Electro Energy: Wall Street Analyst Forum Presentation Transcript

| About: Electro Energy, (EEEI)
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Electro Energy, Inc. (EEEI)

Wall Street Analyst Forum

February 14, 2007 9:10 am ET


Rachael - Wall Street Analyst Forum

Tim Coyne - CFO



Electro Energy Incorporation, headquartered in Danbury, Connecticut, was founded in 1992 to develop, manufacture and commercialize high-power 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.

EEI is also developing high-power lithium rechargeable batteries utilizing the company's priority bipolar components. EEI has recently acquired significant manufacturing assets beginning this quarter to accelerate commercialization of its batteries technology.

Speaking today on behalf of Electro Energy is CFO, Tim Coyne. Please welcome.


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Tim Coyne

Thank you. Good morning everyone. Everyone deserves a gold star for braving the elements so early this morning. I guess we're pretty fortunate that this is the first such storm we've had this year. It could always be worse. So we could be in upstate New York and under 20 feet of snow.

So without further ado, let's get started. Safe Harbor disclosure. Let's keep in mind that there will be some forward-looking statements and events surrounding the forward-looking statements will come to pass or won't come to pass depending upon circumstances.

Now, the corporate mission is to provide advanced battery technology and systems to the global rechargeable battery market through direct manufacturing or licensing arrangements. So we will manufacture and distribute ourselves, and we're also seeking strategic partners to complete the mission.

The company overview. The company was founded in 1992 as a research and development company. And the initial phases were to seek government funding to develop especially bipolar nickel-metal hydride and bipolar lithium-ion rechargeable battery technology, using a patented flat wafer cell design.

Now, the company went public in 2004 through a reverse merger. Right now, there are 22.6 million shares outstanding. The high-low range is from -- for the last 52 weeks is $1.16 to $3.96. The closing price as of Monday was $1.34. The market cap is about 30 million. We do about 34,000 shares a day in average daily trading volume, and we've got 56 fulltime employees in three locations.

Our first location and our corporate headquarters is in Danbury, Connecticut. At the Danbury, Connecticut location, which is about 14,000 square feet, we do most of our research and development activity both for bipolar nickel-metal hydride batteries as well as the design work for lithium-ion. The applications that are supported by that R&D are the military, electric vehicle and utility applications. And that is the site of our corporate administration.

The second facility we have is in Colorado Springs. It was acquired in 2003 from EaglePicher. It manufactures nickel cadmium batteries and components. That business has continued. We've seen some up and downs in that business over the past several years as one of our largest customers EaglePicher declared bankruptcy, and the business declined. And at the beginning of 2006, emerged from bankruptcy, and the business picked up. And we'll see that in the financial results in a little bit.

The primary application for the manufacturing in Colorado Springs is in military, aerospace and satellite. Those applications are stable for nickel-metal -- for nickel cadmium at this point, but the nickel cadmium industry is being threatened by advanced lithium-ion technology. We also do some development work for the bipolar lithium-ion technology with In-Q-Tel and the Army.

Most recently, we acquired manufacturing -- pretty significant manufacturing capacity in Gainesville, Florida. That's a 200,000-square-foot manufacturing facility. It was acquired in April of 2006. We issued stock valued at around $21 million. The facility includes state-of-the-art 18650 lithium-ion manufacturing capability. It also includes nickel-metal hydride and lithium-ion chemistry manufacturing capabilities.

It does have, and we are continuing to develop, bipolar nickel-metal hydride and lithium-ion battery manufacturing capabilities. Right now, since the acquisition, the equipment has -- additional equipment has been installed and the upgrades to the existing equipment is in progress, and we expect that we will complete that in the first quarter and begin then to manufacture sample products for customer testing.

As a result of the history of the facility, which was initially built with the GE involvement and run by Energizer, there are experienced engineers and operators as well as the manufacturing managers in the area.

The cost of the manufacturing in the Florida facility due largely to the fact that the equipment is highly automated is competitive with Asian sources at high volume, because of the automotive nature of the equipments and factoring in supply chain cost, such as transportation.

It is the only domestic high volume manufacturer of cylindrical, rechargeable lithium-ion cells. And as I mentioned before, nickel-metal hydride and lithium-ion on battery manufacturing will commence in 2007.

The manufacturing assets at Gainesville include six sintering lines, and the sintering lines are suitable for the highest performance nickel-metal hydride and lithium-ion product. There is a foam pasted line in Florida that is applicable for military applications. There are four highly-automated Hurano coating lines suitable both for lithium-ion production, both cylindrical and bipolar, and high performance bipolar nickel-metal hydride batteries.

All of the equipment is suitable for the manufacture of batteries for power tool market or the hybrid electric vehicle market, both hybrid and plug-in hybrid, military and space, as well as utility load leveling and consumer electronics applications.

The potential revenue value of the production in the facility, as it exists today, is approximately $500 million. There is significantly more electrode manufacturing capabilities and cell assembly capability, but with the addition of some cell assembly capability, the production of the -- revenue value of the production would be significantly more than $500 million.

What's unique about the bipolar wafer cell design, which has been patented? It has been developed over 14 years and as a result of $30 million of US government R&D funding. And what differentiates the wafer cell design is that each cell was individually sealed and then stacked to reach the desired voltage of the battery module.

There is lower internal resistance and higher power capability and reduced heating as a result of the lower resistance. There is improved thermal management transfer via metal foil layers. And the packaging is more complex and it eliminates tabs, terminals and cell containers. And this design is applicable to multiple battery chemistries, nickel-metal hydride, lithium-ion, and developing advanced battery chemistries.

The advantages of that or the manufacturing process is a continuous web-based process, which results in reduced complexity, quicker throughput, and reduced part count. It's compatible with the automation of the cell and battery stack assembly. And it allows the manufacture of batteries and battery modules in flexible geometric shapes.

The typical bipolar module results in about 25% higher output because of the lower resistance. And it does so at 30% less volume, which is important in two respects. It's important in the electric vehicle market, and it's also important in the military and aerospace market.

So the lower volume coupled with the more flexible geometric shape manufacturing characteristics are an advantage for the bipolar designs over the traditional cylindrical or prismatic cell designs. Because the manufacturing process is less complicated and there are fewer parts involved the -- and the throughput is much quicker, the manufacturing costs are about 25% lower than traditional cylindrical or prismatic battery cells.

There is -- with a wafer stack, we get a better compression, better battery life. It is more environmentally friendly. The cell and the stack end allow us to better balance electronic and control features. They serve as a drop-in replacement for existing batteries. And the charge and discharge can be controlled by voltage, pressure and temperature, which is important particularly in some of the military and vehicle applications.

Looking at some of the applications for our nickel-metal hydride and keep in mind that most of the world seems to be moving to a lithium-ion, and the lithium-ion applications are pretty much the same as nickel-metal hydride applications.

They are applications for power tools, both hybrid and plug-in hybrid electric vehicles; the utility power load leveling and power quality applications; small vehicles, electric scooters and bicycles; as well as military applications, both in terms of aircraft but also communications and satellite technologies.

As I've mentioned before, most of the world is moving to lithium-ion, and there is a lot of development work being done with lithium-ion. There is a lot more energy and the same amount of space with lithium-ion chemistries. But there have been some safety issues with the lithium-ion chemistry.

Probably, the worst example, which is the recall of laptop computer battery cells and the difficulties we have seen with cell phones burning up and laptops burning up. So there are some safety issues that need to be addressed with the lithium-ion battery development technology.

But again, the lithium-ion bipolar design is the next step after nickel-metal hydride. And we have been working with In-Q-Tel, which is the CIA Venture Capital firm, on bipolar battery materials, cells and systems. We also work with Rutgers University on with lithium-ion nanomaterial design; AltairNano, again; and the US army, principally, for lithium-ion bipolar communications batteries.

There is a significant market opportunity. The battery and energy storage technology has been an impediment to the further growth of a lot of mobile applications. We are addressing the three fastest-growing battery market segments. And as this -- as the bar graph here illustrates, lead acid batteries, or the PbA are growing at about 1.2% on an annual basis and are remaining relatively stable.

Our nickel cadmium is growing slightly higher than that, at 3.7%. So that's stable as well. But the large growth opportunity is in lithium-ion, which are growing at a 10.2% rate, and nickel-metal hydride at 23.4%. As soon as we are capable of dealing with some of the safety issues related to the lithium-ion design, I'm sure that we'll see significantly higher growth rates for the lithium-ion chemistries and potentially lower growth rate for nickel-metal hydride, particularly in a lot of the consumer and power tool applications.

What we are doing in terms of the development of the lithium-ion technology is we've acquired the manufacturing capability in Florida. And that provides high volume lithium-ion manufacturing capabilities. Electrode contract manufacturing is now available, and we are seeking customers for the output for the electrodes.

And as I have mentioned before, electrode manufacturing capability output is higher than cell assembly manufacturing capabilities. So we are in a position not only to manufacture electrodes for our own use but also manufacture electrodes for the use of other strategic customers.

We will be manufacturing cylindrical 18650 and 26650 samples in the first half of 2007, which will be then forwarded for customer testing. We expect that will result in commercial revenues in the second half of 2007. The -- and that is traditional nickel-metal hydride cylindrical manufacturing.

As part of that, we are also in the process of developing prismatic and bipolar design to manufacturing capabilities. And the Florida manufacturing facility also accommodates advanced chemistries that are now currently under development. So the cycle has kind of been lead acid to nickel-cadmium to nickel-metal hydride to lithium-ion, and there are advanced chemistries now under development.

We are seeking both technology and strategic partners for development as well as output. We are targeting four markets. The first of which is our traditional market based upon the history of the company, and that is in the military government. Right now, we have an R&D backlog of about $2 million. We have the Department of Defense R&D appropriations of $1 million that have already been approved for 2007.

We continue to develop the bipolar nickel-metal hydride technology for aircraft applications as well as for high energy and the high output of bipolar nickel-metal hydride capabilities.

There is an increasing interest in lithium-ion, because then you can get more energy in the same space. And there is a particularly strong interest in domestic lithium-ion production on the part of the US military who right now are purchasing their requirements from Japan. And they purchase about 10 million 18650 lithium-ion battery cells a year, which is approximately $30 million worth of purchases. And that has been a pretty historical run rate.

So we feel if we can get that -- when we manufacture the initially the nickel-metal hydride 18650 cell, shortly followed by the lithium-ion 650 technology, we will have a domestic supply to provide for the US military. And under the appropriations and purchasing rules, they are the domestic source of supply they need to -- that qualifies, they need buy from the domestic source of supply. So we figure -- we feel we've got a built-in customer with the US military.

Our second market that we targeted is the transportation market. We have demonstrated a battery component for both a hybrid electric vehicle and both -- in a Toyota Prius, both in hybrid electric vehicle and a plug-in hybrid electric vehicle configuration. Basically, a hybrid electric vehicle, as I'm sure you know, runs on a combination of battery power plus gasoline. And it's in combination on a consisted basis.

A plug-in hybrid vehicle -- you plug the vehicle into the grid, recharge the battery. And for the first 20 to 50 miles, the vehicle operates strictly on electric. And then when it discharges to about 30% of the capacity, the electric motor kicks in and begins to recharge the battery.

The forecast, right now, is for about $2 million hybrid electric vehicle packs. And it will be growing to greater than $2 billion market by 2010. Some estimates -- and that's just for the hybrid electric vehicle market.

Some estimates have -- when you add the plug-in hybrid vehicles to that, some estimates are as high as 35% of vehicle sales in 2010 will be either hybrid electric or plug-in hybrid electric vehicles, which is somewhere in the neighborhood of 5 million vehicles at first, say, roughly $3,000 of battery. So it's a pretty significant market opportunity there.

The plug-in hybrids are gaining significant interest. Toyota is clearly well ahead in terms of electric vehicles technology. GM who held that position until they decided to abandon it has recently reinvigorated their belief in hybrid electric vehicles, and they're entering it in a big way.

And also there have been some contracts in the New York State and in California to retrofit some of their existing hybrid electric vehicles with plug-in hybrid as a rest to determine the savings and the feasibility of using the plug-in hybrid electric vehicles.

Nickel metal hydride is the dominant chemistry. And as I mentioned before, a lot of that is driven by the safety concern issues that exit. But we expect that the chemistry, we'll resolve the safety issues associated with the nickel -- the lithium-ion technology and chemistry and the marketplace will move to lithium-ion in the 2010 timeframe, although it maybe sooner.

We have -- we continue to develop the product. Demonstrations have been pursued. We demonstrated our Toyota plug-in hybrid electric vehicle both in Washington and in New York at Earth Day. And the development of lithium-ion chemistry in this marketplace is priority.

And -- what is that? The sales exceeded 250,000 hybrid electric vehicles in 2006. And as I mentioned before, we are expecting plug-in -- hybrid electric and plug-in hybrid electric vehicle sales to reach 35% of the total vehicle market by 2010. So there is a very significant market opportunity there.

Our bipolar battery -- and these pictures are not to scale. What you see on the left there is the conventional Prius battery, which is the only battery that’s supplied to Toyota by Panasonic. And on the right is the Electro Energy equivalent in a bipolar nickel metal hydride design configuration.

And a battery with the same performance characteristics, 202 volts, 6-amp per hour, 1.2 kilowatt-hours and roughly the same weight at about 85 pounds, there is a -- the configuration of the bipolar design is significantly smaller in terms of volume, about 31% smaller, which is important to the electric vehicle manufactures

And in fact, Toyota Engineering Group has kind of set a goal of reducing the battery size in their electric vehicle by two-thirds sometime around 2010. So we’re halfway there already?

This is our Prius converted plug-in-hybrid electric vehicle. The configuration of the battery module, there are 60 cells in a module. Each module weighs about 60 pounds. So that's a total battery configuration. There are two parallel series that includes three battery modules.

So when you do that math, you've got six modules at 60 pounds each. So that's the 360 pounds plus some of the control mechanism. So you've got a battery layer that is less than 400 pounds and it can generate in all electric range somewhere in the 20 to 22 miles, strictly a electric power.

Why everyone is so interested in electric vehicles in this, I’m sure it comes as no surprise, is part of the fuel economy. And this is a study that was done in different kind of vehicle configurations from a battery electric vehicle through the fuel cells up to gasoline internal combustion engines.

And you can see that the hydrogen fuel cell plug-in-hybrid electric vehicle, the yellow and green bars are in the, for gas or in the case of a fuels cell vehicle, the fuel cells fuel economies. And the blue bars are the fuel estimates when it's run in electric mode.

So you can see the electric above the electric vehicles maybe got the best fuel time. It's all electric vehicle, but as a hydrogen fuel cells right up there, but the gasoline plug-in-hybrid vehicle is right up there as well.

And that's technology that is not experimental. It is available today. And it is available today in such a way that there is not a significant disruption to the infrastructure. There is no need to replace existing gas stations. You can plug the vehicle overnight into and out letting your garage and drive the first 20 miles.

And I guess, the goal was to get it up to 50 miles, to first 50 miles and it's important to reach that goal because most of the commutations in this country is done at about 40 miles to and from.

So if you can get the technology to provide more strictly electric power on a 50 mile range, you can handle a round trip per mile for most of the Country. The other benefits of hybrid electric vehicles and plug-in hybrid vehicles, is the reduction of Greenhouse Gas Emissions.

And this chart shows the Greenhouse Gas Emissions for the various technologies. The ethanol technologies there and diesel technologies they are top as well as the regular fuel internal combustion engines and it's in two parts. The yellow part is the vehicle fuel and the blue part then is the total fuel cycle.

So you can see that based on these bars the vehicles that result in the lowest Greenhouse Gas Emissions are the battery electric vehicle and because there's no fuel component to that. It's all the emissions are from the electric quid. You can see that the hydrogen fuel cell vehicle is about the same as the battery electric vehicle, but that would require a significant investment and infrastructure.

The third lowest Greenhouse Gas emitter is the Gasoline Plug-in Hybrid electric vehicles. And that technology is available today and it does not result in the significant investment and infrastructure. You can fill the tank for short trips, you can plug the car in and run back and forward. For longer trips you can fill the tank and then one's the battery discharges to roughly 30%, the gasoline engine will kick-in and you can drive out on normal distances.

So the Power Tools is the third target markets. With 50 million Power Tool Battery Packs, value of about $1 billion estimated by 2010. The industry is moving to with the Li-ion chemistry that little, we've got from lead acid right to with the Li-ion is very little interest in Nickel Metal Hydride.

We are preparing samples and will be sending them to target customers. And the use of the bipolar with the Li-ion technology in powering tools and consumer products will follow the development of that technology for the military.

Here, you can see the results of the -- what's happening here, in terms of volumes. Although the, which is on the left, the red bar is with the Li-ion. Volume is rather low, but you can see the value of what the Li-ion is much, much higher. And you can see that the markets are moving to with the Li-ion technologies. So because it is more expensive it's really used in high value applications.

The fourth market is Utility Load Leveling. We've got over a $1 million of R&D backlog from the Department of Energy. And there is the strong interest in utilizing the Nickel Metal Hydride bipolar configuration in that marketplace.

But one issue that does play this market is that they are -- they are used to lead acid pricing. So the value proposition is a little difficult from a sales standpoint. But we are developing demonstration products for niche application to this marketplace.

Just quickly, going through the financial highlights. The third quarter revenue was up 26%. Product revenue was up 45% on a year-to-date basis is up 87%, that was as a result of the return of shipments of product, primarily, to EaglePicher after they have emerged -- emergence from bankruptcy.

Gross losses are down and that is -- the gross losses are largely as the result of our R&D activity. Our product margins are about 38% in the third quarter. So we can get volume, there is product margin.

SG&A expenses are up, there is about through the year -- through the nine months about $750,000 of stock option non-cash charges in that number that is the lion share of that increase. But R&D expenses are also up as we continue to develop our product.

Cash on hand at the end of September was about $7.6 million and that included about $2.5 million of restricted cash.

I won't bore you with these details since if you are interested in studying in further, you can get out to Edgar and fix him up. I will just mention that our cash flows are monthly burned rate is approximately $300,000 and we will see that increase slightly as our development activity continues.

Senior management team, Martin Klien is the Chairman of the Board and founder of the Company has been in this business for over 40 years. Mike Reed is the President and CEO, he had been in the business 35 years. And I have just recently joined the Company as CFO and I have got 30 years of financial experience.

We’ve got an experienced Board of Directors both in terms of technology and finance. Warren Bagatelle is the finance guy, he is the Managing Director of Loeb Partners. Joe Engelberger is Mr. Robotics. Farhad Assari is a finance guy.

Bob Hamlen was rendering Army’s about redevelopment activities. Bill Wylam was very involved with the Electric Vehicle program at General Motors and Larry Schafran has also financial background.

So where we’re going, in 2006 we completed the Gainesville acquisition. We raised $11 million on convertible notes to begin to commercialize the technology. We’ll stay in the military market. We think it’s a good source of R&D. And we’ll pursue complimentary acquisitions to augment both our technology and product offerings.

We utilize the Gainesville equipments for near-term commercialization initially for a military applications but then moving onto power tools and transportation applications. And most importantly at this point, our revenue targets are $10 million in 2007 increasing to $30 million in 2008, and with a goal of $100 million by 2010.

Contract information and that’s it for the formal part of the presentation. Any questions?


Unidentified Audience Member

[Question Inaudible]

Tim Coyne

Very well. Nothing.

Unidentified Audience Member

[Question Inaudible]

Tim Coyne

I think we’re running out of time. But thanks for giving the questions. I’ll be more than happy to stick around.

Unidentified Audience Member

[Question Inaudible]

Tim Coyne

The electrodes are pretty significant part of the battery manufacturing process. It conducts the electricity from positive to negative and allows it to flow through. Also, it would be anybody that manufactures batteries. That the chemistry it creates that the chemical reaction that produces energy and then the electrodes then or the contact points that move the energy from the storage device to the device that is being powered. So it would be anybody, it would be used in rechargeable batteries as well as primary batteries, depending upon the duration of any battery manufacturer in the world of this electrodes.

Unidentified Audience Member

[Question Inaudible]

Tim Coyne

No. Strictly for -- while it would be for portable storage, the energy storage device. Okay. Thank you.


The Wall Street Analyst Forum, a leading conference host for public corporations to address analysts/portfolio managers and professional investors, sponsors four annual conferences in NYC for large, mid and small-cap companies. Seeking Alpha readers may attend Wall Street Analyst Forum conferences free of charge if you pre-register. See the full conference schedule and attendance information.

Read all Wall Street Analyst Forum conference presentation transcripts here.

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