Electrovaya Inc.
TSX : EFL

Electrovaya Inc.

May 15, 2006 22:13 ET

Electrovaya Announces Second Quarter Fiscal 2006 Financial Results

TORONTO, ONTARIO--(CCNMatthews - May 15, 2006) - Electrovaya Inc. (TSX:EFL) today announced financial results for the first quarter of fiscal 2006. All figures are in US dollars.

Highlights

For the quarter ending March 31, 2006:

- Revenue decreased by 27.5% or $325,000 to $855,000 from $1,180,000 for the quarter ended March 31, 2005.

- Loss from operations, before interest, taxes, foreign exchange, amortization and capital assets write-down decreased by $168,000 or 12.1% to $1,221,000 compared to $1,389,000 in the same quarter in the prior year.

- Cash & investments were $10.4 million as at March 31, 2006, compared to $12.2 million as at September 30, 2005 and $11.4 million as at December 31, 2005.

- In accordance with CICA handbook section 3063, the Company completed a capital impairment analysis during the quarter, resulting in a non-cash write-down of its capital assets by $4,020,000.



Summary of Financial Results

---------------------------------------------------------------------
In thousands of US$ 3 months ended 6 months ended
except per share March 31 March 31
amounts 2006 2005 2006 2005
---------------------------------------------------------------------
Revenue $ 855 $1,180 $ 1,443 $ 2,668
---------------------------------------------------------------------
Loss from operations
before interest, taxes,
foreign exchange and
amortization, and
capital assets
write-down (i) $ (1,221) $(1,389) $ (2,236) $(2,446)
---------------------------------------------------------------------
Loss for the period(1) (2)$ (5,462) $(2,360) $ (6,655) $(4,312)
---------------------------------------------------------------------
Loss per share $ (0.08) $ (0.03) $ (0.10) $(0.06)
---------------------------------------------------------------------
Cash & investments $ 10,442 $12,503 $ 10,442 $ 12,503
---------------------------------------------------------------------

(1) Net of TPC repayable contribution of $508 and NIL for the
quarters ending March 31, 2006 and 2005 respectively and $727 and
$309 for the six months ending March 31, 2006 and March 31, 2005
respectively.

(2) Includes non-cash capital impairment write-down of $4,020.


Subsequent to the end of the quarter, Electrovaya Inc. announced that it has sold its shareholdings in a private unrelated company for Cdn$1,015,000. These shares were originally received as a result of a small minority investment and as consideration for research and development services.

Three and Six Months Ending March 31, 2006

Total Revenue. For the three month period ended March 31, 2006, total revenue decreased by 27.5% to $0.9 million from $1.2 million for the quarter ended March 31, 2005. For the six month period ended March 31, 2006, total revenue declined by 45.9% or $1.2 million from $2.7 million to $1.4 million primarily due to lower consumer electronics revenue.

Direct Manufacturing Costs. For the quarter ended March 31, 2006, direct manufacturing costs decreased by 20.9% or $226,000 to $854,000 from $1,080,000 for the quarter ended March 31, 2005. For the six months ending March 31, 2006, direct manufacturing costs decreased by 41.8% or $1.1 million to $1.5 million from $2.5 million for the quarter ended March 31, 2005. This was primarily a result of lower material costs related to lower sales and lower manufacturing labour costs as more time was spent on research and development activities.

Research and Development Expenses. Research and development expenses, net of investment tax credits, increased by $491,000 or 85.2% to $1,067,000 for the quarter ended March 31, 2006 from $576,000 for the same three month period in 2005 due primarily to an increase in labor & material expenses as certain manufacturing resources were diverted to research and development activities on the electric vehicle program and specialty battery projects. During the three month period ended March 31, 2006, the Company received $508,000 of cash contributions from Technology Partnerships Canada (TPC), compared to NIL during the three months ended March 31, 2005. Compared to the six month period ending March 31, 2005, research and development expenses increased by $520,000 or 50.2% from $1.0 million to $1.6 million during the six month period ending March 31, 2006.

Sales & marketing. For the quarters ended March 31, 2006 and 2005, sales and marketing expenses were $139,000 and $322,000 respectively. Compared to the six month period ending March 31, 2005, sales and marketing expenses decreased by $283,000 or 47.5% from $0.6 million to $0.3 million during the six month period ending March 31, 2006 primarily due to decreased salaries, warranty costs and trade show attendance costs compared to the same quarter in the prior year.

General and administrative. General and administrative expenses decreased by 11.7% or $67,000 to $524,000 for the quarter ended March 31, 2006 compared to $591,000 for the same period in the prior year. Compared to the six month period ending March 31, 2005, general and administration expenses decreased by $191,000 or 15.3% from $1.2 million to $1.1 million during the six month period ending March 31, 2006. The decrease primarily reflects a decrease in salaries as some of these resources assisted with research and development activities during the quarter.

Excluding the non-cash impact of the capital assets write-down, quarterly net losses improved from $2,360,000 to $1,442,000, or by $918,000 or 38.9%, compared to the same quarter in the prior year.

The loss per share for the quarter was $0.08, compared to $0.03 for the quarter ending December 31, 2005.

Liquidity and Capital Resources

As of March 31, 2006, the Company had $10.4 million in cash, cash equivalents, and short-term investments, a decrease of $1.8 million compared to $12.2 million as at September 30, 2005 and a decrease of $1.0 million compared to $11.4 million as at December 31, 2005.

About Electrovaya Inc.

Electrovaya (TSX:EFL) is a world leader in the field of portable power solutions with its award-winning, patented Lithium Ion SuperPolymer® battery technology. Its goal is to become the leading provider of tablet PCs, the premier supplier of portable power for aerospace and wireless sectors, and the principal technology champion in the development of alternative energy applications including UPS, stand-by power and zero-emission vehicles. For more information on Electrovaya and its products, please visit www.electrovaya.com

The Company's shares trade on the Toronto Stock Exchange under the symbol EFL.

For more information about the Company and its products, please visit our website at www.electrovaya.com.

Forward-Looking Statements

This news release may contain forward-looking statements that involve a number of risks and uncertainties, including statements regarding the outlook for the Company's business and results of operations. Risks are outlined in the Company's MD&A for the year ending September 30, 2005 and are set forth in public disclosure documents filed with Canadian regulatory authorities. By nature, these risks and uncertainties could cause actual results to differ materially from those indicated. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



ELECTROVAYA INC.
Unaudited Consolidated Balance Sheets
(Expressed in Thousands of U.S. dollars)

---------------------------------------------------------------------
March 31, September 30,
2006 2005
---------------------------------------------------------------------

Assets

Current assets
Cash and cash equivalents $ 10,442 $ 3,333
Short-term investments - 8,900
Accounts receivable 511 826
Investment tax
credits recoverable - 49
Goods and Services
Tax receivable 21 29
Inventories (note 2) 1,689 1,844
Prepaid expenses and other 185 65
--------------------------------------------------------------------
12,848 15,046

Capital assets (see
note 1(c), 3) 6,355 10,936

---------------------------------------------------------------------
$ 19,203 $ 25,982
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders'
Equity

Current liabilities
Accounts payable and
accrued liabilities $ 1,474 $ 1,604
--------------------------------------------------------------------
1,474 1,604

Shareholders' equity
Share capital (note 4) 63,677 63,745
Contributed surplus 354 227
Cumulative translation adjustment 7,451 7,504
Deficit (53,753) (47,098)
--------------------------------------------------------------------
17,729 24,378

Contingencies (note 1(f)), 6(c))

---------------------------------------------------------------------
$ 19,203 $ 25,982
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

These unaudited interim consolidated financial statements should be
read in conjunction with the annual audited consolidated financial
statements for the year ended September 30, 2005.


ELECTROVAYA INC.
Unaudited Consolidated Statements of Operations and Deficit
(Expressed in Thousands of U.S. dollars, except per share amounts)

---------------------------------------------------------------------
Three months ended Six months ended
March 31, March 31,
2006 2005 2006 2005
---------------------------------------------------------------------

Revenue $ 855 $ 1,180 $ 1,443 $ 2,668
Direct manufacturing
costs 854 1,080 1,481 2,544
---------------------------------------------------------------------

1 100 (38) 124
---------------------------------------------------------------------

Expenses
Research and development 1,067 576 1,555 1,035
Government assistance
Note 1(f) (508) - (727) (309)
Sales and marketing 139 322 313 596
General and
administrative 524 591 1,057 1,248
---------------------------------------------------------------------
1,222 1,489 2,198 2,570
---------------------------------------------------------------------

Loss before the
undernoted 1,221 1,389 2,236 2,446

Amortization (see note 3) 290 721 576 1,465
Capital assets
write-down (see note 3) 4,020 - 4,020 -
---------------------------------------------------------------------

Loss from operations 5,531 2,110 6,832 3,911
---------------------------------------------------------------------

Interest income (87) (68) (162) (144)
(Gain) Loss from
foreign exchange 18 318 (15) 545
---------------------------------------------------------------------
(69) 250 (177) 401
---------------------------------------------------------------------

Loss for the period 5,462 2,360 6,655 4,312

Deficit, beginning
of period 48,291 42,728 47,098 40,776

Deficit, end of
period 53,753 45,088 53,753 45,088
---------------------------------------------------------------------

Basic and diluted
loss per common
share $ (0.08) $ (0.03) $ (0.10) $ (0.06)

Weighted average
number of shares
outstanding, basic
and fully diluted 69,575,442 69,575,442 69,575,442 69,575,442

See accompanying notes to interim consolidated financial statements.

These unaudited interim consolidated financial statements should be
read in conjunction with the annual audited consolidated financial
statements for the year ended September 30, 2005.


ELECTROVAYA INC.
Unaudited Consolidated Statements of Cash Flows
(Expressed in Thousands of U.S. dollars, except per share amounts)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Six months ended
March 31, March 31,
2006 2005 2006 2005

Cash provided by (used in)

Operating activities
Loss for the period $ (5,462) (2,360) $ (6,655) $ (4,312)
Amortization which
does not
involve cash (see
note 3) 290 721 576 1,465
Capital assets
write-down (see note
3) 4,020 - 4,020 -
Stock compensation
expense 68 37 127 73
Change in non-cash
operating working
capital 152 736 277 948
---------------------------------------------------------------------
(932) (866) (1,655) (1,826)

Investing activities
Additions to capital
assets (31) (39) (68) (85)
(Increase)/decrease
in short-term investments - - 8,900 10,897
---------------------------------------------------------------------
(31) (39) 8,832 10,812
---------------------------------------------------------------------

Increase (decrease) in cash
and cash equivalents (963) (905) 7,177 8,986

Effect of currency
translation adjustments
on cash and cash equivalents - (70) (68) 802

Cash and cash equivalents,
beginning of year 11,405 13,478 3,333 2,715

---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 10,442 $ 12,503 $ 10,442 $ 12,503
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental disclosure of
cash flow information
Income taxes paid $ 21 $ 6 $ 21 $ 6
Interest received 93 67 236 195
---------------------------------------------------------------------
---------------------------------------------------------------------


See accompanying notes to interim consolidated financial statements.

These unaudited interim consolidated financial statements should be
read in conjunction with the annual audited consolidated financial
statements for the year ended September 30, 2005.


Electrovaya Inc. (the "Company"), incorporated in 1996 under the Business Corporations Act (Ontario), develops, manufactures and markets portable power technology products using its patented lithium ion SuperPolymer® technology.

1. Significant accounting policies

(a) Basis of presentation

The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated during consolidation.

The company has no operating assets located outside of Canada.

The disclosures contained in these unaudited interim consolidated financial statements do not include all disclosures required under Canadian generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended September 30, 2005.

The unaudited interim consolidated financial statements are based upon accounting policies consistent with those used and described in the annual consolidated financial statements. The interim financial statements are not considered to be materially affected by seasonal or cyclical factors.

Management believes these unaudited interim consolidated financial statements include all adjustments, including normal recurring adjustments, necessary to present fairly the financial position of the Company as at March 31, 2006 and the results of its operations and its cash flows for the six months and three months ended March 31, 2006. Results for the six months ended March 31, 2006 are not necessarily indicative of the results to be expected for the entire year.

(b) Cash and cash equivalents and short term investments

Cash and cash equivalents include temporary investments in marketable securities which are readily convertible into cash and which have an original term to maturity of 90 days or less. Short term investments consist of temporary investments in marketable securities with longer terms to maturity and are recorded at cost, which is equivalent to their market value.

(c) Capital assets

Capital assets are recorded at cost less related investment tax credits and accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the assets at the following annual rates:



-------------------------------------------------

Building 4%
Building improvements 7%
Production equipment 17%
Workshop equipment 20%
Patents and technology 20%
Office furniture and equipment 20%
Vehicles 20%

-------------------------------------------------


During the fourth quarter of the fiscal year ended September 30, 2005, the Company reviewed the estimated useful life of depreciable assets resulting in a prospective change in amortization for production equipment and building improvements.

This resulted in production equipment and building improvements being amortized on a straight line basis over the next 6 and 15 years respectively.

(d) Research and development costs

Research costs, net of related investment tax credits, are expensed in the period in which they are incurred.

Development costs, net of related investment tax credits, are expensed in the period incurred unless such costs meet the criteria under Canadian generally accepted accounting principles for deferral and amortization. To date, the Company has not deferred any development costs.

Certain costs related to the Company's research and development efforts related to fast batteries and electric vehicles are being funded by a repayable grant from Technology Partnerships Canada (see Note 1 (f)).

(e) Inventories

Inventories are comprised of raw materials, work in progress and finished goods. Raw materials and work in progress are recorded at the lower of cost and replacement cost. Finished goods are recorded at the lower of cost and net realizable value.

(f) Government assistance

The Company receives indirect financial assistance from the government by way of the investment tax credit program. This program provides assistance, by way of direct payments and reductions in corporate income taxes, for specially defined qualifying expenditures. Investment tax credits are credited against the related research and development expenses, or capital assets.

The Company has been approved for funding under the Technology Partnerships Canada initiative of Industry Canada. The funding is to support the Company's research and development efforts in fast rate batteries and electric vehicles. The Company will receive contributions of up to 29.7% of the specified costs of the development project, to a maximum amount of $6,700. Under the terms of the agreement, an amount up to a maximum of $31,100 is to be repaid by royalties, commencing in 2007 through to 2013, with payment to be deferred or reduced if certain revenue thresholds are not achieved. For the fiscal year ended September 30, 2005, cumulative claims of $2,524 have been received. Additional claims for $219 and $508 were received by the company during the quarter ended December 31, 2005 and quarter ended March 31, 2006 respectively.

(g) Stock based Compensation

In accordance with Handbook section 3870 "Stock-based Compensation and Other Stock-based Payments," the Company applies the fair value method of accounting for employee stock options to all employee stock options granted on or after October 1, 2003. Under the fair value based method, compensation cost is measured at fair value at the date of grant and expensed over the award's vesting period. Stock based compensation expense for the quarter ended March 31, 2006 was $68 ($37 - 2005).

(h) Revenue recognition

Revenue from product sales is recognized upon shipment, since persuasive evidence of an arrangement exists, risks and rewards of ownership have been transferred to customers, selling price is fixed and determinable and collectability is reasonably assured. Estimated returns and allowances and sales rebates are recorded as a reduction of revenue at the time of revenue recognition. In addition, the Company provides for the estimated cost of standard product warranties at the time of revenue recognition. The Company primarily uses a binding purchase order as evidence of its sales arrangements, and with respect to its service arrangements uses contractual agreements. The Company considers delivery to occur upon shipment, provided risks and rewards of ownership, including transfer of title have passed to the customer. At the point of sale, the Company assesses whether collection is reasonably assured. If the Company determines that collection is not reasonably assured, the Company defers recognition of the revenue until collection becomes reasonably assured, which is generally upon receipt of cash. Where an estimate of the potential sales returns cannot be made, the recognition of revenue does not occur until the distributor has sold the product.

Revenue from services provided to third parties under contracts is recognized as services are performed and as each milestone in the contract is achieved and accepted by the customer.

Revenue from custom machine building is recognized based on the percentage of completion method of accounting for contracts. Under such contracts, revenue is recognized based on the ratio of total costs incurred to date to overall estimated costs. Provisions for estimated losses on contracts are recognized when identified.

(i) Warranty costs

Warranty costs are provided for as revenues are earned.

(j) Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the years. Actual results may differ from the estimates. Sales returns are estimated at the time of delivery based on past experience and customer specific factors. Bad debts are determined based on the ageing of accounts receivable where such amounts are not insured and considered uncollectible.Warranty accruals are based on the actual warranty experience rate for the past year and sales during the most recent warranty period.

The Company operates in a competitive market subject to fast-paced technological changes. The Company has estimated the provisions for sales returns, warranty costs and obsolete inventory based on historical patterns, communication with its distributors, industry trends and existing competitive pressures. Significant changes in technology or competitors' products could result in a material change in the rate of sales returns.

(k) Income taxes

The Company uses the asset and liability method of accounting for income taxes. Future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry-forwards. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in the income in the period that includes the date of enactment or substantive enactment. A valuation allowance is recorded against any future income tax asset if it is not more likely than not that the asset will be realized.

(l) Currency translation

Monetary assets and liabilities of the Company which are denominated in foreign currencies are translated into Canadian dollars (which is considered to be the measurement currency) at the exchange rates prevailing at the balance sheet date, and transactions denominated in foreign currencies which are included in operations are translated at the average rates for the period. Non-monetary assets and liabilities are translated at the exchange rate in effect at the transaction date. Exchange gains and losses resulting from the translation of these amounts are reflected in the statement of operations in the period in which they occur.

As the Company's reporting currency is the U.S. dollar, the Company translates assets and liabilities denominated in Canadian dollars into U.S. dollars at the exchange rate prevailing at the balance sheet date, and the results of operations at the average rate for the period. Cumulative net translation adjustments are included as a separate component of shareholders' equity.

(m) Earnings per share

Basic earnings per share is calculated using the weighted average number of shares outstanding during the year. Diluted earnings per share is computed using the weighted average number of common and potential common shares outstanding during the year, if dilutive.

(n) Impairment of Long-lived Assets

The Company reviews capital assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the accounting standard CICA Handbook Section 3063 "Impairment of Long-Lived Assets" An impairment loss is recognized when the carrying amount of an asset that is held and used exceeds the projected undiscounted future net cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount of the asset exceeds its fair value, which is measured by discounted cash flows when quoted market prices are not available.



2. Inventories

------------------------------------------------------
------------------------------------------------------
March 31, September 30,
2006 2005
------------------------------------------------------
Raw materials $ 771 $ 816
Work in progress 794 896
Finished goods 124 132
------------------------------------------------------
$ 1,689 $ 1,844
------------------------------------------------------
------------------------------------------------------


3. Capital assets:

---------------------------------------------------------------------
---------------------------------------------------------------------
Cost Accumulated Net book Net Book
depreciation value value
2006 2005
---------------------------------------------------------------------

Land $ 2,573 - $ 2,573 2,585
Buildings 806 455 351 619
Building
improvements 7,142 3,962 3,180 5,640
Production equipment 12,017 11,808 209 1,638
Workshop equipment 1,374 1,373 1 1
Patent and
technology 1,776 1,744 32 343
Office furniture and
equipment 665 657 8 107
Vehicles 46 45 1 3
---------------------------------------------------------------------
$ 26,399 20,044 6,355 10,936
---------------------------------------------------------------------
---------------------------------------------------------------------


Amortization expense for three month ended is $290 (2005 - $721) and 6 months ended is $576 (2005-$1,465).

The Company reported a current-period operating and cash flow loss and has a history of operating and cash flow losses. The recent performance of the Company and its near-term forecast indicates that the carrying amount of the capital assets may not be recoverable in accordance with the accounting standard CICA Handbook Section 3063 "Impairment of Long-Lived Assets."

The Company performed an impairment analysis during the quarter ended March 31, 2006, which indicated that the estimated undiscounted future cash flows generated by the capital assets were less than their carrying values. The carrying values of the capital assets were reduced to fair market value, resulting in a capital assets write-down of $4,020. Where possible, management estimated fair market value using third party appraisals.

4. Share capital

As at March 31, 2006, the Company had 69,575,442 common shares (69,575,442 as at December 31, 2005) outstanding and 3,378,937 options (3,388,937 as at December 31, 2005) to acquire common shares under the Company's employee incentive plan.

5. Financial instruments

(a) Fair values

The reported values of the financial instruments, which consist of cash and cash equivalents, short-term investments, accounts receivable and accounts payable and accrued liabilities, approximate their fair values due to the near-term maturity of those instruments.

(b) Foreign currency risk

The Company is exposed to foreign currency fluctuations to the extent that the Company is holding significant cash and cash equivalent balances denominated in U.S. dollars. The Company does not hedge the risk related to fluctuations of the exchange rate between U.S. and Canadian dollars.

(c) Credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them. Allowances are maintained for potential credit losses consistent with the credit risk of specific customers, historical trends and other information. Credit losses have been within management's range of expectations. The company also insures some of its accounts receivable.

6. Related Party Transactions

a) The Company in the previous years leased 11,800 square feet at an annual rental amount of $80 at its Hanna Avenue premises in Toronto, Ontario, from a company owned by its controlling shareholders. On May 1, 2005, the Company vacated the premises and moved into the Company's existing facilities in Mississauga. All the Company's divisions are now located at 2645 Royal Windsor Drive, Mississauga, Ontario.

b) Electrovaya in previous years invested $115 in a private unrelated company. In return for its investment, the Company received 6% of the Class A and 21% of the Class B shares of this private company. Additionally, during the previous years, Electrovaya has provided research and development services totaling $153 to this private company, and received an additional 30% of the outstanding non-voting, participating Class B shares as consideration for the services rendered. The Class B shares are convertible into Class A voting, participating shares in the event the private company becomes registered on a stock exchange. During the previous years, Electrovaya provided a $38 loan and space at no additional charge to the company to assist with the operation of a pilot plant, resulting in the potential for Electrovaya to exert significant influence over the activities of the private company. The private company is owned by arm's length private investors and has not yet reached commercial levels of production. The private company is currently seeking additional funding and, in the event these efforts are unsuccessful, may not be a going concern. As a result, the original investment, additional shares and loan were valued at NIL as at March 31, 2006 and March 31, 2005. Subsequent to the quarter ending March 31, 2006, the Company sold its class A and B shares of the private company to a third party for $870.

c) In August 2005, the Company purchased all of the issued and outstanding shares of 1020204 Ontario Limited ("102") from its two principal shareholders, Dr. Sankar Das Gupta, who is a director and officer of the Company and Dr. James Jacobs who is an officer of the Company. Electrovaya Inc. then transferred all of its shares in Electrovaya Corp. to 102 in exchange for shares of 102. 102 and Electrovaya Corp. then completed a statutory vertical amalgamation and continued as Electrovaya Corp. (the "amalgamation transaction").

The amalgamation transaction had been accounted for based on CICA Handbook Section 3840, Related Party Transactions at the exchange amounts of the assets and liabilities transferred as there has been a substantive change in the ultimate unrelated parties' ownership interests in the subsidiaries. Further the Company had obtained independent evidence on the exchange amounts involved in the amalgamation transaction. An independent committee of the Board was constituted to review the amalgamation transaction. Upon amalgamation, the Company received $509 of cash and assumed a liability of $77 relating to interest payable on an income taxes liability of 102. The offset to the $432 of net assets assumed had been recorded as a credit to income tax recovery in the statement of operations for the fiscal year ended September 30, 2005.

In addition, as at September 30, 2005, Electrovaya Corp carried back income tax losses of $4,787, eliminating a $1,148 income tax liability of 102. This transaction had no impact on the statement of operations as a full valuation allowance had been recorded against the income tax losses.

During the quarter, it was determined that 102 may have an additional liability to pay an Ontario "corporate minimum tax" of approximately $343. Pursuant to the terms of the share purchase agreement among Electrovaya, the shareholders of 102 and the principals thereof, Electrovaya has provided notice of its claim for an indemnity in respect of the full amount of this tax liability and consequently this liability has not been recorded in these financial statements.

Subsequent to the end of the quarter, 102 was served with a Statement of Claim ("Claim") by the purchaser of the land and building at Hanna Avenue, seeking damages in the amount of $857. The Company is indemnified for such matters under the terms of the purchase and sale agreement mentioned above. Management believes that it is too early to determine the ultimate outcome of these proceedings. However they believe that this claim is without merit.

d) During the quarter ended March 31, 2006, the Company paid $ 33 (2005 - $35) to a director of a wholly owned subsidiary company for services rendered to the Company in his capacity as an executive officer.



7. Change in non-cash operating working capital

---------------------------------------------------------------------
---------------------------------------------------------------------
Six months ended March 31,
2006 2005
---------------------------------------------------------------------

Accounts receivable $ 315 $ 98
Investment tax
credits recoverable 49 108
Goods and Services
Tax receivable 8 39
Inventories 155 602
Prepaid expenses and
other (120) (177)
Accounts payable and
accrued liabilities (130) 278

---------------------------------------------------------------------
$ 277 $ 948
---------------------------------------------------------------------
---------------------------------------------------------------------



Contact Information