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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

Commission file number 1-15477

MAXWELL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (858) 503-3300

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.10 per share

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). YES  x    NO  ¨

As of June 30, 2004 the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Stock held by non-affiliates of the registrant based on the closing price of the Common Stock on the Nasdaq National Market was $77,061,569.

The number of shares of the registrant’s Common Stock outstanding as of March 9, 2005 was 15,738,289 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders to be held on May 5, 2005 are incorporated by reference into Parts II and III of this Annual Report on Form 10-K.

Table of Contents

MAXWELL TECHNOLOGIES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the fiscal year ended December 31, 2004

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this document and incorporated by reference herein discuss our plans and strategies for our business or make other forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and other expressions of management’s belief or opinion that reflect its current understanding or belief with respect to such matters. 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 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, these statements, including the following:

Many of these factors are beyond our control. 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 of an investment in our securities, including factors that could cause actual results to differ materially from results referred to in the forward-looking statements, see “Risk Factors” beginning on page 16 of this document. We do not have any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I

Item 1. Business

Introduction

We develop, manufacture and market highly reliable, cost-effective energy storage and power delivery solutions. Our solutions are designed and manufactured to provide failure-free, maintenance-free, performance over the life of the applications into which they are integrated. By satisfying the stringent requirements of such high-value applications, we believe that our products will be able to command higher profit margins than commodity products. We have two manufacturing locations (San Diego, California and Rossens, Switzerland) and focus on the following three lines of high-reliability products:

In keeping with this strategic focus on high-value, high-margin product lines, over the past several years we have exited several non-strategic, low-margin businesses. These efforts culminated in the sale of our Winding Equipment product line in December 2003, and the phase-out of low-margin magnetics-based power systems products, which was completed in the first quarter of 2004. As a result of these actions and other divestitures from 2002 through 2004, we have reduced operating expenses, improved efficiency and intensified our focus on our core high-reliability product lines.

General Overview

Each of our high-reliability electronic component product lines addresses a distinct industry or, in the case of our ultracapacitor products, a group of distinct industry segments.

Ultracapacitors

Ultracapacitors offer innovative, cost-effective energy storage and power delivery solutions for a wide range of electronic applications by bringing together in a single component both energy storage characteristics generally found in batteries and power delivery characteristics generally found in electrolytic capacitors. For example, although batteries store far more electrical energy than ultracapacitors, they cannot deliver that energy as rapidly and efficiently as an ultracapacitor. Conversely, although electrolytic capacitors can deliver bursts of high power very rapidly, they cannot sustain that power delivery even for a full second because they have extremely limited energy storage capacity. Also, unlike batteries, which produce electrical energy through a chemical reaction that depletes their energy generation capability within a few thousand charge/discharge cycles, ultracapacitors’ energy storage and power delivery mechanisms involve no chemical reaction, so they can be charged and discharged hundreds of thousands of times with minimal performance degradation. This ability to store energy, deliver bursts of power and perform reliably for years without maintenance makes ultracapacitors an attractive option for a wide range of power-hungry devices and systems.

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Ultracapacitors have been designed into and are ramping to commercial production volumes in industrial electronics applications, including wind turbines and automated meter reading systems and other devices that incorporate wireless transmitters. Potential end-users in the telecommunications and cable television industries currently are testing and evaluating our multi-cell POWERCACHE^® ultracapacitor-based systems to replace batteries as the short-term bridge power element of uninterruptible power supply (UPS) back-up power systems. Based on potential volumes, we believe that the transportation industry ultimately represents the largest market opportunity for ultracapacitors. These applications include distributed power nodes to support electronic subsystems including door switches, power steering and brakes and electric air-conditioning, as well as braking energy recapture and torque-assist systems for hybrid-electric buses, trucks and autos and electric rail vehicles.

High-Voltage Capacitors

High-voltage grading and coupling capacitors are used mainly in the electric utility industry. These devices prevent high-voltage arcing that can damage switches, circuit breakers, step-down transformers and other equipment responsible for the transport, distribution and measurement of high-voltage electrical energy in electric utility infrastructure. The market for these products consists of expansion and upgrading of existing infrastructure and the installation of new infrastructure in developing countries. Such installations are capital-intensive and frequently are subject to regulation, availability of government funding and general economic conditions. For example, while North America has the world’s largest installed base of electric utility infrastructure, and has begun to experience more frequent power interruptions and supply problems, utility deregulation, government budget deficits, and other factors have depressed capital spending in what normally would be expected to be a very large market for utility infrastructure components. However, projects to meet growing demand for electrical energy in developing countries, such as the Three Gorges Dam in China, continue to drive global demand for high-voltage capacitors.

Radiation-Mitigated Microelectronics

Radiation-mitigated microelectronic products are used almost exclusively in the space and satellite industry. Because satellites and spacecraft are extremely expensive to manufacture and launch and space missions often span years or even decades, and because it is impractical or impossible to repair or replace malfunctioning parts, the industry demands electronic components that are virtually failure-free. As satellites and spacecraft routinely encounter ionizing radiation from solar flares and other natural sources, these components must be able to withstand such radiation and continue to perform reliably. For that reason, until recently, suppliers of components for space applications used only special radiation-hardened silicon in the manufacture of such components. However, since the space market is relatively small and the process of producing “rad-hard” silicon is very expensive, only a few government-funded wafer fabrication facilities are capable of producing this material. In addition, because it takes several years to produce a rad-hard version of a new semiconductor, components using rad-hard silicon typically are several generations behind their current commercial counterparts in terms of density, processing power and functionality.

To address the performance gap between rad-hard and commercial silicon and provide components with both increased functionality and much higher processing power, a few specialty components suppliers have developed shielding, packaging, and other novel radiation mitigation techniques that allow sensitive commercial semiconductors to withstand space radiation effects and perform as reliably as rad-hard parts. Although this market is limited in size, the value proposition for high-performance, radiation-tolerant components enables these specialty suppliers to generate profit margins significantly higher than those for commodity electronic components.

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Business Strategy

Our primary objective is to make ultracapacitors a standard and often preferred energy storage and power delivery option for a wide variety of applications. To accomplish this, we focus on:

Providing a standard energy storage and power delivery option by:

Becoming a leading ultracapacitor supplier by:

In addition to our market creation and commercialization strategy for ultracapacitors, we seek to expand revenue and market opportunities for our high-voltage capacitors and radiation-mitigated microelectronic products. While the latter are niche businesses with highly specialized applications, they are based on high-margin products for which we are a technology leader. Going forward, we plan to maintain and expand this competitive position by leveraging our technological expertise to develop new products that not only meet the demands of our current markets, but address additional applications as well. For example, our microelectronic group recently introduced a new single-board computer for the space and satellite market. This product, which leverages our expertise in reliability and radiation-mitigation, provides access to a new market opportunity by addressing an application that we did not previously serve. Likewise, in 2004, our high-voltage capacitor business introduced and delivered the first of a new line of capacitive voltage divider products.

Products and Applications

Our products incorporate our expertise and proprietary power and microelectronics technology at both the component and system level for specialized, high-value applications for which customers require ultra-high reliability.

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Ultracapacitors

Ultracapacitors, also known as supercapacitors, store energy electrostatically by polarizing an organic salt solution within a sealed package. As no chemical reaction is involved in their energy storage mechanism, this mechanism is highly reversible, allowing ultracapacitors to be rapidly charged and discharged hundreds of thousands of times without noticeable performance degradation even in very high peak power applications.

Compared with electrolytic capacitors, which have very little energy storage capacity and discharge power too rapidly to be suitable for many power delivery applications, ultracapacitors have much greater energy storage capacity and can discharge power over time periods ranging from fractions of a second to several minutes.

Unlike conventional rechargeable batteries, ultracapacitors discharge and recharge in as little as fractions of a second. They operate reliably through hundreds of thousands to millions of discharge/recharge cycles with minimal degradation of performance, compared with only up to a few thousand cycles for conventional batteries. Although ultracapacitors store only about one-tenth as much electrical energy as a conventional battery, they can deliver stored energy as electric power 100 times more rapidly.

We link our ultracapacitor cells together in packs and modules to satisfy higher energy storage and power delivery requirements, and both individual cells and multi-cell packs and modules can be charged from any primary energy source, such as a battery, generator, fuel cell, solar panel or electrical outlet. Virtually any device or system whose peak power demands are greater than its average power requirement is a candidate for an ultracapacitor-based energy storage and power delivery solution.

Our ultracapacitor products have significant advantages over batteries, including:

Any device or system that requires electrical energy storage and repeated discharges of variable amounts of power represents a potential application for ultracapacitors. With no moving parts and no chemical reactions, ultracapacitors provide a simple, solid state-like, highly reliable solution to buffer short-term mismatches between power available and power required.

New power-hungry electronic products, such as wireless communication devices, increasing use of electric power in vehicles, and growing demand for highly reliable, maintenance-free, back-up power are creating significant markets for new and improved energy storage and power delivery solutions. In many applications, power demand varies widely from moment to moment, with peak power demand typically being much greater than the average power requirement. For example, automobiles require much more power to accelerate than to maintain a constant speed, and forklifts require more power to lift a heavy pallet than to move about within a warehouse.

Engineers historically have addressed such peak power requirements by over-sizing the engine, battery or other primary energy source to satisfy all of a system’s power demands, including demands that occur infrequently and may last only a few seconds or less. Sizing the primary power source to meet transient peak

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power requirements, rather than average power requirements, is costly and inefficient. Primary energy sources can be designed to be smaller, lighter and less costly if they are coupled with specialized power components, such as ultracapacitors, that can deliver or absorb brief bursts of high power on demand for periods of time ranging from fractions of a second to several minutes.

The following diagram depicts the separation of a primary energy storage source from a peak power delivery component. Highly reliable components that enable this separation permit new designs to optimize the size, efficiency and cost of the entire electrical power system.

Peak Power Application Model

Although conventional batteries are the most widely used component for both primary energy sourcing and peak power delivery, ultracapacitors, advanced batteries and flywheels now enable system designers to separate and optimize these functions. Based in part on ultracapacitors’ rapidly declining cost, high performance and “life-of-the-application” durability, we believe that our products are positioned to become a preferred solution for many energy storage and power delivery applications.

We offer our BOOSTCAP^® ultracapacitors in several form factors, ranging from postage stamp size 5-farad small cells to cylindrical 2,600-farad large cells approximately two inches in diameter and six inches long. We are supplying our BOOSTCAP^® ultracapacitors in volumes and at price points that are opening many market opportunities for us.

Our small ultracapacitor cells have been designed into consumer electronic devices, industrial electronics such as actuators, remote transmitting devices, high-intensity scanners, computer memory boards and transportation applications such as subway car alarm systems and electric actuators that replace mechanical latches in aircraft, train and automobile doors. Many products into which our small cell ultracapacitors have been designed now are in commercial production. Our large cell ultracapacitors have been designed into industrial applications such as wind turbines and UPS systems and transportation applications such as hybrid buses, trucks and autos, electric rail systems and capacitive starting systems for diesel trucks and locomotives. We received our first commercial production order to supply ultracapacitors for hybrid gasoline-electric transit buses in February 2004, and we have since received several additional orders for transit bus drive trains. We announced our first commercial supply agreement to provide ultracapacitors for wind energy applications in October 2004, and the volume of shipments to wind turbine system manufacturers is increasing rapidly. Other large cell design-ins are progressing through the field test and evaluation phase.

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The chart below describes a number of applications for our BOOSTCAP^® ultracapacitors that are now in commercial production or are in the field-testing or prototyping and evaluation phase.

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Applications such as bus, truck and auto drive trains, electric rail systems and UPS systems require integrated modules consisting of up to more than 1,000 ultracapacitor cells. To facilitate adoption of ultracapacitors for these larger systems, we are aligning our internal capabilities with those of third parties who possess the systems integration and power and thermal management capabilities to provide fully integrated systems and modules.

We have also developed integration technologies to accelerate customer adoption of multi-cell ultracapacitor packs, modules and systems. These include proprietary electrical balancing, thermal management systems and interconnect technologies. We have applied, and are continuing to apply, for patents for many of these technologies.

High-Voltage Capacitors

Electric utility grids have switches, circuit breakers, step-down transformers and measurement instruments that transport, distribute and measure high-voltage electricity. High-voltage capacitors are used to protect these systems from high-voltage arcing. These applications require extremely high reliability and durability, with failure rates of less than a few percent over operational lifetimes measured in decades.

Through our acquisition in 2002 of Montena Components Ltd., now known as Maxwell Technologies SA, and its CONDIS^® line of high-voltage capacitor products, Maxwell has more than 20 years of experience in this industry, and is the world’s largest producer of such products for use in utility infrastructure. Engineers with specific expertise in high-voltage systems develop, design and test our high-voltage capacitor products in our development and production facility in Rossens, Switzerland. Our high-voltage capacitors are produced through a proprietary, automated, winding and assembly process to ensure consistent quality and reliability. We upgraded our high-voltage capacitor production facility in 2004 to double its output capacity and significantly shorten order-to-delivery intervals. We sell our high-voltage capacitor products to large systems integrators, such as ABB Ltd., which install and service electrical utility infrastructure around the world.

Radiation-Mitigated Microelectronic Products

Manufacturers of commercial and military satellites and other spacecraft require microelectronic components and sub-systems that meet specific functional requirements and can withstand exposure to radiation encountered in space, including gamma rays and hot electrons and protons. In the past, microelectronic components and systems for these special applications used only specifically fabricated radiation-hardened silicon. However, the process of designing and producing radiation-hardened silicon is lengthy and expensive, and there are only a few specialty semiconductor fabricators, so supplies of radiation-hardened silicon are limited. Commercial silicon provides much higher functionality and costs significantly less than radiation-hardened silicon. As a result, demand for components made with the latest commercial silicon, protected by

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shielding and other radiation mitigation techniques, is growing. Producing components and systems incorporating radiation-mitigated commercial silicon requires expertise in power electronics, circuit design, silicon selection, radiation shielding and extensive expertise in quality assurance testing and validation.

We design, manufacture and market radiation-mitigated microelectronic products, including power modules, memory modules and single-board computers, for the space and satellite markets. Using highly adaptable, proprietary, packaging and shielding and other radiation mitigation techniques, we custom design products that allow satellite and spacecraft manufacturers to use powerful, commercial silicon protected with the level of radiation shielding required for reliable performance in the specific orbit or environment in which they are to be deployed.

Manufacturing

We have consolidated all of our manufacturing operations into two production facilities located in San Diego, California, and Rossens, Switzerland. Over the past four years, we have made substantial capital investments to build and outfit production facilities incorporating the latest available mechanization and automation techniques and processes. We have trained our manufacturing personnel in advanced operational techniques, including demand-based manufacturing. We have also added advanced information technology infrastructure and have implemented new business processes and systems to increase our manufacturing capacity and improve efficiency, planning and product quality. Our production facilities have been designed with flexible overhead power grids and modular manufacturing cells and equipment that allow factory operations to be reconfigured rapidly at minimal expense. With the completion of upgrades undertaken and completed in 2004, and others currently underway, we believe that our manufacturing facilities plus capital expenditures of approximately $3.7 million will give us sufficient capacity to meet 2005 demand for all of our current product lines. As new products are developed, we will install pilot manufacturing lines to produce them, but we intend to limit capital expenditures for any such new lines and upgrades of existing lines to match the rate of depreciation on existing capital plant.

Acceptance of our ultracapacitor products and high-voltage capacitor products depends in part on compliance and certification with a number of U.S. and foreign standards for electronic components and systems. Among the entities that promulgate such standards are Underwriters Laboratories, Canadian Standards Association and Committee European. We incorporate compliance with such standards into our quality assurance protocols in building and testing these products. We employ rigorous quality management systems and processes that promote continuous improvement and the highest possible product quality. Both of our production facilities comply with ISO 9001-2000 requirements for all of our products.

Ultracapacitors

In 2001, we installed an automated assembly line for our 5-farad and 10-farad small cell ultracapacitors in our San Diego production facility. This line can produce approximately 40,000 to 50,000 small cells per 24-hour production day. Current production is approximately 10,000 to 20,000 small cells per day, based on a 12-hour production day.

We produce our large cell ultracapacitors on pilot production lines in both our San Diego and Rossens, Switzerland facilities. By the second half of 2005, we expect to complete our first high-volume, semi-automated manufacturing line for our 350-farad ultracapacitors in our Swiss facility. We have also redesigned our large cell products to facilitate automation and to incorporate lower-cost materials. In addition to incorporating significantly lower-cost materials, the new designs reduce both the number of parts in a finished cell and the number of manufacturing process steps to produce them. Our Swiss facility has been certified to the rigorous, auto industry-specific, ISO/TS 1649 standards, confirming the company’s competence as an automotive supplier, and our San Diego facility has initiated steps to achieve that certification.

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In February 2003, we formed an ultracapacitor manufacturing and marketing alliance with Yeong-Long Technologies Co., Ltd., or YEC. YEC is a $200 million revenue per annum manufacturer of electrolytic capacitors headquartered in Taichung, Taiwan, with manufacturing and sales operations in mainland China. We entered into this alliance to accelerate commercialization of our proprietary BOOSTCAP^® ultracapacitors in China, and to help position us as a global supplier of ultracapacitors with production facilities in North America and Europe, and access to facilities in Asia. This alliance allows YEC to produce and sell our ultracapacitor products in China and entitles us to receive a royalty on such sales in China. It also provides for YEC to develop products in new form factors and gives us access to YEC’s manufacturing capacity for our distribution outside China.

High-Voltage Capacitors

We produce our high-voltage grading and coupling capacitors in our Rossens, Switzerland facility. We believe we are the only high-voltage capacitor producer that manufactures its products with automated winding, stacking and assembly processes. This enables us to produce consistent, high quality and highly reliable products, and gives us sufficient capacity to satisfy growing global customer demand. Using advanced demand-based manufacturing techniques, we upgraded the assembly portion of the process to a “cell-based,” “just-in-time” design in 2004, doubling our production capacity without additional direct labor, and significantly shortening order-to-delivery intervals. This upgrade also enabled us to expand our market penetration into capacitive voltage divider products, which we believe could materially increase the size of the market we currently serve.

Radiation-Mitigated Microelectronics Products

We produce our radiation-mitigated microelectronics products in our San Diego production facility. We have reengineered our production processes for radiation-mitigated microelectronics, resulting in dramatic reductions in cycle time and a significant increase in yield. Customer audits have confirmed our belief that we have “top-tier” manufacturing capabilities for highly reliable, radiation-mitigated power modules, memory modules and single-board computers. In 2004, this facility earned QML-Q and QML-V certification by the Department of Defense procurement agency. There are only 15 QML-Q and -V certified microelectronics production facilities in the world.

Our radiation-mitigated microelectronics production operations include die characterization, packaging, electrical, environmental and life testing. During 2002 and 2003, manufacturing cycle times were reduced and operator productivity increased, such that our current facility is capable of doubling production volumes without the need for additional direct labor or capital. We believe that we have ample capacity to meet foreseeable demand in the space and satellite markets.

Suppliers

We generally purchase components and materials, such as electronic components, dielectric materials, ceramic materials and metal enclosures from a number of suppliers. For certain products, such as our radiation-mitigated microelectronic products and our high-voltage capacitors, we rely on a limited number of suppliers or a single supplier. Although we believe there are alternative sources for some of the components and materials that we currently obtain from a single source, there can be no assurance that we will be able to identify and qualify alternative suppliers in a timely manner. Therefore, in critical component areas, we “bank,” or store, critical high value materials, especially silicon die. We are working to reduce material cost and our dependence on sole and limited source suppliers through an extensive global sourcing effort, with a particular emphasis on sourcing from low-cost countries.

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Marketing and Sales

We market and sell all of our components and systems products through both direct and indirect sales organizations in North America, Europe and Asia for integration by OEM customers into a wide range of electronic systems and products. Because the introduction of products based on emerging technologies requires customer acceptance of new and different technical approaches, and because many of our OEM customers have rigorous vendor qualification processes, the initial sale of our products can take months or even years.

Our principal marketing strategy is to cultivate long-term relationships by becoming a preferred supplier with an opportunity to compete for multiple supply agreements and follow-on contracts with our key OEM customers. As these design-in sales tend to be technical and engineering-intensive, we organize customer-specific teams composed of sales, engineering, research and development and other technical personnel to work closely with our customers across multiple disciplines to satisfy their requirements for form, fit, function and environmental needs. As time-to-market often is the primary consideration in our customers’ decisions to use our components, the initial sale and design-in process typically evolves into ongoing account management to ensure on-time delivery, responsive technical support and problem solving.

For each of our three product lines, we conduct discrete marketing programs intended to position and promote each product line. These include trade shows, seminars, advertising, product publicity, distribution of product literature and Internet websites. We employ marketing communications specialists and outside consultants to develop and implement our marketing programs, design and develop marketing materials, negotiate advertising media purchases, write and place product news releases and manage our marketing websites.

We have an alliance with YEC to manufacture and market our proprietary BOOSTCAP^® ultracapacitor products in China. Through this alliance, we seek to expand our ultracapacitor product line and increase sales in China.

Competition

Each of our product lines has competitors, many of whom have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition and larger installed customer bases than we have. In some of the target markets for our emerging technologies, we face competition both from products utilizing well-established existing technologies and from other novel or emerging technologies.

Ultracapacitors

Our ultracapacitor products have two types of competitors: other ultracapacitor suppliers and purveyors of energy storage and power delivery products based on other technologies. Although a number of companies are developing ultracapacitor technology, we currently have three principal competitors in ultracapacitor or supercapacitor products: Panasonic, a division of Matsushita Electric Industrial Co., Ltd., in Japan, EPCOS AG in Germany, and Ness Corporation in Korea. The key competitive factors in the ultracapacitor market are price, performance (energy stored and power delivered per unit volume), durability and reliability, form factor, operational lifetime and overall breadth of product offerings. We believe that our products compete favorably with respect to all of these competitive factors.

Ultracapacitors also compete with products based on other technologies, including advanced batteries in power quality and peak power applications, and flywheels and batteries in back-up energy storage applications. We believe that ultracapacitors’ high durability, long life, wide temperature range, high performance and value proposition give them a competitive advantage over these alternative choices in many applications. In addition, integration of ultracapacitors with some of these alternative solutions may provide an optimized solution for the customer that neither can provide by itself.

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High-Voltage Capacitors

Maxwell, through its acquisition in 2002 of Montena (now known as Maxwell Technologies SA) and its CONDIS^® line of high-voltage capacitor products, is the world’s largest producer of high-voltage capacitors for use in electric utility infrastructure. Our principal competitors in the high-voltage capacitor markets are in-house production groups of certain of our customers and other independent manufacturers, such as the Coil Product Division of Trench Limited in Canada and Europe and Hochspannungsgeräte Porz GmbH in Germany. We believe that we compete favorably with respect to being a consistent supplier of highly reliable high-voltage capacitors, and with respect to our expertise in high-voltage systems design. Over the last ten years, our largest customer, ABB Ltd., has evolved from producing its grading and coupling capacitors internally to outsourcing substantially all of its needs to us.

Radiation-Mitigated Microelectronic Products

Our radiation-mitigated power modules, memory modules and single-board computers compete with the products of traditional radiation-hardened integrated circuit suppliers such as Honeywell Corporation, Lockheed Martin Corporation and BAE Systems. We also compete with commercial integrated circuit suppliers with product lines that have inherent radiation tolerance characteristics, such as National Semiconductor Corporation, Analog Devices Inc. and Temic Instruments B.V. (in Europe). Our proprietary radiation-mitigation technologies enable us to provide flexible, high function, competitively priced, radiation mitigation solutions utilizing the most advanced commercial electronic circuits and processors. In addition, we compete with component product offerings from high reliability packaging houses such as Austin Semiconductor, Inc., White Microelectronics, Inc. and Teledyne Microelectronics, a unit of Teledyne Technologies, Inc.

Research and Development

We maintain active research and development programs to improve existing products and to develop new products. For the year ended December 31, 2004, our research and development expenditures totaled approximately $5.5 million, compared with $5.8 million and $8.4 million in the years ended December 31, 2003 and December 31, 2002, respectively. The large decrease from 2002 to 2003 reflects the elimination of R&D expense associated with several non-core business lines that we divested. In general, we focus our research and product development activities on:

Most of our current research, development and engineering activity is focused on material science, including electrically conducting and dielectric materials, ceramics and radiation-tolerant silicon and ceramic composites to reduce cost and improve performance, reliability and ease of manufacture. Additional efforts are focused on product design and manufacturing engineering and manufacturing processes for high-volume manufacturing.

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Intellectual Property

We continue to place an increased emphasis on inventing new technologies, proprietary processes and innovative designs that significantly increase the value and uniqueness of our product portfolio, and on obtaining patents to provide the broadest possible protection for those products and related technologies. Our ultimate success will depend in part on our ability to protect existing patents, secure additional patent protection and develop new processes and designs not covered by the patents of third parties. As of December 31, 2004, Maxwell and its subsidiaries held 51 issued patents and had 44 pending patent applications and numerous provisional applications. Of the issued patents, 17 relate to our ultracapacitor products and technology and 12 relate to our microelectronics products and technology. Our subsidiary, PurePulse Technologies, Inc. (“PurePulse”), which suspended operations in 2002, holds the remaining 22 issued patents. Our issued patents have various expiration dates ranging from 2014 to 2024.

Our pending patent applications and any future patent applications may not be allowed. We routinely seek to protect our new developments and technologies by applying for patents in the U.S. and corresponding foreign patents in the principal countries of Europe and Asia. At present, with some exceptions in the microcode architectures of our radiation-mitigated microelectronics product line, we do not rely on licenses from any third parties to produce or commercialize our products.

The existing patent portfolios and pending patent applications covering technologies associated with our ultracapacitor and microelectronic products relate primarily to:

Ultracapacitors

Microelectronics

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Historically, our high-voltage capacitor products have been based on our know-how and trade secrets rather than on patents. We filed our first patent application covering our high-voltage capacitor technology in 2003, and we will continue to pursue patent protection in addition to trade secret protection of certain aspects of our products’ design and production.

Establishing and protecting proprietary products and technologies is a key element of our strategy. Although we attempt to protect our intellectual property rights through patents, trademarks, copyrights, trade secrets and other measures, there can be no assurance that these steps will be adequate to prevent infringement, misappropriation or other misuse by third parties, or will be adequate under the laws of some foreign countries, which may not protect our intellectual property rights to the same extent as do the laws of the U.S.

We use employee and third party confidentiality and nondisclosure agreements to protect our trade secrets and unpatented know-how. We require each of our employees to enter into a proprietary rights and nondisclosure agreement in which the employee agrees to maintain the confidentiality of all our proprietary information and, subject to certain exceptions, to assign to us all rights in any proprietary information or technology made or contributed by the employee during his or her employment with us. In addition, we regularly enter into nondisclosure agreements with third parties, such as potential product development partners and customers.

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