepared, if necessary, to
participate in future financing efforts in the amount of at least $1,500,000. 
This commitment expires March 31, 1999.

          On April 22, the Company entered into a sale leaseback commitment 
with a leasing company.  Under the terms of this commitment, the Company will 
sell certain of its assets to the leasing company and lease the assets back 
from the leasing company.  The amount available under this facility is 
$2,000,000, with another $500,000 available contingent upon the Company 
achieving certain financial requirements in the future.  The facility grants 
to the leasing company warrants to purchase up to $125,000 of the Company's 
stock at a price equal to the average closing bid price for the five days 
immediately preceding and including April 22, 1998.  The effective interest 
rate would be 13.98% and there are certain reporting and financial covenants 
which the Company is required to satisfy.

          On April 23, 1998, the Company entered into a "bridge" loan credit
facility agreement with its bank.  The facility provides for borrowings of up to
$2,000,000, with interest at the bank's prime rate plus 2%.  The facility
matures in 120 days but may be paid off sooner at the Company's option.  The
agreement grants to the bank a warrant to purchase 15,000 shares of the
Company's stock at $3.625 per share.  The agreement further provides for
additional warrants to be granted based on the length of time the loan is
outstanding, as follows:

               If the loan is outstanding after May 31, 1998, a warrant for an
               additional 10,000 shares, at the May 31, 1998 closing price, will
               be granted.

               If the loan is outstanding after June 30, 1998, a warrant for an
               additional 25,000 shares, at the June 30, 1998 closing price,
               will be granted.

Borrowings under this facility are collateralized by a first priority security
interest in all of the Company's property, including intellectual property
rights.

     All of the Company's credit arrangements contain reporting and financial 
covenants which the Company is required to satisfy. There can be no assurance 
that the Company will satisfy all such covenants in the future. In the event 
of default on any of these covenants, no further amounts would be advanced to 
the Company under the facility and the entire amounts outstanding could 
become due and payable immediately upon default, unless such default is 
waived by the lender. There can be no assurance that if the Company defaults 
on any of the covenants, waiver of such default could be obtained from the 
lender.

          The Company to date has received limited revenues from product sales.
The development of the Company's potential products will require a commitment of
substantial funds to conduct further research and development and testing of its
potential products, to establish commercial-scale manufacturing and to market
any resulting product.  The actual amount of the Company's future capital
requirements will depend on many factors that affects its business. 

          Conductus anticipates that its existing available cash, other sources
of liquidity, and anticipated revenue, primarily from government contracts,
should be adequate to fund the Company's operations at least through December
1998.  There can be no assurance, however, that changes in the Company's plans
or other events affecting the Company will not result in the


                                        13
<PAGE>

expenditure of such resources before such time.  There can be no assurance 
that additional funding will be available on acceptable terms or at all, if 
required.

YEAR 2000 ISSUE

          The year 2000 issue is the result of computer programs being 
written using two digits rather than four to define the applicable year. Any 
of the Company's computer programs that have date-sensitive software may 
recognize a date using "00" as the year 1900 rather than the year 2000. This 
could result in a system failure or miscalculations causing disruptions of 
operations, including, among other things, a temporary inability to process 
transactions, send invoices, or engage in similar normal business activities.

          Based on a recent assessment of the Company's sales, manufacturing 
and finance systems, the Company determined that it will be required to 
replace this software so that these computer systems will properly utilize 
dates beyond December 31, 1999. The Company presently believes that with the 
conversion of its sales, manufacturing, and finance systems to new software, 
the Year 2000 Issue can be mitigated as far as its impact on those systems. 
However, if the conversion is not completed in a timely manner, the Year 2000 
Issue could have a material impact on the operations of the Company. The 
Company has not yet completed the assessment of its remaining internal 
systems which may be effected by the Year 2000 Issue.

          The Company has not yet begun formal communications with its 
significant suppliers and large customers to determine the extent to which 
the Company is vulnerable to those third parties' failure to remediate their 
own Year 2000 Issue. There can be no guarantee that the systems of other 
companies on which the Company's systems rely will be timely converted, or 
that a failure to convert by another company, or a conversion that is 
incompatible with the Company's sytems, would not have a material adverse 
effect on the Company. The Company has not yet determined if it has exposure 
to contingencies related to the Year 2000 Issue for the products it has sold.

          The Company will utilize both internal and external resources to 
replace its sales, manufacturing, and finance systems. The Company plans to 
complete this phase in early 1999, and anticipates that the cost of the 
software and its implementation will not have a material financial impact. 
The Company is unable to estimate the remaining financial impact, if any, of 
the Year 2000 Issue until it completes the assessment of the potential impact 
of the Year 2000 Issue on its remaining internal systems, on third parties 
such as its suppliers and customers, on products it has sold, and on other 
factors that may come to the Company's attention.

RECENT PRONOUNCEMENTS:

COMPREHENSIVE INCOME

          The Company has adopted the provisions of Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income," effective 
January 1, 1998. This statement requires the disclosure of comprehensive 
income and its components in a full set of general-purpose financial 
statements. Comprehensive income is defined as net income plus revenues, 
expenses, gains and losses that, under generally accepted accounting 
principles, are excluded from net loss. The component of comprehensive 
loss, which is excluded from net loss, is not significant and therefore, 
no separate statement of comprehensive income has been presented.

SEGMENT REPORTING

          In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 131, "Disclosure about 
Segments of an Enterprise and Related Information" ("SFAS 131"), which 
supersedes Statement of Financial Accounting Standards No. 14, "Financial 
Reporting for Segments of a Business Enterprise" ("SFAS 14"). SFAS 131 
changes current practice under SFAS 14 by establishing a new framework on 
which to base segment reporting and also requires interim reporting of 
segment information. This statement is effective for fiscal years beginning 
after December 15, 1997. The statement's interim reporting disclosures are 
not required until the first quarter immediately subsequent to the fiscal 
year in which SFAS 131 is effective.

Item 3 : Quantitative and Qualitative Discussions About Market Risk - Not 
Applicable


                                        14
<PAGE>

PART II:  OTHER INFORMATION

ITEM 1:   LEGAL PROCEEDINGS - NOT APPLICABLE.
ITEM 2:   CHANGES IN SECURITIES - NOT APPLICABLE.
ITEM 3:   DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE.
ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - NOT APPLICABLE.
ITEM 5:   OTHER INFORMATION - NOT APPLICABLE.
ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K.

(A) EXHIBITS - SEE BELOW.
(B) REPORTS ON FORM 8-K - NOT APPLICABLE.


                                        15
<PAGE>

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.
                                                                ---------------
                                                                     Registrant


     Dated:  May 14, 1998                                /S/ Donald F. DePascal
                                                         ----------------------
                                                             Donald F. DePascal
                                                   Principal Accounting Officer
                                                    and Duly Authorized Officer
                                                                              

                                                         /S/ Charles E. Shalvoy
                                                         ----------------------
                                                             Charles E. Shalvoy
                                          President and Chief Executive Officer
                                                    and Duly Authorized Officer


                                        16
<PAGE>

EXHIBIT INDEX 

     Exhibits                                                        Sequential
     --------
                                                                    Page Number
                                                                    -----------

10.38(A)  Collateral Assignment, Patent Mortage and Security Agreement

10.39     Silicon Valley Bank Loan Agreement

27.01     Financial Data Schedule


                                         17


(A)  CONFIDENTIAL TREATMENT REQUESTED.