Basin Water, Inc. Reports Second Quarter 2006 Results; Quarterly Revenues Increase to $5.0 Million, Gross Profit to $1.4 Million

Revenues increased by 150% to $5.0 million for the second quarterof 2006 as compared to $2.0 million for the same period of 2005.Revenues increased by 200% to $8.7 million for the six months endedJune 30, 2006 compared to $2.9 million for the same period in 2005.Revenue from both system sales and contract revenues continue toincrease compared to the prior year as a result of growth in placementof our groundwater treatment systems.

Gross profit increased for the second quarter by 133% to $1.4million compared to $0.6 million for the 2005 second quarter as aresult of the increased volume in system sales. Gross profit for thesix months ended June 30, 2006 was $2.5 million compared to $0.9million for the same period in 2005. Gross profit as a percentage ofrevenues was 28% for the second quarter and 29% for the six monthsended June 30, 2006 compared to 30% and 32% for the comparable periodsof 2005, respectively. The decrease in gross profit percentage in 2006compared to 2005 is due to increased costs on a large system saleproject nearing final stages of completion and due to highervolume-related contract operating costs and increased field servicelabor and engineering expense. Basin Water continues to expand itsfield service and engineering staff in anticipation of future volumegrowth.

Selling, general and administrative (SG&A) expense increased to$1.4 million in the second quarter of 2006 compared to $0.7 million inthe second quarter 2005, and $2.5 million for the six months endedJune 30, 2006 compared to $1.1 million for the same period in 2005.SG&A expense was 28% of revenues for the second quarter of 2006 and29% of revenues for the six months ended June 30, 2006, an improvementfrom 35% of revenues in the second quarter of 2005 and 38% of revenuesfor the six months ended June 30, 2005. The increase in SG&A expensewas primarily attributable to a $0.5 million expense for stock-basedcompensation in 2006 as well as an increase in personnel costsassociated with Basin Water's growth.

The second quarter 2006 reflects a net loss from operations of$0.1 million compared to a net loss of $0.3 million in the secondquarter of 2005 and a net loss from operations of $0.2 million for thesix months ended June 30, 2006 compared to $0.5 million for the sameperiod in 2005.

In May 2006, Basin Water registered and sold 6.9 million shares ofcommon stock in its initial public offering. After offering costs andexpenses, the net proceeds were approximately $75.3 million. From theinitial public offering proceeds, Basin Water repaid approximately$9.0 million of long-term debt. As a result, the remaining unamortizedfair value of warrants of $1.5 million related to this debt andassociated unamortized loan costs of $0.4 million were expensed asnon-cash charges. These charges accounted for a significant portion ofthe second quarter's interest expense of $2.3 million.

Earnings before interest, taxes, depreciation and amortization(EBITDA) increased to $0.3 million during the first six months of2006, compared to $0.3 negative EBITDA in the first six months of2005. A complete reconciliation containing adjustments from GAAP netloss to EBITDA is included at the end of this release.

The President and Chief Executive Officer of Basin Water, PeterJensen, commented, "We are pleased with our second quarter resultswhich reflect continued growth in all areas of our business. Ourinstalled base of long-term contracts continues to expand at a rapidlevel. During the 2006 six-month period, we have entered intooperating contracts that include the Baldy Mesa Water District and theJurupa Community Service District, both near our offices in SouthernCalifornia, the Town of Gilbert, Ariz., East Valley Water District inCalifornia and the City of Glendale, Ariz. In addition, in July 2006,which will be included as part of our third quarter activity, theCompany was awarded a contract with the Lewis Operating Corporation,one of the nation's largest privately-owned real estate developmentcompanies and another contract from the Jurupa Community ServiceDistrict, both for nitrate removal systems in the Chino Basin. Weexpect the Chino Basin, located in Southern California, to be asignificant source of future growth for the Company."

Mr. Jensen noted, "Our contract with the Baldy Mesa Water Districtis very significant for Basin Water. This arsenic removal plant hasinstalled capacity to treat over eight million gallons of water perday and is expandable to ten million gallons per day. Basin has aten-year operating contract for the facility that is expected to be animportant contributor to long-term contract revenues."

"Basin continues to make excellent progress in commercialimplementation of its patented `BionExchange(R)' technology. Thistechnology allows reuse of spent ion exchange resins used inperchlorate contamination removal from water. A full-scale one milliongallon-per-day perchlorate contamination removal system has beeninstalled at East Valley Water District in San Bernardino, Calif., andis expected to be operational shortly after it completes the currentlypending permitting process. Basin has contracted with The Shaw Group,a strategic partner and well-known, nationwide engineering company,for the design and construction of the full-scale reactor system whichwill utilize the proprietary BionExchange(R) process. This patentedtechnology is designed to both destroy the perchlorate contaminant andprovide for reuse of the ion exchange resin. The regeneration facilityis expected to be on-line and in operation within the next fewquarters."

Mr. Jensen adds, "We continue to focus on our core business ofproviding reliable water supplies to municipal customers. Decreasingwater supplies, increasing demand and degrading water quality ofexisting sources are expected to continue to accelerate our growth inthe future."

Conference Call

The company will provide more detail regarding its second quarterresults in a conference call and web cast to be held today, August 14,2006, at 4:30 p.m. Eastern time (1:30 p.m. Pacific). The conferencecall can be accessed on the company's website at www.basinwater.com.For those unable to participate in the live web cast, a replay will beavailable shortly after the call on the company's website.

Basin Water, Inc. designs, builds and implements systems for thetreatment of contaminated groundwater, providing reliable sources ofdrinking water for many communities. Basin Water has developed aproprietary, scalable ion-exchange wellhead treatment system thatreduces groundwater contamination levels in an efficient, flexible andcost effective manner. Additional information may be found on thecompany's web site: www.basinwater.com.

Forward-Looking Statements

This press release contains "forward-looking statements" withinthe meaning of the Private Securities Litigation Reform Act of 1995.These statements, including expectations relating to future revenuesand income, the company's ability to gain new business and controlcosts, involve risks and uncertainties, as well as assumptions that,if they prove incorrect or never materialize, could cause the resultsof the company to differ materially from those expressed or implied bysuch forward-looking statements. Actual results may differ materiallyfrom these expectations due to various risks and uncertainties,including: the company's limited operating history, significantfluctuations in its revenues from period to period, its ability toeffectively manage its growth, the success of the company's strategicpartners, its long sales cycles, market acceptance of its technology,the geographic concentration of its operations and customers, itsability to meet customer demands and compete technologically, thecompany's ability to protect its intellectual property, regulatoryapprovals of the company's systems, changes in governmental regulationthat may affect the water industry, particularly with respect toenvironmental laws and the company's ability to manage its capital tomeet future liquidity needs. More detailed information about theserisks and uncertainties are contained in the company's filings withthe Securities and Exchange Commission, including the company's FormS-1 and Quarterly Report for the quarter ended June 30, 2006 on Form10-Q. The company assumes no obligation to update theseforward-looking statements to reflect any change in future events.

FINANCIAL HIGHLIGHTS -- BASIN WATER, INC.
(unaudited and in thousands, except per share amounts)


Three Months Six Months Ended
Ended June 30, June 30,
-------------- --------------
2006 2005 2006 2005

Revenues $4,963 $1,982 $8,666 $2,878
Cost of revenues 3,565 1,384 6,121 1,960
------ ------ ------ ------
Gross profit 1,398 598 2,545 918
Research and development expense 128 172 198 317
Selling, general and administrative
expense 1,391 686 2,520 1,105
------ ------ ------ ------
Income (loss) from operations (121) (260) (173) (504)
Other income (expense) (1,869) (104) (2,188) (171)
------ ------ ------ ------
Loss before taxes (1,990) (364) (2,361) (675)
Income tax benefit - - - -
------ ------ ------ ------
Net loss $(1,990) $(364) $(2,361) $(675)
====== ====== ====== ======

Net loss per share:
Basic $(0.14) $(0.04) $(0.19) $(0.07)
Diluted $(0.14) $(0.04) $(0.19) $(0.07)


Non-GAAP Measure

This press release includes the use of EBITDA, which is a "non-GAAP"
financial measure within the meaning of SEC Regulation G. In
evaluating its business, the company considers and uses EBITDA as a
supplemental measure of its operating performance. EBITDA is defined
as net income or loss before interest expense, income tax expense,
depreciation and amortization. The company believes use of EBITDA
facilitates operating performance comparisons from period to period
and company to company by removing potential differences caused by
variations in capital structures (affecting primarily relative
interest expense), the book amortization of intangibles (affecting
relative amortization expense), the age and book depreciation of
facilities and equipment (affecting relative depreciation expense) and
other non-cash charges. The company believes that, by eliminating such
effects, EBITDA provides a meaningful measure of overall corporate
performance exclusive of our capital structure, and the method and
timing of our expenditures associated with building and placing our
systems. The company also presents EBITDA because it believes EBITDA
is frequently used by securities analysts, investors and other
interested parties as a measure of financial performance.

EBITDA is not a measure of operating income, operating performance or
liquidity presented in accordance with U.S. GAAP. EBITDA has
limitations as an analytical tool, and when assessing the company's
performance, investors should not consider EBITDA in isolation, or as
a substitute for net income (loss) or other consolidated income
statement data prepared in accordance with U.S. GAAP.


We compensate for the foregoing limitations by relying primarily on
our GAAP results and using EBITDA only supplementally. EBITDA is
calculated as follows for the periods presented:


Six Months Ended
June 30,
------------------
2006 2005
------ ------
(In thousands)

Net loss $(2,361) $(675)
Add: interest expense(1) 2,524 199
Less: interest and other income (445) (28)
Add: depreciation and amortization 590 254
Add: income tax expense - -
------ ------
EBITDA(2) $308 $(250)

---------------------------------------------------
(1) Interest expense includes portions of the fair value of warrants
that constitute debt discount, but excludes amortization of debt
discount already included in amortization expense.

(2) Not considered in the calculation of EBITDA are the following:

a) Stock-based compensation expense, which includes
amortization of deferred compensation expense. We recorded
approximately $0.4 million in stock-based compensation
expense for the six months ended June 30, 2006.

b) Expense related to the fair value of warrants, which
consists of the amortization of deferred charges
representing the excess of the fair value of our common
stock over the exercise price of warrants issued. We
recorded approximately $0.1 million in expense related to
the fair value of warrants for the six months ended June
30, 2006.

c) Other warrant charges, which represents the fair value of
warrants issued to two customers in connection with sales
of groundwater treatment systems. We recorded approximately
$0.3 million in other warrant charges during the six months
ended June 30, 2006.