319815--3/16/2006--MAXWELL_TECHNOLOGIES

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We have a history of losses and we may not achieve or maintain profitability in the future, which may decrease the market value of our common stock. A small number of customers account for a significant portion of our revenues. Our large cell ultracapacitors designed for transportation and industrial applications may not gain widespread commercial acceptance, which would adversely impact our growth opportunities, and our overall business prospects. We may be unable to produce our large cell ultracapacitors in commercial quantities or reduce the cost of production enough to be commercially viable for widespread application, which would adversely impact our revenues and growth opportunities, and our overall business prospects. We may not be able to develop and market our products successfully, and thus may not be able to achieve or maintain profitability in the future. If we are unable to secure qualified and adequate sources for our materials, components and sub-assemblies, we may not be able to make our products at competitive costs and we may have difficulty meeting customer demand, which could damage our relationships with our customers. Our product lines may be subject to increased competition, and this may limit our ability to maintain our gross margins. If our competitors develop and commercialize products faster than we do, or commercialize products that are superior to or lower cost than our products, our commercial opportunities may be reduced or eliminated. If our OEM customers fail to purchase our components or to sell sufficient quantities of their products incorporating our components, or if our OEM customers sales timing and volume fluctuates, it could prevent us from achieving our sales and market share goals. We may face product liability or warranty claims, either directly or indirectly through our customers, and we have limited experience with some of our products as to our potential liability. Unfavorable economic conditions in the U.S. and abroad may adversely affect our OEM customers and prevent us from achieving sales growth. A prolonged economic downturn could materially harm our business. If we are unable to protect our intellectual property adequately, such as in the Peoples Republic of China (PRC), we could lose our competitive advantage in the industry segments in which we do business. Our reputation and ability to enter into alliances or other strategic arrangements may affect our success. We face risks associated with marketing, distribution and sale of our products internationally and, if we are unable to manage these risks effectively, it could impair our ability to increase sales. An ongoing contract audit by the Defense Department could result in charges to our earnings and have a negative effect on our cash position and we could be subject to additional future audits. If we are unable to retain key personnel, we could lose our technological and competitive advantage in some product areas and business segments. Our ability to increase market share and sales depends on our ability to hire, train and retain qualified marketing and sales personnel. Our business and operations would suffer in the event of system failures. Changes in accounting rules for stock-based compensation may adversely affect our operating results, our stock price and our competitiveness in the employee marketplace. Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses. Anti-takeover provisions in our certificate of incorporation and bylaws could prevent certain transactions and could make a takeover more difficult. Our common stock experiences limited trading volume and our stock price has been volatile. We may experience difficulty manufacturing our products, which would prevent us from achieving increased sales and market share. If the investors in our December 2005 financing convert their notes or exercise their warrants, it will have a dilutive effect upon our stockholders. We substantially increased our outstanding indebtedness with the issuance of certain subordinated convertible notes and we may not be able to pay our debt and other obligations. Our credit agreements contain various restrictions and covenants that limit management s discretion in the operation of our business and could limit our ability to grow and compete. We may not be able to obtain sufficient capital to meet potential customer demand or corporate needs, which could require us to change our business strategy and result in decreased profitability and a loss of customers. The issuance of shares of our common stock could result in the loss of our ability to use our net operating losses.

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319815--3/16/2006--MAXWELL_TECHNOLOGIES_INC