10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 quarter ended June 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to                      to                     

Commission file number 1-15477

MAXWELL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-2390133
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9244 Balboa Avenue San Diego, California	92123
(Address of principal executive offices)	(Zip Code)

(858) 503-3300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer  ¨                Accelerated filer  x                Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).  YES  ¨    NO  x

The number of shares of the registrant’s Common Stock outstanding as of August 3, 2007 is 18,843,972 shares.

TABLE OF CONTENTS

MAXWELL TECHNOLOGIES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarter ended June 30, 2007

		Page
PART I – Financial Information
Item 1.	Financial Statements (Unaudited):	3
	Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	4
	Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2007 and 2006	5
	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2007 and 2006	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II – Other Information
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	29
Item 6.	Exhibits	29
Signatures		30

2

PART I – Financial Information

Item 1. Financial Statements

The following condensed consolidated balance sheet as of December 31, 2006, which has been derived from audited financial statements and the unaudited interim condensed consolidated financial statements, consisting of the condensed consolidated balance sheet as of June 30, 2007, the condensed consolidated statements of operations for the three and six month periods ending June 30, 2007 and 2006, and the condensed consolidated statements of cash flows for the six month periods ended June 30, 2007 and 2006, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The following condensed balance sheet as of December 31, 2006, which has been derived from audited financial statements does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. In the opinion of management, these unaudited statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for the periods presented as required by Regulation S-X, Rule 10-01 in these unaudited statements.

Actual results could differ from those estimates and operating results for the three and six month periods ended June 30, 2007 and are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2007.

3

MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(Unaudited)

	June 30, 2007			December 31, 2006
Assets
Current assets:
Cash and cash equivalents	$	12,585		$	8,159
Investments in marketable securities		698			3,228
Trade and other accounts receivable, net		10,204			9,749
Inventories, net		15,770			14,894
Prepaid expenses and other current assets		1,611			1,596
Total current assets		40,868			37,626
Property and equipment, net		14,659			13,621
Other intangible assets, net		2,589			1,395
Goodwill		19,661			19,786
Prepaid pension asset		10,617			10,371
Restricted cash		8,000			8,000
Other non-current assets		640			870
	$	97,034		$	91,669
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	8,834		$	9,383
Accrued warranty		735			795
Accrued employee compensation		2,778			2,543
Short-term borrowings and current portion of long-term debt		12,963			5,688
Deferred tax liability		392			392
Net liabilities of discontinued operations		—			63
Total current liabilities		25,702			18,864
Deferred tax liability		2,156			2,545
Convertible debentures and long-term debt, excluding current portion		18,550			22,527
Stock warrants		1,930			1,850
Other long-term liabilities		417			—
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value per share, 40,000 shares authorized; 18,701 and 17,261 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		1,858			1,726
Additional paid-in capital		155,607			141,294
Accumulated deficit		(116,371	)		(104,361	)
Accumulated other comprehensive income		7,185			7,224
Total stockholders’ equity		48,279			45,883
	$	97,034		$	91,669

See accompanying notes to condensed consolidated financial statements.

4

MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenues:
Products	$	13,341		$	12,148		$	25,625		$	24,119
License fee		281			615			553			615
Total revenues		13,622			12,763			26,178			24,734
Cost of sales		10,930			10,402			20,073			18,861
Gross profit		2,692			2,361			6,105			5,873
Operating expenses:
Selling, general and administrative		5,018			3,912			10,073			8,175
Research and development		3,094			2,384			5,911			4,590
Amortization of other intangibles		65			19			84			38
Loss (gain) on disposal of property and equipment		11			—			52			(66	)
Total operating expenses		8,188			6,315			16,120			12,737
Loss from operations		(5,496	)		(3,954	)		(10,015	)		(6,864	)
Interest expense net		(310	)		(65	)		(629	)		(71	)
Amortization of debt discount and prepaid costs		(904	)		(904	)		(1,808	)		(1,808	)
Gain (loss) on embedded derivatives and warrants		(1,426	)		400			73			(3,100	)
Other income (loss), net		109			(67	)		205			(98	)
Loss from continuing operations before income taxes		(8,027	)		(4,590	)		(12,174	)		(11,941	)
Income tax (benefit) provision		(59	)		(11	)		(158	)		164
Loss from continuing operations		(7,968	)		(4,579	)		(12,016	)		(12,105	)
Income from discontinued operations, net of tax		—			258			—			333
Net loss	$	(7,968	)	$	(4,321	)	$	(12,016	)	$	(11,772	)
Basic and diluted net loss per share:
Loss from continuing operations	$	(0.45	)	$	(0.27	)	$	(0.69	)	$	(0.72	)
Income from discontinued operations, net of tax		—			0.02			—			0.02
Net loss per share	$	(0.45	)	$	(0.25	)	$	(0.69	)	$	(0.70	)
Shares used in computing basic and diluted net loss per share		17,710			16,831			17,399			16,741

See accompanying notes to condensed consolidated financial statements.

5

MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2007			2006 (Revised)
Operating activities:
Net loss	$	(12,016	)	$	(11,772	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		2,063			1,863
Amortization		151			103
Amortization of debt discount and prepaid fees		1,808			1,807
Loss (gain) on embedded derivative liabilities		(73	)		3,100
Pension benefit		(22	)		(396	)
Stock based compensation		2,032			1,629
Loss (gain) on sale of property and equipment		52			(66	)
Provision for losses on accounts receivable		70			107
Changes in operating assets and liabilities:
Trade and other accounts receivable		(571	)		(2,398	)
Inventories		(908	)		(4,444	)
Prepaid expenses and other assets		(1,373	)		(860	)
Deferred income taxes		(389	)		—
Accounts payable and accrued liabilities		(646	)		3,368
Accrued employee compensation		242			296
Other long-term liabilities		419			—
Net liabilities of discontinued operations		—			(422	)
Net cash used in operating activities		(9,161	)		(8,085	)
Investing activities:
Purchases of property and equipment		(3,232	)		(3,114	)
Proceeds from sale of property and equipment		21			66
Redemptions of marketable securities		2,530			2,208
Purchases of marketable securities		—			(7,030	)
Net cash used in investing activities		(681	)		(7,870	)
Financing activities:
Principal payments on long-term debt and short-term borrowings		(1,384	)		(3,370	)
Proceeds from long-term and short-term borrowings		3,308			3,180
Retirement of shares		(165	)		(368	)
Net proceeds from issuance of Company stock		12,606			3,853
Net cash provided by financing activities		14,365			3,295
Increase (decrease) in cash and cash equivalents		4,523			(12,660	)
Effect of exchange rate changes on cash and cash equivalents		(97	)		305
Increase (decrease) in cash and cash equivalents		4,426			(12,355	)
Cash and cash equivalents, beginning of period		8,159			25,760
Cash and cash equivalents, end of period	$	12,585		$	13,405

See accompanying notes to condensed consolidated financial statements.

6

MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unless the context otherwise requires, all references to “Maxwell,” the “Company,” “we,” “us,” and “our” refer to Maxwell Technologies, Inc. and its subsidiaries; all references to “Maxwell SA” refer to our European Subsidiary, Maxwell Technologies, SA.

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of Business

Maxwell Technologies, Inc. is a Delaware corporation and is headquartered in San Diego, California. Originally incorporated in 1965 under the name “Maxwell Laboratories, Inc.” in 1996, the Company changed its name to Maxwell Technologies, Inc.

Maxwell operates as a single operating segment, High Reliability, which is comprised of two manufacturing locations (San Diego, California and Rossens, Switzerland) and three product lines:

• Ultracapacitors: Our primary focus, ultracapacitors, are energy storage devices that possess a unique combination of high power density, extremely long operational life and the ability to charge and discharge very rapidly. Our BOOSTCAP^® ultracapacitor cells and multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including transportation, energy, consumer and industrial electronics and telecommunications.

• High-Voltage Capacitors: Our CONDIS^® high-voltage capacitors are extremely robust devices that are designed and manufactured to perform reliably for decades in all climates. These products include grading and coupling capacitors and capacitive voltage dividers that are used to ensure the safety and reliability of electric utility infrastructure and other applications involving transport, distribution and measurement of high-voltage electrical energy.

• Radiation-Mitigated Microelectronic Products: Our radiation-mitigated microelectronic products include high-performance, high-density power modules, memory modules and single board computers that incorporate our proprietary RADPAK^® packaging and shielding technology and novel architectures that enable them to withstand environmental radiation effects and perform reliably in space.

The Company’s products are designed and manufactured to perform reliably for the life of the products and systems into which they are integrated. The Company achieves high reliability through the application of proprietary technologies and rigorously controlled design, development, manufacturing and test processes.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries. All significant intercompany transactions and account balances are eliminated in consolidation.

In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows of Maxwell Technologies, Inc. for all periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted.

The preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Estimates have been prepared on the basis of the most current information available. These estimates include assessing the collectability of accounts receivable, the usage and recoverability of inventories and long-lived assets and the incurrence of losses on warranty costs, the fair value of warrants and embedded conversion options related to convertible debentures. The markets for most of the Company’s products are extremely competitive and are characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, price competition is intense and significant price erosion generally occurs over the life of a product. As a result of these issues noted and other factors, actual results could differ from the estimates used by management.

7

The Company’s fiscal quarters end on the last day of the calendar month in March, June, September, and December.

Cash and Cash Equivalents, Investments in Marketable Securities

The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, bank certificates of deposit; commercial paper and high-quality corporate issuers. All highly liquid instruments with an original maturity of three months or less from purchase are considered cash equivalents, and those with original maturities greater than three months on the date of purchase are considered investments in marketable securities. The Company’s investments in marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses included in stockholders’ equity as a separate component of accumulated other comprehensive income. Realized gains or losses and other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income or expense as incurred. The Company recognized no net realized gains in the six months ended June 30, 2007 or for the year ended December 31, 2006. The Company uses the specific identification method on sales of investments.

Maturities and gross unrealized gains on investments in marketable securities at June 30, 2007 and December 31, 2006 are as follows (in thousands):

	Gross Amortized Cost		Gross Unrealized Gain (Loss)		Estimated Fair Value
As of June 30, 2007:
Corporate Debt Securities, Maturing within 1 year	$	698	$	—	$	698
Total	$	698	$	—	$	698
As of December 31, 2006:
Bank Certificates of Deposit, Maturing within 1 year	$	550	$	—	$	550
Commercial Paper, Maturing within 1 year		995		—		995
Corporate Debt Securities, Maturing within 1 year		1,682		1		1,683
Total	$	3,227	$	1	$	3,228

Revenue Recognition

We derive our revenue from the sale of manufactured products directly to customers. For certain long-term contracts revenue is recognized at the time costs are incurred and for licensing fees we recognize revenue from the right to manufacture products based on our proprietary ultracapacitors design. Product revenue is recognized, according to the guidelines of SEC Staff Accounting Bulletin Numbers 101 Revenue Recognition in Financial Statements, and 104 Revenue Recognition, when title passes to the customer at either shipment from our facilities, or receipt at the customer facility, depending on shipping terms, provided collectability is reasonably assured. If a volume discount is offered, revenue is recognized at the lowest price to the customers. This method has been consistently applied from period to period and there is no right of return. Revenue on fixed price government contracts is recognized at the time costs are incurred and is calculated on a percentage of completion basis, in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts and is limited by the funding of the prime contractor. In prior years, certain continuing and discontinued segments involved revenues from both long-term and short-term fixed price contracts and cost plus contracts with the U.S. Government directly or through a prime contractor. Those revenues, including estimated profits, were recognized at the time the costs were incurred and included provisions for any anticipated losses. These contracts are subject to rate audits and other audits, which could result in the reduction of revenue in excess of estimated provisions. In turn, this could increase losses for the periods in which any such reduction occurs. The Company recognizes revenue that relates to specific deliverables, in accordance with EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. This revenue involves a contract that grants a license to manufacture and market products in Mainland China, using Maxwell’s proprietary large cell and multi-cell module technology under a separate brand. The contract, obligates the manufacturer to source ultracapacitor electrode material from Maxwell, the agreement has no general right of return and allows for no refunds.

8

Computation of Net Loss per Share

Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated on the basis of the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options and restricted stock awards of the Company, assuming their exercise using the “treasury stock” method.

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Numerator
Basic:
Loss from continuing operations	$	(7,968	)	$	(4,579	)	$	(12,016	)	$	(12,105	)
Income from discontinued operations, net of tax		—			258			—			333
Net loss	$	(7,968	)	$	(4,321	)	$	(12,016	)	$	(11,772	)
Denominator
Basic:
Weighted average shares outstanding		17,710			16,831			17,399			16,741
Diluted:
Effect of dilutive securities:
Common stock options and restricted stock awards		—			—			—			—
Total weighted average common shares outstanding		17,710			16,831			17,399			16,741
Basic and diluted net loss per share:
Loss from continuing operations	$	(0.45	)	$	(0.27	)	$	(0.69	)	$	(0.72	)
Income from discontinued operations, net of tax		—			0.02			—			0.02
Basic and diluted net loss per share	$	(0.45	)	$	(0.25	)	$	(0.69	)	$	(0.70	)

For the three and six-month periods ended June 30, 2007 and 2006, incremental equivalent shares under common stock options and restricted stock awards of 809,992 and 821,543 for 2007, and 1,139,460 and 1,147,568 for 2006, respectively, and the shares issuable on conversion of convertible debentures and the warrants for the three and six month periods ended June 30, 2007 and 2006 have also been excluded in the computation of dilutive earnings per share as their impact would have been anti-dilutive.

9

Presentation of Cash Flows beginning with Net Loss.

The Company had presented the consolidated statement of cash flows beginning with loss from continuing operations rather than net loss. SFAS 95 Statement of Cash Flows prescribes the use of net loss. Effective with the quarter ended June 30, 2007, the Company retroactively revised the consolidated statements of cash flows for the years ended December 31, 2004, 2005, 2006 and the three months ended March 31, 2006 and 2007 which are shown as follows:

MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31, 2006 (Revised)			Year Ended December 31, 2005 (Revised)			Year Ended December 31, 2004 (Revised)			Three Months ended March 31, 2007 (Revised)			Three Months ended March 31, 2006 (Revised)
Operating activities:
Net Loss	$	(16,495	)	$	(6,294	)	$	(9,075	)	$	(4,048	)	$	(7,451	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,811			3,548			3,553			981			888
Amortization		206			207			207			52			50
Amortization of debt discount and prepaid fees		3,616			100			—			904			904
Loss (gain) on embedded derivative liabilities		(1,980	)		(800	)		—			(1,499	)		3,500
Pension benefit (loss)		(1,460	)		(329	)		(352	)		64			(194	)
Stock based compensation		2,710			361			—			1,177			936
Loss (gain) on sale of property and equipment		(80	)		40			41			41			(66	)
Shares issued for interest expense		778			—			—			—			—
Provision for losses on accounts receivable		89			(96	)		212			3			73
Changes in operating assets and liabilities:
Trade and other accounts receivable		(2,549	)		(489	)		(861	)		(885	)		(937	)
Inventories		(4,708	)		(1,938	)		(519	)		(2,264	)		(1,124	)
Prepaid expenses and other assets		(762	)		109			468			(349	)		(386	)
Deferred income taxes		268			(17	)		597			(388	)		—
Accounts payable and accrued liabilities		2,452			(18	)		(2,556	)		(1,460	)		75
Accrued employee compensation		(105	)		1,085			(104	)		(114	)		(104	)
Net liabilities of discontinued operations		(464	)		(519	)		(449	)		—			(164	)
Net cash used in operating activities		(14,673	)		(5,050	)		(8,838	)		(7,785	)		(4,000	)
Investing activities:
Purchases of property and equipment		(6,846	)		(3,809	)		(3,022	)		(1,723	)		(1,889	)
Proceeds from sale of property and equipment		299			—			263			11			66
Redemptions of marketable securities		6,920			5,543			2,329			2,533			—
Purchases of marketable securities		(9,451	)		(4,135	)		(1,974	)		—			(7,031	)
Restricted cash		—			(8,000	)		—			—			—
Net cash (used in) provided by investing activities		(9,078	)		(10,401	)		(2,404	)		821			(8,854	)
Financing activities:
Principal payments on long-term debt and short-term borrowings		(4,973	)		(3,459	)		(1,816	)		(842	)		(1,523	)
Proceeds from long-term and short-term borrowings		7,158			25,374			2,448			1,092			1,523
Stock warrants		—			2,900			—			—			—
Deferred Borrowing Costs		—			(1,341	)		—			—			—
Retirement of shares		(368	)		—			—			(165	)		—
Shares issued for interest expense		—			—			—			—			—
Net proceeds from issuance of Company stock		4,277			7,110			11,310			225			3,140
Net cash provided by financing activities		6,094			30,584			11,942			310			3,140
Increase (decrease) in cash and cash equivalents		(17,657	)		15,133			700			(6,654	)		(9,714	)
Effect of exchange rate changes on cash and cash equivalents		56			(113	)		256			(52	)		(26	)
Increase (decrease) in cash and cash equivalents		(17,601	)		15,020			956			(6,706	)		(9,740	)
Cash and cash equivalents, beginning of period		25,760			10,740			9,784			8,159			25,760
Cash and cash equivalents, end of period	$	8,159		$	25,760		$	10,740		$	1,453		$	16,020

10

The individual lines revised in the consolidated statements of cash flows for the six months ended June 30, 2006 the three months ended March 31, 2007 and 2006 and the years ended December 31, 2004, 2005, 2006 and are shown below:

(in thousands)

	Six Months Ended June 30, 2006 as reported			Revisions			Revised Six Months Ended June 30, 2006
Operating activities:
Loss from continuing operations	$	(12,105	)	$	12,105		$	—
Net Loss	$	—		$	(11,772	)	$	(11,772	)
Net cash used in discontinued operations	$	(89	)	$	89		$	—
Net liabilities of discontinued operations	$	—		$	(422	)	$	(422	)
	Three Months Ended March 31, 2007 as reported			Revisions			Revised Three Months Ended March 31, 2007
Operating activities:
Loss from continuing operations	$	(4,048	)	$	4,048		$	—
Net Loss	$	—		$	(4,048	)	$	(4,048	)
Net cash used in discontinued operations	$	—		$	—		$	—
Net liabilities of discontinued operations	$	—		$	—		$	—
	Three Months Ended March 31, 2006 as reported			Revisions			Revised Three Months Ended March 31, 2006
Operating activities:
Loss from continuing operations	$	(7,526	)	$	7,526		$	—
Net Loss	$	—		$	(7,451	)	$	(7,451	)
Net cash used in discontinued operations	$	(89	)	$	89		$	—
Net liabilities of discontinued operations	$	—		$	(164	)	$	(164	)
	For the year ended December 31, 2006 as reported			Revisions			Revised For the year ended December 31, 2006
Operating activities:
Loss from continuing operations	$	(16,300	)	$	16,300		$	—
Net Loss	$	—		$	(16,495	)	$	(16,495	)
Net cash used in discontinued operations	$	(659	)	$	659		$	—
Net liabilities of discontinued operations	$	—		$	(464	)	$	(464	)
	For the year ended December 31, 2005 as reported			Revisions			Revised For the year ended December 31, 2005
Operating activities:
Loss from continuing operations	$	(6,254	)	$	6,254		$	—
Net Loss	$	—		$	(6,294	)	$	(6,294	)
Net cash used in discontinued operations	$	(559	)	$	559		$	—
Net liabilities of discontinued operations	$	—		$	(519	)	$	(519	)
	For the year ended December 31, 2004 as reported			Revisions			Revised For the year ended December 31, 2004
Operating activities:
Loss from continuing operations	$	(9,808	)	$	9,808		$	—
Net Loss	$	—		$	(9,075	)	$	(9,075	)
Net cash provided by (used in) discontinued operations	$	284		$	(284	)	$	—
Net liabilities of discontinued operations	$	—		$	(449	)	$	(449	)

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of “Statement of Financial Accounting Standards No. 109”, which provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007.

At the adoption date of January 1, 2007, the Company had $3.17 million of unrecognized tax benefits. Of the total unrecognized tax benefits at the adoption date, the entire amount of $3.17 million was recorded as a reduction to deferred tax assets, which caused a corresponding reduction in the Company’s valuation allowance of $3.17 million. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would impact the Company effective tax rate.

11

The Company does not anticipate that the amount of unrecognized tax benefits as of June 30, 2007 will significantly change within 12 months.

The Company recognizes interest and penalties as a component of income tax expense.

The Company is subject to taxation in the United States, federal and various states and Switzerland. The tax years 2000 to 2006 are subject to examination by the major taxing jurisdictions in which the Company is subject to.

Pending Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for the Company as of January 1, 2008. The Company is currently assessing the impact, if any, of SFAS 157 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No 115 (“SFAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 also includes an amendment to SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, which applies to all entities with available-for-sale and trading securities. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not anticipate any material impact on its consolidated financial statements upon the adoption of this standard.

Note 3 – Balance Sheet Details

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Finished goods and work-in-process inventory values include the cost of raw materials, labor and manufacturing overhead. Inventory written down to market establishes a new cost basis and its value can not be subsequently increased based upon changes in underlying facts and circumstances. Inventory consist of the following (in thousands):

	June 30, 2007			December 31, 2006
Inventories:
Raw material and purchased parts	$	11,014		$	10,452
Work-in-process		3,260			3,518
Finished goods		4,006			3,709
Inventory reserve		(2,510	)		(2,785	)
Net Inventory	$	15,770		$	14,894

Other Intangible Assets

Other Intangible Assets consisted of the following (in thousands):

	Gross Carrying Value		Accumulated Amortization			Foreign Currency Adjustment		Net Carrying Value
As of June 30, 2007:
Developed core technology	$	1,100	$	(630	)	$	187	$	657
Patents		2,338		(406	)		—		1,932
Total Intangible Assets	$	3,438	$	(1,036	)	$	187	$	2,589

Goodwill

The change in the carrying amount of goodwill from December 31, 2006 to June 30, 2007 is as follows (in thousands):

Balance at December 31, 2006	$	19,786
Foreign currency translation adjustments		(125	)
Balance at June 30, 2007	$	19,661

12

Warranty Reserve

The Company provides product warranties in conjunction with certain product sales. The majority of the Company’s warranties are for one to two years in the normal course of business. The Company accrues for the estimated warranty at the time of sale based on historical warranty expenses. The estimated warranty liability is calculated based on historical warranty expenses plus any known or expected warranty exposure.

The following table sets forth an analysis of the warranty reserve activity for the six months ended June 30, 2007 and year ended December 31, 2006, respectively (in thousands):

	June 30, 2007			December 31, 2006
Accrued Warranty:
Beginning balance	$	795		$	632
Product warranty expense on sales		152			1,457
Change to prior warranty expense/accrual		(137	)		(213	)
Settlement of warranties		(72	)		(1,115	)
Currency exchange adjustment		(3	)		34
Ending balance	$	735		$	795

Stock sale and change in additional paid in capital

In November 2006 the Company filed an S-3 with the Securities and Exchange Commission to from time to time sell up to an aggregate of $125 million of the Company’s common stock, warrants or debt securities. During the six months ended June 30, 2007 the Company’s additional paid in capital increased $14.3 million. The majority of this increase, $11.2 million, was from the sale of 1.15 million shares of common stock. The remainder of the increase was due to the sale of stock for the Company’s ESPP, the exercise of stock options and share based expense.

Note 4 – Stock-Based Compensation

The Company has two active share-based compensation plans as of June 30, 2007; the 2004 Employee Stock Purchase Plan (the “ESPP”) and the 2005 Omnibus Equity Incentive Plan (the “Incentive Plan”) under which incentive stock options, non-qualified stock options and restricted stock awards are granted.

Employee Stock Options and Employee Stock Purchase Plan

The fair value of the ESPP shares to be purchased at the end of the offering periods that begin January 1 and July 1 is calculated for a 15% discount on the stock price; and by using the Black-Scholes valuation model for a call and put option attributes of the Company ESPP, resulted in a total value of $4.16 and $3.93 per share for the offering period beginning January 1, 2007 and 2006, respectively. Total compensation expense recognized for the ESPP for the six months ended June 30, 2007 and 2006 was $64,000 and $33,000 respectively.

Employee Stock Options Plan

The fair value of the warrants and embedded conversion option is estimated on the balance sheet date using the Black-Scholes valuation model with the following assumptions:

	Six Months Ended June 30, 2007	Six Months Ended June 30, 2006
Expected dividends	—	—
Expected volatility	52.3% – 49.8%	54.7% – 62.7%
Average risk-free interest rate	4.7% – 4.6%	4.4% – 5.0%
Expected term/life (in years)	4.57	5.1 – 6.2

The weighted-average grant date fair value of employee options granted during the three and six months ended June 30, 2007 was $5.59 and $5.54 per share respectively while the weighted-average grant date fair value for the three and six

13

months ended June 30 2006 was $9.84 and $8.80 per share respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2007 was $1.0 million and $1.1 million respectively and for the three and six months ended June 30, 2006 was $847,000 and $3.4 million respectively.

As of June 30, 2007 there was $2.4 million of total unrecognized compensation cost related to nonvested stock options granted under the incentive plan. The cost is expected to be recognized over a weighted average period of 2.4 years. Compensation cost for employee options recognized in the three and six months ended June 30, 2007 was $251,000 and $510,000 respectively while the expense recognized for the three and six months ended June 30, 2006 was $201,000 and $534,000 respectively.

Restricted Stock Awards

For the three and six months ended June 30, 2007 the Company recognized an expense of $566,000 and $1.4 million, respectively, while for the three and six months ended June 30 2006 the expense recognized was $466,000 and $1.0 million respectively for compensation expense for restricted stock awards. Under FASB No. 123 (revised) Share-Based Payment (“SFAS 123R”) the Company determines the fair value at grant date and expenses that amount over the requisite service period. As prescribed under SFAS 123R the Company has reassessed the probability of achievement of milestones for each restricted stock award that was active and not earned as of June 30, 2007 and determined appropriate share-based expense treatment under the SFAS 123R. The following table summarizes the activity under the restricted stock awards (in thousands, except for per share amounts):

Non-vested Shares	Shares		Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2007	193		$	13.67
Granted	148			11.26
Vested	(53	)		13.12
Forfeited	(13	)		10.31
Non-vested at June 30, 2007	275		$	12.64

The total grant-date fair value of restricted stock awards granted during the three and six months ended June 30, 2007 was $1.7 million and for the three and six months ended June 2006 was $868,000 and $1.9 million, respectively. There were 8,000 and 53,000 shares vested during the three and six months ended June 30, 2007 with a grant date fair value of $108,000 and $689,000, respectively. For the three and six months ended June 30, 2006 87,000 shares vested with a grant date fair value of $644,000. As of June 30, 2007 there was $1.2 million of total unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. The cost is expected to be recognized over a weighted average period of 0.4 years.

Compensation cost for restricted stock awards, employee stock options, ESPP and non-employee stock compensation included in Cost of sales; Selling, general and administrative; and Research and development is (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Stock-Based Compensation Costs:
Cost of sales	$	63	$	50	$	128	$	107
Selling, general and administrative		758		605		1,823		1,391
Research and development		34		38		81		131
Total Stock-Based Compensation Costs	$	855	$	693	$	2,032	$	1,629

Note 5 – Comprehensive Loss

The components of other comprehensive loss are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Net loss as reported	$	(7,968	)	$	(4,321	)	$	(12,016	)	$	(11,772	)
Foreign currency translation adjustment		(305	)		1,149			(261	)		1,338
Pension plan adjustment		—			—			224			—
Unrealized loss on securities		—			(6	)		(2	)		(5	)
Comprehensive loss	$	(8,273	)	$	(3,178	)	$	(12,055	)	$	(10,439	)

14

Note 6 – Legal Proceedings

In October 2006, Maxwell filed a patent infringement lawsuit against Nesscap in the United States District Court for the Southern District of California seeking monetary damages and an injunction to stop Nesscap’s sales of infringing products. In April 2007 a U.S. district judge granted a preliminary injunction to prohibit Nesscap’s sale of certain infringing ultracapacitor products in the United States. Subsequently, Nesscap filed an appeal staying the injunction until the court ruled to uphold the injunction. Maxwell posted an injunction bond and currently Ness is prohibited from making, using, selling or offering to sell its prismatic ultracapacitors in the United States while the litigation is pending.

In December 2006 Nesscap filed a lawsuit against Maxwell in United States District Court in the District of Delaware claiming Maxwell has infringed Nesscap’s patented intellectual property. At Maxwell’s request this lawsuit was moved to the same district court in San Diego where Maxwell filed its initial action.

The Company has capitalized legal expenses associated with this lawsuit as counsel believes a favorable outcome is probable. As of June 30, 2007 we have capitalized a total of $1.4 million of legal costs and is included in other intangible assets in the condensed consolidated balance sheet.

Note 7 – Convertible Debentures

The Company issued a $25 million convertible debenture in 2005 and is accounting for the conversion option in the Debentures and the associated warrants as derivative liabilities in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock and EITF No. 05-2, The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19. The discount attributable to the issuance date aggregate fair value of the conversion options, warrants and issuance costs totaling $9.2 million, is being amortized using the effective interest method over the term of the Debentures. For the three months ended June 30, 2007 and 2006 $904,000 and for the six months ended June 30, 2007 and 2006 $1.8 million of the discount and prepaid fees was amortized and included in the condensed consolidated statement of operations.

At the issuance date, the Debentures were convertible by the holder at any time into 1,315,789 common shares at a price of $19.00 per share. The Company also issued 394,737 warrants in connection with the issuance of the Debentures, these had an exercise price of $19.00 at the issuance date. The exercise price, number of convertible shares and warrants are subject to adjustment upon certain events, such as the sale of equity securities by Maxwell at a price below the exercise price of $19.00 per share.

In May 2007 Maxwell sold a total 1.15 million shares of common stock at a price below $19.00 which caused an adjustment to the price and number of warrants and convertible debenture shares relating to the convertible debt. The price for the warrants and convertible shares were adjusted to $18.47 along with an increase of warrants of 11,399 to 406,136 and increased convertible debenture shares by 37,999 to a total of 1,353,788 shares.

The holder’s and Maxwell’s conversion rights and the warrants were adjusted to their respective fair market values at June 30, 2007 using the adjusted price of $18.47 and adjusted number of convertible shares and warrants. The change in fair value on revaluation of debenture conversion rights and warrant liabilities represents the difference between the fair value of the warrants and debenture conversion features at March 31, 2007 and their fair value on June 30, 2007 using the Black-Scholes pricing model.

Maxwell may require that a specified amount of the principal of the Debentures be converted if certain conditions are satisfied for a period of 20 consecutive trading days. To determine a fair value of this forced conversion the Company applies a Z factor, which is a theoretical measurement of the probability of this occurrence. The Z factor used as of June 30, 2007 and 2006 was 16.9% and 37.6%, respectively, for forced conversion of 50% of the conversion option at 135% of the exercise price and 5.3% and 22.4%, respectively, for forced conversion of the remaining conversion option at 175% of the exercise price.

15

The fair value of the warrants and embedded conversion option is estimated on the balance sheet date using the Black-Scholes valuation model with the following assumptions:

	Convertible Debentures as of June 30,						Warrants as of June 30,
	2007			2006			2007			2006
Black-Scholes Assumptions:
Exercise price	$	18.47		$	19.00		$	18.47		$	19.00
Market price	$	14.22		$	19.63		$	14.22		$	19.63
Expected dividends		—			—			—			—
Expected volatility		50.0	%		48.7	%		50.7	%		53.8	%
Average risk-free interest rate		4.88	%		5.12	%		4.90	%		5.11	%
Expected term/life (in years)		2.5			3.5			3.5			4.5

The net fair value of the holder’s and Maxwell’s conversion rights at June 30, 2007 was $4.4 million which is included in “Convertible debentures and long-term debt” on the balance sheet. The fair value of the warrants at June 30, 2007 was $1.9 million and is included in “Stock warrants” on the balance sheet. The effect of the fair market value adjustment for the three months ended June 30, 2007 was a $1.4 million loss, which is recorded as “Gain (loss) on embedded derivatives and warrants.”

The Company shall pay to each holder of registrable securities related to the embedded conversion feature and warrants liquidated damages of 1.5% of the aggregate purchase price every 30^th day after a maintenance failure of the registration of the securities. These damages continue each 30 days (pro rated) until the registration failure is cured. As of June 30, 2007, if the Company was not in compliance we would incur damages of $375,000 every 30 days until we cured the maintenance failure. In addition if the damages are not paid in 30 days after they are due the Company would incur interest of 1.0% per month on the outstanding damages. We do not accrue any liability for the penalty for not keeping the registration statement effective, as the outcome is not probable.

The warrants are exercisable at any time through December 20, 2010. No warrants had been exercised as of June 30, 2007.

Note 8 – Defined Benefit Plan

We have a retirement plan for the Company’s Swiss subsidiary that is classified as a defined benefit pension plan. The pension benefit is based on compensation, length of service and credited investment earnings. The plan guarantees both a minimum rate of return as well as minimum annuity purchase rates. The Company’s funding policy with respect to the pension plan is to contribute, at a minimum the amount required by Swiss law, using the required percentage applied to the employee’s compensation. There is no offset provision based on the obligation level of the fund. In addition, the employee is required to contribute to the pension plan. This plan has a measurement date of December 31. We adopted the provisions of SFAS No. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”) as of December 31, 2006.

Components of the net periodic benefit (cost) were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Service cost	$	(77	)	$	(54	)	$	(153	)	$	(106	)
Interest cost		(105	)		(78	)		(208	)		(154	)
Expected return on plan assets		308			278			614			545
Prior service cost amortization		(8	)		—			(17	)		—
Net gain amortization		43			56			86			111
Net periodic benefit	$	161		$	202		$	322		$	396

Employer contributions of $114,000 and $87,000 were paid during the three months ended June 30, 2007 and 2006, respectively. Total employer contributions paid during the six months ended June 30, 2007 and 2006 were $217,000 and $165,000, respectively. Additional employer contributions of approximately $220,000 are expected to be paid during the remainder of fiscal 2007.

16

Note 9 – Contingencies

The Company enters into indemnification agreements in the ordinary course of business in which the indemnified party is held harmless and is reimbursed for losses incurred from claims by third parties. In connection with divestitures of certain assets or businesses, the Company often provides indemnities to the buyer with respect to certain matters including, for example, environmental liabilities and unidentified liabilities related to periods prior to the disposition. Due to the uncertain nature of the indemnities, the maximum liability cannot be quantified. Liabilities for obligations are recorded where appropriate and when they are probable and can be reasonably estimated. Historically, the Company has not made significant payments for these obligations.

The Company has been alerted to a possible defect in a product that we sourced from another manufacturer and resold to the customer. We have discussed this issue with both parties and have not determined what, if any, warranty exposure Maxwell may have, and therefore, we have not recorded any warranty reserve provision. We carry insurance that we believe would cover all or a portion of any obligation that might ultimately arise from this matter.

In March 2006, a customer sent us a demand letter requesting payment of $535,000 for a tester product initially sold in 2002. We have concluded this matter by negotiating a settlement with the customer by agreeing to refund $300,000 of the purchase price. This amount was paid in the three months ended June 30, 2007.

In April 2007, the Company was required to post a $700,000 bond before a court injunction of the patent infringement lawsuit against Nesscap was implemented. We purchased an injunction bond issued by a third party and we do not expect the bond to be called as we will comply with the underlying performance requirements.

17

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

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “Maxwell,” the “Company,” “we,” “us,” and “our” refer to Maxwell Technologies, Inc. and its subsidiaries; all references to “Maxwell SA” refer to our European Subsidiary, Maxwell Technologies, SA.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this document and incorporated herein by reference discuss our plans and strategies for our business or make other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “may,” “could,” “will,” “continue,” “seek,” “should,” “would” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views and beliefs of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, our statements. Such risks, uncertainties and contingencies include the following:

• decline in the domestic and global economies that may delay development and introduction by our customers of products that incorporate our products;

• our success in introducing and marketing new products into existing and new markets;

• our ability to manufacture existing and new products in volumes demanded by our customers and at competitive prices with adequate gross margins;

• market success of the products into which our products are integrated;

• our ability in growing markets to increase our market share relative to our competitors;

18

• our ability to successfully integrate our business with operations of businesses we may acquire;

• our ability to finance the growth of our business with internal resources or through outside financing at reasonable rates; and

• our ability to produce our products at quality levels demanded by our customers.

Many of these factors are beyond our control. Additionally, there can be no assurance that we will not incur new or additional unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized.

For a discussion of important risks associated with an investment in our securities, including factors that could cause actual results to differ materially from expectations referred to in the forward-looking statements, see Risk Factors in Part II, Item 1A of this document or as disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006. We do not have any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our business. Subsequently, we provide a summary of some of the highlights from the six months ended June 30, 2007, followed by a discussion of the different aspects of our business. We then proceed to discuss our results of operations for the three and six month periods ended June 30, 2007 compared with the three and six month periods ended June 30, 2006. This is followed by an analysis of changes in our balance sheet and cash flows and discussion of our capital requirements and financing activities in the section entitled “Liquidity and Capital Resources.” We then review our critical accounting policies and new accounting pronouncements along with the impact of inflation on our business.

Overview

Maxwell Technologies, Inc. is a Delaware corporation headquartered in San Diego, California that was originally incorporated in 1965 under the name “Maxwell Laboratories, Inc.” In 1996, we changed our name to Maxwell Technologies, Inc. We develop, manufacture and market highly reliable, cost-effective energy storage and power delivery components and systems. Our products are designed and manufactured to provide failure-free, very low maintenance, performance over the life of the applications into which they are integrated. We believe that by satisfying the stringent requirements of such high-reliability, high-value applications, our products will be able to command higher margins than commodity products. We focus on the following three discrete lines of high-reliability products:

• • Ultracapacitors: Our primary focus, ultracapacitors, are energy storage devices that possess a unique combination of high power density, extremely long operational life and the ability to charge and discharge very rapidly. Our BOOSTCAP^® ultracapacitor cells and multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including transportation, energy, consumer and industrial electronics and telecommunications.

• • High-Voltage Capacitors: Our CONDIS^® high-voltage capacitors are extremely robust devices that are designed and manufactured to perform reliably for decades in all climates. These products include grading and coupling capacitors and capacitive voltage dividers that are used to ensure the safety and reliability of electric utility infrastructure and other applications involving transport, distribution and measurement of high-voltage electrical energy.

• • Radiation-Mitigated Microelectronic Products: Our radiation-mitigated microelectronic products include high-performance, high-density power modules, memory modules and single board computers that incorporate our proprietary RADPAK^® packaging and shielding technology and novel architectures that enable them to withstand environmental radiation effects and perform reliably in space.

Highlights of the Quarter Ended June 30, 2007

We reported revenue of $13.6 million and a net loss for the three months ended June 30, 2007 of approximately $8.0 million, or $0.45 per diluted share, versus revenue of $12.8 million and a net loss of $4.3 million, or $0.25 per diluted share, for the three months ended June 30, 2006.

19

During the six months ended June 30, 2007, we continued to focus on developing strategic alliances, introducing new products, increasing production capacity, reducing product costs, and increasing revenue. Some of these efforts are described below:

• In January, Maxwell announced that it received a purchase order for 100,000 square meters of its proprietary ultracapacitor electrode material from Shanghai Sanjiu Electric Equipment Company, Ltd., (Sanjiu) which is preparing to introduce a line of ultracapacitor products based on Maxwell’s cell architecture and high-performance electrode for the Chinese transportation, electric utility and industrial markets.

• In February, we announced that Professor Burkhard Goeschel, who retired in November 2006 as a member of the six-person Management Board of BMW Group, with overall responsibility for research, development and purchasing, had been appointed to Maxwell’s board of directors.

• In March, we announced the introduction of a rugged 390-volt BOOSTCAP^® ultracapacitor module to provide scalable, easy-to-integrate, energy storage and power delivery solutions for heavy hybrid and electric vehicles and heavy duty industrial applications requiring up to 1,170 volts.

• In April, we announced the opening of a sales office in Shanghai, China, to market our BOOSTCAP^® ultracapacitor products, service customers and support distribution channel partners throughout Asia.

• In April, we announced that a U.S. district judge granted a preliminary injunction to prohibit Nesscap’s sale of certain infringing ultracapacitor products in the United States. Maxwell Technologies filed a patent infringement lawsuit against Nesscap in October 2006 alleging that Nesscap products infringe two of Maxwell’s U.S. patents. The injunction would bar Nesscap’s making, using, selling or offering to sell its prismatic ultracapacitors in the United States while the litigation is pending. Nesscap filed an appeal staying the injunction. The court has denied Nesscap’s appeal to the injunction.

• In December 2006 Nesscap also filed a patent infringement action against Maxwell in the United States District Court in the District of Delaware. At Maxwell’s request, Nesscap’s suit was moved to the same district court in San Diego where Maxwell filed its initial action.

• In May, we announced that Edward B. Caudill was elected Chairman of the Company’s board of directors.

• In May, we announced that we will supply ultracapacitor cells and integration kits to the U.S. Department of Energy’s Argonne National Laboratory for a collaborative research project to assemble and evaluate an integrated ultracapacitor/lithium-ion battery energy storage system for hybrid-electric and plug-in hybrid vehicles.

• In May, we announced the sale of 1.15 million shares in a public offering, resulting in gross proceeds to the Company of $11.5 million. The Company plans to use the proceeds for working capital and general corporate purposes.

• In June, we announced that Azure Dynamics Corporation, a leading developer of hybrid-electric and electric powertrains for commercial vehicles, selected Maxwell’s BOOSTCAP^® 390-volt heavy transportation ultracapacitor module (HTM) as the energy storage and power delivery component of its latest hybrid shuttle bus powertrain.

• In July, we announced that we obtained a non-exclusive worldwide license from Enercon GmbH of Aurich, Germany, for a patent covering the use of ultracapacitors in wind energy systems, including their use as backup power source for wind turbine blade pitch systems. This will allow Maxwell to market its BOOSTCAP^® ultracapacitor products to any wind turbine or blade pitch system manufacturer that wants to incorporate the technology into its products.

• In July, we announced the signing of a memorandum of understanding with Valeo, a Tier 1 supplier to automakers worldwide, covering a development collaboration to incorporate Maxwell’s BOOSTCAP^® ultracapacitors in Valeo’s StARS+X, ‘stop-start’ and regenerative braking system.

• On July 24, we announced that the board of directors appointed David J. Schramm president and chief executive officer, replacing Richard D. Balanson, PhD, who will remain a part-time employee of the Company, functioning as a senior technical advisor.

20

Results of Operations and Financial Condition —Quarter Ended June 30, 2007 Compared with Quarter Ended June 30, 2006

Total Revenue

Total revenue for the three months ended June 30, 2007 was approximately $13.6 million versus $12.8 million for the three months ended June 30, 2006. BOOSTCAP^®, Microelectronics and High Voltage product sales all increased in 2007 compared with the same period in 2006. Revenue increased despite a reduction of licensing revenue from the prior year’s quarter. High Voltage revenue experienced the largest percentage and dollar increase from quarter to quarter sales comparison, while other revenue categories were up slightly. We expect increased demand in the next quarter compared to prior years in all revenue categories except licensing revenue, as the current licensing agreement has concluded and the licensee will now be purchasing electrode raw materials in the second half of 2007.

Gross Profit

For the three months ended June 30, 2007 and 2006, gross profit was approximately $2.7 million and $2.4 million, respectively, which represented 20% and 18% of revenue, respectively. The increase in gross profit in absolute dollars is primarily attributed to the increase in High Voltage and Microelectronics sales and to a lesser extent BOOSTCAP^® product sales. The increase occurred although the current quarters license revenue was 54% lower and we did not record contract revenue from the USABC or NPOESS contracts as compared with the three months ended June 30, 2006.

We continue to produce a quality product which is reflected in the reduction of settlement of warranties and product warranty expense we have accrued. We also have improved production efficiency, and reduced product costs while simultaneously ramping up and outsourcing production capacity to meet anticipated future demand. The gross profit is to some extent impacted by under-absorbed overhead costs for forecasted demand that is beyond actual order volume. Once the anticipated efficiencies are fully implemented and the anticipated demand comes in-line with our expectations, gross profit contribution percentage is expected to increase.

Additionally, included in cost of sales for the three months ended June 30, 2007 and 2006 is $63,000 and $50,000, respectively, of stock compensation expense.

Selling, General & Administrative (SG&A) Expense

Selling, general and administrative (SG&A) expenses were approximately $5.0 million for the three months ended June 30, 2007, compared with $3.9 million for the three months ended June 30, 2006. As a percentage of revenues, SG&A expenses were 37% for the three months ended June 30, 2007 compared with 31% for the three months ended June 30, 2006. The approximate $1.1 million increase from the prior year quarter includes an approximate increase of $350,000 in sales commissions; $330,000 in audit fees; $210,000 in wages; $70,000 in legal fees and a $150,000 increase in the stock compensation expense for restricted stock, ESPP and stock option awards recognized.

Research & Development (R&D) Expense

Research and development (R&D) expenses were approximately $3.1 million for the three months ended June 30, 2007 compared with approximately $2.4 million for the same period in 2006. As a percentage of revenues, R&D expense was 23% and 19%, respectively, for the three months ended June 30, 2007 and 2006. R&D spending continues to be focused mainly on BOOSTCAP^® product development and Microelectronics single board computer product development.

Provision for Income Taxes

We recorded income tax benefits of $59,000 and $11,000 for the three months ended June 30, 2007 and 2006, respectively.

Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated such earnings will be remitted to the United States. If remitted, the additional United States taxes paid would not be material.

Six Month Period Ended June 30, 2007 Compared with Six Month Period Ended June 30, 2006

Total Revenue

Total revenue for the six months ended June 30, 2007 was approximately $26.2 million versus $24.7 million for the six months ended June 30, 2006. Revenue increased in all three product lines with Microelectronics making up the largest dollar and percentage increase. We expect increased revenue in the second half of 2007 compared to the first half of 2007 in all

21

revenue categories except licensing revenue as the current licensing agreement has concluded and the licensee will now be purchasing electrode materials in the second half of 2007.

Gross Profit

For the six months ended June 30, 2007 and 2006, gross profit was approximately $6.1 million and $5.9 million, respectively, which represented 23% and 24% of revenue, respectively. The reduction in gross profit percentage for the current six month period is mainly attributable to the absence of contract revenue from the USABC and NPOESS contracts as compared to the six months ended June 2006.

We continue to produce quality products which is reflected in the reduction of settlement of warranties and product warranty expense we have accrued. We also have improved production efficiency, and reduced product costs while simultaneously ramping up production capacity to meet anticipated future demand. The gross profit is to some extent impacted by under-absorbed overhead costs for forecasted demand that is beyond actual order volume. Once the anticipated efficiencies are fully implemented and the anticipated demand comes in-line with our expectations, gross profit contribution percentage is expected to increase.

Additionally, included in cost of sales for the six months ended June 30, 2007 and 2006 is $128,000 and $107,000, respectively, of stock compensation expense.

Selling, General & Administrative (SG&A) Expense

Selling, general and administrative (SG&A) expenses were approximately $10.1 million for the six months ended June 30, 2007, compared with $8.2 million for the six months ended June 30, 2006. As a percentage of revenues, SG&A expenses were 38% for the six months ended June 30, 2007 compared with 33% for the six months ended June 30, 2006. The approximate $1.9 million increase from the prior year period includes an approximate increase of $390,000 in sales commissions; $285,000 in audit fees; $505,000 in wages; $150,000 in legal and consulting expenses; and an approximate $430,000 increase in the stock compensation expense for restricted stock, ESPP and stock option awards recognized in 2007.

Research & Development (R&D) Expense

Research and development (R&D) expenses were approximately $5.9 million for the six months ended June 30, 2007 compared with approximately $4.6 million for the same period in 2006. As a percentage of revenues, R&D expense was 23% for the six months ended June 30, 2007 compared with 19% for six months ended June 30, 2006. R&D spending continues to be focused mainly on BOOSTCAP^® product development and Microelectronics single board computer product development.

Provision for Income Taxes

We recorded an income tax benefit of $158,000 for the six months ended June 30, 2007 compared with a provision for income tax of $164,000 for the six months ended June 30, 2006. The tax provision in 2006 was the result of our Swiss subsidiary generating profitable results.

Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated such earnings will be remitted to the United States. If remitted, the additional United States taxes paid would not be material.

Liquidity and Capital Resources

As of June 30, 2007, we had approximately $21.3 million in cash, cash equivalents, restricted cash and short-term investments.

We have a 1.2 million Swiss Francs (approximately $936,000) term loan from a Swiss bank for capital equipment purchases; approximately $374,000 of that facility was outstanding as of June 30, 2007. We have a 1 million Swiss Francs (approximately $814,000) line of credit with another Swiss bank for working capital; approximately $773,000 of the line was utilized as of June 30, 2007. We entered into a lease agreement in May 2006 for the acquisition of manufacturing equipment up to a maximum of 1.5 million Swiss Francs (approximately $1.2 million). The lease term is 48 months and $1.1 million of the credit agreement had been used to purchase equipment under this agreement as of June 30, 2007.

In November 2006, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to, from time to time, sell up to an aggregate of $125,000,000 of the Company’s common stock, warrants or debt securities. In May 2007 we sold 1.15 million shares in a public offering resulting in gross proceeds to the Company of $11.5 million. The Company plans to use the proceeds for working capital and general corporate purposes.

22

Should additional funds be required, we have several options for raising capital. These include negotiations to eliminate the current restriction on $8 million of cash, a bridge financing, divesting of non-strategic assets, and/or a private placement or public offering of marketable securities to provide additional liquidity. We believe our current cash and investment balances and the various options we have to raise additional capital will provide sufficient capital to fund our capital equipment and working capital requirements and potential operating losses for more than the next 12 months.

Debentures, Short Term and Long Term Borrowings

Convertible Debentures

On December 20, 2005, the Company issued $25 million in aggregate principal amount of senior subordinated convertible debentures due and payable in quarterly installments from December 2007 through December 2009 (the “Debentures”). Interest is due quarterly with the interest rate fixed to the Federal Funds Rate plus 1.125% per annum. All or a portion of the accrued and unpaid interest may be paid in shares of Maxwell’s common stock at the Company’s option.

At the issuance date, the Debentures were convertible by the holder at any time into 1,315,789 common shares at a price of $19.00 per share. We also issued 394,737 warrants in connection with the issuance of the Debentures, these had an exercise price of $19.00 at the issuance date. The exercise price, number of convertible shares and warrants are subject to adjustment upon certain events, such as the sale of equity securities by Maxwell at a price below the current exercise price of $19.00 per share.

In June 2007 Maxwell sold a total 1.15 million shares at a price below $19.00 which caused an adjustment to the price and number of warrants and convertible debenture shares relating to the convertible debt. The price for the warrants and convertible shares was adjusted to $18.47 along with an increase of warrants of 11,399 to 406,136 and the convertible debenture shares increased by 37,999 to 1,353,788 shares.

The Debentures are convertible by the holder at any time into common shares however after eighteen months from the issue date, Maxwell may require that a specified amount of the principal of the Debentures be converted if certain conditions are satisfied for a period of 20 consecutive trading days. The warrants issued in connection with the issuance of the Debentures are exercisable at any time through December 20, 2010. No warrants had been exercised as of June 30, 2007.

The change in fair value on revaluation of debenture conversion rights and warrant liabilities represents the difference between the fair value of the warrants and debenture conversion features at March 31, 2007 and their fair value on June 30, 2007 using a Black-Scholes calculation. The fair value of the holder’s and Maxwell’s conversion rights (excluding warrants) at June 30, 2007 was $4.4 million, which is included in “Convertible debentures and long-term debt” on the balance sheet. The effect of the fair market value adjustment to warrants, the holders and Maxwell’s conversion rights for the three months ended June 30, 2007 was a $1.4 million loss, which is recorded as “Gain (loss) on embedded derivative liabilities and warrants.”

As long as Debentures are outstanding, the Company is required to maintain a cash balance in excess of $8.0 million. This amount is classified as restricted cash at June 30, 2007 and December 31, 2006.

Short-term borrowings

In April Maxwell SA, our European subsidiary, received a 2.0 million Swiss Francs (approximately $1.6 million as of June 30, 2007) short term loan with a Swiss bank. Borrowings under the credit agreement bear annual interest at 4.05% with repayment terms less than 12 months from the date of funding. Borrowings under the credit agreement are unsecured and as of June 30, 2007, the full amount of the credit line was drawn.

Maxwell SA, has a 2.0 million Swiss Francs (approximately $1.6 million as of June 30, 2007) credit agreement with a Swiss bank. Borrowings under the credit agreement bear interest at 3.95% with repayment terms extending beyond one month from the date of funding. Borrowings under the credit agreement are unsecured and as of June 30, 2007, the full amount of the credit line was drawn.

Maxwell SA, has a 1.0 million Swiss Francs (approximately $814,000 as of June 30, 2007) overdraft credit agreement with a Swiss bank, which renews annually. Borrowings under the credit agreement bear annual interest at 3.4%. Borrowings under the credit agreement are unsecured and as of June 30, 2007, $773,000 was drawn on the overdraft credit line. The agreement requires our Swiss subsidiary to maintain a minimum equity amount of 5.0 million Swiss Francs; we were in compliance with this covenant as of June 30, 2007.

23

Long-term borrowings

Maxwell, SA has a term loan with a maximum draw of 1.2 million Swiss Francs, (approximately $936,000 as of June 30, 2007), for financing specific capital equipment expenditures. Borrowings under the term loan are secured by the equipment being purchased. This credit agreement bears interest at the Swiss inter-bank borrowing rate plus 2.0%. The term loan can be borrowed in quarterly advances up to the maximum limit and repaid over one to five years. As of June 30, 2007 approximately $374,000 was outstanding. The weighted average annual interest rate on the funds borrowed at June 30, 2007 was 4.2%.

Maxwell, SA has a lease agreement for the acquisition of manufacturing equipment up to an amount of 1.5 million Swiss Francs (approximately $1.2 million as of June 30, 2007). Under this lease agreement borrowings are for a minimum purchase of 250,000 Swiss Francs and the lease is secured by the equipment being purchased. The leasing fee is 2.22% of the acquisition price plus VAT and a residual value of .5% of the acquisition price. Equipment suppliers are paid directly by the bank with interest payable at a rate of 6.75% per annum until the entire amount has been borrowed at which time the lending arrangement converts to a lease. As of June 30, 2007 $1.1 million of this credit agreement had been paid to suppliers.

We secured a $1.0 million loan from a U.S. bank for capital equipment purchases, subject to a three-year repayment period. The agreement bears interest at the US Government Treasury Note rate plus 825 basis points. As of June 30, 2007, $672,000 of the loan was drawn.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP. We have used certain assumptions and judgments in the preparation of these financial statements, which assumptions and estimates may potentially affect the reported amounts of assets and liabilities and the disclosure of contingencies as well as reported amounts of revenues and expenses. The following may involve a higher degree of judgment and complexity and, as such, management assumptions and conclusions in these areas may significantly impact the results of operations of the Company.

Additional information about these critical accounting policies may be found in the “Management’s Discussion & Analysis of Financial Condition and Results of Operations” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. There have been no changes to these critical accounting policies subsequent to December 31, 2006.

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of FASB No. 109, Accounting for Income Taxes, which provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007.

Revenue Recognition

We derive our revenue from the sale of manufactured products directly to customers. For certain long-term contracts revenue is recognized at the time costs are incurred and for licensing fees we recognize revenue from the right to manufacture products based on our proprietary ultracapacitors design. Product revenue is recognized, according to the guidelines of SEC Staff Accounting Bulletin Numbers 101 Revenue Recognition in Financial Statements, and 104 Revenue Recognition, when title passes to the customer at either shipment from our facilities, or receipt at the customer facility, depending on shipping terms, provided collectability is reasonably assured. If a volume discount is offered revenue is recognized at the lowest price to the customer. This method has been consistently applied from period to period and there is no right of return. Revenue on fixed price government contracts is recognized at the time costs are incurred and is calculated on a percentage of completion basis, in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts and is limited by the funding of the prime contractor. In prior years, certain continuing and discontinued segments involved revenues from both long-term and short-term fixed price contracts and cost plus contracts with the U.S. Government directly or through a prime contractor. Those revenues, including estimated profits, were recognized at the time the costs were incurred and included provisions for any anticipated losses. These contracts are subject to rate audits and other audits, which could result in the reduction of revenue in excess of estimated provisions. In turn, this could increase losses for the periods in which any such reduction occurs. The Company recognizes revenue that relates to specific deliverables, in accordance with EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. This revenue involves a contract that grants a license to manufacture and market

24

products in Mainland China, using Maxwell’s proprietary large cell and multi-cell module technology under a separate brand. The contract, obligates the manufacturer to source ultracapacitor electrode material from Maxwell, the agreement has no general right of return and allows for no refunds.

Stock Compensation

We value stock compensation based on the fair value recognition provisions of revised Statement of Financial Accounting Standards No. 123 (revised) Share-Based Payment (SFAS 123R), which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated grant date fair value of these awards over the requisite employee service period. The expense recognition provisions of SFAS 123R apply to new awards and to unvested awards that are outstanding on the effective date and awards subsequently modified or cancelled. Estimated compensation expense for awards outstanding at the effective date are being recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS No. 123, Accounting for Stock-Based Compensation.

Inventory

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Finished goods and work-in-process inventory values include the cost of raw materials, labor and manufacturing overhead. Inventory written down to market establishes a new cost basis and its value can not be subsequently increased based upon changes in underlying facts and circumstances.

Excess and Obsolete Inventory

In assessing the ultimate realization of inventories, we make judgments as to future demand requirements and compare that with current and committed inventory levels. The markets for the Company’s products are extremely competitive and are characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, price competition is intense and significant price erosion generally occurs over the life of a product. We have recorded significant charges for reserves in recent periods to reflect changes in market conditions. We believe that future events are subject to change and revisions in estimates may have a significant adverse impact on the balance sheet and statement of operations.

Goodwill

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” This standard requires that goodwill balances undergo an annual impairment test and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. The first step consists of estimating the fair value of each reporting unit and comparing those estimated fair values with the carrying values of the reporting units, which includes the allocated goodwill. If the fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair value derived by deducting the fair value of a reporting unit’s assets and liabilities from its estimated fair value, which was calculated in step one. The impairment charge represents the excess of the carrying amount of the reporting units’ goodwill over the implied fair value of their goodwill. We cannot say with certainty that we may not incur charges for impairment of goodwill in the future if the fair value of Maxwell Technologies and Maxwell SA decrease due to market conditions, revisions in our assumptions or other unanticipated circumstances. Any impairment charges could adversely affect the results of our operations.

Convertible Debentures

We account for convertible debentures and warrants in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock” and EITF 05-2, “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19” were also analyzed to determine whether the debt instrument is to be considered a conventional convertible debt instrument and classified in stockholders’ equity. The December 20, 2005 valuation was used for the effective debt discount that these instruments represent. The debt discount is amortized over the four-year life of the debentures using the effective interest method.

The convertible debentures issued on December 20, 2005 were evaluated and determined not to be conventional convertible and, therefore, because of certain terms and provisions including liquidating damages under the associated

25

registration rights agreement the embedded conversion option was bifurcated and has been accounted for as a derivative liability instrument. The stock warrants issued in conjunction with the convertible debt on December 20, 2005 were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in our statement of operations.

A Black-Scholes valuation calculation is applied to both the conversion features and warrants at the end of each period. The valuations were used to record the fair value of these instruments at the end of the reporting periods with any difference from prior period calculations reflected in the statement of operations. The Company’s stock price is one input used in the Black-Scholes calculation, which has a significant impact on the calculation. The change in the Company’s stock price will have a gain or loss effect on embedded derivative liabilities in the statement of operations. The volatility of the Company’s stock price is likely to generate large swings in the valuations of the conversion features and warrants in future periods.

Pension

The Company accounts for the retirement plan for its Swiss subsidiary as a defined benefit pension plan under SFAS No. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires balance sheet recognition of the over funded or under funded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized as a component of accumulated other comprehensive income (loss) within stockholders’ equity, net of tax effects, until they are amortized as a component of net periodic benefit cost.

This plan is implemented under the terms of the plan as required by Swiss law. Management believes that the Swiss plan is adequately funded and future payments do not appear significant based on the current funding status of the plan.

The Swiss pension is similar to our U.S. defined contribution plan (401K) since the Company does not have any access to this asset, approximately one half of the assets are contributed by the employees, and the plan is regulated by the Swiss Government. The Company does not have any access or rights to this pension asset. The pension asset is being reported to comply with accounting pronouncements that require us to disclose the amount on our balance sheet.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for the periods presented. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.

Pending Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurement (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for the Company as of January 1, 2008. The Company is currently assessing the impact, if any, of SFAS 157 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No 115(“SFAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No 159 also includes an amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which applies to all entities with available-for-sale and trading securities. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not anticipate any material impact on its consolidated financial statements upon the adoption of this standard.

Off Balance Sheet Arrangements

None.

26

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time and could have a material adverse impact on our financial results. We have not entered into or invested in any instruments that are subject to market risk, except as follows:

Foreign Currency Risk

Our primary foreign currency exposure is related to our subsidiary in Switzerland. Maxwell SA has Euro and local currency (Swiss Francs) revenue and operating expenses as well as loans. Changes in these currency exchange rates impact the U.S. dollar amount of revenue, expenses and debt. The Company has certain long term contracts in a currency other than U.S. dollars. A change of 100 basis points in the customers local currency would impact the value of the contract by approximately $163,000. We do not hedge our currency exposures.

Interest Rate Risk

At June 30, 2007, we had approximately $31.5 million in debt, of which $18.6 million is classified as long-term debt. We do not anticipate significant interest rate swings in the near future; however, if they do occur it may affect the consolidated balance sheet or statement of operations. The impact on earnings or cash flow during the next fiscal year from a change of 100 basis points in the interest rate would have a $315,000 effect on our related interest expense.

We invest excess cash in debt instruments of the U.S. Government and its agencies, high-quality corporate issuers and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. Our current policies do not allow the use of interest rate derivative instruments to manage exposure to interest rate changes. As of June 30, 2007, third parties manage approximately $698,000 of the investment portfolio under guidelines approved by the Company’s Board of Directors. The balance of our cash is invested in money market accounts with banks. A 100 basis point change in the interest rate on our marketable securities would not have a material effect on our interest income.

Item 4. Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) and our Chief Executive Officer and Chief Financial Officer concluded that (i) our disclosure controls and procedures were not effective as of June 30, 2007, and (ii) no change in internal control over financial reporting occurred during the quarter ended June 30, 2007, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure the information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. As of the end of the period covered by this report, the Company’s management, including our principal executive officer and principal financial officer, has evaluated the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Exchange Act.

Based on this evaluation our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as a result of the unremediated material weakness relating to certain internal controls, surrounding the accounting for income taxes, further outlined below. To address this control weakness, the Company performed additional analysis and performed other procedures in order to prepare the unaudited quarterly consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Material weakness accounting for income taxes

At December 31, 2006, there was one primary tax issue related to our Swiss pension plan that led management to conclude that a material weakness existed. Specifically, the Company did not record an income tax liability associated with an adjustment made as a result of the implementation of FAS 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans in the prior year’s comprehensive income when, in fact, an income tax liability should have been recorded.

Management concluded that the principal factors contributing to the material weakness in accounting for income taxes related to our Swiss subsidiary were (a) inadequate consideration of the provisions of FAS No. 109 Accounting for Income Taxes by our external tax service provider resulting in an error in the accounting for income taxes and (b) insufficient or ineffective review practices by our internal personnel. This material weakness resulted in an accounting error which was corrected prior to the issuance of the consolidated financial statements for the year ended December 31, 2006. Management has not identified any other material weaknesses in its internal control over financial reporting.

27

Remediation Plans for Material Weakness in Internal control over Financial Reporting

• The Company has engaged an additional outside tax advisor who will be an additional resource in the review of the work prepared by our current service provider. This additional level of review will ensure that complex tax issues are identified and the related analyses, judgments and estimates are appropriately documented, reviewed and applied on a timely basis;

• We are still considering if additional personnel trained and experienced in United States and foreign income tax accounting are necessary;

• We are evaluating and, if necessary, will supplement the resources provided by our primary external tax service provider;

• Management believes that improved timing of certain tax review activities during the financial statement closing process will improve the review process.

Changes in Internal Controls over Financial Reporting

Other than as noted above in this Item 4, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d – 15(f) under the Exchange Act) during the last fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

In October 2006, Maxwell filed a patent infringement lawsuit against Nesscap in the United States District Court for the Southern District of California seeking monetary damages and an injunction to stop Nesscap’s sales of infringing products. In April 2007 a U.S. district judge granted a preliminary injunction to bar Nesscap’s making, using, selling or offering to sell its prismatic ultracapacitors in the United States while the litigation is pending. Nesscap filed an appeal staying the injunction. The court has denied Nesscap’s appeal to the injunction.

In December 2006, Nesscap filed a lawsuit against Maxwell in United States District Court in the District of Delaware claiming Maxwell has infringed Nesscap’s patented intellectual property. In April 2007, at Maxwell’s request this lawsuit was moved to the same district court in San Diego where Maxwell filed its action in October 2006.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the six months ended June 30, 2007 there were no sales of unregistered securities. The Company sold 1.15 million shares of common stock that had been previously reported on Form 8-K with the SEC. Additionally, the Company has issued or sold new registered common stock shares for its ESPP, employees exercising stock options or vesting of restricted stock previously noted in this document.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

The Annual meeting of Stockholders of Maxwell Technologies Inc. was held May 3, 2007. At the meeting, stockholders elected three Class II directors to serve on the Board of Directors until the 2010 Annual Meeting of the Stockholders or until their successors have been duly elected and qualified.

28

The three directors elected at the meeting were Mark Rossi, Burkhard Goeschel and Jean Lavigne. The votes cast for the three elected directors were as follows:

NAME	Votes For	Votes Withheld
Mark Rossi	13,023,847	100,774
Burkhard Goeschel	13,030,407	94,214
Jean Lavigne	10,017,946	3,106,675

The second matter voted on by the Stockholders of Maxwell Technologies, Inc. was the ratification of the appointment of McGladrey & Pullen LLP as the Company’s independent auditors for the 2007 fiscal year. The votes cast were as follows:

Votes For	Votes Against	Abstain
12,963,210	34,688	126,723

The final matter voted on by the Stockholders of Maxwell Technologies, Inc. was the approval of an increase of the 2005 Omnibus Equity Incentive Plan from 750,000 to 1,750,000 shares. The votes cast were as follows:

Votes For	Votes Against	Abstain	Broker Non-Vote
5,579,866	3,263,895	113,186	4,167,674

Item 5. Other Information

None.

Item 6. Exhibits

10.1	Transition agreement effective as of July 23, 2007 by and between the Company and Richard D Balanson. *
10.2	Employment agreement effective as of July 23, 2007 by and between the Company and David S. Schramm. *
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 Certification), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

* Filed herewith.

29

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.

Date: August 8, 2007	MAXWELL TECHNOLOGIES, INC.
	By:	/s/ David Schramm
		David Schramm President and Chief Executive Officer
Date: August 8, 2007	By:	/s/ Tim T. Hart
		Tim T. Hart Vice President – Finance, Treasurer, Chief Financial Officer and Secretary

30

EX-10.1

Exhibit 10.1

MAXWELL TECHNOLOGIES, INC.

TRANSITION AGREEMENT

This Transition Agreement (the “Agreement”) is made as of this 23 day of July, 2007, by and between MAXWELL TECHNOLOGIES, INC., a Delaware corporation (the “Company”), and RICHARD BALANSON (“Executive”). The parties agree with each other as follows:

1. Transition. Executive’s full-time employment shall terminate as of the close of business on July 23, 2007 (the “Transition Date”). Executive further agrees to resign from the Board of Directors of the Company (the “Board”), effective as of the Transition Date.

2. Future Position.

(i) Transition Period. Executive shall be employed by the Company on a part-time basis for the period commencing on the Transition Date and ending on December 31, 2011 (the “Transition Period”). Subject to Section 5, the Company shall pay Executive a salary during the Transition Period. Such salary shall be paid in accordance with the Company’s standard payroll procedures, and the amount of such salary shall be as set forth in the table below (subject to applicable withholding taxes). During the Transition Period, Executive shall not be entitled to participate in the Company’s employee benefit plans, except as provided in Paragraph (ii) below. During the Transition Period, Executive shall have the title of Senior Technical Adviser and shall provide such services to the Company as the Board or the Company’s Chief Executive Officer may reasonably request. Executive may be required to commit to such services up to the number of hours per week set forth in the table below. In the event of Executive’s death prior to the completion of the Transition Period, the remaining payments that would otherwise have been made to Executive under this Paragraph (i) shall instead be paid on the same schedule to Executive’s designated beneficiary or beneficiaries or, if none, to his estate.

Period	Annual Salary		Maximum Hours per Week
Prior to October 1, 2007	$	450,000	40
October 1 through December 31, 2007	$	450,000	8
After December 31, 2007	$	175,000	8

(ii) Payments in Lieu of Benefits. In lieu of all group insurance coverage and participation in other employee benefit plans, the Company shall pay Executive $15,300 per year in accordance with the Company’s standard payroll procedures (subject to applicable withholding taxes).

(iii) Options. The Transition Period shall be treated as employment with the Company for purposes of determining the expiration date of all options to purchase shares of the Company’s Common Stock held by Executive, as provided in the Stock Option Agreements evidencing such options.

(iv) Restricted Shares. The Transition Period shall be treated as employment with the Company for purposes of determining the vested portion of all awards of restricted shares of the Company’s Common Stock held by Executive, as provided in the Restricted Stock Agreements applicable to such shares.

(v) Savings Clause. Payments under this Section 2 shall in no event commence prior to the earliest date permitted by Section 409A(a)(2) of the Code. If the commencement of such payments must be delayed, as determined by the Company, then the deferred installments shall be paid in a lump sum on the earliest practicable date permitted by Section 409A(a)(2) of the Code.

(vi) Exclusive Rights. After the Transition Date, Executive shall have no claim against the Company in respect of his employment for damages or otherwise, except in respect of the payments and other provisions specified in this Transition Agreement.

(vii) Cooperation. Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive.

3. Resolution of Disputes. The parties recognize that claims, controversies and disputes may arise out of this Agreement with respect to Executive’s employment, termination of employment, or other terms of this Agreement or based on common law or statute, either during the existence of the employment relationship or afterwards. The parties agree that should any such claim, controversy or dispute arise, the parties will use their best efforts to resolve such dispute informally, between them. In the event that any such claim, controversy or dispute between Company and Executive cannot be resolved within thirty (30) days after either party first gives notice in writing that any such claim, controversy or dispute exists, either party may then refer the matter to arbitration before JAMS/ENDISPUTE pursuant to its rules for resolution of employment disputes.

The parties hereby agree that referral to arbitration shall be the sole recourse of either party under this Agreement with respect to any such claim, controversy or dispute and that the decision of the arbitrator shall be binding on the parties in accordance with applicable law; provided, however, that nothing in this Section 3 shall be construed as precluding either party from bringing an action for injunctive relief or other equitable relief. The parties shall keep confidential from third parties (other than the arbitrator) the existence of each such claim, controversy or dispute and the determination thereof, unless otherwise required by law. Except as provided in the following two sentences, each decision rendered by the arbitrator shall be final and conclusive and may be entered in any court having jurisdiction thereof as a basis of judgment and of the issuance of execution for its collection. In rendering his or her decision, the arbitrator shall be bound to follow California or Federal law, as applicable, in the same manner as would a court of law. Any claim that the arbitrator made a mistake or error in determining or applying the appropriate law shall be subject to judicial review.

2

The parties further agree that the party prevailing in the arbitration shall be entitled to its reasonable attorney’s fees and that the arbitration itself shall take place within the County of San Diego, California, and that the internal laws of the State of California shall apply.

4. No Solicitation. Executive agrees that after the Transition Date, he shall not hire, solicit or otherwise cause to be solicited for employment elsewhere, either directly or indirectly, any employee, officer or director of the Company or any individual who chooses not to join the Company, provided that Executive participated actively in the recruiting of such individual. This Section 4 shall apply until the close of the Transition Period.

5. Noncompetition. Executive agrees that the Company may immediately discontinue all payments under Section 2 if he (a) directly or indirectly owns, manages, operates or controls, or participates in the ownership, management, operation or control of, or is connected with or has any interest in, as a shareholder, director, officer, employee, agent, consultant, partner, creditor or otherwise, any business or activity which is competitive with any business or activity engaged in by the Company or any of its subsidiaries or affiliates anywhere within (i) the State of California, (ii) any other state of the United States and the District of Columbia in which the Company engages in or has engaged in business during the past five years or (iii) any other country in which the Company engages in or has engaged in business during the past five years or (b) permits any entity or other person under his control to engage in any activity prohibited under clause (a). This Section 5 shall apply until the close of the Transition Period.

6. Entire Agreement. This Agreement constitutes the entire Agreement between the parties and contains all agreements between them with the exception of the 1995 Stock Option Plan and the 2005 Omnibus Equity Incentive Plan (and the Stock Option and Restricted Stock Agreements issued to Executive thereunder), the other employee benefit and welfare programs maintained by the Company, and the Invention and Secrecy Agreement dated August 1, 2003, and signed by Executive, which are supplementary to this Agreement and are each deemed to be incorporated herein by reference. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied in this Agreement, and that no agreement, statement or promise not contained in this Agreement shall be valid or binding. Except for the other agreements, plans and programs referred to in this Section 6, this Agreement also supersedes any and all other agreements and contracts, whether verbal or in writing, relating to the subject matter hereof, including (without limitation) the Employment Agreement dated August 1, 2003.

7. Amendment. Except as otherwise specifically provided herein, the terms and conditions of this Agreement may be amended at any time by mutual agreement of the parties; provided that before any amendment shall be valid or effective, it shall have been reduced to writing and signed by the Chairman of the Board on behalf of the Company and by Executive.

3

8. Invalidity. The invalidity or unenforceability of any particular provision of this Agreement shall not affect its other provisions, and this contract shall be construed in all respects as if such invalid or unenforceable provision has been omitted.

9. Binding Nature. Executive’s rights and obligations under this Agreement shall not be assignable, transferable or delegable by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void. This Agreement shall be binding upon and shall inure to the benefit of any successor of the Company and Executive, and any such successor shall be deemed substituted for the Company or Executive under the terms of this Agreement. The term “successor” as used in this Section 9 shall include any person, firm, corporation or other business entity that at any time, by merger, purchase or otherwise, acquires or gains control over all or substantially all of the assets or business of the Company.

10. Assistance in Litigation. Executive shall, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is or may become a party. Except where Executive is a named defendant and except during the Transition Period, Executive shall be paid a reasonable hourly fee to be mutually agreed upon.

11. Indemnification. To the fullest extent permissible by applicable law, the Company shall indemnify and hold harmless Executive for any liability incurred by reason of any act or omission performed by Executive while acting in good faith on behalf of the Company and within the scope of the authority of Executive.

12. No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Executive may receive from any other source not paid for by the Company.

13. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, other than their choice-of-law provisions, except that Sections 4 and 5 hereof shall be governed by, and interpreted and construed in accordance with, the internal laws (without giving effect to choice of law principles) of the jurisdiction in which either of said Sections is being sought to be enforced.

14. Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and, if given by telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified, at the following addresses:

If to Executive to:

Richard Balanson

4

If to the Company to:

Maxwell Technologies, Inc.

9244 Balboa Avenue

San Diego, California 92123

Attn: Chairman of the Board

Telephone: (858) 503-3300

Fax: (858) 503-3301

15. Injunctive Relief. The Company and Executive agree that a breach of any term of this Agreement by Executive would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance and other equitable relief to prevent or to redress the violation of Executive’s duties or responsibilities hereunder.

16. Release. As a condition to his entitlement to receive the benefits as set forth in this Agreement, Executive agrees to execute and deliver to the Company a release in the form attached hereto as Exhibit A. Such release shall be delivered by Executive on the Transition Date and shall become effective as set forth therein.

17. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties to this Agreement may execute this Agreement by signing any such counterpart.

5

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

“Company”
MAXWELL TECHNOLOGIES, INC.
By:	/s/ Edward B. Caudill
“Executive”
/s/ Richard Balanson
Richard Balanson

6

Exhibit A

GENERAL RELEASE OF ALL CLAIMS

This General Release of All Claims (“Release”) is made by and between RICHARD BALANSON (“Executive”) on the one hand and Maxwell Technologies, Inc. (the “Company”) on the other. (Collectively, Executive and the Company shall be referred to as the “Parties.”)

1. Executive is an employee of the Company. Executive’s last day of full-time employment with the Company is July 23, 2007 (the “Transition Date”). The Parties desire to resolve any and all differences related to Executive’s full-time employment with the Company and/or the cessation of that employment. Additionally, the Parties desire to resolve any known or unknown claims between them, neither Party admitting any liability or fault. For these reasons, the Parties have entered into this Release.

2. All vacation accrual and other fringe benefits of Executive cease on the Transition Date.

3. If Executive enters into this Release and does not revoke this Release within the time period provided below in Section 15, the Company will provide Executive with the payments and other benefits described in the Transition Agreement dated July 23, 2007, between the Parties.

4. In consideration of and in return for the promises and covenants undertaken herein by the Company, including the payments Executive will receive under Section 3 above, and for other good and valuable consideration, receipt of which is hereby acknowledged, Executive does hereby acknowledge full and complete satisfaction of and does hereby release, absolve and discharge the Company and the Company’s parents, subsidiaries, affiliates, related companies and business concerns, past and present, and each of them, as well as each of their partners, trustees, directors, officers, agents, attorneys, servants and employees, past and present, and each of them (hereinafter collectively referred to as the “Releasees”) from any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action, grievances, severance payments, obligations, debts, expenses, damages, judgments, orders and liabilities of whatever kind or nature in state or federal law, equity or otherwise, whether known or unknown to Executive that Executive now owns or holds or has at any time owned or held as against Releasees, or any of them, including specifically but not exclusively and without limiting the generality of the foregoing, any and all claims, demands, grievances, agreements, obligations and causes of action, known or unknown, suspected or unsuspected by Executive (a) arising out of Executive’s employment with the Company or the ending of that employment or (b) arising out of or in any way connected with any claim, loss, damage or injury whatever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of the Releasees, or any of them, committed or omitted on or before the Transition Date. Also without limiting the generality of the foregoing, Executive specifically releases the Releasees from any claim for attorneys’ fees and/or costs of suit. EXECUTIVE SPECIFICALLY AGREES AND ACKNOWLEDGES EXECUTIVE IS WAIVING ANY

1

RIGHT TO RECOVERY BASED ON STATE OR FEDERAL AGE, SEX, PREGNANCY, RACE, COLOR, NATIONAL ORIGIN, MARITAL STATUS, RELIGION, VETERAN STATUS, DISABILITY, SEXUAL ORIENTATION, MEDICAL CONDITION, OR OTHER ANTI-DISCRIMINATION LAWS, INCLUDING, WITHOUT LIMITATION, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE AMERICANS WITH DISABILITIES ACT AND THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, OR BASED ON THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, ALL AS AMENDED, WHETHER SUCH CLAIM BE BASED UPON AN ACTION FILED BY EXECUTIVE OR BY A GOVERNMENTAL AGENCY. However, this Release covers only those claims that arose prior to the execution of this Release and only those claims that may be waived by applicable law. Execution of this Release does not bar any claim that arises hereafter, including (without limitation) a claim for breach of this Release or the Transition Agreement. Execution of this Release also does not bar any claim to indemnification under Section 2802 of the California Labor Code.

5. It is the intention of Executive in executing this Release that it shall be effective as a bar to each and every claim, demand, grievance and cause of action hereinabove specified. In furtherance of this intention, Executive hereby expressly waives any and all rights and benefits conferred upon Executive by the provisions of Section 1542 of the California Civil Code and expressly consents that this Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating to any other claims, demands and causes of action hereinabove specified. Section 1542 provides:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

Having been so apprised, Executive nevertheless hereby voluntarily elects to and does waive the rights described in Civil Code Section 1542 and elects to assume all risks for claims that now exist in Executive’s favor, known or unknown, that are released under this Release.

6. The Company expressly denies any violation of any federal, state or local statute, ordinance, rule, regulation, policy, order or other law. The Company also expressly denies any liability to Executive. This Release is the compromise of disputed claims and nothing contained herein is to be construed as an admission of liability on the part of the parties hereby released, or any of them, by whom liability is expressly denied. Accordingly, while this Release resolves all issues regarding the Company referenced herein, it does not constitute an adjudication or finding on the merits of any allegations and it is not, and shall not be construed as, an admission by the Company of any violation of federal, state or local statute, ordinance, rule, regulation, policy, order or other law, or of any liability. Moreover, neither this Release nor anything in it shall be construed to be or shall be admissible in any proceeding as evidence of or an admission by the Company of any violation of any federal, state or local statute, ordinance, rule, regulation, policy, order or other law, or of any liability. This Release may be introduced, however, in any proceeding to enforce this Release or the Transition Agreement. Such introduction shall be pursuant to an order protecting its confidentiality.

2

7. Executive agrees the terms and conditions of this Release are confidential and shall not be disclosed, discussed or revealed by Executive to any other person or entity, excepting Executive’s spouse, tax advisor or attorney, all of whom are also obligated to maintain the confidentiality of this Release.

8. Each Party expressly agrees that such Party will not in any way disparage or otherwise cause to be published or disseminated any negative statements, remarks, comments or information regarding the other Party.

9. This Release shall be construed in accordance with, and be deemed governed by, the laws of the State of California.

10. If any provision of this Release or application thereof is held invalid, the invalidity shall not affect other provisions or applications of this Release that can be given effect without the invalid provision or application. To this end, the provisions of this Release are severable.

11. The Parties hereto acknowledge each has read this Release, that each fully understands its rights, privileges and duties under this Release, and that each enters into this Release freely and voluntarily. Each Party further acknowledges each has had the opportunity to consult with an attorney of its choice to explain the terms of this Release and the consequences of signing it.

12. The undersigned each acknowledge and represent that no promise or representation not contained in this Release has been made to them and acknowledge and represent that this Release contains the entire understanding between the Parties and contains all terms and conditions pertaining to the compromise and settlement of the subjects referenced herein. The undersigned further acknowledge that the terms of this Release are contractual and not a mere recital.

13. Executive acknowledges Executive may hereafter discover facts different from, or in addition to, those Executive now knows or believes to be true with respect to the claims herein released and agrees the release herein shall be and remain in effect in all respects as a complete and general release as to all matters released herein, notwithstanding any such different or additional facts.

14. The Company hereby advises Executive that this Release includes a waiver of any rights that the Executive may have under the Age Discrimination in Employment Act. Executive is advised to discuss this Release with his attorney before executing it. Executive acknowledges that the Company has provided Executive at least twenty-one (21) days within which to review and consider this Release before signing it. Should Executive decide not to use the full twenty-one days, then Executive knowingly and voluntarily waives any claim that Executive was not in fact given that period of time or did not use the entire twenty-one days to consult an attorney and/or consider this Release.

15. Within three calendar days of signing and dating this Release, Executive shall deliver the executed original of this Release to Tim Hart, Maxwell Technologies, Inc., 9244 Balboa Avenue, San Diego, California 92123. However, Executive acknowledges that

3

Executive may revoke this Release for up to seven (7) calendar days following Executive’s execution of this Release and that it shall not become effective or enforceable until the revocation period has expired. Executive acknowledges that such revocation must be in writing addressed to Tim Hart, Maxwell Technologies, Inc., 9244 Balboa Avenue, San Diego, California 92123, and received not later than midnight on the seventh day following execution of this Release by Executive. If Executive revokes this Release under this Section 15, this Release shall not be effective or enforceable and Executive will not receive the payments described in Section 3 above.

16. If Executive does not revoke this Release in the time frame specified in Section 15, this Release shall be effective at 12:01 a.m. on the eighth day after it is signed by Executive.

17. Executive acknowledges that, despite the cessation of Executive’s full-time employment with the Company, Executive may continue to be subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Executive further acknowledges that the Company has advised him to consult independent counsel regarding the applicability of Section 16 of the Exchange Act.

I have read this Release and I accept and agree to the provisions contained therein and hereby execute it voluntarily and with full understanding of its consequences.

PLEASE READ CAREFULLY. THIS RELEASE CONTAINS A

GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

/s/ Richard Balanson	Date: July 23, 2007
Richard Balanson

Maxwell Technologies, Inc.
By:	/s/ Edward B. Caudill	Date: July 23, 2007
Title:	Chairman of the Board

4

EX-10.2

Exhibit 10.2

MAXWELL TECHNOLOGIES, INC.

9244 BALBOA AVENUE

SAN DIEGO, CA 92123

Dear David:

Maxwell Technologies, Inc. (the “Company”) is pleased to offer you employment on the following terms:

1. Position. Your title will be President & Chief Executive Officer, and you will report to the Company’s Board of Directors. This is a full-time position. While you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company. By signing this letter agreement, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company.

2. Board Seat. The Company will use commercially reasonable efforts to cause you to be nominated for election and reelection as a member of its Board of Directors as long as you serve as its President & Chief Executive Officer. You agree that you will resign your position as a member of the Board of Directors if you cease to be the Company’s President & Chief Executive Officer for any reason, unless the Board of Directors expressly requests your continuing service on the Board.

3. Salary. The Company will pay you a starting salary at the rate of $400,000 per year, payable in accordance with the Company’s standard payroll schedule. This salary will be subject to adjustment pursuant to the Company’s employee compensation policies in effect from time to time.

4. Bonus. You will be eligible to be considered for an incentive bonus for each fiscal year of the Company. The bonus (if any) will be awarded based on objective or subjective criteria established by the Company’s Board of Directors or its Compensation Committee. Your target bonus will be equal to 100% of your annual base salary. The bonus for fiscal year 2007 will be guaranteed at the target level but will be prorated, based on the number of days you are employed by the Company during that fiscal year. The bonus for a fiscal year will be paid after the Company’s books for that year have been closed and will be paid only if you are employed by the Company at the time of payment. The determinations of the Company’s Board of Directors or its Compensation Committee with respect to your bonus will be final and binding.

Mr. David Schramm

Page 2

5. Employee Benefits. As an executive officer of the Company, you will be eligible to participate in a number of Company-sponsored benefits. In addition, you will be entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.

6. Stock Options. Subject to the approval of the Compensation Committee of the Company’s Board of Directors, you will be granted an option to purchase 150,000 shares of the Company’s Common Stock. The exercise price per share will be equal to the closing price on the date when the option is granted. The option will be subject to the terms and conditions applicable to options granted under the Company’s 2005 Omnibus Equity Incentive Plan (the “Plan”), as described in the Plan and the applicable Stock Option Agreement. You will vest in 25% of the option shares after 12 months of continuous service, and the balance will vest in equal monthly installments over the next 36 months of continuous service, as described in the applicable Stock Option Agreement. If the Company is subject to a Change of Control (as defined in the Plan) before your service with the Company terminates, and if you are subject to an Involuntary Termination (as defined in Section 14) within 12 months after that Change of Control, then you will vest in all of the option shares.

7. Restricted Shares. Subject to the approval of the Compensation Committee of the Company’s Board of Directors, you will be granted 100,000 restricted shares of the Company’s Common Stock. The award will be subject to the terms and conditions of the Plan, as described in the Plan and the applicable Restricted Stock Agreement. You will vest in 25% of the shares after 12 months of continuous service, and the balance will vest in equal quarterly installments over the next 36 months of continuous service, as described in the applicable Restricted Stock Agreement. If the Company is subject to a Change of Control before your service with the Company terminates, and if you are subject to an Involuntary Termination within 12 months after that Change of Control, then you will vest in all of the shares.

8. Severance Benefits. If the Company terminates your employment for any reason other than Cause (as defined in Section 14), then you will be entitled to the following benefits:

(a) The Company will continue to pay your base salary for a period of 12 months after the termination of your employment. Your base salary will be paid at the rate in effect when your employment terminates and in accordance with the Company’s standard payroll procedures. If the Company determines that you are a “specified employee” under Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), when your employment terminates, then (i) the salary continuation payments under this Subsection (a), to the extent not exempt from Section 409A of the Code, will commence on the earliest practicable date that occurs more than six months after the termination of your employment and (ii) the installments that otherwise would have been paid during the first six months after the termination of your employment will be paid in a lump sum on the first day of the seventh month after the termination of your employment. The amount of the salary continuation payments under this Subsection (a) will be reduced by the amount of any severance pay or pay in lieu of notice that you receive from the Company under a federal or state statute (including, without limitation, the WARN Act).

Mr. David Schramm

Page 3

(b) If you elect to continue your health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) following the termination of your employment, then the Company will pay the same portion of your monthly premium under COBRA as it pays for active employees until the earliest of (i) the close of the 12-month period following the termination of your employment, (ii) the expiration of your continuation coverage under COBRA or (iii) the date when you become eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment.

However, this Section 8 will not apply unless you (i) have returned all Company property in your possession, (ii) have resigned as a member of the Boards of Directors of the Company and all of its subsidiaries, to the extent requested by the Board of Directors, and (iii) have executed a general release of all claims that you may have against the Company or persons affiliated with the Company. The release must be in the form prescribed by the Company, without alterations. The Company will deliver the form to you within 30 days after your employment terminates. You must execute the release within the period set forth in the prescribed form.

9. Proprietary Information and Inventions Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Company’s standard Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.

10. Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this letter agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company (other than you).

11. Taxes. All forms of compensation referred to in this letter agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or its Board of Directors related to tax liabilities arising from your compensation.

12. Interpretation, Amendment and Enforcement. This letter agreement and Exhibit A constitute the complete agreement between you and the Company, contain all of the terms of your employment with the Company and supersede any prior agreements, representations or understandings (whether written, oral or implied) between you and the

Mr. David Schramm

Page 4

Company. This letter agreement may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this letter agreement or arising out of, related to, or in any way connected with, this letter agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will be governed by California law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in San Diego in connection with any Dispute or any claim related to any Dispute.

13. Arbitration. Any controversy or claim arising out of this letter agreement and any and all claims relating to your employment with the Company will be settled by final and binding arbitration. The arbitration will take place in San Diego or, at your option, the County in which you primarily worked when the arbitrable dispute or claim first arose. The arbitration will be administered by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes. Any award or finding will be confidential. You and the Company agree to provide one another with reasonable access to documents and witnesses in connection with the resolution of the dispute. You and the Company will share the costs of arbitration equally, except that the Company will bear the cost of the arbitrator’s fee and any other type of expense or cost that you would not be required to bear if you were to bring the dispute or claim in court. Each party will be responsible for its own attorneys’ fees, and the arbitrator may not award attorneys’ fees unless a statute or contract at issue specifically authorizes such an award. This Section 13 does not apply to claims for workers’ compensation benefits or unemployment insurance benefits. Injunctive relief and other provisional remedies will be available in accordance with Section 1281.8 of the California Code of Civil Procedure.

14. Definitions. The following terms have the meaning set forth below wherever they are used in this letter agreement:

“Cause” means (a) your unauthorized use or disclosure of the Company’s confidential information or trade secrets, (b) your breach of any agreement between you and the Company, (c) your material failure to comply with the Company’s written policies or rules, (d) your conviction of, or your plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State, (e) your gross negligence or willful misconduct, (f) your continuing failure to perform assigned duties after receiving written notification of the failure from the Company’s Board of Directors or (g) your failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested your cooperation.

“Involuntary Termination” means either (a) involuntary discharge by the Company for reasons other than Cause or (b) voluntary resignation following (i) a change in your position with the Company that materially reduces your level of authority or responsibility, (ii) a reduction in your base salary by more than 10% or (iii) receipt of notice that your principal workplace will be relocated more than 50 miles.

* * * * *

Mr. David Schramm

Page 5

We hope that you will accept our offer to join the Company. You may indicate your agreement with these terms and accept this offer by signing and dating both the enclosed duplicate original of this letter agreement and the enclosed Proprietary Information and Inventions Agreement and returning them to me. This offer, if not accepted, will expire at the close of business on July 23, 2007. As required by law, your employment with the Company is contingent upon your providing legal proof of your identity and authorization to work in the United States. Your employment is also contingent upon your starting work with the Company on or before August 1, 2007.

If you have any questions, please call me.

Very truly yours,
MAXWELL TECHNOLOGIES, INC.
/s/ Edward Caudill
By:	Edward Caudill
Title:	Chairman of the Board

I have read and accept this employment offer:

/s/ David Schramm

Signature of David Schramm

Attachment

Exhibit A: Proprietary Information and Inventions Agreement

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT AND RULE 13A-14(A) OR 15D-14(A) UNDER THE

SECURITIES EXCHANGE ACT OF 1934

I, David Schramm, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended June 30, 2007.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2007		MAXWELL TECHNOLOGIES, INC.
	By:	/s/ David Schramm
		David Schramm President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT AND RULE 13A-14(A) OR 15D-14(A) UNDER THE

SECURITIES EXCHANGE ACT OF 1934

I, Tim T. Hart, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended June 30, 2007.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2007	By:	/s/ Tim T. Hart
		Tim T. Hart Vice President – Finance, Treasurer, Chief Financial Officer and Secretary

EX-32

Exhibit 32

Certification of Periodic Financial Report by the Chief Executive Officer and

Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Solely for the purpose of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Maxwell Technologies, Inc. (the “Company”), hereby certify that, based on our knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2007	MAXWELL TECHNOLOGIES, INC.
	By:	/s/ David Schramm
		David Schramm President and Chief Executive Officer
Date: August 8, 2007	By:	/s/ Tim T. Hart
		Tim T. Hart Vice President – Finance, Treasurer, Chief Financial Officer and Secretary