SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: September 30, 1996
Commission file number 0-23336
ELECTRIC FUEL CORPORATION
--------------------------------------------------
Exact Name of Registrant as Specified in its
Charter
Delaware 95-4302784
- -------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
885 Third Avenue, New York, New York 10022 - Suite 2900
-------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(212) 230-2172
--------------------------------------------------
(Registrant's Telephone Number, Including Area
Code)
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 November 5, 1996 was 14,257,508.
ELECTRIC FUEL CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
-------------------------------------------------
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 3-4
Consolidated Statements of Operations for the Nine
Months and the Three Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended
September 30, 1996 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 7-8
Notes to the Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 10-15
-----------------------------------
PART II - OTHER INFORMATION
2
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ --------------
ASSETS (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,364,867 $12,952,982
Marketable debt securities
(at fair market value) 4,215,518 2,026,040
Accounts receivable:
Trade 398,535 369,272
Other 2,421,804 1,847,899
Inventories 535,208 847,040
----------- -----------
TOTAL CURRENT ASSETS 12,935,932 18,043,233
----------- -----------
INVESTMENTS:
Investee company 35,849 35,849
----------- -----------
FIXED ASSETS:
Cost 6,639,926 8,586,272
Less - accumulated depreciation and
amortization 654,391 1,403,865
----------- -----------
5,985,535 7,182,407
----------- -----------
OTHER ASSETS AND DEFERRED CHARGES net of
accumulated amortization 743,885 70,800
----------- -----------
$19,701,201 $25,332,289
=========== ===========
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
3
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ --------------
(Audited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 2,743,539 $ 1,115,421
Other 6,357,706 3,056,110
Advances from Customers 4,223,066 784,854
----------- -----------
TOTAL CURRENT LIABILITIES 13,324,311 4,956,385
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 555,908 811,754
----------- -----------
TOTAL LIABILITIES 13,880,219 5,768,139
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized --
28,000,000 shares; issued - 11,328,110 shares
as of December 31, 1995 and 12,719,046 as of
September 30, 1996; outstanding - 8,675,947
shares as of December 31, 1995 and 12,719,046 as
of September 30, 1996. 113,282 127,191
Preferred stock - $0.01 par value; authorized -
1,000,000 shares, no shares outstanding
Additional paid-in capital 24,168,108 47,090,995
Accumulated deficit (16,873,340) (24,620,467)
Unrealized gain on available-for-sale securities 29,048 1,746
Treasury stock, at cost (common stock --
2,652,163 shares as of December 31, 1995) (193,174)
Notes receivable from stockholders (1,422,942) (3,035,315)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,820,982 19,564,150
----------- -----------
----------- -----------
$19,701,201 $25,332,289
=========== ===========
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
4
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------
1995 1996 1995 1996
---- ---- ---- ----
REVENUES $ 2,363,408 $ 3,618,289 $ 1,215,698 $ 1,123,682
----------- ----------- ----------- -----------
RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF
REVENUES
Expenses incurred 8,063,950 10,316,159 4,031,655 2,959,957
Less - royalty-
bearing grants 1,368,983 908,000 652,520 908,000
----------- ------------ ----------- -----------
6,694,967 9,408,159 3,379,135 2,051,957
PROVISION FOR ANTICIPATED
PROGRAM LOSSES 2,100,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,911,949 2,534,914 693,937 1,020,859
----------- ----------- ----------- -----------
10,706,916 11,943,073 4,073,072 3,072,816
----------- ----------- ----------- -----------
OPERATING LOSS (8,343,508) (8,324,784) (2,857,374) (1,949,134)
FINANCIAL INCOME - NET 520,821 641,092 128,509 261,188
----------- ----------- ----------- -----------
LOSS BEFORE TAXES ON
INCOME (7,822,687) (7,683,692) (2,728,865) (1,687,946)
TAXES ON INCOME 52,115 63,435 52,115 11,859
----------- ----------- ----------- -----------
LOSS FROM THE OPERATION
OF THE COMPANY &
ITS CONSOLIDATED
SUBSIDIARIES (7,874,802) (7,747,127) (2,780,980) (1,699,805)
SHARE IN LOSS OF
ASSOCIATED COMPANY (52,134) (19,134)
----------- ----------- ----------- -----------
LOSS FOR THE PERIOD $(7,926,936) $(7,747,127) $(2,800,114) $(1,699,805)
=========== =========== =========== ===========
LOSS PER SHARE $ (0.93) $ (0.67) $ (0.33) $ (0.14)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 8,506,724 11,618,955 8,586,901 12,214,392
=========== =========== =========== ===========
- ---------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
5
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
UNREALIZED GAIN NOTES
COMMON STOCK ADDITIONAL ON AVAILABLE- RECEIVABLE
----------------------- PAID-IN ACCUMULATED FOR-SALE TREASURY FROM SHARE-
SHARES AMOUNT CAPITAL DEFICIT SECURITIES STOCK HOLDERS TOTAL
----------- ---------- ----------- ------------ ----------- ----------- ----------- ------------
BALANCE AT
JANUARY 1, 1996 11,328,110 $113,282 $24,168,108 $(16,873,340) $29,048 $(193,174) $(1,422,942) $ 5,820,982
CHANGES DURING
THE NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996:
Shares issued in a
public offering 3,750,000 37,500 21,562,647* 21,600,147
Shares issued in
connection with the
exercise of option 293,099 2,931 1,516,933 1,519,864
Option issued as
compensation for
services rendered
by consultants 9,959 9,959
Treasury stock retired (2,652,163) (26,522) (166,652) 193,174 0
Loans granted
to stockholders (1,545,895) (1,545,895)
Accrued Interest on notes
receivable from
stockholders (66,478) (66,478)
Change in
unrealized gain on
available-for-sale
securities (27,302) (27,302)
Loss (7,747,127) (7,747,127)
----------- ----------- ----------- ------------ --------- ----------- ----------- ------------
BALANCE AT
SEPTEMBER 30, 1996 12,719,046 $127,191 $47,090,995 $(24,620,467) $ 1,746 $0 $(3,035,315) $19,564,150
=========== =========== =========== ============ ========= =========== =========== ============
* Net of $ 2,774,853 - offering expenses
The accompanying notes are an integral part of the Financial Statements.
6
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- --------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1995 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
LOSS FOR THE PERIOD $(7,926,936) $ (7,747,127)
ADJUSTMENTS REQUIRED TO RECONCILE LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
LOSS RELATING TO INVESTMENT IN INVESTEE COMPANY 52,134
DEPRECIATION AND AMORTIZATION 306,033 775,310
AMORTIZATION OF PREMIUM NET OF ACCRUED INTEREST AND GAIN FROM
SALE OF MARKETABLE DEBT SECURITIES 114,583 50,176
CAPITAL LOSS FROM DISPOSAL OF FIXED ASSETS 777
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT -- NET 199,528 255,846
INTEREST ACCRUED ON NOTES AND LOAN TO STOCKHOLDERS (65,742) (66,478)
CHANGES IN OPERATING ASSET AND LIABILITY ITEMS:
DECREASE IN ACCOUNTS RECEIVABLE 618,109 334,188
INCREASE IN INVENTORIES (127,900) (311,832)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUALS 3,495,153 (4,929,714)
CHANGES IN RELATED PARTIES -- NET 10,141
INCREASE (DECREASE) IN ADVANCES FROM CUSTOMERS 118,829 (3,438,212)
--------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES $(3,206,068) $(15,077,066)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FIXED ASSETS (3,289,200) (2,015,573)
INVESTMENT GRANT RELATING TO FIXED ASSETS 317,723
PROCEEDS FROM DISPOSAL OF FIXED ASSETS 1,371
AMOUNTS CARRIED TO OTHER ASSETS AND DEFERRED CHARGES (159,499) (44,967)
PROCEEDS FROM SALE AND REDEMPTION OF MARKETABLE DEBT SECURITIES 7,451,300 2,112,000
--------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES $ 4,002,601 $ 370,554
--------------- ---------------
--------------- ---------------
FORWARD $ 796,533 $(14,706,512)
--------------- ---------------
The accompanying notes are an integral part of the Financial Statements.
7
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1995 1996
------------- ---------------
------------- --------------
FORWARD $ 796,533 $(14,706,512)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
ISSUE OF SHARE CAPITAL (INCLUDING ADDITIONAL PAID IN CAPITAL),
NET OF OFFERING EXPENSES 22,310,699
LOANS GRANTED TO STOCKHOLDERS (1,545,895)
PAYMENT ON NOTE RECEIVABLE FROM STOCKHOLDERS 24,629
PROCEEDS FROM EXERCISE OF WARRANTS AND OPTIONS 102,257 1,529,823
PURCHASE OF TREASURY STOCK (46,987)
------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 79,899 22,294,627
------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 876,432 7,588,115
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,307,855 5,364,867
------------- --------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 2,184,287 $ 12,952,982
============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- CASH PAID DURING THE PERIOD FOR:
INTEREST $ 1,911 $ 3,758
============ ==============
ADVANCES TO INCOME TAX AUTHORITIES $ 51,805 $ 120,922
============ ==============
The accompanying notes are an integral part of the Financial Statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
===============================================================================
1. The interim financial statements of Electric Fuel Corporation ("the
Company") reflect all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the Company's management, necessary
for a fair statement of results for the periods presented. Operating revenue
and expenses for any interim period are not necessarily indicative of
results for a full year.
For the purpose of these interim financial statements, certain information
and disclosures normally included in the financial statements have been
condensed or omitted. These unaudited statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended December 31, 1995.
2. In February 1996, the Company completed a public offering of 3,750,000
shares of its common stock of par value of $0.01 per share, at an offering
price of $6.50 per share.
3. On October 2, 1996, the Company issued in a private placement 1,538,462
shares of its common stock of par value of $0.01 per share, at an offering
price of $6.50 per share.
9
ELECTRIC FUEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Quarterly
Report. Amounts reported here have been rounded to the nearest thousand.
Forward-Looking Statements
When used in this discussion, the words "believes," "anticipated" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. See "Important Factors Regarding
Forward-Looking Statements" attached as Exhibit 99 to the Company's Annual
Report for the year ended December 31, 1995 on Form 10-K and incorporated herein
by reference. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THE DEUTSCHE POST FIELD TEST
In May 1995, a Field Test managed by the German postal service commenced in
which the Electric Fuel System would be tested by Deutsche Post in vehicles
powered by the Electric Fuel battery in mail delivery operations in Bremen,
Germany, and by certain other fleet operators (including Deutsche Telekom, the
German telecommunications company) (the "Field Test"). The Field Test is a
cooperative and strategic partnership managed by Deutsche Post to conduct a
representative operating test of the Electric Fuel System in Germany and Sweden.
As of September 30, 1996, the refueling and regeneration plant constructed in
Bremen, Germany is supporting a fleet of nine Mercedes-Benz 4.6-ton vans (seven
being used by the Deutsche Post, and two being used by Vatenfall AB and the
Swedish Post), with approximately half of the vehicles being driven at any given
time. While the Company had originally anticipated the Field Test to expand to
a total of 64 vehicles for the Deutsche Post during 1996 (20 Mercedes-Benz vans
and 44 GM-Opel light pick-up trucks), at recent meetings the Company has
discussed with certain other Field Test partners modifications of the Field Test
program. Because of changes made by Opel in the design of their vehicles and
engineering issues relating to the integration of the battery into these
vehicles, the Company now anticipates that one Opel vehicle will be
participating in the Field Test by the end of 1996 and that an additional five
Opel vehicles will be participating by the end of the first half of 1997. The
Company also anticipates that the size of the fleet will be reduced and its
composition changed to include a new
10
Mercedes van used for package deliveries. Because of these changes, the Field
Test could be extended in time.
The provision for anticipated program losses previously recorded by the Company
reflects the program losses currently estimated by management (assuming a
substantial reduction in the size of the Field Test or the receipt of additional
funds by the Company in connection with the Field Test), and accordingly no
increase to the provision was recorded in the third quarter of 1996. In the
future, however, the provision may be increased to reflect any revised estimates
of project costs. The costs of the Field Test incurred by the Company have
exceeded the related program budgeted amounts by more than 20%, thereby allowing
the Company, pursuant to the terms of the Field Test Partners Agreement, to
enter into discussions to obtain additional funding from the Deutsche Post. The
Company is continuing these discussions with the Deutsche Post in this regard.
There can be no assurance, however, that the Company will be able to obtain any
such funding. The balance of the provision for the uncompleted portions of the
program amounts to $2.2 million as at September 30, 1996. The overall provision
includes cost estimates based on the Company's production experience to date for
the supply of batteries and battery-vehicle interface equipment, the estimated
service expenses for the Field Test fleet and costs related to the 100 kg/hour
regeneration plant in Bremen, Germany which is supporting the Mercedes-Benz
Field Test vehicles in service at September, 1996.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995.
REVENUES:
Revenues for the third quarter of 1996 amounted to $1,124,000 vs. $1,216,000 in
the comparable period in 1995, a decrease of $92,000. Revenues for the third
quarter of 1996 were principally derived from activities relating to the Field
Test program. In the third quarter of 1995 revenues were primarily related to
the Field Test, as well as revenues in connection with Phase 1 of the program
with STN Atlas Elektronic GmbH (STN) to develop a high power zinc oxygen battery
for torpedoes. The Company is presently negotiating the final details of Phase 2
of its program with STN. Also included in the third quarter of 1995 were
revenues related to the completion and delivery of certain outstanding orders
from Edison Termoelettrica, Spa (Edison). The Company anticipates recognizing
most of the remaining expected revenues related to the Field Test under the
current agreement in 1996 and into 1997, as batteries continue to be delivered,
and the Field Test fleet is serviced.
11
EXPENSES:
For the third quarter of 1996, research and development expenses and cost of
revenues were $2,960,000 compared with $4,032,000 for the third quarter of 1995.
The Company believes that, given the Company's stage of development, it is not,
at this time, meaningful to distinguish between R&D expenses and cost of
revenues. The decrease in expenses of $1,072,000 from the third quarter of 1995
is principally attributable to a reduction of certain expenses in connection
with the Deutsche Post Field Test, particularly the costs of the regeneration
plant in Bremen, as well as by utilization of the previously accrued provision
for project losses. This overall reduction was partially offset by costs
associated with the continued growth of the Company, including the operation of
the Company's production and development facilities in Israel and its new
facility in Bremen, Germany; and increased personnel costs relating to the
foregoing. For the third quarter of 1995, $653,000 of royalty-bearing grants
were recognized, which reduced R&D expenses during this period. The Company's
1996 grant application has been approved by the Office of the Chief Scientist of
the Ministry of Industry and Trade. The total approved grant for 1996 will
amount to approximately $1.2 million. During the third quarter of 1996, $908,000
of royalty-bearing grants were recognized, which reduced R&D expenses during
this period. Expenses related to the Field Test are expected to continue at
least through the rest of 1996 and into 1997 as the Company continues to deliver
batteries and operates the Bremen regeneration plant. They will substantially
exceed any expected revenues related thereto. Since the plant is currently
dedicated to the Field Test, the cost of the plant (net of anticipated residual
value) is reflected as a current expense.
Selling, general and administrative expenses for the third quarter of 1996 were
$1,021,000 vs. $694,000 in the third quarter of 1995. This increase was
primarily attributable to increased salaries, fees and allocated overhead
expenses with respect to the Company's expanded activities, particularly in
Germany. As the Company further expands its activities, it expects increases in
selling, general and administrative expenses, particularly with respect to
marketing expenses, as well as administrative expenses in its German subsidiary.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995.
REVENUES:
Revenues for the nine months ended September 30, 1996 totaled $3,618,000 vs.
$2,363,000 in the comparable period in 1995, an increase of $1,255,000. Revenues
for the first nine months of 1996 were principally derived from activities
relating to the Field Test program. Additionally, the Company completed
recognition of revenues related to Phase 1 of its development program with STN
to develop a high power zinc oxygen battery for torpedoes. The Company is
presently negotiating the final details of Phase 2 of
12
its program with STN. In the first nine months of 1995 the revenues were
primarily related to the Deutsche Post Field Test, as well as certain revenues
related to marketing rights and the sale of equipment in the contract signed
with Vattenfall AB. Also included in the first nine months of 1995 were revenues
related to the completion and delivery of certain outstanding orders from Edison
and revenues in connection with Phase 1 of the program with STN . The Company
anticipates recognizing most of the remaining expected revenues related to the
Field Test under the current agreement in 1996 and into 1997, as batteries
continue to be delivered and the Field Test fleet is serviced.
EXPENSES:
Research and development expenses and cost of revenues were $10,316,000 in the
first nine months of 1996 compared with $8,064,000 for the first nine months of
1995. The Company believes that, given the Company's stage of development, it is
not, at this time, meaningful to distinguish between R&D expenses and cost of
revenues. The increase in expenses of $2,252,000 from the first nine months of
1995 was principally attributable to: expenses in connection with the Deutsche
Post Field Test, including battery production costs primarily related to
batteries for the Mercedes-Benz vehicles and costs of the regeneration plant in
Bremen, although the overall expenses were partially offset by utilization of
the previously accrued provision for project losses; costs associated with the
continued growth of the Company, including the operation of the Company's
production and development facilities in Israel and its new facility in Bremen,
Germany; and increased personnel costs relating to the foregoing. During the
first nine months of 1995, the Company increased its provision for anticipated
program losses related to the Field Test by $2.1 million. For the first nine
months of 1995, $1,369,000 of royalty-bearing grants were recognized, which
reduced R&D expenses during this period. The Company's 1996 grant application
has been approved by the Office of the Chief Scientist of the Ministry of
Industry and Trade. The total approved grant for 1996 will amount to
approximately $1.2 million. During the first nine months of 1996, $908,000 of
royalty-bearing grants were recognized, which reduced R&D expenses during this
period. Expenses related to the Field Test are expected to continue at least
through the rest of 1996 and into 1997 as the Company continues to deliver
batteries and operates the Bremen regeneration plant. They will substantially
exceed any expected revenues related thereto. Since the plant is currently
dedicated to the Field Test, the cost of the plant (net of anticipated residual
value) is reflected as a current expense.
Selling, general and administrative expenses rose in the first nine months of
1996 to $2,535,000 compared with $1,912,000 in the first nine months of 1995.
This increase was primarily attributable to increased salaries, fees and
allocated overhead expenses with respect to the Company's expanded activities,
particularly in Germany. As the Company further expands its activities, it
expects increases in selling, general and administrative expenses, particularly
with respect to marketing expenses, as well as administrative expenses in
Germany.
13
LIQUIDITY AND CAPITAL RESOURCES
Battery and vehicle deliveries for Mercedes-Benz's participation in the Field
Test are expected to continue through 1996 and into 1997. It is anticipated by
the Company that deliveries of Opel batteries and vehicles will be delayed, as
noted above. Under the current agreement, the Company has recognized to date
approximately 62% of the Field Test revenues. Most of the remaining revenues and
expenses related to the Field Test are expected to be recognized during the
remainder of 1996 and into 1997. Total consideration to the Company, under its
current contractual arrangements, for the batteries, equipment and services to
be supplied in connection with the Field Test (including DM 1.0 million from
Vattenfall AB) is expected to be DM 22.0 million (approximately $15.2 million),
less a contribution to the costs of the Field Test by the Company of DM 7.0
million (approximately $4.8 million), leaving a net balance of approximately DM
15.0 million (approximately $10.4 million), which will not be sufficient to
offset the Company's related expenses.
In the first quarter of 1996, the Company completed a public offering of
3,750,000 shares of its Common Stock at an offering price of $6.50 per share.
The offering resulted in net proceeds to the Company of approximately $21.6
million. As of September 30, 1996, the Company had cash, cash equivalents and
investments of approximately $15.0 million compared with $9.6 million as of
December 31, 1995.
The Company used available funds in the first nine months of 1996 primarily for
the advancement of its commitments with regard to the Field Test, continued R&D
expenditures, and other working capital needs. The Company increased its
investment in fixed assets by $1.9 million to $8.6 million during the nine
months ended September 30, 1996. Fixed assets include $3.1 million related to
the value of the Bremen facility after its use in the Field Test, based on
construction costs to date. The Company currently anticipates that the total
residual value of the Bremen facility will be approximately $3.4 million.
Also during the first quarter of 1996, the Company's Israeli subsidiary,
Electric Fuel Ltd. ("EFL"), established a line of credit with the First
International Bank of Israel Ltd. ("FIBI") (the "Credit Facility"). Borrowings
under the Credit Facility will bear interest at FIBI's prime rate + 2% per
annum, be unconditionally guaranteed by Electric Fuel Corporation ("EFC") and be
secured by a pledge of foreign currency deposits in the amount of NIS 750,000
(approximately $233,000). Additionally the Credit Facility imposes financial and
other covenants on EFC and EFL and presently expires on December 31, 1996, at
which time the Credit Facility will be reviewed for renewal by FIBI. The Credit
Facility provides EFL with a line of credit in the maximum principal amount of
NIS 3.8 million (approximately $1.2 million), which is expected to be used as
14
credit support for various obligations of the Company, and will enable EFL to
enter into up to U.S. $ 4.0 million in currency hedging forward contracts with a
5% collateral requirement. As of September 30, 1996 the bank had issued letters
of credit and bank guarantees totaling approximately $178,000. At the present
time, the Company is not engaged in any hedging activities.
The Company has no long-term debt outstanding and expects that its cash flow
from operations and the private placement of its common stock on October 2,
1996, together with present cash reserves and amounts available under the Credit
Facility, will be sufficient to fund the Company's projected activities into
1998, provided that the Field Test is modified to reduce the number of vehicles
substantially or the Company receives additional funding in connection with its
participation in the Field Test. However, costs related to the Field Test have
exceeded, and may continue to exceed, budgeted amounts. Moreover, if the Field
Test is successful and Deutsche Post, or any other participant in the Field
Test, begins to convert all or a portion of their fleets to the Electric Fuel
System, the Company could be required to produce batteries in increased
quantities as well as to construct new regeneration and refueling facilities or
expand its existing facility to commercial capacity. Additional strategic
alliances may also require the establishment or expansion of facilities in
Israel or elsewhere. In addition, the Company may determine that it should
invest in certain programs, such as additional electric vehicle demonstration
programs, which it believes will advance the development and commercialization
of the Electric Fuel System. The Company also intends to use its resources to
research and develop other applications exploiting the proprietary technology
related to the Electric Fuel System and other advanced battery technologies.
Accordingly, the Company may be required to seek additional funding or pursue
other options, such as joint ventures with Field Test partners or others, during
this period. The Company continues to consider financing alternatives when
presented and, if financing becomes available on satisfactory terms, including
price, the Company may obtain additional funding, including through the issuance
of equity securities.
Subsequent Events
Pursuant to a Stock Purchase Agreement dated September 30, 1996 between the
Company and Mr. Leon Gross, one of the Company's existing shareholders, on
October 2, 1996, the Company issued 1,538,462 shares of the Company's common
stock, $.01 par value per share to Mr. Gross at a price of $6.50 per share, for
a total purchase price of $10.0 million. The shares were issued in a private
placement under the Securities Act of 1933, as amended, (the "Securities Act")
in reliance on the exemption therefrom provided by Section 4(2) of the
Securities Act. As a result of this transaction, approximately 47.2% of the
stock of the Company's Israeli-based subsidiary, EFL, is now owned (directly,
indirectly or by application of certain attribution rules) by three United
States citizens. Accordingly, if 50% of the shares of the Company is ever
acquired or deemed to be acquired by five or
15
fewer individuals (including, if applicable, those individuals who currently own
an aggregate of 47.2% of the Company) who are United States citizens or
residents, EFL would satisfy the foreign personal holding company ("FPHC") stock
ownership test under the Internal Revenue Code and the Company could be subject
to additional U.S. taxes on any undistributed FPHC income of EFL. For the first
three quarters of 1996, EFL has not had, nor does it expect to have in 1996, any
income which would qualify as undistributed FPHC income. However, no assurance
can be given in this regard.
Actual cash requirements will depend in part upon actual and anticipated sales
and licenses. The Company may also be able to finance some portion of its fixed
asset and equipment needs through Approved Enterprise grants from the Government
of Israel.
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PART II
Item 6.
(b) No reports on Form 8-K were filed during the third quarter of 1996.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRIC FUEL CORPORATION
(Registrant)
By: /s/ Robert S. Ehrlich
-----------------------
Name: Robert S. Ehrlich
Title: Chairman of the Board and
Chief Financial Officer
Dated: November 14, 1996
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