SOURCE: Electro Energy Inc.

May 16, 2008 09:16 ET

Electro Energy Reports First Quarter 2008 Results

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

Consolidated net revenue for the three months ended March 31, 2008 was $762,336 compared with $799,681 for the same period of 2007.

Net revenue from services was $638,335 in the first quarter of 2008 compared with $721,703 in 2007. The decrease was a result of lower revenue from several completed contracts partially offset by new research and development contract awards from the Department of Defense and Department of Energy for battery development for communications applications and high and low temperature and thermal battery development and from Lockheed Martin for lithium ion wafer cell battery development for the High Altitude Air Ship. The service contract backlog as of March 31, 2008 was $1,908,000.

Net revenue from products for the 2008 first quarter was $124,001compared with $77,978 for the same period of 2007 primarily as a result of sales of smart battery products. The product order backlog was approximately $2,592,000 as of March 31, 2008.

Consolidated gross loss for the first quarter of 2008 was $167,406, or 22.0% of total net revenue, compared with $225,103, or 28.2% of net revenue in 2007. Gross loss from services in the first quarter of 2008 was $132,579, or 20.8% of net service revenue, compared with $175,932, or 24.4% of net service revenue in 2007. Gross loss from products was $34,827, or 28.1% of net product revenue, compared with $49,171, or 63.1% of net product revenue, in 2007. The gross loss was primarily a result of the lack of absorption of overhead costs.

Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2008 were $1,975,951, or 259.2% of total net revenue, compared with $1,635,337 or 204.5% of total net revenue in 2007, an increase of $340,614 or 21%. The increase in SG&A was a result of $152,774 higher start-up costs associated with the Florida manufacturing facility and $250,120 of licensing fees and related expenses for truck anti-idling auxiliary power unit and certain smart battery system technologies.

Research and development ("R&D") expenses for the first quarter of 2008 were $258,126, or 33.9% of total net revenue, compared with $403,824, or 50.5% of total net revenue in 2007, a decrease of $145,698, or 36%. The decrease in R&D expenses is the result of lower costs for advanced wafer cell battery development with In-Q-Tel under a stock purchase agreement completed in 2007 and lower costs related to plug-in hybrid vehicle ("PHEV") battery development.

Interest expense for the three months ended March 31, 2008 was $449,491 compared with $487,143 in 2007, a decrease of $37,652 or 8%. The decrease in interest expense reflects the $110,000 late registration penalties recorded in the 2007 related to the 8.5% Senior Secured Convertible Notes redeemed on December 7, 2007, partially offset by an increase in the amount of outstanding senior secured convertible notes at a higher coupon rate. The amortization of deferred debt discount and deferred financing costs was $896,552 and $101,196, respectively, in the first quarter of 2008 compared with $76,478 and $87,107, respectively, in the first quarter of 2007 as a result of the higher deferred debt discount and deferred financing costs associated with the 10% Notes.

For the three months ended March 31, 2008, the net loss was $3,888,096, or $0.14 per basic and diluted share, compared with $2,860,752, or $0.13 per basic and diluted share in 2007. During the three months ended March 31, 2008, the Company recorded dividends of $165,693 on the Series B Convertible Preferred Stock and the net loss available to common stockholders for the first quarter of 2008 was $4,053,789 or $0.14 per basic and diluted share compared with $2,860,752 or $0.13 per share in 2007.

Michael E. Reed, President and CEO of Electro Energy, said, "Our first quarter revenue was weaker than the prior year. However, our order backlog grew during this period as a result of the first phase of the $5 million Kiowa helicopter battery order we previously announced. Shipments on the Kiowa battery contract are expected to commence in the second quarter once first article testing is completed. Additional Department of Defense and Department of Energy funding of $3 million for R&D services have been appropriated for FY2008 and we expect to finalize contracts and begin generating revenue from these contracts in the second quarter of 2008."

"On May 5, 2008, we received UL certification for our model 18650AXA rechargeable lithium ion cylindrical cell. The UL certification is universally recognized by product manufacturers and consumers and readily accepted by international certification bodies. This certification will help us to establish market acceptance of our products as we commence high volume manufacturing at our Florida plant to meet the growing worldwide demand for 18650 cells. We recently received our first order for a military application for our 18650 cells and have already received a follow on to that initial order. We have begun aggressively marketing our manufacturing capabilities and products. Although we are confident that the significant interest in our products and manufacturing capabilities coupled with our UL certification will result in a steady flow of customer orders, the timing of customer commitments, order volume and delivery schedules will be unpredictable until we have an established customer base and ongoing relationships," Mr. Reed said.

Mr. Reed concluded, "As our business develops, we must continue to raise additional capital. The amount of future financings will be directly related to our success in generating product revenue for our 18650 cells. We believe that our ongoing requirements to raise additional capital are consistent with those of companies that are in a similar early stage of development."

Conference Call

The Company will hold a conference call Friday, May 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 47697570.

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 47697570. 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
                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                                  March 31,   December 31,
                                                    2008          2007
                                                (UNAUDITED)
                                                ------------  ------------
                           ASSETS
CURRENT ASSETS
  Cash and cash equivalents                     $  3,349,012  $  5,751,382
  Accounts receivable, net                           438,027       291,152
  Inventories                                        926,516       678,955
  Prepaid expenses and other current assets          254,144       184,483
                                                ------------  ------------
    Total current assets                           4,967,699     6,905,972
                                                ------------  ------------

PROPERTY AND EQUIPMENT, Net                       22,054,892    22,380,934
                                                ------------  ------------

OTHER ASSETS
  Deferred financing costs                         1,888,994     1,984,737
  Security deposit                                   228,164       228,164
                                                ------------  ------------
    Total other assets                             2,117,158     2,212,901
                                                ------------  ------------

    TOTAL ASSETS                                $ 29,139,749  $ 31,499,807
                                                ============  ============

            LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                              $    563,472  $    467,867
  Accrued expenses                                   918,539       630,389
  Customer deposits                                   78,000        78,000
  Current portion of capital lease                    11,353        11,110
                                                ------------  ------------
    Total Current Liabilities                      1,571,364     1,187,366
                                                ------------  ------------

OTHER LIABILITIES
  Secured convertible note, net of deferred debt
   discount of $16,866,995 and $17,763,547,
   respectively                                    1,133,005       236,453
  Deferred rent, less current portion                595,702       551,358
  Capital lease, less current portion                 20,116        23,047
                                                ------------  ------------
    Total Other Liabilities                        1,748,823       810,858
                                                ------------  ------------
    TOTAL LIABILITIES                              3,320,187     1,998,224
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $0.001 par value, 10,000
   shares authorized;
    Series A Convertible Preferred Stock, 160
     outstanding ($160,000 liquidation preference)         -             -
    Series B Convertible Preferred Stock, 5,401
     outstanding ($1,485,275 liquidation preference)       5             5
  Common stock, $0.001 par value, 250,000,000
   shares authorized; 28,811,797 shares issued and
   outstanding                                        28,812        28,812
  Additional paid-in capital                      65,246,665    64,918,395
  Deferred lease costs, net                         (695,973)     (739,471)
  Accumulated deficit                            (38,759,947)  (34,706,158)
                                                ------------  ------------

    TOTAL STOCKHOLDERS' EQUITY                    25,819,562    29,501,583
                                                ------------  ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 29,139,749  $ 31,499,807
                                                ============  ============




                   ELECTRO ENERGY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE MONTHS ENDED MARCH 31, 2008 and 2007
                                (UNAUDITED)

                                                    2008          2007
                                                ------------  ------------

NET REVENUE
 Services                                       $    638,335  $    721,703
 Products                                            124,001        77,978
                                                ------------  ------------
    TOTAL NET REVENUE                                762,336       799,681
                                                ------------  ------------

COST OF REVENUE
 Cost of services                                    770,914       897,635
 Cost of products                                    158,828       127,149
                                                ------------  ------------
    TOTAL COST OF REVENUE                            929,742     1,024,784
                                                ------------  ------------

    GROSS LOSS                                      (167,406)     (225,103)
                                                ------------  ------------

OPERATING EXPENSES
 Selling, general and administrative (including
  stock-based compensation of $170,003 and
  $218,861 in 2008 and 2007, respectively)         1,975,951     1,635,337
 Research and development                            258,126       403,824
                                                ------------  ------------
    TOTAL OPERATING EXPENSES                       2,234,077     2,039,161
                                                ------------  ------------

    OPERATING LOSS                                (2,401,483)   (2,264,264)
                                                ------------  ------------

OTHER EXPENSE (INCOME)
 Interest expense                                    449,491       487,143
 Interest income                                     (35,626)      (54,240)
 Amortization of deferred debt discount              101,196        87,107
 Amortization of deferred financing costs            896,552        76,478
 Loss on disposal of fixed assets                     75,000             -
                                                ------------  ------------
    TOTAL OTHER EXPENSE, NET                       1,486,613       596,488
                                                ------------  ------------

NET LOSS                                        $ (3,888,096) $ (2,860,752)

DIVIDENDS ON SERIES B PREFERRED STOCK                  7,426             -
                                                ------------  ------------

DEEMED DIVIDEND ON SERIES B PREFERRED STOCK          158,267             -
                                                ------------  ------------

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS    $ (4,053,789) $ (2,860,752)
                                                ============  ============

NET LOSS PER SHARE - BASIC AND DILUTED          $      (0.14) $      (0.13)
                                                ============  ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED                   28,811,797    22,838,383
                                                ============  ============

Contact Information

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