<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 1998 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
9275 Sky Park Court
San Diego, California 92123
Telephone (619) 279-5100
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 ___
As of February 28, 1998, Registrant had only one class of common stock of which
there were 7,992,478 shares outstanding.
<PAGE> 2
PART I - FINANCIAL STATEMENTS
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Assets
January 31, July 31,
1998 1997
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,098 $ 826
Accounts receivable - net 27,189 18,612
Inventories:
Finished products 781 1,793
Work in process 876 882
Parts and raw materials 7,227 6,047
----------- -----------
8,884 8,722
Prepaid expenses 1,386 1,203
Deferred income taxes 161 161
----------- -----------
Total current assets 81,718 29,524
Property, plant and equipment - net 18,846 16,929
Deposits and other assets 637 667
----------- -----------
$ 101,201 $ 47,120
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,071 $ 13,640
Accrued employee compensation 4,704 4,465
Current portion of long-term debt 519 511
----------- -----------
Total current liabilities 19,294 18,616
Long-term debt 234 465
Minority interest 1,620 629
Stockholders' equity:
Common stock 797 614
Additional paid-in capital 70,479 22,364
Deferred compensation (517) (622)
Retained earnings 9,294 5,054
----------- -----------
80,053 27,410
----------- -----------
$ 101,201 $ 47,120
=========== ===========
</TABLE>
Note: The Balance Sheet at July 31, 1997 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
<PAGE> 3
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months
Ended January 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Sales $ 30,153 $ 24,577
Cost of sales 19,605 16,939
-------- --------
Gross profit 10,548 7,638
Operating expenses:
Selling, general and administrative expenses 7,173 5,489
Research and development expenses 1,804 1,212
-------- --------
Total operating expenses 8,977 6,701
-------- --------
Operating income 1,571 937
Interest expense 33 39
Other--net (430) (32)
-------- --------
Income before income taxes and minority interest 1,968 930
Income tax expense -- --
Minority interest in net income of subsidiary 10 18
-------- --------
Net income $ 1,958 $ 912
======== ========
Basic earnings per share $ 0.25 $ 0.15
======== ========
Diluted earnings per share $ 0.23 $ 0.14
======== ========
Weighted average number of shares used to calculate:
Basic earnings per share 7,736 5,942
======== ========
Diluted earnings per share 8,359 6,696
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Six Months
Ended January 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Sales $ 57,909 $ 48,594
Cost of sales 38,086 33,897
-------- --------
Gross profit 19,823 14,697
Operating expenses:
Selling, general and administrative expenses 13,305 10,668
Research and development expenses 3,493 2,270
-------- --------
Total operating expenses 16,798 12,938
-------- --------
Operating income 3,025 1,759
Interest expense 138 83
Other--net (478) (88)
-------- --------
Income before income taxes and minority interest 3,365 1,764
Income tax expense -- --
Minority interest in net income (loss) of subsidiary (9) 36
-------- --------
Net income $ 3,374 $ 1,728
======== ========
Basic earnings per share $ 0.49 $ 0.29
======== ========
Diluted earnings per share $ 0.44 $ 0.26
======== ========
Weighted average number of shares used to calculate:
Basic earnings per share 6,953 5,867
======== ========
Diluted earnings per share 7,635 6,638
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 5
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended January 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net income $ 3,374 $ 1,728
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,477 1,357
Deferred compensation 105 81
Minority interest in net income (loss) of subsidiary (9) 36
Changes in operating assets and liabilities - net (7,137) (1,651)
-------- --------
Net cash provided by (used in)
operating activities (2,190) 1,551
-------- --------
Investing Activities:
Purchases of property and equipment (3,170) (1,526)
-------- --------
Net cash used in
investing activities (3,170) (1,526)
-------- --------
Financing Activities:
Principal payments on long-term debt and short-term borrowings (2,359) (496)
Proceeds from short-term borrowings 2,100 --
Proceeds from issuance of Company and subsidiary stock 49,298 1,459
Dividends paid to shareholders of Subchapter S corporation prior to
acquisition (407) --
-------- --------
Net cash provided by
financing activities 48,632 963
-------- --------
Increase in cash and
cash equivalents 43,272 988
Cash and cash equivalents at beginning of period 826 1,465
-------- --------
Cash and cash equivalents
at end of period $ 44,098 $ 2,453
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
PART I - continued
NOTES TO FINANCIAL STATEMENTS
1. General
The preceding interim consolidated condensed financial statements contain
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair and accurate presentation of
financial position at January 31, 1998 and the results of operations for the
three and six month periods then ended. These interim financial statements
should be read in conjunction with the Company's July 31, 1997 audited
consolidated financial statements and notes thereto included in its Proxy
Statement for the 1997 Annual Meeting of Shareholders. Interim results are not
necessarily indicative of those to be expected for the full year.
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc., and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
Backlog of unfilled orders at January 31, 1998 was $70.2 million, of
which $36.3 million is fully funded.
2. Issuance of Stock
In November 1997, the Company issued 1,500,000 shares of its common stock
in a follow-on public offering at $34.00 per share. Net proceeds to the Company
were approximately $47 million, and are intended for general corporate purposes,
including working capital and capital expenditures, as well as possible future
acquisitions.
3. Earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Earnings per share amounts for all periods have been
presented and, where necessary, restated to conform to Statement No. 128
requirements.
<PAGE> 7
PART I - continued
Basic earnings per share is calculated using the weighted average number
of common shares outstanding. Diluted earnings per share is calculated on the
basis of the weighted average number of common shares outstanding plus the
effect of outstanding stock options assuming their exercise using the "treasury
stock" method and preferred shares assuming their conversion.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
Net income $ 1,958 $ 912 $ 3,374 $ 1,728
-------- -------- -------- --------
Weighted average shares 7,736 5,942 6,953 5,867
-------- -------- -------- --------
Basic earnings per share $ 0.25 $ 0.15 $ 0.49 $ 0.29
======== ======== ======== ========
Diluted:
Weighted average shares 7,736 5,942 6,953 5,867
Effective of dilutive securities:
Stock options 604 754 673 771
Convertible preferred stock
of subsidiary 19 -- 9 --
-------- -------- -------- --------
Dilutive potential common shares 623 754 682 771
-------- -------- -------- --------
Weighted average shares, as
adjusted 8,359 6,696 7,635 6,638
-------- -------- -------- --------
Diluted earnings per share $ 0.23 $ 0.14 $ 0.44 $ 0.26
======== ======== ======== ========
</TABLE>
4. Acquisition
In January 1998, the Company completed its acquisition of Tekna Seal,
Inc., a privately-held manufacturer of glass-to-metal seals for a variety of
industrial applications, in a stock-for-stock exchange accounted for as a
pooling of interests. Under the terms of the agreement, Maxwell purchased all of
the outstanding stock of Tekna Seal for an aggregate of 154,000 shares of
Maxwell common stock. The Company incurred direct transaction costs of
approximately $50,000 which were charged to operating results during the quarter
ended January 31, 1998. The historical results of operations for Tekna Seal are
not material in relation to those of Maxwell and financial information for prior
periods has not been restated to reflect the merger. Tekna Seal operating
results from November 1, 1997 have been included in the operating results of the
Company. In addition, retained earnings as of November 1, 1997 has been restated
to reflect Tekna Seal's accumulated earnings of $1.3 million as of such date.
5. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures
About Segments of an Enterprise and Related Information," both of which are
effective for fiscal periods beginning after December 15, 1997. The Company
anticipates that adopting Statements No. 130 and 131 will not have a material
effect on its financial statements.
<PAGE> 8
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
BUSINESS SEGMENTS
The Company operates in four business segments, as follows:
- Power Conversion Products: Includes design, development and
manufacture of electrical components and subsystems, including
products that capitalize on pulsed power such as ultracapacitors,
microbial purification systems, high voltage capacitors and other
electrical components and EMI filter capacitors.
- Industrial Computers and Subsystems: Includes design and
manufacture of standard, custom and semi-custom industrial
computer modules, platforms and fully integrated systems primarily
for OEMs.
- Technology Programs and Systems: Includes research and development
programs in pulsed power, pulsed power systems design and
construction, weapons effects simulation and computer-based
analytic services, primarily for the Department of Defense (DOD).
- Information Products and Services: Includes design, development
and integration of software products and services including job
cost accounting and management information systems and other
software products including applications for the Internet, as well
as wide-area and local-area network and software integration
services.
The Company is in the process of reorganizing the operations within the
Information Products and Services business segment, including a refocusing of
certain operations along the lines of other of the Company's existing business
segments. When the Company has completed the reorganization, it is likely that
it will report its operations within the remaining three business segments.
RESULTS OF OPERATIONS
The following table sets forth selected operating data for the Company,
expressed as a percentage of sales, for the three and six month periods ended
January 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended January 31, Ended January 31,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.0 68.9 65.8 69.8
-------- -------- -------- --------
Gross profit 35.0 31.1 34.2 30.2
Operating expenses:
Selling, general and administrative expenses 23.8 22.3 23.0 22.0
Research and development expenses 6.0 5.0 6.0 4.6
-------- -------- -------- --------
Total operating expenses 29.8 27.3 29.0 26.6
-------- -------- -------- --------
Operating income 5.2 3.8 5.2 3.6
Interest expense 0.1 0.2 0.2 0.2
Other--net (1.4) (0.2) (0.8) (0.2)
-------- -------- -------- --------
Income before income taxes and minority interest 6.5 3.8 5.8 3.6
Income tax expense -- -- -- --
Minority interest in net income (loss) of subsidiary -- 0.1 -- --
-------- -------- -------- --------
Net income 6.5% 3.7% 5.8% 3.6%
======== ======== ======== ========
</TABLE>
<PAGE> 9
PART I - continued
The following table sets forth the Company's business segment sales,
gross profit and gross profit as a percentage of business segment sales for the
three and six month periods ended January 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended January 31, Ended January 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Power Conversion Products:
Sales $ 8,957 $ 6,288 $ 17,348 $ 12,590
Gross profit 3,747 2,230 7,322 4,524
Gross profit as a percentage of sales 41.8% 35.5% 42.2% 35.9%
Industrial Computers and Subsystems
Sales $ 10,506 $ 8,712 $ 19,409 $ 17,087
Gross profit 3,649 2,870 7,249 5,672
Gross profit as a percentage of sales 34.7% 32.9% 37.3% 33.2%
Technology Programs and Systems
Sales $ 7,977 $ 7,305 $ 16,486 $ 14,194
Gross profit 1,524 1,373 2,946 2,628
Gross profit as a percentage of sales 19.1% 18.8% 17.9% 18.5%
Information Products and Services
Sales $ 2,713 $ 2,272 $ 4,666 $ 4,723
Gross profit 1,628 1,165 2,306 1,873
Gross profit as a percentage of sales 60.0% 51.3% 49.4% 39.7%
Consolidated
Sales $ 30,153 $ 24,577 $ 57,909 $ 48,594
Gross profit 10,548 7,638 19,823 14,697
Gross profit as a percentage of sales 35.0% 31.1% 34.2% 30.2%
</TABLE>
Sales
Sales for the three months ended January 31, 1998 were $30.2 million, a
record quarterly high for the Company and a 22.7% increase over the $24.6
million for the same period last year. Sales for the six months ended January
31, 1998 were $57.9 million, a 19.2% increase over the $48.6 million in last
year's first six months. For the three month period, the increase in sales over
the prior year occurred primarily in the Power Conversion Products and
Industrial Computers and Subsystems business segments. For the six months, the
sales gains over the same period last year include increases in three of the
Company's four business segments, with the largest dollar amount of increase in
the Power Conversion Products business segment. These results are more fully
described in the discussion below.
Power Conversion Products. In the quarter ended January 31, 1998, Power
Conversion Products sales increased $2.7 million, or 42.4%, to $9.0 million from
$6.3 million in the second quarter of last fiscal year. The increase in sales
comes primarily from higher revenues in the Company's PowerCache(TM)
ultracapacitor business area, largely from funding from several of the Company's
partners for ultracapacitor development, as well as from increased sales of
electromagnetic interference (EMI) filters for implantable heart defibrillators
and pacemakers and higher sales of other pulsed power components, primarily
switches under an 18-month, $3.6 million contract received in April 1997 for a
National
<PAGE> 10
PART I - continued
Laboratory system. In addition, the Company acquired, under a pooling of
interests, a small manufacturer of glass-to-metal seals used in a variety of
industrial applications including batteries and temperature and pressure sensor
equipment. This business will be combined with the Company's Energy Products
subsidiary, which has several products with such sealing requirements.
For the six months ended January 31, 1998, Power Conversion products
sales increased $4.7 million, or 37.8%, to $17.3 million from $12.6 million for
the same period last year. The three business areas that comprised the majority
of the second quarter sales gains - ultracapacitors, EMI filters and pulsed
power switches for a National Laboratory system - are also primarily responsible
for the increase in the year-to-date revenues.
Industrial Computers and Subsystems. In the quarter ended January 31,
1998, Industrial Computers and Subsystems sales increased $1.8 million, or
20.6%, to $10.5 million from $8.7 million in the second quarter of last fiscal
year. Sales in this business segment are made principally to OEM customers and
are primarily derived from the shipment of computers and subsystems that are
"designed-in" to the OEM's products. For the three month period, the sales
increase is primarily attributable to products shipped to such OEMs, in
particular under a new program with an existing customer. As the Company has
previously reported, sales to a large long-standing customer under a multi-year
program were concluded in the quarter just ended. However, the Company's
products have been integrated into several new OEM products which are being
introduced by other OEM customers, including three contracts won in the last
three months each with estimated values in the $15-$20 million range over three
to four year periods. The Company believes that orders for industrial computers
and subsystems from these new OEM customers should offset the loss of sales
described above when full ramp-up of these new products is achieved.
Sales for the six months ended January 31, 1998 increased $2.3 million,
or 13.6%, to $19.4 million from $17.1 million for the prior year's first six
months. For the six month period, the sales increase is primarily attributable
to the two large OEM programs referenced above: the new program with an existing
customer, and the sales to the large long-standing customer whose program is now
concluded.
Technology Programs and Systems. In the quarter ended January 31, 1998,
sales in the Technology Programs and Systems segment increased $0.7 million, or
9.2%, to $8.0 million from $7.3 million in the second quarter of last fiscal
year. The increase in revenue in the three month period is attributable to
increased funded Defense research and development in the Company's core pulsed
power and physics areas of expertise, related to both software applications and
hardware systems.
Sales for the six months ended January 31, 1998 increased $2.3 million,
or 16.1%, to $16.5 million from $14.2 in the prior year. For the six months, the
increase was primarily attributable to revenues from a contract for high-voltage
power supplies for a Department of Energy accelerator project, work on which was
substantially completed shortly after the end of this year's first quarter, and
increased revenues from two large multi-year DOD contracts.
The contracts referenced above and other contracts with the DOD could
maintain revenue levels in this business segment; however, these programs are
subject to periodic Government funding provisions. The level of future DOD
expenditures in the Company's research and development area and the related
impact on funding for the Company's contracts are not predictable and,
therefore, previously reported results are not necessarily indicative of those
to be expected in the future.
<PAGE> 11
PART I - continued
Information Products and Services. In the quarter ended January 31, 1998,
sales of Information Products and Services increased $0.4 million, or 19.4 %, to
$2.7 million from $2.3 million in the second quarter of last fiscal year. The
increase in second quarter revenues is primarily due to an increase in sales of
the Company's JAMIS job-cost accounting software, and the related new JAMIS
TimeCard product, an on-line, integrated real-time system for recording time
charges. This increase was partially offset by lesser revenue from two large
multi-year software development contracts for criminal justice information
systems (the "CJIS Contracts"). Work on the CJIS Contracts had been expected to
be substantially complete in the second quarter, and several completion
milestones have been met in the quarter or shortly after quarter-end. The wind
down is not yet complete and work is expected to continue into the fourth
quarter.
Sales for the six months ended January 31, 1998 remained level at $4.7
million as compared to the same period in the prior year.
Gross Profit
In the quarter ended January 31, 1998, the Company's gross profit was
$10.5 million, or 35.0% of sales, compared to $7.6 million, or 31.1% of sales,
in the second quarter of last fiscal year. The increase in gross profit as a
percentage of sales was primarily due to the improved overhead absorption
resulting from the overall increase in sales as compared to the prior year, and
an improved mix of products and services, particularly in the Power Conversion
Products and Industrial Computers and Subsystems business segments.
Power Conversion Products. In the quarter ended January 31, 1998, Power
Conversion Products gross profit increased $1.5 million, or 68.0%, to $3.7
million from $2.2 million in the second quarter of last fiscal year. In the six
months ended January 31, 1998, Power Conversion products gross profit increased
$2.8 million, or 61.8%, to $7.3 million from $4.5 million for the same period
last year. As a percentage of sales, gross profit increased to 41.8% in this
year's second quarter from 35.5% in the second quarter of the prior year. Gross
profit as a percentage of sales for the six month period increased to 42.2% from
35.9% in the prior year. This increase in gross profit as a percentage of sales
for both the three and six month periods reflects improved overhead absorption
and a higher margin mix of products and services, including increased funded
ultracapacitor development and related marketing and technology access rights,
and the switch components for the National Laboratory pulsed power system.
As the Company introduces ultracapacitor or other new products it may
offer aggressive pricing to gain market penetration. This could have an adverse
impact on increasing gross profit margins until the Company reaches full
production volumes.
Industrial Computers and Subsystems. In the quarter ended January 31,
1998, Industrial Computers and Subsystems gross profit increased $0.7 million,
or 27.1%, to $3.6 million from $2.9 million in the second quarter of last
fiscal year. For the year-to-date, gross profit increased $1.6 million, or
27.8%, to $7.3 million from $5.7 million one year ago. As a percentage of
sales, gross profit increased to 34.7% in this year's second quarter from 32.9%
in the second quarter of the prior year. For the six months ended January 31,
1998, gross profit as a percentage of sales increased to 37.3% from 33.2% for
the same period last year. The increase in gross profit as a percentage of
sales as compared to the prior year three and six month periods is primarily
due to a sales mix which included certain higher margin OEM products, including
sales to a long-standing customer under a multi-year program which is now
concluded. The lower gross profit margin in the three months ended January 31,
1998 as compared to this year's first six months reflects the conclusion of
this program during the fiscal 1998 second quarter.
<PAGE> 12
PART I - continued
Technology Programs and Systems. Technology Programs and Systems gross
profit was $1.5 million and $1.4 million for the quarters ended January 31, 1998
and 1997, respectively. Year-to-date gross profit increased to $2.9 million from
$2.6 million in the prior year. As a percentage of sales, gross profit increased
slightly to 19.1% in this year's second quarter from 18.8% in the second quarter
of the prior year. For the year-to-date, gross profit as a percentage of sales
was 17.9% compared to 18.5% in the prior year.
Information Products and Services. In the quarter ended January 31, 1998,
Information Products and Services gross profit increased $0.4 million, or 39.7%,
to $1.6 million from $1.2 million in the second quarter of last fiscal year. For
the six months, gross profit increased $0.4 million, or 23.1%, to $2.3 million
from $1.8 million one year ago. As a percentage of sales, gross profit increased
to 60.0% in this year's second quarter from 51.3% in the second quarter of the
prior year. Year-to-date gross profit as a percentage of sales increased to
49.4% from 39.7% last year. For the second quarter, the increase in gross profit
as a percentage of sales over the prior year is primarily due to the increased
revenues and associated gross margin on the JAMIS-related software license
sales, while the increase in gross profit for the six month period as compared
to last year includes the higher gross margin in the first quarter of this
fiscal year from a new contract in the educational software arena for math
products on CD-ROM. For both the three and six month periods, these increases in
gross profit as a percentage of sales were partially offset by reduced margins
on the CJIS Contracts as they wind down.
Selling, General and Administrative Expenses
In the quarter ended January 31, 1998, the Company's selling, general and
administrative expenses increased $1.7 million, or 30.7%, to $7.2 million from
$5.5 million in the second quarter of last fiscal year. For the six months ended
January 31, 1998, selling, general and administrative expenses increased $2.6
million, or 24.7%, to $13.3 million from $10.7 million in the prior year. As a
percentage of total sales, selling, general and administrative expenses
increased to 23.8% in this year's second quarter from 22.3% in the second
quarter of the prior year. For the six month period, selling, general and
administrative expenses as a percentage of sales increased to 23.0% from 22.0%
in the prior year. The Company continues to enhance sales and marketing in the
Power Conversion Products and Industrial Computers and Subsystems business
areas, but the majority of the dollar amount of the increase, particularly in
the three month period as compared to last year's second quarter, is in the area
of general and administrative expenses, primarily in Power Conversion Products.
This includes personnel and infrastructure for new product lines such as the
ultracapacitor, and an increase in the bad debt reserve for certain European
sales. In addition, expenses under the Company's incentive plans are higher with
the improved operating performance.
Research and Development Expenses
The Company's research and development expenses reflect only internally
funded research and development programs. Costs associated with United States
government and other customer funded research and development contracts are
included in cost of sales. The level of internally funded research and
development expenses reflects the Company's ability to obtain customer funding
to support a significant portion of its research and product development
activities. Internally funded research and development expenses were $1.8
million and $1.2 million for the three months ended January 31, 1998 and 1997,
respectively. For the six months, research and development expenses were $3.5
million and $2.3 million in 1998 and 1997, respectively. As a percentage of
sales, these expenses increased to 6.0% in both this year's second quarter and
six months from 5.0% in the second quarter of last year and 4.6% for the six
months of the prior year. For both the three and six month periods, the increase
in internally
<PAGE> 13
PART I - continued
funded research and development expense is primarily due to ultracapacitor
development, including associated power electronics systems, and CompactPCI and
continued product development for major new programs in the Industrial Computers
and Subsystems business segment.
Other - net and Income Tax Expense
Other - net increased to $430,000 for the three months ended January 31,
1998 from $32,000 in the second quarter of the prior year. For the six months
ended January 31, 1998, other - net increased to $478,000 from $88,000 in the
prior year. These increases are attributable to interest income from the
investment of the net cash proceeds of the Company's follow-on offering which
was completed in November 1997. The Company has net operating loss carryforwards
which offset the Company's provision for income taxes in the three and six month
periods of both the current and prior fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations in the current year's first six months was
$2.2 million. This is primarily attributable to an increase in accounts
receivable due to the higher sales volume and milestone and calendar year-end
billing provisions of certain programs, largely with the Government, as well as
payments in the first quarter of the current year under the Company's incentive
and profit sharing plans. Such uses of cash more than offset first half net
income and non-cash depreciation and amortization expenses. The Company has an
unsecured bank line of credit of $10.0 million, with the interest rate tied to
LIBOR or the bank's prime rate. As of January 31, 1998, no amounts were
outstanding under the line of credit. In November 1997, the Company completed a
follow-on public offering of 1.5 million shares of its Common Stock, and
received net proceeds of approximately $47 million. A portion of the proceeds
was used to repay an outstanding balance on the bank line of credit, and the
remainder of the proceeds are intended for general corporate purposes, including
working capital and the current forecast of capital expenditures for facilities
and equipment, including manufacturing requirements for EMI filters and
ultracapacitors, projects for which are currently underway.
The Company believes that the net proceeds from the follow-on offering,
together with cash generated from operations and funds available under its bank
line of credit, will be sufficient to finance its operations and capital
expenditures for the foreseeable future. During this period, the Company will be
addressing the need for high-volume manufacturing of ultracapacitors, and may
make commitments to acquire facilities and manufacturing equipment for such
purposes. Alternatively, the Company may consider leasing such facilities or may
satisfy volume manufacturing requirements through outsourcing or under licensing
arrangements with third parties. If the Company decides to internally finance
construction of facilities, a significant amount of capital would be required.
In addition to addressing the need for high volume manufacturing, the Company
may also from time to time consider acquisitions of complementary businesses,
products or technologies, which may require additional funding. Sources of
additional funding for these purposes could include one or more of the
following: cash flow from operations; investments by strategic partners; and
additional debt or equity financing. There can be no assurance that the Company
will be able to obtain additional sources of financing on favorable terms, if at
all, at such time or times as the Company may require such capital.
<PAGE> 14
PART I - continued
ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Earnings per share amounts for all periods have been
presented and, where necessary, restated to conform to Statement No. 128
requirements.
NOTE ON FORWARD-LOOKING INFORMATION
To the extent that the above discussion goes beyond historical
information and indicates results or developments which the Company plans or
expects to achieve, these forward-looking statements are identified by the use
of terms such as "expected," "anticipates," "believes," "plans" and the like.
Readers are cautioned that such future results are uncertain and could be
affected by a variety of factors that could cause actual results to differ from
those expected. Readers are referred to item 1 of the Company's Annual Report on
Form 10-K for fiscal 1997 for a discussion of certain of those factors.
<PAGE> 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of Shareholders was held on January 28,
1998. At the meeting, Lewis J. Colby, Jr. and Mark Rossi were elected as Class
II directors for terms expiring at the 2000 Annual Meeting of Shareholders.
Directors Kenneth F. Potashner, Thomas L. Horgan, Alan C. Kolb, Karl M.
Samuelian, and Thomas B. Hayward continue to serve as directors with terms
expiring at the 1998 and 1999 Annual Meetings of Shareholders.
In addition, the Registrant's shareholders approved an amendment to the
Company's 1995 Stock Option Plan, increasing the number of shares reserved for
options thereunder by 490,000 shares and an amendment to the Company's Restated
Certificate of Incorporation increasing the authorized number of shares of
Common Stock, $.10 par value, from 20 million to 40 million shares.
The following numbers of votes were cast "for" and to "withhold authority
to vote for" on the election of the two directors elected as Class II directors
at the meeting:
Lewis J. Colby, Jr. For: 6,730,217 Withhold Authority: 383,419
Mark Rossi For: 6,728,549 Withhold Authority: 385,087
The vote on the approval of the amendment to the Company's 1995 Stock
Option Plan was as follows:
For: 4,638,607
Against: 252,810
Abstain: 48,960
The vote on the approval of the amendment to the Company's Restated
Certificate of Incorporation increasing the authorized number of shares of
Common Stock, $.10 par value, to 40 million was as follows:
For: 6,608,835
Against: 489,022
Abstain: 15,779
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended
January 31, 1998. The Form 8-K was filed on November 10, 1997, and
was previously reported on the Company's Form 10-Q for the quarter
ended October 31, 1997. The Form 8-K reported that the Company
issued a Press Release concerning a transaction with PacifiCorp
Energy Ventures, Inc., which was completed on October 30, 1997.
<PAGE> 16
SIGNATURE
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.
MAXWELL TECHNOLOGIES, INC.
March 16, 1998 /s/ Gary Davidson
- ----------------------------------- -----------------------------------
Date Gary Davidson, Chief Financial Officer
and Authorized Officer
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