Electrovaya Inc.
TSX : EFL

Electrovaya Inc.

August 15, 2005 17:00 ET

Electrovaya Announces Third Quarter Fiscal 2005 Financial Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 15, 2005) -

42.0% Reduction in Net Loss for the Quarter

Electrovaya Inc. (TSX:EFL) today announced financial results for the third quarter ended June 30, 2005. All figures are in US dollars.

Highlights

For the quarter ending June 30, 2005:

- Revenue decreased by 29.7% to $1.1 million from $1.6 million for the quarter ended June 30, 2004.

- Loss from operation, before interest, taxes, foreign exchange and amortization decreased by 52.5% or $0.8 million from a loss of ($1.6 million) to ($0.8 million) compared to the same quarter in fiscal 2004.

- Cash & investments were $10.8 million as at June 30, 2005, compared to $12.5 million as at March 31, 2005 and $13.6 million as at September 30, 2004.



Summary of Financial Results

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In thousands of US$ 3 months ended 9 months ended
except per share amounts June 30 June 30
2005 2004 2005 2004
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Revenue $1,096 $ 1,559 $ 3,764 $ 4,733
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Loss from operations before
interest, taxes, foreign
exchange and amortization(i) $(755) $ (1,590) $(3,201) $(4,281)
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Loss for the period(i) $(1,210) $(2,085) $(5,522) $(6,348)
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Loss per share $(0.02) $(0.03) $(0.08) $(0.09)
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Cash & investments $ 10,769 $ 13,437 $ 10,769 $ 13,437
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(i) Net of TPC repayable contribution of $407 and $146 for the
quarters ending June 30, 2005 and 2004 respectively and $716 and
$517 for the nine months ending June 30, 2005 and, 2004
respectively.


"During the quarter we 1) launched two new products, the Scribbler 3000 and PowerPad 300; 2) obtained our first notable contract for our electric vehicle technology with our new Norwegian partners; and 3) received financial and other recognition for our efforts from the SDTC and Frost and Sullivan" said Dr. Sankar Das Gupta, President and CEO. "We are disappointed with our revenue for the quarter but we are pushing hard into new and existing verticals such as aerospace, defence, and health-care, as well as the market for emission free electric transportation." added Dr. Das Gupta.

Three Months Ended June 30, 2005

For the three month period ended June 30, 2005, total revenue decreased by 29.7% to $1.1 million from $1.6 million for the quarter ended June 30, 2004. The decrease in total revenue primarily resulted from a decrease in revenue from consumer electronics and R&D services income.

Research and development expenses, net of investment tax credits, increased by $67,000 or 9.2% to $797,000 for the quarter ended June 30, 2005 from $730,000 for the same three month period in 2004. During the three month period ended June 30, 2005, the Company received $407,000 of cash contributions from the Technology Partnerships Canada (TPC), compared to $146,000 received during the three months ended June 30, 2004.

For the quarters ended June 30, 2005 and 2004, sales and marketing expenses were $276,000 and $608,000, respectively. The $332,000 decrease was primarily due to decreased warranty expense compared to the prior year quarter.

General and administrative expenses decreased by 37.6% or $202,000 to $335,000 for the quarter ended June 30, 2005 compared to $537,000 for the same period in the prior year. The decrease primarily reflects a decrease in provisions for bad debts.

The loss from operations, before amortization, interest income and foreign exchange losses decreased by 52.5% to $0.8 million from $1.6 million in the same quarter last year.

The loss per share for the quarter was $0.02, compared to $0.03 for the quarter ending June 30, 2004.

Liquidity and Capital Resources

As of June 30, 2005, the Company had $10.8 million in cash, cash equivalents and short-term investments, a decrease of $2.8 million from the quarter ending September 30, 2004.

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.

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 Annual Report for the year ending September 30, 2004 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.
Interim Consolidated Balance Sheets
(Expressed in Thousands of U.S. dollars)
(Unaudited)

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June 30, September 30,
2005 2004
(Unaudited) (Audited)
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Assets

Current assets
Cash and cash equivalents $ 2,221 $ 2,715
Short-term investments 8,548 10,897
Accounts receivable 779 698
Investment tax credits recoverable 56 165
Goods and Services Tax receivable 75 66
Inventories (note 2) 2,936 2,886
Prepaid expenses and other 152 52
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14,767 17,479

Capital assets 7,273 9,203

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$ 22,040 $ 26,682
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Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities $ 1,733 $ 1,514
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1,733 1,514

Shareholders' equity
Share capital (note 3) 63,745 63,745
Contributed Surplus 170 43
Cumulative translation adjustment 2,690 2,156
Deficit (46,298) (40,776)
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20,307 25,168
Contingencies (note 1(h))

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$ 22,040 $ 26,682
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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, 2004.


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

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Three months ended Nine months ended
June 30, June 30,
2005 2004 2005 2004
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Revenue $ 1,096 $ 1,559 $ 3,764 $ 4,733
Direct manufacturing
costs 850 1,420 3,394 4,311
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246 139 370 422
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Expenses
Research and
development 797 730 1,832 1,884
Government assistance
Note 1(g) (407) (146) (716) (517)
Sales and marketing 276 608 872 1,419
General and
administrative 335 537 1,583 1,917
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1,001 1,729 3,571 4,703
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Loss before the
undernoted 755 1,590 3,201 4,281

Amortization 582 689 2,047 2,210
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Loss from operations 1,337 2,279 5,248 6,491
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Interest income (62) (57) (206) (218)
(Gain) Loss from
foreign exchange (65) (137) 480 75
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(127) (194) 274 (143)
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Loss for the period 1,210 2,085 5,522 6,348

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Deficit, beginning
of period 45,088 36,576 40,776 32,313

Deficit, end of
period 46,298 38,661 46,298 38,661
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Basic and diluted
loss per common
share $ (0.02) $ (0.03) $ (0.08) $ (0.09)
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Weighted
average number
of shares
outstanding,
basic and
fully diluted 69,575,442 69,561,754 69,575,442 69,561,754

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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, 2004.


ELECTROVAYA INC.
Interim Consolidated Statements of Cash Flows
(Expressed in Thousands of U.S. dollars, except per share amounts)

(Unaudited)

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Three months ended Nine months ended
June 30, June 30,
2005 2004 2005 2004
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Cash provided by (used in)

Operating activities
Loss for the period $ (1,210) $(2,085) $ (5,522) $(6,348)
Amortization which does not
involve cash 582 689 2,047 2,210
Stock compensation expense 54 - 127 -
Change in non-cash operating
working capital (860) (345) 88 (60)
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(1,434) (1,741) (3,260) (4,198)

Investing activities
Additions to capital assets (30) (58) (115) (188)
(Increase)/decrease in
short-term investments (8,548) (7,778) 2,349 993
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(8,578) (7,836) 2,234 805
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Increase (decrease) in cash
and cash equivalents (10,012) (9,577) (1,026) (3,393)

Effect of currency translation
adjustments on cash and
cash equivalents (270) (433) 532 230

Cash and cash equivalents,
beginning of year 12,503 13,025 2,715 6,178

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Cash and cash equivalents,
end of period $ 2,221 $ 3,015 $ 2,221 $ 3,015
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Supplemental disclosure of
cash flow information
Income taxes paid $ 1 $ 4 $ 7 $ 47
Interest received 62 51 257 237
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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, 2004.


ELECTROVAYA INC.
Notes to Interim Consolidated Financial Statements
(Expressed in Thousands of U.S. dollars, except per share amounts)
(Unaudited)

Three Months ended June 30, 2005
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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 unaudited interim 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, 2004.

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 June 30, 2005 and the results of its operations and its cash flows for the nine months and three months ended June 30, 2005. Results for the three months ended June 30, 2005 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 4%
Production equipment 20%
Workshop equipment 20%
Patents and technology 20%
Office furniture and equipment 20%
Vehicles 20%

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


(d) Impairment of long-lived assets

The Company reviews capital and intangible assets for impairment on a regular basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is assessed by comparing the carrying amount to the projected future net cash flows that the long-lived assets are expected to generate.

(e) 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 (g)).

(f) 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.

(g) 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 $6.7 million. Under the terms of the agreement, an amount up to a maximum of $31.1 million 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. Additional claims for $407 were received during the quarter ended June 30, 2005 (Quarter ended June 30, 2004: $146).

(h) Stock based Compensation

In accordance with one of the transitional options permitted under the amended 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. During the quarter, due to the effect of prospectively adopting the fair value method, there was an increase in stock based compensation of $54, with a negligible impact on loss per share.

(i) 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 collectibility 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.

(j) Warranty costs

Warranty costs are provided for as revenues are earned.

(k) 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.

(l) 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.

(m) 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. 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.

(n) 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.



2. Inventories
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June 30, September 30,
2005 2004
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Raw materials $ 1,002 $ 1,052
Work in progress 1,816 1,725
Finished goods 118 109
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$ 2,936 $ 2,886
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3. Share capital

As at June 30, 2005, the Company had 69,575,442 common shares (69,575,442 as at September 30, 2004) outstanding and 2,443,934 options (2,000,934 as at September 30, 2004) to acquire common shares under the Company's employee incentive plan.

4. 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.

5. Related Party Transactions

The Company previously leased an additional 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. In April 2004, the premises were sold to an arms-length third party. 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.

Electrovaya has invested $115 in a private unrelated company engaged in the business of producing and evaluating new battery materials. 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, 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 first quarter of 2004, Electrovaya provided a $38 loan and space 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 June 30, 2005.



6. Changes in non-cash operating working capital
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June 30, 2005
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Accounts receivable $ (81)
Investment tax credits recoverable 109
Goods and Services Tax receivable (9)
Inventories (50)
Prepaid expenses and other (100)
Accounts payable and accrued liabilities 219
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$ 88
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