SOURCE: Electro Energy Inc.

August 22, 2006 16:44 ET

Electro Energy Inc. Reports Net Revenue Increased 18.5% in Second Quarter 2006

DANBURY, CT -- (MARKET WIRE) -- August 22, 2006 -- Electro Energy Inc. (NASDAQ: EEEI), a leading provider of advanced battery technologies and associated systems, filed its Form 10-QSB setting forth its financial results for the three months and six months ended June 30, 2006. Consolidated net revenue for the quarter rose 18.5% to $896,719 compared with $756,965 for the same quarter in 2005. For the six months ended June 30, 2006, revenue increased 10.3% to $1,993,279 from $1,807,279 for the same period in 2005.

Gross loss for the 2006 quarter declined substantially to $23,935 (-2.7% of net revenue), down from a loss of $353,157 (46.7% of net revenue) for the same period last year. Management attributed the gross loss decrease to increased revenue from products. Gross loss for the six-month period ended June 30, 2006 was $111,869 compared to a loss of $738,512 for the same period in 2005.

Net loss for the second quarter of 2006 was $1,518,219 or $(0.07) per share compared to a loss of $900,655 or $(0.07) per share for the same period in 2005. For the six months ended June 30, 2006, net loss was $2,278,427 or $(0.12) per share compared to net loss of $1,904,953 or $(0.15) per share for the same period in 2005. In the second half, $411,437 of loss was attributable to increased non-cash charges, primarily related to accounting treatment of stock options.

Contributing to the second quarter loss were increased expenses for research and development (R&D) for applying the Company's proprietary bipolar nickel metal hydride batteries to hybrid electric vehicles (HEV) and plug-in hybrid electric vehicles (PHEV) in the automotive market, as well as for low maintenance nickel cadmium batteries for the aerospace market and bipolar lithium ion for advanced military applications.

Michael E. Reed, CEO of Electro Energy, commented, "This was a very exciting quarter for Electro Energy. As a leading participant in the nationwide push for Hybrid Electric Vehicles and Plug-in Hybrid Electric Vehicles this Spring, we worked with the California Cars Initiative to adapt a Toyota Prius as a prototype PHEV powered by our proprietary bi-polar NiMH battery. The prototype vehicle was demonstrated at several high-profile events and received a significant amount of positive press attention. We have demonstrated how various electric vehicles can benefit from our batteries, which are stronger, lighter, longer-lasting, lower-cost, more flexible and more environmentally friendly than those of our competitors. While advancing this PHEV effort led to a significant increase in our developmental expenses, we believe these investments have established a vital platform for growth in a major target market."

Mr. Reed continued, "Moreover, in April we completed the purchase of significant battery manufacturing assets near Gainesville, Florida, which we are now ramping up for high-volume production to address several markets, including the hybrid electric automotive market; military markets; the utility market for alternative energy and distributed storage applications; and battery-powered tools."

In addition to the Gainesville acquisition and the development of a prototype PHEV, highlights for the Second Quarter of fiscal year 2006 also included an $850,000 contract from the U.S. Army Communications and Electronics Command (CECOM) to develop BB2590-type lithium-ion batteries with 20-30% greater capacity than other currently available batteries of the same type. The contract, announced in June, will be carried out by engineers at Electro Energy's Colorado Springs facility.

About Electro Energy Inc.

Electro Energy Inc. (NASDAQ: EEEI), 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 design. EEEI has recently acquired significant manufacturing assets near Gainesville, Fla., to accelerate commercialization of its battery technology. For further information, please visit 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.

Pursuant to a December 1, 2004 agreement, Consulting For Strategic Growth I, Ltd. ("CFSG1") provides Electro Energy with consulting, business advisory, investor relations, public relations and corporate development services, for which CFSG1 receives a fixed monthly fee for the duration of the agreement. Independent of CFSG1's receipt of cash compensation from Electro Energy, CFSG1 may choose to purchase the common stock of Electro Energy and thereafter sell those shares at any time it deems appropriate to do so. For more information please visit www.cfsg1.com.

                    ELECTRO ENERGY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)
         For the Three and Six Months Ended June 30, 2006 and 2005

                         Three Months Ended          Six Months Ended
                        June 30,      June 30,     June 30,     June 30,
                          2006         2005          2006         2005
                       -----------  -----------   -----------  -----------

NET REVENUE
Services               $   649,734  $   622,189   $ 1,362,583  $ 1,556,174
Products                   246,985      134,776       630,696      251,105
                       -----------  -----------   -----------  -----------
   TOTAL NET REVENUE       896,719      756,965     1,993,279    1,807,279
                       -----------  -----------   -----------  -----------

COST OF REVENUE
Cost of services           773,908      776,933     1,612,477    1,766,183
Cost of products           146,746      333,189       492,671      779,608
                       -----------  -----------   -----------  -----------
   TOTAL COST OF
    REVENUE                920,654    1,110,122     2,105,148    2,545,791
                       -----------  -----------   -----------  -----------

   GROSS LOSS              (23,935)    (353,157)     (111,869)    (738,512)
                       -----------  -----------   -----------  -----------

OPERATING EXPENSES
Selling, general and
 administrative
 (including non-
 cash compensation of
 $251,305 and $(1,913)
 for the three months
 ended and $509,035
 and $97,598 for the
 six months ended
 June 30, 2006 and
 2005, respectively)       911,198      519,942     1,430,240    1,099,210
Selling, general and
 administrative -
 related parties             4,600       13,067        15,620       23,552
Research and
 development               293,911       23,655       433,753       54,963
                       -----------  -----------   -----------  -----------
   TOTAL OPERATING
    EXPENSES             1,209,709      556,664     1,879,613    1,177,725
                       -----------  -----------   -----------  -----------

   OPERATING LOSS       (1,233,644)    (909,821)   (1,991,482)  (1,916,237)

OTHER EXPENSE (INCOME)
Interest expense
 (income), net             173,442       (9,166)      175,221      (11,284)
Amortization of
 deferred debt
 discount                   35,286            -        35,286            -
Amortization of
 deferred financing
 costs                      75,847            -        75,847            -
Loss on disposal of
 fixed assets                    -            -           591            -
                       -----------  -----------   -----------  -----------
   TOTAL OTHER
    EXPENSE (INCOME)       284,575       (9,166)      286,945      (11,284)
                       -----------  -----------   -----------  -----------

NET LOSS               $(1,518,219) $  (900,655)  $(2,278,427) $(1,904,953)
                       ===========  ===========   ===========  ===========

NET LOSS PER SHARE
 - BASIC AND DILUTED   $     (0.07) $     (0.07)  $     (0.12) $     (0.15)
                       ===========  ===========   ===========  ===========
WEIGHTED AVERAGE
 COMMON SHARES
 OUTSTANDING - BASIC
 AND DILUTED            22,310,540   13,252,460    19,520,742   13,005,081
                       ===========  ===========   ===========  ===========

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