SOURCE: Electro Energy Inc.

August 14, 2007 09:30 ET

Electro Energy Announces Second Quarter Results

DANBURY, CT--(Marketwire - August 14, 2007) - Electro Energy Inc. (NASDAQ: EEEI), a leading provider of advanced battery technologies and associated systems, announced today second quarter results for the period ended June 30, 2007. Consolidated net revenue for the 2007 second quarter increased to $925,984 compared with $896,719 for the three months ended June 30, 2006. Service revenue was $911,360 in the second quarter of fiscal 2007 compared to $649,734 in the fiscal 2006 period. Product revenue of $14,624 declined 94% compared with $246,985 in fiscal 2006 as a result of a decline in sales of general aircraft products. The service contract backlog as of June 30, 2007 was approximately $2.1 million.

Consolidated gross loss for the three months ended June 30, 2007 was $(287,409), compared with $(23,935) in the same period in fiscal 2006. The higher gross loss was mainly due to the decline in product revenue, which resulted in lower product manufacturing volume while incurring a fixed level of overhead costs.

Selling, general and administrative ("SG&A") expense for the three months ended June 30, 2007 was $2,114,835 compared with $915,798 in 2006. The increase in SG&A was a result of higher start up costs of $843,085 associated with the Florida manufacturing facility, an increase of $106,566 and $109,113 in legal fees and marketing expenses, respectively, and a $150,000 licensing fee for commercial trucking anti-idling technology.

Research and development ("R&D") expense for the 2007 second quarter was $345,365 compared with $293,911 in 2006. R&D expense increased due to increase activities related 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 2007 second quarter was $243,991 compared to $237,085 in the year-earlier period. Net loss for the three months ended June 30, 2007 was $(3,121,996) or $(0.13) per share compared with $(1,518,219) or $(0.07) per share in the second quarter of fiscal 2006.

Consolidated net revenue for the six months ended June 30, 2007 was $1,725,665 compared with $1,993,279 for the six months ended June 30, 2006. Service revenue was $1,633,063 in the first half of fiscal 2007 compared with $1,362,583 in the first half of fiscal 2006 as a result of new research and development contract awards. Product revenue of $92,602 declined 85% compared with $630,696 in fiscal 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 six months ended June 30, 2007 was $(5,982,748) or $(0.26) per share compared with $(2,278,427) or $(0.12) per share in the first six months of fiscal 2006.

The Company ended the 2007 second quarter with $3.1 million in cash and cash equivalents, including $2.1 million of restricted cash, compared to $6.3 million at year-end.

"Our product sales revenue so far this year has been disappointing with a significant reduction in orders from EaglePicher. We have secured several new research and development contracts that will help to keep us in the forefront of advanced battery technology. We continue to position our Florida facility to become a major supplier of advanced rechargeable batteries to domestic markets and expect to begin shipping 18650 cylindrical cells to customers this year," said Michael E. Reed, CEO of Electro Energy. "In addition, during the second quarter we acquired the license for unique patent pending hybrid auxiliary power unit technology to serve the estimated $40 billion North American market for commercial trucking anti-idling applications. We believe that we are on track to begin generating revenue in the fourth quarter, with significant revenue growth in 2008 and beyond." Mr. Reed also stated, "We are currently seeking additional financing to fund our operating activities and business initiatives until we achieve positive operating cash flow."

Recent Highlights

--  Lockheed Martin selected Electro Energy to develop its advanced, light-
    weight, rechargeable lithium ion battery to help power the High Altitude
    Airship, an unmanned, lighter-than-air vehicle that will operate in a
    geostationary position to provide an array of communication and navigation
    services for both civilian and military purposes.
--  Universal Technology selected Electro Energy as a partner in
    developing an enhanced nickel metal hydride aircraft battery for the U.S.
    Air Force.
--  Frost & Sullivan awarded Electro Energy its 2007 Emerging Technology
    of the Year Award in recognition of its unique bi-polar battery technology
    demonstrated in a plug-in hybrid vehicle.
--  The Company's bipolar rechargeable battery patent portfolio was
    expanded to include coverage in China. This marks the 11th foreign patent
    in addition to 9 U.S. patents.
--  The Company licensed hybrid auxiliary power unit technology from
    Enertek Corporation. This unique patent-pending technology is comprised of
    self-contained, stand-alone diesel-powered, electrical power generation
    units (the Gen-a-Sys Q) that utilize a proprietary battery-based hybrid
    operating system designed to supply standby power to the commercial
    trucking industry. The Company will be incorporating its advanced battery
    technology into the system.
--  The U.S. Defense Logistics Agency awarded Electro Energy a competitive
    contract for the manufacture and delivery of batteries for the U.S. Army
    Kiowa Helicopter.
    

Conference Call

The Company will hold a conference call Tuesday, August 14, 2007 at 11 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 13163338.

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 13163338. 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 has recently acquired significant manufacturing assets near Gainesville, Fla. to accelerate commercialization of its 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
                              June 30, 2007
                                (UNAUDITED)

ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                   $    961,440
  Current portion of cash - restricted                           1,935,000
  Accounts receivable                                              432,206
  Inventories                                                      354,848
  Prepaid expenses and other current assets                        162,999
                                                              ------------
    Total Current Assets                                         3,846,493
                                                              ------------

PROPERTY AND EQUIPMENT, Net                                     22,528,335
                                                              ------------

OTHER ASSETS
  Restricted cash, less current portion                            196,323

  Deferred financing costs                                         841,141
  Security deposit                                                 228,164
                                                              ------------
    Total Other Assets                                           1,265,628
                                                              ------------

    TOTAL ASSETS                                              $ 27,640,456
                                                              ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Current portion of senior secured convertible notes, net of
   deferred debt discount of $371,013                         $  1,828,987
  Accounts payable and accrued expenses                          1,017,632
  Current portion of note payable                                   61,193
  Current portion of capital lease                                  10,639
                                                              ------------
    Total Current Liabilities                                    2,918,451
                                                              ------------

OTHER LIABILITIES
  Secured convertible note, net of current portion and
   deferred debt discount of $710,203                            8,089,797
  Deferred rent, less current portion                              462,668
  Capital lease, less current portion                               28,722
                                                              ------------
    Total Other Liabilities                                      8,581,187
                                                              ------------
    TOTAL LIABILITIES                                           11,499,638
                                                              ------------

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; 23,439,768 shares issued and
    outstanding                                                     23,440
  Additional paid-in capital                                    39,523,670
  Deferred lease costs, net of amortization                       (826,467)
  Accumulated deficit                                          (22,579,825)
                                                              ------------

    TOTAL STOCKHOLDERS' EQUITY                                  16,140,818
                                                              ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 27,640,456
                                                              ============




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


                           Three Months Ended         Six Months Ended
                          June 30,     June 30,     June 30,     June 30,
                            2007         2006         2007         2006
                        -----------  -----------  -----------  -----------

NET REVENUE
  Services              $   911,360  $   649,734  $ 1,633,063  $ 1,362,583
  Products                   14,624      246,985       92,602      630,696
                        -----------  -----------  -----------  -----------
    TOTAL NET REVENUE       925,984      896,719    1,725,665    1,993,279
                        -----------  -----------  -----------  -----------

COST OF REVENUE
  Cost of services        1,174,037      773,908    2,071,672    1,612,477
  Cost of products           39,356      146,746      166,505      492,671
                        -----------  -----------  -----------  -----------
    TOTAL COST OF
     REVENUE              1,213,393      920,654    2,238,177    2,105,148
                        -----------  -----------  -----------  -----------

    GROSS LOSS             (287,409)     (23,935)    (512,512)    (111,869)
                        -----------  -----------  -----------  -----------

OPERATING EXPENSES
  Selling, general and
   administrative
   (including non-cash
   compensation of
   $209,814 and
   $251,305 for the
   three months ended
   and $428,675 and
   $509,035 for the six
   months ended June 30,
   2006 and 2007,
   respectively           2,114,835      915,798    3,750,172    1,445,860
  Research and
   development              345,365      293,911      749,189      433,753
                        -----------  -----------  -----------  -----------
    TOTAL OPERATING
     EXPENSES             2,460,200    1,209,709    4,499,361    1,879,613
                        -----------  -----------  -----------  -----------

    OPERATING LOSS       (2,747,609)  (1,233,644)  (5,011,873)  (1,991,482)

OTHER EXPENSE (INCOME)
  Interest expense          243,991      237,085      731,134      240,383
  Interest and dividend
   income                   (37,145)     (63,643)     (91,385)     (65,162)
  Amortization of
   deferred debt
   discount                  89,834       35,286      176,941       35,286
  Amortization of
   deferred financing
   costs                     76,457       75,847      152,935       75,847
  Loss on disposal of
   fixed assets, net          1,250            -        1,250          591
                        -----------  -----------  -----------  -----------
    TOTAL OTHER EXPENSE     374,387      284,575      970,875      286,945

                        -----------  -----------  -----------  -----------
NET LOSS                $(3,121,996) $(1,518,219) $(5,982,748) $(2,278,427)
                        ===========  ===========  ===========  ===========

NET LOSS PER SHARE -
 BASIC AND DILUTED      $     (0.13) $     (0.07) $     (0.26) $     (0.12)
                        ===========  ===========  ===========  ===========
WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING -
 BASIC AND DILUTED       23,430,781   22,310,540   23,136,721   19,520,742
                        ===========  ===========  ===========  ===========

Contact Information

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