SOURCE: Electro Energy Inc.

November 14, 2007 09:08 ET

Electro Energy Announces Third Quarter Results

DANBURY, CT--(Marketwire - November 14, 2007) - Electro Energy Inc. (NASDAQ: EEEI), a leading provider of advanced battery technologies and associated systems, announced today third quarter results for the period ended September 30, 2007. Consolidated net revenue of $982,637 for the three months ended September 30, 2007 decreased $255,536 or 21%, compared with $1,238,173 for the three months ended September 30, 2006.

Service revenue was $942,572 in the third quarter of 2007 compared with $735,178 in the 2006 third quarter, an increase of $207,394 or 28%, as a result of new research and development contract awards from the U. S. Army and the U. S. Navy for thermal battery development, from Universal Technology Corporation for low temperature nickel metal hydride wafer cell battery development and from Lockheed Martin for lithium ion wafer cell battery development for the High Altitude Air Ship and higher revenue from an existing development contract for lithium ion wafer cell batteries, partially offset by lower revenue from several completed contracts. The service contract backlog as of September 30, 2007 was approximately $1.0 million.

Third quarter 2007 product revenue of $40,065 declined 92% compared with $502,995 in 2006 as a result of a decline in sales of Apache helicopter batteries and general aircraft products. The product contract backlog as of September 30, 2007 was approximately $0.9 million.

Consolidated gross profit for the three months ended September 30, 2007 was $5,669 or 0.6% of net revenue, compared with a consolidated gross loss of $(21,616), or (1.7)% of net revenue, in three months ended September 30, 2006. The higher gross profit was mainly due to lower costs associated with certain development contracts.

Selling, general and administrative ("SG&A") expenses for the third quarter of 2007 were $2,204,840 compared with $922,749 in third quarter of 2006, an increase of $1,282,091 or 138.9%. The increase in SG&A was a result of approximately $702,000 of higher start up costs associated with the Florida manufacturing facility and an increase of $267,000 in legal, accounting and professional fees, $110,000 in licensing fees for certain smart battery technology and a $112,000 increase in wages.

Research and development ("R&D") expenses for the three months ended September 30, 2007 were $316,792 compared with $306,247 in 2006. R&D expenses relate to experimentation and product development for bipolar wafer cell nickel metal hydride batteries for hybrid electric vehicle (HEV) and plug-in hybrid vehicle (PHEV) automotive applications, for improved nickel cadmium batteries for the aerospace market, and for bipolar wafer cell lithium ion batteries for advanced military and commercial applications.

Interest expense for the three months ended September 30, 2007 was $669,338 compared with interest expense of $194,875 in 2006, an increase of $474,463 primarily as a result of the additional expense associated with the payment of the September 30, 2007 semi-annual interest payments and the August 1, 2007 put payment under the Senior Secured Notes in shares of the Company's common stock.

Net loss for the three months ended September 30, 2007 was $(3,514,049) or $(0.14) per share (basic and diluted) compared with $(1,391,806) or $(0.06) in 2006.

Consolidated net revenue for the nine months ended September 30, 2007 was $2,708,302 compared with $3,231,452 for the nine months ended September 30, 2006, a decrease of $523,150 or 16.2%. Service revenue was $2,575,635 in the first nine months of 2007 compared with $2,117,759 in the first nine months of 2006 as a result of new research and development contract awards from the U. S. Army and the U. S. Navy for thermal battery development, from Universal Technology Corporation for low temperature nickel metal hydride wafer cell battery development and from Lockheed Martin for lithium ion wafer cell battery development for the High Altitude Air Ship, partially offset by lower revenue from several completed contracts. Product revenue in the nine months ended September 30, 2007 of $132,667 declined 88% compared with $1,113,693 in 2006 as a result of a decline in sales to EaglePicher and lower sales of general aircraft products and Apache helicopter batteries.

Net loss for the nine months ended September 30, 2007 was $(9,496,797) or $(0.40) per share (basic and diluted), compared to net loss of $(3,679,233) or $(0.18) per share (basic and diluted) for the nine months ended September 30, 2006.

The Company ended the third quarter of 2007 with $1.1 million in cash and cash equivalents, including $0.5 million of restricted cash, compared to $3.1 million at the end of the second quarter.

"Our revenue for the quarter and year-to date have been disappointing. We continue to secure new research and development contracts and the support of the U.S. government in funding our efforts. We have received a follow on $566,000 contract for battery development from the U.S. Air Force and have a $2 million Department of Defense appropriations bill earmark awaiting the President's approval. This will not only help to keep us in the forefront of advanced battery technology development but will position us for future revenue opportunities," said Michael E. Reed, CEO of Electro Energy.

Mr. Reed added, "Although it has taken longer than expected, we have successfully produced 18650 rechargeable lithium ion cylindrical cells in our Florida facility. Based on our internal testing, we are confident that these cells are world class in quality and performance. We have begun outside certification testing and expect to begin shipping samples to target customers by year-end. We expect the 18650 product to generate significant increases in revenue and financial performance in 2008."

"The demand for commercial trucking anti-idling applications to serve the estimated $40 billion North American market continues to grow. We believe that we are uniquely positioned to serve that market with the superior patent pending hybrid auxiliary power unit technology we have licensed from Enertek Corporation that will incorporate our advanced battery technology," stated Mr. Reed.

Mr. Reed concluded, "We continue to seek additional financing to fund our operating activities and business initiatives. We recently obtained a $750,000 investment from an existing shareholder to provide the short term liquidity we needed to complete a longer term financing. We are continuing to make progress on the longer term financing, although this process is taking a bit longer than we had anticipated. Consequently, we have not been able to pursue our business opportunities as aggressively as we had planned. Completion of the additional financing should position the Company to proceed with it business plan and realize significant revenue growth in 2008."

Conference Call

The Company will hold a conference call Wednesday, November 14, 2007 at 10 a.m. Eastern Time. Interested participants should call (866) 541-8090 when calling within the United States or (706) 758-0055 when calling internationally. Please use passcode 24231767.

The playback of the conference will be available commencing two hours after the completion of the call and will be available for 30 days. To listen to the playback, please call (800) 642-1687 when calling within the United States or (706) 645-9291 when calling internationally. Please use passcode 24231767. The call will also be webcast and will be available on the Company's web site at www.electroenergyinc.com under the Investor Relations section under News and Events.

About Electro Energy Inc.

Electro Energy Inc., headquartered in Danbury, Connecticut, was founded in 1992 to develop, manufacture and commercialize high-powered, rechargeable bipolar nickel-metal hydride batteries for use in a wide range of applications. Its Colorado Springs operation supplies aerospace-grade high quality nickel cadmium batteries and components for satellites, aircraft and other specialty applications. EEEI is also developing high-power lithium rechargeable batteries utilizing the Company's proprietary bi-polar design. EEEI owns significant manufacturing assets near Gainesville, Fla. capable of manufacturing rechargeable lithium ion 18650 cylindrical cells, the standard cell used in the electronics industry, and to facilitate the commercialization of its proprietary wafer cell battery technology. For further information, please visit http://www.electroenergyinc.com/.

Certain statements in this news release may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release, including, without limitation, statements regarding potential future plans and objectives of the companies, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, the following: general economic and business conditions; competition; unexpected changes in technologies and technological advances; ability to commercialize and manufacture products; results of experimental studies; research and development activities; changes in, or failure to comply with, governmental regulations; and the ability to obtain adequate financing in the future. This information is qualified in its entirety by cautionary statements and risk factors disclosure contained in certain of Electro Energy Inc.'s Securities and Exchange Commission filings available at http://www.sec.gov.

                   ELECTRO ENERGY INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED BALANCE SHEET
                            September 30, 2007
                                (UNAUDITED)

ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                   $    659,738
  Restricted cash                                                  487,487
  Accounts receivable, net                                         524,532
  Inventories                                                      357,478
  Prepaid expenses and other current assets                        269,126
                                                              ------------
    Total Current Assets                                         2,298,361
                                                              ------------

PROPERTY AND EQUIPMENT, net                                     22,518,452
                                                              ------------

OTHER ASSETS
  Deferred financing costs, net                                    688,206
  Security deposit                                                 228,164
                                                              ------------
    Total Other Assets                                             916,370
                                                              ------------

    TOTAL ASSETS                                              $ 25,733,183
                                                              ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Current portion of senior secured convertible notes, net of
   deferred debt discount of $336,509                         $    763,491
  Accounts payable and accrued expenses                            980,953
  Note payable                                                      61,193
  Current portion of capital lease                                  10,872
                                                              ------------
    Total Current Liabilities                                    1,816,509
                                                              ------------

OTHER LIABILITIES
  Senior secured convertible note, net of current portion and
   deferred debt discount of $552,278                            8,247,722
  Deferred rent, less current portion                              507,013
  Capital lease, less current portion                               25,915
                                                              ------------
    Total Other Liabilities                                      8,780,650
                                                              ------------
    TOTAL LIABILITIES                                           10,597,159
                                                              ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $0.001 par value, 10,000 shares
   authorized;
    Series A Convertible Preferred Stock, 5,600 shares
    designated; 5,501 shares issued, 160 outstanding
    ($160,000 liquidation preference)                                    -
  Common stock, $0.001 par value, 50,000,000 shares
   authorized; 25,623,278 shares issued and
   outstanding                                                      25,623
  Additional paid-in capital                                    41,987,244
  Deferred lease costs, net                                       (782,969)
  Accumulated deficit                                          (26,093,874)
                                                              ------------
    TOTAL STOCKHOLDERS' EQUITY                                  15,136,024
                                                              ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 25,733,183
                                                              ============

The accompanying notes are an integral part of these
 condensed consolidated financial statements.



                   ELECTRO ENERGY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
      For the Three and Nine Months Ended September 30, 2007 and 2006
                                (UNAUDITED)

                           Three Months Ended         Nine Months Ended
                         September    September    September    September
                          30, 2007     30, 2006     30, 2007     30, 2006
                        -----------  -----------  -----------  -----------

NET REVENUE
 Services               $   942,572  $   735,178  $ 2,575,635  $ 2,117,759
 Products                    40,065      502,995      132,667    1,113,693
                        -----------  -----------  -----------  -----------
    TOTAL NET REVENUE       982,637    1,238,173    2,708,302    3,231,452
                        -----------  -----------  -----------  -----------

COST OF REVENUE
 Cost of services           921,694      946,653    2,710,243    2,758,819
 Cost of products            55,274      313,136      221,779      842,404
                        -----------  -----------  -----------  -----------
    TOTAL COST OF
     REVENUE                976,968    1,259,789    2,932,022    3,601,223
                        -----------  -----------  -----------  -----------

    GROSS PROFIT (LOSS)       5,669      (21,616)    (223,720)    (369,771)
                        -----------  -----------  -----------  -----------

OPERATING EXPENSES
 Selling, general and
  administrative (including
  non-cash compensation of
  $253,183 and $247,084 for
  the three months ended
  and $681,858 and
  $756,793 for the nine
  months ended September
  30, 2007 and 2006,
  respectively            2,204,840      922,749    6,238,135    2,124,165
 Research and
  development               316,792      306,247    1,065,981      757,158
                        -----------  -----------  -----------  -----------
    TOTAL OPERATING
     EXPENSES             2,521,632    1,228,996    7,304,116    2,881,323
                        -----------  -----------  -----------  -----------

    OPERATING LOSS       (2,515,963)  (1,250,612)  (7,527,836)  (3,251,094)

OTHER EXPENSE (INCOME)
 Interest expense           669,338      194,875    1,400,472      435,168
 Interest and dividend
  income                    (16,615)     (61,180)    (108,000)    (126,252)
 Amortization of deferred
  debt discount             192,429       35,287      369,370       70,573
 Amortization of
  deferred financing
  costs                     152,934       76,462      305,869      152,309
 (Gain) loss on disposal
  of fixed assets, net            -       (4,250)       1,250       (3,659)
Forgiveness of debt               -     (100,000)           -     (100,000)
                        -----------  -----------  -----------  -----------
    TOTAL OTHER EXPENSE     998,086      141,194    1,968,961      428,139

                        -----------  -----------  -----------  -----------
NET LOSS                $(3,514,049) $(1,391,806) $(9,496,797) $(3,679,233)
                        ===========  ===========  ===========  ===========

NET LOSS PER SHARE -
 BASIC AND DILUTED      $     (0.14) $     (0.06) $     (0.40) $     (0.18)
                        ===========  ===========  ===========  ===========
WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING -
 BASIC AND DILUTED       24,391,191   22,558,127   23,566,353   20,544,330
                        ===========  ===========  ===========  ===========

The accompanying notes are an integral part of these
 condensed consolidated financial statements.

Contact Information

  • Contact:
    Michael E. Reed
    (203) 797-2699
    or
    Timothy E. Coyne
    (203) 797-2699