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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<Table>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2002.
</Table>
COMMISSION FILE NUMBER: 0-23336
------------------------
ELECTRIC FUEL CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 95-4302784
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
632 BROADWAY, SUITE 301, NEW YORK, NEW YORK 10012
(Address of principal executive offices) (Zip Code)
</Table>
(212) 529-9200
(Registrant's telephone number, including area code)
(Former address, if changed since last report)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's common stock as of May 10,
2001 was 30,941,697.
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ELECTRIC FUEL CORPORATION
INDEX
<Table>
PART I -- FINANCIAL INFORMATION
Item 1 -- Interim Consolidated Financial Statements
(Unaudited):
Consolidated Balance Sheets at March 31, 2002 and December
31, 2001................................................ 3-4
Consolidated Statements of Operations for the Three Months
Ended March 31, 2002 and 2001........................... 5
Consolidated Statements of Changes in Stockholders' Equity
during the Three-Month Period Ended March 31, 2002...... 6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2002 and 2001........................... 7-8
Note to the Interim Consolidated Financial Statements..... 9
Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10
Item 3--Quantitative and Qualitative Disclosures about
Market Risk............................................. 15
PART II -- OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K................ 16
SIGNATURES.................................................. 17
</Table>
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ELECTRIC FUEL CORPORATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $12,853,054 $12,671,754
Trade receivables......................................... 1,009,623 1,230,259
Other receivables......................................... 785,330 714,946
Inventories............................................... 3,542,469 3,472,197
----------- -----------
TOTAL CURRENT ASSETS.................................... 18,190,476 18,089,156
NOTES RECEIVABLE FROM STOCKHOLDERS.......................... 250,541 501,288
----------- -----------
SEVERANCE PAY FUND.......................................... 1,066,642 1,078,131
----------- -----------
FIXED ASSETS:
Cost...................................................... 11,959,610 11,721,611
Less--accumulated depreciation............................ 5,187,722 4,981,946
----------- -----------
6,771,888 6,739,665
----------- -----------
$26,279,547 $26,408,240
=========== ===========
</Table>
The accompanying notes are an integral part of the Financial Statements.
3
<Page>
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
--------------- ------------------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables............................................ $ 1,146,454 $ 1,824,957
Other payables............................................ 1,601,229 1,730,799
----------- -----------
TOTAL CURRENT LIABILITIES............................... 2,747,683 3,555,756
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT............... 3,563,110 3,444,427
----------- -----------
TOTAL LIABILITIES....................................... 6,310,793 7,000,183
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock--$0.01 par value
Authorized--100,000,000 shares
Issued--29,059,469 shares and 31,497,030 shares as of
December 31, 2001 and March 31, 2002, respectively
Outstanding--28,504,136 shares and 30,941,697 shares as of
December 31, 2001 and March 31, 2002, respectively...... 314,972 290,596
Preferred stock--$0.01 par value
Authorized--1,000,000 shares, no shares outstanding..... -- --
Additional paid-in capital............................ 108,286,051 104,254,109
Deferred stock compensation........................... (18,000) (18,000)
Accumulated deficit................................... (84,050,670) (80,736,461)
Treasury stock, at cost (common stock--555,333
shares)............................................. (3,537,106) (3,537,106)
Notes receivable from stockholders.................... (1,026,493) (845,081)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY............................ 19,968,754 19,408,057
----------- -----------
$26,279,547 $26,408,240
=========== ===========
</Table>
The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2002 2001
------------- -------------
Revenues.................................................... $ 726,680 $ 725,959
Cost of revenues............................................ 1,035,961 961,785
----------- -----------
Gross loss.................................................. (309,281) (235,826)
----------- -----------
Research and development expenses, net...................... 610,946 769,939
Sales and marketing expenses................................ 1,169,590 1,797,888
General and administrative expenses......................... 1,288,555 896,180
----------- -----------
3,069,091 3,464,007
----------- -----------
Operating loss.............................................. (3,378,372) (3,699,833)
Financial income, net....................................... 64,163 274,869
----------- -----------
Loss for the period......................................... $(3,314,209) $(3,424,964)
=========== ===========
Loss per share.............................................. $ (0.11) $ (0.16)
=========== ===========
Weighted average number of shares outstanding............... 30,149,210 21,802,499
=========== ===========
</Table>
The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<Table>
<Caption>
COMMON STOCK ADDITIONAL DEFERRED
--------------------- PAID-IN STOCK ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT STOCK
---------- -------- ------------ ------------ ------------ -----------
BALANCE AT JANUARY 1, 2002--
AUDITED........................... 29,059,469 $290,596 $104,254,109 $(18,000) $(80,736,461) $(3,537,106)
CHANGES DURING THE THREE-MONTH
PERIOD ENDED MARCH 31, 2002
Issuance of shares, net........... 2,437,561 24,376 4,031,942
Loss.............................. (3,314,209)
---------- -------- ------------ -------- ------------ -----------
BALANCE AT MARCH 31, 2002--
UNAUDITED......................... 31,497,030 $314,972 $108,286,051 $(18,000) $(84,050,670) $(3,537,106)
========== ======== ============ ======== ============ ===========
<Caption>
NOTES
RECEIVABLE
FROM
SHAREHOLDERS TOTAL
------------ -----------
BALANCE AT JANUARY 1, 2002--
AUDITED........................... $ (845,081) $19,408,057
CHANGES DURING THE THREE-MONTH
PERIOD ENDED MARCH 31, 2002
Issuance of shares, net........... (181,412) 3,874,906
Loss.............................. (3,314,209)
----------- -----------
BALANCE AT MARCH 31, 2002--
UNAUDITED......................... $(1,026,493) $19,968,754
=========== ===========
</Table>
The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period....................................... $(3,314,209) $(3,424,964)
----------- -----------
Adjustments required to reconcile loss to net cash used in
operating activities:
Depreciation............................................ 245,000 275,000
Expenses due to options granted to suppliers............ 185,450 84,295
Amortization of deferred stock compensation............. -- 3,955
Capital gain from sale of property and equipment........ (4,257) --
Write-down of notes receivable from stockholders........ 255,275 --
Interest accrued on notes from stockholders............. -- (152,465)
Liability for employee rights upon retirement, net...... 130,173 142,084
Changes in operating asset and liability items:
Decrease in accounts receivable......................... 150,252 2,054,246
Increase in inventories................................. (70,272) (2,500,202)
Increase (Decrease) in accounts payable and accruals.... (768,738) 1,270
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES................. (3,191,326) (3,516,781)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (316,559) (393,604)
Proceeds from sale of property and equipment.............. 4,257 (227,230)
Loans granted to shareholders............................. (4,528) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (316,830) (620,834)
----------- -----------
FORWARD..................................................... $(3,508,156) (4,137,615)
----------- -----------
</Table>
The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2002 2001
------------- -------------
FORWARD..................................................... $(3,508,156) $(4,137,615)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital, net.............. 3,624,698 (40,294)
Proceeds from exercise of options and warrants............ 64,758 325,225
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 3,689,456 284,931
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 181,300 (3,852,684)
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................................... 12,671,754 11,596,225
----------- -----------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $12,853,054 $ 7,743,541
=========== ===========
SUPPLEMENTARY INFORMATION ON ACTIVITIES NOT INVOLVING CASH
FLOW:
Issuance of share capital (including additional paid-in
capital) upon notes receivable.......................... $ 144,875 $ --
=========== ===========
Exercise of options and warrants against notes
receivable.............................................. $ 79,845 --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--CASH
(PAID) RECEIVED DURING THE PERIOD FOR:
Interest.................................................. $ 73,492 $ 103,554
=========== ===========
Advances to income tax authorities........................ $ (3,300) $ (3,659)
=========== ===========
</Table>
The accompanying notes are an integral part of the Financial Statements.
8
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ELECTRIC FUEL CORPORATION
NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The interim consolidated financial statements of Electric Fuel Corporation
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of our management, necessary for a fair statement of results
for the periods presented. Operating revenues and expenses for any interim
period are not necessarily indicative of results for a full year.
For the purpose of these interim consolidated financial statements, certain
information and disclosures normally included in financial statements have been
condensed or omitted. These unaudited statements should be read in conjunction
with our audited consolidated financial statements and notes thereto for the
year ended December 31, 2001.
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ELECTRIC FUEL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
INHERENT RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS
"BELIEVES," "ANTICIPATED," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE
NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH ELSEWHERE IN THIS REPORT. PLEASE SEE "IMPORTANT
FACTORS REGARDING FORWARD-LOOKING STATEMENTS," FILED AS PART OF "ITEM 7:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2001 AND INCORPORATED HEREIN BY REFERENCE.
ELECTRIC FUEL-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF ELECTRIC
FUEL CORPORATION. INSTANT POWER-TM-, POWERCARTRIDGE-TM- AND SMARTCORD-TM- ARE
TRADEMARKS OF ELECTRIC FUEL CORPORATION. ALL COMPANY AND PRODUCT NAMES MENTIONED
MAY BE TRADEMARKS OR REGISTERED TRADEMARKS OF THEIR RESPECTIVE HOLDERS.
The following discussion and analysis should be read in conjunction with the
interim financial statements and notes thereto appearing elsewhere in this
Quarterly Report. We have rounded amounts reported here to the nearest thousand,
unless such amounts are more than 1.0 million, in which event we have rounded
such amounts to the nearest hundred thousand.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, we evaluate our estimates and judgments, including those related
to arrangements with extended payment terms, product returns, bad debts, income
tax provisions and legal contingencies. We base our estimates and judgments on
historical experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Under different assumptions or
conditions, actual results may differ from these estimates.
We believe the following critical accounting policies, among others, affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements.
REVENUE RECOGNITION AND BAD DEBT
We recognize revenues from long-term research and development agreements
subcontracted for the U.S. government when services are rendered. We recognize
revenues in respect of products when, among other things, we have delivered the
goods being purchased and we believe collectibility to be reasonably assured.
Our provision for returns is based on our past experience. We perform ongoing
credit evaluations of our customers' financial condition and we require
collateral as deemed necessary. An allowance for doubtful accounts is determined
with respect to those accounts that we have determined to be doubtful of
collection. If the financial condition of our customers were to deteriorate,
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ELECTRIC FUEL CORPORATION
resulting in an impairment of their ability to make payments, additional
allowances would be required, and this might cause a revision of recognized
revenues.
INVENTORIES
We state our inventories at the lower of cost or market value. Inventory
write-offs and write-down provisions are provided to cover risks arising from
slow-moving items or technological obsolescence. Our reserves for excess and
obsolete inventory are primarily based upon forecasted demand for our products,
and any change to the reserves arising from forecast revisions would be
reflected in cost of sales in the period the revision is made.
GENERAL
During this past quarter, we accelerated our efforts to further develop,
commercialize and market our disposable Instant Power Zinc-Air batteries and
chargers for cellular phones and PDAs. These products use the proprietary
high-rate primary zinc-air technology that we developed in the last three years
for use in portable electronic devices. We also focused during the past quarter
on expanding the distribution channels for our products, in order to continue
the transition from a research and development company to a global consumer
goods company, and on expanding the range of products that we offer.
Our line of existing products now includes batteries for Nokia
5100/6100/7100 phones, various models of SONY, Nikon Coolpix, Olympus and Kodak
digital cameras, and various models of Sony Handycam and JVC camcorders; and
chargers with SmartCords for various series and models of Nokia, Motorola,
Ericsson, Panasonic, Siemens, Samsung, Audiovox, Nextel, Mitsubishi, Sagem and
Philips cellphones, models of PocketPC, Palm, Handspring, Sony, HP, Casio and
Compaq PDAs and Novatel wireless modems.
During the first quarter of 2002, we continued to increase our marketing
development with respect to our Instant Power line, receiving orders from Tesco
PLC, British Airways, and a top-tier wireless carrier in the United States. As
of the end of the quarter, our products were being carried by retailers in the
U.S., the U.K., Australia, Canada, Germany, Italy, Spain and Israel.
While we have successfully marketed our products to retailers, certain of
our customers have indicated to us in response to a dramatic slowdown in sales
of cellular phone accessories (particularly aggravated since September 11th), as
well as in retail in general, that we would benefit from educating consumers and
retail sales personnel as to the advantages of disposable chargers and batteries
for cellphones, PDAs, digital cameras and camcorders. We have begun addressing
this need, both on our own and in cooperative programs with certain of our
retailers, through a merchandizing campaign, as well as through in-store
merchandizing and training programs.
Furthermore, and in light of the difficult retail market, we have begun to
place more emphasis on seeking additional markets for our patented zinc-air fuel
cell technology. In this connection, we have begun to explore various additional
opportunities for the exploitation of our technology in industrial, OEM and
defense-related applications for our technology, and we believe that these
efforts will yield additional revenues.
Our Zinc-Air cells are produced using a custom-designed, high-capacity
automatic line designed, engineered and custom-built for our needs.
As of March 31, 2002, we had 33 unexpired U.S. patents and 15 corresponding
European patents issued covering general aspects and various applications of our
zinc-air technology. We also have more
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ELECTRIC FUEL CORPORATION
than 50 new applications filed, focusing specifically on Instant Power batteries
and chargers for consumer electronic devices and cellphones.
Our Electric Vehicle Division is continuing its American all-electric
transit bus development project, subcontracted by the Federal Transit
Administration (FTA). We successfully completed phase I of the FTA program in
June 2000, and are now engaged in Phase II of the program, which focuses on
conducting evaluation of the system and vehicle performance, including track
testing and limited on-road demonstrations, enhancing the all-electric
propulsion system developed in Phase I, including incorporating ultracapacitors
and associated interface controls, and testing and evaluating the zinc-air fuel
cell system.
In August 2001, we announced that we had successfully completed the
performance testing of our zinc-air electric bus. In the final performance test,
the bus was driven a record-breaking total of 110 miles, more than 100 of them
under the rigorous stop-and-go driving conditions of the Society of Automotive
Engineers' Central Business District (CBD) cycle, and with a load simulating
150% of the passenger payload for which the bus was designed. The bus was
designed to be driven for 95 miles on the CBD cycle with a 50% passenger load.
The most recent testing took place at Rome, New York, on a taxiway of the former
Griffiss Air Force Base, and included evaluation of constant-speed driving and
acceleration tests. We conducted the first public on-road demonstration drives
of our zinc-air electric bus on the streets of Las Vegas, Nevada on
November 27, 2001 to conclude the first milestone of our Phase 2 agreement with
the FTA to demonstrate and evaluate the all-electric zinc-air transit bus.
Additionally, during the first quarter of 2002, we demonstrated our zinc-air
electric bus in a public demonstration in Washington, D.C., on Capitol Hill,
with the participation of certain members of the United States Senate.
Our Defense and Security Products Division is continuing with the production
of zinc-air fuel cell packs for the U.S. Army's Communications Electronics
Command (CECOM). The 12/24 volt, 800 watt-hour battery pack for battlefield
power, which is based on our zinc-air fuel cell technology, is approximately the
size and weight of a notebook computer. The battery is based on a new generation
of lightweight, 30 ampere-hours cells developed by us for both military and
future commercial products with high energy requirements. Additionally, the
Defense and Security Products Division is continuing with the introduction of
the new emergency lights for the marine life jackets market.
We have experienced significant fluctuations in the sources and amounts of
our revenues and expenses, and we believe that the following comparisons of
results of operations for the periods presented do not necessarily provide a
meaningful indication of our development. During these periods, we have received
periodic lump-sum payments relating to licensing and other revenues from our
strategic partners, which have been based on the achievement of certain
milestones, rather than ratably over time. Our expenses have been based upon
meeting the contractual requirements under our agreements with various strategic
partners and, therefore, have also varied according to the timing of activities,
such as the need to provide prototype products and to establish and engineer
refueling and regeneration facilities. Our research and development expenses
have been offset, to a limited extent, by the periodic receipt of research
grants from Israel's Office of the Chief Scientist. We expect that, because of
these and other factors, including general economic conditions and delays due to
legislation and regulatory and other processes and the development of competing
technologies, future results of operations may not necessarily be meaningfully
compared with those of current and prior periods. Thus, we believe that
period-to-period comparisons of its past results of operations should not
necessarily be relied upon as indications of future performance.
We incurred significant operating losses for the years ended December 31,
1999, 2000 and 2001 and the first three months of 2002. While we expect to
continue to derive revenues from the sale of
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ELECTRIC FUEL CORPORATION
chargers and batteries for portable electronic devices, components of the
Electric Fuel Electric Vehicle System, including refueling and Electric Fuel
services and defense and security products that we manufacture, as well as from
licensing rights to our technology to third parties, there can be no assurance
that we will ever derive such revenues or achieve profitability.
FUNCTIONAL CURRENCY
We consider the United States dollar to be the currency of the primary
economic environment in which we and our Israeli subsidiary, Electric Fuel
(E.F.L) Ltd. ("EFL") operate. Further, we believe that the operations of EFL's
subsidiaries are an integral part of the Israeli operations. EFL has therefore
adopted and is using the United States dollar as its functional currency.
Transactions and balances originally denominated in U.S. dollars are presented
at the original amounts. Gains and losses arising from non-dollar transactions
and balances are included in net income.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2001.
REVENUES. Revenues for the first quarter of 2002 totaled $727,000, compared
to $726,000 in the comparable period in 2001, an increase of $1,000.
During the first quarter of 2002, we recognized revenues from the sale of
consumer batteries, lifejacket lights and portable high-power zinc-air fuel cell
packs for military use. We also recognized revenues from subcontracting fees
received in connection with the United States Department of Transportation (DOT)
program which began in 1998 and, after we completed Phase I in July of 2000, was
extended in the fourth quarter of 2000. We participate in this program as a
member of a consortium seeking to demonstrate the ability of the Electric Fuel
battery system to power a full-size, all-electric transit bus. The total program
cost of Phase II is approximately $2.7 million, 50% of which will be covered by
the DOT subcontracting fees. Subcontracting fees cover less than all of the
expenses and expenditures associated with our participation in the program.
During the first quarter of 2002, revenues were $156,000 for the Instant
Power division (compared to $221,000 in the comparable period in 2001, a
decrease of $65,000, or 29%), $205,000 for the Electric Vehicle division
(compared to $197,000 in the comparable period in 2001, an increase of $8,000,
or 4%) and $365,000 for the Defense and Security Products division (compared to
$306,000 in the comparable period in 2001, an increase of $59,000, or 19%).
COST OF REVENUES AND GROSS LOSS. Cost of revenues totaled $1.0 million
during the first quarter of 2002, compared to $962,000 in the comparable period
in 2001, an increase of $74,000, or 8%. Gross loss was $309,000 during the first
quarter of 2002 (compared to $236,000 in the comparable period in 2001, an
increase of $73,000, or 31%).
Direct expenses for our three divisions during the first quarter of 2002
were $2.2 million in the Instant Power division (compared to $2.9 million during
the first quarter of 2001, a decrease of $690,000, or 24%), $194,000 in the
Electric Vehicle division (compared to $210,000 during the first quarter of
2001, a decrease of $16,000, or 8%), and $295,000 in the Defense and Security
Products division (compared to $247,000 during the first quarter of 2001, an
increase of $48,000, or 19%).
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses
less royalty-bearing grants for the first quarter of 2002 were $611,000,
compared to $770,000 during the first quarter of 2001, a decrease of $159,000,
or 21%. This decrease was a result of cost-cutting measures implemented by
management.
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ELECTRIC FUEL CORPORATION
Our 2002 grant applications have not yet been approved by the Research
Committee of the Office of the Chief Scientist of the Ministry of Industry and
Trade. As a result, no royalty-bearing grants were recognized in the first
quarter of 2002 (compared to $186,000 in the first quarter of 2001).
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the first
quarter of 2002 were $1.2 million, compared to $1.8 million in the first quarter
of 2001, a decrease of $628,000, or 35%, primarily attributable to cost-cutting
measures implemented by management.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the first quarter of 2002 were $1.3 million, compared to $896,000 in the
first quarter of 2001, an increase of $393,000, or 44%. This increase was
primarily attributable to a non-cash write-down of notes receivable from certain
stockholders reflecting a diminution in the market value of securities
collateralizing such notes, and certain non-cash expenses attributable to
options granted to suppliers.
FINANCIAL INCOME, NET. Financial income, net of interest expenses and
exchange differentials, totaled approximately $64,000 in the first quarter of
2002, compared to $275,000 financial income in the same quarter in 2001, a
decrease of $211,000, due primarily to lower interest income resulting from
changes in notes receivable from certain stockholders.
INCOME TAXES. We and our Israeli subsidiary EFL incurred net operating
losses or had earnings arising from tax-exempt income during the quarters ended
March 31, 2002 and 2001 and, accordingly, we were not required to make any
provision for income taxes. Taxes in these entities incurred in 2002 and 2001
are primarily composed of United States federal alternative minimum taxes.
NET LOSS. Due to the factors cited above, we reported a net loss of
$3.3 million in the first quarter of 2002, compared to a net loss of
$3.4 million in the first quarter of 2001, a decrease of $111,000, or 3%.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, we had cash and cash equivalents of approximately
$12.8 million, compared to $7.7 million as of March 31, 2001.
We used available funds in the first three months of 2002 primarily for
sales and marketing, continued research and development expenditures, and other
working capital needs. We increased our investment in fixed assets by $277,000
during the quarter ended March 31, 2002, primarily in the Instant Power
Division. Our fixed assets amounted to $6.8 million at quarter end.
Our Israeli subsidiary EFL presently has a line of credit with the First
International Bank of Israel Ltd. (FIBI) of up to $750,000, secured by such
security as we and the bank shall agree upon from time to time. This credit
facility imposes financial and other covenants on EFC and EFL. As of March 31,
2002, there were no letters of credit or bank guarantees issued by the bank.
We believe that our present cash position and cash flows from operations
will be sufficient to satisfy our estimated cash requirements through the next
year. We may seek additional funding, including through the issuance of equity
or debt securities. However, there can be no assurance that we will obtain any
such additional funding. If additional funding is not secured, we intend to
further modify, reduce, defer or eliminate certain of our anticipated future
commitments and/or programs, in order to continue future operations.
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<Page>
ELECTRIC FUEL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to the impact of interest rate changes and foreign currency
fluctuations due to our international sales, production and funding
requirements.
Our research, development and production activities are primarily carried
out by our wholly-owned subsidiary EFL, at its facility in Beit Shemesh, Israel,
and we market some of our products in Israel; accordingly we have sales and
expenses in New Israeli Shekels. However, the majority of our sales are made
outside Israel in U.S. dollars, and a substantial portion of our costs are
incurred in U.S. dollars or in New Israeli Shekels linked to the U.S. dollar.
Therefore, our functional currency is the U.S. dollar. Although we have a line
of credit that may be affected by interest rate changes, given our level of
borrowing, we do not believe the market risk from interest rate changes is
material.
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ELECTRIC FUEL CORPORATION
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) The following reports on Form 8-K were filed during the first quarter of
2002:
<Table>
<Caption>
DATE FILED ITEM REPORTED
- ---------- ---------------------------------------------------------
January 15, 2002............... Sale of shares of our common stock to Grenville Finance
Ltd.
January 23, 2002............... Sale of shares of our common stock to Special Situations
Private Equity Fund, L.P., Special Situations Fund III,
L.P., Special Situations Technology Fund, L.P. and
Special Situations Cayman Fund, L.P.
February 15, 2002.............. Issuance of shares of our common stock to one of our
European distributors.
</Table>
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<Page>
ELECTRIC FUEL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<Table>
ELECTRIC FUEL CORPORATION
By: /s/ ROBERT S. EHRLICH
-----------------------------------------
Name: Robert S. Ehrlich
Title: Chairman and Chief Financial
Officer
</Table>
Dated: May 13, 2002
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