SOURCE: Electro Energy Inc.

April 16, 2008 09:30 ET

Electro Energy Reports 2007 Results

DANBURY, CT--(Marketwire - April 16, 2008) - Electro Energy Inc. (NASDAQ: EEEI), a leading provider of advanced battery technologies and associated systems, today announced results for the year ended December 31, 2007.

Consolidated net revenues for the year ended December 31, 2007 were $3,639,892 compared with $4,666,737 for the year ended December 31, 2006, a decrease of $1,026,845 or 22%.

Revenues from service operations increased $197,270, or 7%, to $3,117,345 from $2,920,075 as a result of new research and development contract awards from the U.S. Army for lithium ion wafer cell battery development for communications applications, from 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. During 2007, service revenues accounted for 86% of total revenues compared with 63% of total revenues in 2006. The service contract backlog as of December 31, 2007 was approximately $1,640,000.

Revenues of $522,547 from product manufacturing operations decreased $1,224,115, or 70%, from 2006 product revenues of $1,746,662 as a result of lower sales of nickel cadmium batteries and sintered nickel electrodes from our Colorado facility. During 2007, product revenues accounted for 14% of total revenues compared with 37% of total revenues in 2006. The product order backlog was approximately $636,000 as of December 31, 2007.

Consolidated gross loss for the year ended December 31, 2007 was $(479,724), or (13.2)% of net revenue, compared with consolidated gross profit of $105,991 or 2.3% in 2006. The decline in gross profit was mainly a result of lower revenue and the lack of absorption of overhead costs.

Gross loss from services for the year ended December 31, 2007 was $(338,563), or (10.9)% of net service revenue, compared with $(226,518) or (7.8)% of net service revenue in 2006. The gross loss from services relates to the Company's research and development contracts with the U.S. government and its agencies. The gross loss increase was mainly due to lack of absorption of overhead costs.

Gross loss from products for the year ended December 31, 2007 was $(141,161), or (27.0)% of net product revenue, compared with gross profit from products of $332,509, or 19.0% of net product revenue, in 2006. The gross loss on products revenue in 2007 compared with the gross profit in 2006 was mainly due to the decline in products revenues which resulted in a decline in product manufacturing volume and a consequent lack of absorption of overhead costs.

Selling, general and administrative ("SG&A") expenses for the year ended December 31, 2007 were $8,758,468, or 240.6% of total net revenue, compared with $3,855,315, or 82.6% of total net revenue, in 2006, an increase of $4,903.153 or 127%. The increase in SG&A was a result of $3,099,166 higher start-up costs associated with the Florida manufacturing facility, $418,153 of licensing fees and related expenses for truck anti-idling auxiliary power unit technology, $150,000 of licensing fees for certain smart battery system technologies and an increase of $818,755 and $422,059 in legal, accounting and other professional fees and general and administrative wages, respectively.

Research and development ("R&D") expenses for the year ended December 31, 2007 were $1,359,360, or 37.3%% of total net revenue, an increase of $386,383 or 40% compared to 2006. The R&D expenses relate primarily to experimentation and product development for advanced batteries for hybrid electric vehicle (HEV) and plug-in hybrid vehicle (PHEV) applications in the automotive industry and for improved batteries for aerospace and advanced military applications.

Interest expense for the year ended December 31, 2007 was $1,679,587 compared to interest expense of $1,093,744 in 2006. The Company recognized a $4,801,688 loss in 2007 on the redemption of the 8.5% Notes.

The net loss for the year ended December 31, 2007 was $(18,109,081) or $(0.73) per basic and diluted share compared with $(5,961,713) or $(0.28) per share in 2006.

Michael E. Reed, President and CEO of Electro Energy, said, "Our 2007 financial results were disappointing. This was primarily due to continuation of our advanced battery development, reduction in revenue for our legacy products from our Colorado facility, start-up of our Florida facility that has taken longer and been more costly than expected and, finally, the expenses related to recapitalizing the Company at yearend."

"We intend to continue our development of energy storage technology, products and related systems as well as start up high volume battery manufacturing operations in Florida. Our operating and capital requirements in connection with planned development, testing, production, sales and marketing activities will be significant. In December, we refinanced the Company's debt and secured additional capital with the 10% Debentures we issued to the Quercus Trust. Our business plan relies on funding from government development contracts and a significant product revenue increase from our manufacturing facilities, particularly from our Florida plant. As our business develops, we must continue to raise additional capital. The amount of future financings will be directly related to our success in achieving product revenue," stated Mr. Reed.

Mr. Reed continued, "We have recently been awarded a $5 million contract to manufacture batteries for the U.S. Army Kiowa Helicopter as well as $1 million in Department of Energy funding to continue hybrid electric vehicle battery development. We are finalizing $2 million in funding from the Department of Defense for development of our lithium ion wafer cell battery for Air Force aircraft applications. These awards will help to keep us in the forefront of advanced battery technology development. The superior patent pending hybrid auxiliary power unit technology we have licensed from Enertek Corporation that will incorporate our advanced battery technology, positions us to serve the estimated $40 billion North American market for commercial trucking anti-idling applications. We have also licensed smart battery technology from Falcon Systems Engineering Corporation that can be used in many rechargeable battery applications. These activities will create significant revenue opportunities."

Mr. Reed concluded, "Our biggest short term revenue opportunity is for the sale of rechargeable lithium ion 18650 cells manufactured at our Florida plant. The previously reported global shortage of 18650 cells continues to plague the market and is creating increasing interest in our manufacturing capabilities. We are well along in the process of having our 18650 cells UL certified for sale in the U.S. We have begun providing samples of our 2.4 Ah cells to military and commercial customers, but timing of customer commitments, order volume and delivery schedules will be unpredictable until we have an established customer base and ongoing relationships. We have received our first order for a military application and will book our first 18650 revenue in April."

Conference Call

The Company will hold a conference call Wednesday, April 16, 2008 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 43716804.

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 43716804. 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 wafer cell nickel-metal hydride batteries for use in a wide range of applications. Its Colorado Springs operation is AS9100/ISO9001 certified and 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 bipolar wafer cell design. EEEI owns significant manufacturing assets near Gainesville, Florida for rechargeable lithium ion 18650 cylindrical cells, the standard cell used in the electronics industry. 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.

                   ELECTRO ENERGY INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEET
                            December 31, 2007

ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                   $  5,751,382
  Accounts receivable, net                                         291,152
  Inventories                                                      678,955
  Prepaid expenses and other current assets                        184,483
                                                              ------------
    Total Current Assets                                         6,905,972
                                                              ------------

PROPERTY AND EQUIPMENT, net                                     22,380,934
                                                              ------------

OTHER ASSETS
  Deferred financing costs, net                                  1,984,737
  Security deposit                                                 228,164
                                                              ------------
    Total Other Assets                                           2,212,901
                                                              ------------

    TOTAL ASSETS                                              $ 31,499,807
                                                              ============


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                            $    467,867
  Accrued expenses                                                 630,389
  Customer deposits                                                 78,000
  Current portion of capital lease                                  11,110
                                                              ------------
    Total Current Liabilities                                    1,187,366
                                                              ------------

OTHER LIABILITIES
  Secured convertible notes, net of deferred debt discount of
   $17,763,547                                                     236,453
  Deferred rent, less current portion                              551,358
  Capital lease, less current portion                               23,047
                                                              ------------
    Total Other Liabilities                                        810,858
                                                              ------------
    TOTAL LIABILITIES                                            1,998,224
                                                              ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $0.001 par value, 10,000 shares
   authorized;
    Series A Convertible Preferred Stock, 160 shares
     outstanding ($160,000 liquidation preference)                       -
    Series B Convertible Preferred Stock, 5,401 shares
     outstanding ($1,485,275 liquidation preference)                     5
  Common stock, $0.001 par value, 250,000,000 shares
    authorized; 28,811,797 shares issued and outstanding            28,812
  Additional paid-in capital                                    64,918,395
  Deferred lease costs, net                                       (739,471)
  Accumulated deficit                                          (34,706,158)
                                                              ------------
    TOTAL STOCKHOLDERS' EQUITY                                  29,501,583
                                                              ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 31,499,807
                                                              ============



                   ELECTRO ENERGY INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 2007 and 2006

                                                  2007           2006
                                              -------------  -------------
NET REVENUE
 Services                                     $   3,117,345  $   2,920,075
 Products                                           522,547      1,746,662
                                              -------------  -------------
    TOTAL NET REVENUE                             3,639,892      4,666,737
                                              -------------  -------------

COST OF REVENUE
 Cost of services                                 3,455,908      3,146,593
 Cost of products                                   663,708      1,414,153
                                              -------------  -------------
    TOTAL COST OF REVENUE                         4,119,616      4,560,746
                                              -------------  -------------

    GROSS (LOSS) PROFIT                            (479,724)       105,991
                                              -------------  -------------

OPERATING EXPENSES
 Selling, general and administrative
  (including non-cash compensation of $844,250
  and $986,003 for the years ended December 31,
  2007 and 2006, respectively)                    8,758,468      3,855,315
 Research and development                         1,359,360        972,977
                                              -------------  -------------
    TOTAL OPERATING EXPENSES                     10,117,828      4,828,292
                                              -------------  -------------

    OPERATING LOSS                              (10,597,552)    (4,722,301)

OTHER EXPENSE (INCOME)
 Interest expense                                 1,679,587      1,093,744
 Interest and dividend income                      (144,221)      (239,261)
 Amortization of deferred financing costs           385,389        228,777
 Amortization of deferred debt discount             660,933        256,152
 Loss on disposal of fixed assets, net               84,432              -
 Forgiveness of debt                                      -       (100,000)
 Loss on extinguishment of 8.5% Secured
  Convertible Notes                               4,801,688              -
                                              -------------  -------------
    TOTAL OTHER EXPENSE                           7,467,808      1,239,412
                                              -------------  -------------

NET LOSS                                        (18,065,360)    (5,961,713)

DIVIDENDS ON PREFERRED STOCK                         43,721              -
                                              -------------  -------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS     $ (18,109,081) $  (5,961,713)
                                              =============  =============

NET LOSS PER COMMON SHARE - BASIC AND DILUTED $       (0.73) $       (0.28)
                                              =============  =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED                  24,711,583     21,030,376
                                              =============  =============

Contact Information

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