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Electro Energy Reports Second Quarter 2008 Results DANBURY, CT--(MARKET WIRE)--Aug 15, 2008 -- Electro Energy Inc. (EEEI - News), a leading
provider of advanced battery technologies and associated
systems, today
announced results for the second quarter ended June 30,
2008. As previously
announced, on July 9, 2008, the Company completed a 1 for
5 reverse stock
split in order to maintain its NASDAQ Capital Market listing.
The financial
reports have been retroactively adjusted to reflect this
one-for-five
reverse stock split.
Consolidated net revenue for the three months ended June 30, 2008 was $653,183 compared with $925,984 for the same period of 2007, a decrease of $272,801, or 29%. Net revenue from services for the three months ended June 30, 2008 was $527,536 compared with $911,360 for the same period of 2007, a decrease of $383,824 or 42%. 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 military applications, 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 June 30, 2008 was $2,087,438. Net revenue from products for the three months ended June 30, 2008 was $125,647 compared with $14,624 for the same period of 2007, an increase of $111,023 or 759%, primarily as a result of sales of general aircraft products. The product order backlog was approximately $84,424 as of June 30, 2008. Consolidated gross loss for the three months ended June 30, 2008 was $1,681,532, or 257% of total net revenue, compared with $287,409, or 31% of net revenue in 2007. In May 2008, the Company received Underwriters Laboratory certification for its 2.2 ampere hour 18650 rechargeable cylindrical lithium ion battery cell. Accordingly, on May 1, 2008, the Company placed the machinery and equipment at its Florida manufacturing facility, which had previously been classified as construction in progress, into service and began to depreciate these assets. In addition, on May 1, 2008, the Company began to classify the costs related to the Florida facility as cost of product revenue. Prior to May 1, 2008, these costs represented start-up costs and were classified as selling, general and administrative costs. 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 June 30, 2008 were $1,654,921, or 253% of total net revenue, compared with $2,114,835 or 228% of total net revenue in 2007, a decrease of $459,914 or 22%. The decrease in SG&A was a result of the classification of $786,144 of costs associated with the Florida manufacturing facility as cost of product revenue beginning May 1, 2008, upon its being placed in service, partially offset by $281,954 higher legal, accounting and other professional fees and $86,360 of bad debt expense. Research and development ("R&D") expenses for the three months ended June 30, 2008 were $400,339, or 61% of total net revenue, compared with $345,365, or 37% of total net revenue in 2007, an increase of $54,974, or 16%. The nature of the R&D expenses relates to experimentation and product development for bipolar wafer cell batteries for hybrid electric vehicle, plug-in hybrid electric vehicle, truck anti-idling auxiliary power and other applications for the transportation market and for bipolar lithium ion batteries for advanced military applications. Interest expense for the three months ended June 30, 2008 was $449,431 compared with $243,991 in 2007, an increase of $205,440 or 84%. The increase in interest expense reflects the increase in the amount of outstanding senior secured convertible notes at a higher coupon rate. Interest income was $8,388 and $37,145 for the three months ended June 30, 2008 and 2007, respectively, reflecting lower average cash balances in 2008. Amortization of deferred debt discount was $896,551 for the three months ended June 30, 2008 compared with $89,834 in the second quarter of 2007 as a result of the higher deferred debt discount associated with the 10% Senior Secured Convertible Notes (the 10% Notes"). Amortization of deferred financing costs was $101,196 for the three months ended June 30, 2008 compared with $76,457 in 2007 reflecting higher financing costs associated with the 10% Notes. For the three months ended June 30, 2008, the gain on disposal of fixed assets totaled $2,000 compared to a loss on disposal of fixed assets of $1,250 for the three months ended June 30, 2008. For the three months ended June 30, 2008, the net loss was $5,173,582, or $0.86 per basic and diluted share, compared with $3,121,996, or $0.67 per basic and diluted share in 2007. During the three months ended June 30, 2008, the Company recorded dividends of $165,693 on the Series B Convertible Preferred Stock, resulting in a net loss attributable to common stockholders for the three months ended June 30, 2008 of $5,339,275 or $0.89 per basic and diluted share compared with $3,121,996 or $0.67 per share in 2007. Consolidated net revenue for the six months ended June 30, 2008 was $1,415,519 compared with $1,725,665 for the same period of 2007, a decrease of $310,146, or 18%. Net revenue from services for the six months ended June 30, 2008 was $1,165,871 compared with $1,633,063 for the same period of 2007, a decrease of $467,192 or 29%. 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 military applications, 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. Net revenue from products for the six months ended June 30, 2008 was $249,648 compared with $92,602 for the same period of 2007, an increase of $157,046 or 170%, as a result of sales of general aircraft and smart battery products. For the six months ended June 30, 2008, the net loss was $9,061,678, or $1.54 per basic and diluted share, compared with $5,982,748, or $1.29 per basic and diluted share in 2007. During the three months ended June 30, 2008, the Company recorded dividends of $331,387 on the Series B Convertible Preferred Stock, resulting in a net loss attributable to common stockholders for the six months ended June 30, 2008 of $9,393,065 or $1.60 per basic and diluted share compared with $5,982,748 or $1.29 per share in 2007. The Company ended the second quarter of 2008 with approximately $0.5 million in cash and cash equivalents compared with approximately $3.3 million at the end of the first quarter. Michael E. Reed, President and CEO of Electro Energy, said, "Our revenue in the second quarter was weaker than the prior year as we completed several large R&D contracts in 2007. Unfortunately, $3 million Department of Defense and Department of Energy funding approved by Congress for fiscal year 2008 R&D services which we expected in the second quarter won't begin until the third quarter. We were extremely disappointed that the Defense Logistics Agency recently decided to cancel the previously announced $5 million Kiowa helicopter supply contract that we had expected to begin shipping in the second quarter. We are pursuing discussions with the appropriate Department of Defense officials to assess future battery requirements for the Kiowa helicopter program. As a result these delays and cancellations, our order backlog has not been replenished in time to replace the revenues from the completed contracts." "With the receipt of UL certification for our 2.2 ampere hour model 18650AXA rechargeable lithium ion cylindrical cell, we placed the assets associated with our Florida facility into service on May 1, 2008 and began to classify the costs of the Florida operation as cost of product revenue. This resulted in incremental depreciation of approximately $250,000 per month and a significant increase in the gross loss, as we have not yet reached a level of manufacturing volume sufficient to absorb all the costs of the plant. We expect significant losses to continue until we obtain orders sufficient to achieve high volume manufacturing," Mr. Reed said. Mr. Reed added, "The startup of our Florida facility has taken longer and cost more than originally planned. To provide added focus on this critical period of the Company's growth, I have assumed the role as acting General Manager of the facility and have hired additional key staff. James Manning, previously Chief Operating Officer of Lithium Technology Corporation, has joined the company as Director of Engineering. Graydon Hansen, previously President and General Manager of Electric Fuel Battery Corporation, has joined the company as Director of Operations. Both bring great depth of experience and leadership to our Florida operation." Mr. Reed continued, "We have begun aggressively marketing our manufacturing capabilities and products and have been actively supplying potential customers with sample 2.2 and 2.4 ampere hour cells. The level of interest from potential customers is high and we have already received orders valued over $100,000 for these products in the past two weeks. Although we are confident in our ability to ramp up manufacturing and produce high quality cells and that our marketing efforts 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 backlog and ongoing customer relationships." Mr. Reed concluded, "The Company needs an immediate infusion of operating capital in order to maintain operations. We believe that our ongoing capital requirements are consistent with those of companies that are in a similar early stage of development. We recently completed a warrant sale to an existing investor to provide limited bridge funding and we are currently in discussions with existing investors and new investors to raise additional capital. As our business develops, we must continue to raise additional capital. Our ability to realize our business plan will depend on our future success in capital raising activities." Conference Call The Company will hold a conference call Friday, August 15, 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 60285414. 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 60285414. 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 developing high power lithium rechargeable batteries utilizing the Company's proprietary bipolar wafer cell design. Its Gainesville, Florida facility is the largest lithium ion battery manufacturing plant in the US with annual capacity of over 30 million 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.
Tables follow
ELECTRO ENERGY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2008 2007
(UNAUDITED)
ASSETS ------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 485,937 $ 5,751,382
Accounts receivable, net 392,386 291,152
Inventories 1,088,136 678,955
Prepaid expenses and other current assets 147,913 184,483
------------ ------------
Total current assets 2,114,372 6,905,972
------------ ------------
PROPERTY AND EQUIPMENT, Net 21,489,175 22,380,934
------------ ------------
OTHER ASSETS
Deferred financing costs 1,787,798 1,984,737
Security deposit 228,164 228,164
------------ ------------
Total other assets 2,015,962 2,212,901
------------ ------------
TOTAL ASSETS $ 25,619,509 $ 31,499,807
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 778,085 $ 467,867
Accrued expenses 751,440 630,389
Customer deposits - 78,000
Current portion of capital lease 11,602 11,110
------------ ------------
Total current liabilities 1,541,127 1,187,366
------------ ------------
OTHER LIABILITIES
Secured convertible note, net of deferred
debt discount of $15,970,443 and $17,763,547,
respectively 2,029,557 236,453
Deferred rent, less current portion 595,047 551,358
Capital lease, less current portion 17,120 23,047
------------ ------------
Total other liabilities 2,641,724 810,858
------------ ------------
TOTAL LIABILITIES 4,182,851 1,998,224
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 10,000
shares authorized;
Series A Convertible Preferred Stock, 110
and 160 shares outstanding
($110,000 and $160,000 liquidation
preference, respectively) - -
Series B Convertible Preferred Stock, 5,401
outstanding ($1,485,275 liquidation
preference) 5 5
Common stock, $0.001 par value, 50,000,000
shares authorized; 5,996,463 and 5,762,360
shares issued and outstanding, respectively 5,996 5,762
Additional paid-in capital 65,850,967 64,941,445
Deferred lease costs, net (652,474) (739,471)
Accumulated deficit (43,767,836) (34,706,158)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 21,436,658 29,501,583
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,619,509 $ 31,499,807
============ ============
ELECTRO ENERGY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2008 and 2007
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
NET REVENUE
Services $ 527,536 $ 911,360 $ 1,165,871 $ 1,633,063
Products 125,647 14,624 249,648 92,602
------------ ------------ ------------ ------------
TOTAL NET
REVENUE 653,183 925,984 1,415,519 1,725,665
------------ ------------ ------------ ------------
COST OF REVENUE
Cost of services 742,992 1,186,689 1,513,906 2,084,324
Cost of products 1,591,723 26,704 1,750,551 153,853
------------ ------------ ------------ ------------
TOTAL COST OF
REVENUE 2,334,715 1,213,393 3,264,457 2,238,177
------------ ------------ ------------ ------------
GROSS LOSS (1,681,532) (287,409) (1,848,938) (512,512)
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling, general
and administrative
(including stock-based
compensation of
$188,551 and $209,814
for the three months
ended and $352,554 and
$428,675 for the
six months ended
June 30, 2008 and
2007, respectively) 1,654,921 2,114,835 3,630,872 3,750,172
Research and
development 400,339 345,365 658,465 749,189
------------ ------------ ------------ ------------
TOTAL OPERATING
EXPENSES 2,055,260 2,460,200 4,289,337 4,499,361
------------ ------------ ------------ ------------
OPERATING LOSS (3,736,792) (2,747,609) (6,138,275) (5,011,873)
------------ ------------ ------------ ------------
OTHER EXPENSE
(INCOME)
Interest expense 449,431 243,991 898,922 731,134
Interest income (8,388) (37,145) (44,014) (91,385)
Amortization of
deferred financing
costs 101,196 76,457 202,392 152,935
Amortization of
deferred debt
discount 896,551 89,834 1,793,103 176,941
(Gain) loss on
disposal of fixed
assets, net (2,000) 1,250 73,000 1,250
------------ ------------ ------------ ------------
TOTAL OTHER
EXPENSE 1,436,790 374,387 2,923,403 970,875
------------ ------------ ------------ ------------
NET LOSS (5,173,582) (3,121,996) (9,061,678) (5,982,748)
DIVIDENDS ON SERIES
B PREFERRED STOCK 7,426 - 14,853 -
DEEMED DIVIDEND ON
SERIES B PREFERRED
STOCK 158,267 - 316,534 -
------------ ------------ ------------ ------------
NET LOSS AVAILABLE
TO COMMON
STOCKHOLDERS $ (5,339,275) $ (3,121,996) $ (9,393,065) $ (5,982,748)
============ ============ ============ ============
NET LOSS PER COMMON
SHARE - BASIC AND
DILUTED $ (0.89) $ (0.67) $ (1.60) $ (1.29)
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING - BASIC
AND DILUTED 5,993,846 4,686,156 5,878,103 4,627,344
============ ============ ============ ============Contact: Contact:
Michael E. Reed
(203) 797-2699
or
Timothy E. Coyne
(203) 797-2699
Source: Electro Energy Inc.
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