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, 1997
Commission file No. 0-23336
ELECTRIC FUEL CORPORATION
------------------------------
Exact name of registrant as specified in its
charter
Delaware 95-4302784
- ------------------------------- ------------------------
(State or other jurisdiction (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 at November 7, 1997 was 14,218,161.
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
-------------------------------------------------
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 3-4
Consolidated Statements of Operations for the Nine Months
and Three months ended September 30, 1997 and 1996 5
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended September 30, 1997 6
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1997 and 1996 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: 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 6 - Reports on Form 8-K 16
2
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------
December 31, September 30,
1996 1997
------------- --------------
ASSETS (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $12,662,776 $12,500,209
Marketable debt securities 11,296,382 6,274,840
Accounts receivable:
Trade 369,442 512,660
Other 1,915,628 2,718,106
Inventories 915,032 675,545
----------- -----------
Total current assets 27,159,260 22,681,360
----------- -----------
INVESTMENT-
Investee company 35,849 35,849
----------- -----------
FIXED ASSETS:
Cost 8,754,771 9,157,038
Less - accumulated depreciation and amortization 1,451,095 2,142,154
----------- -----------
7,303,676 7,014,884
----------- -----------
OTHER ASSETS AND DEFERRED CHARGES net of accumulated amortization 23,333 15,833
----------- -----------
----------- -----------
$34,522,118 $29,747,926
=========== ===========
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
3
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------
December 31, September 30,
1996 1997
---------------- --------------
(Audited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,079,284 $ 1,011,626
Other 3,505,594 3,367,332
Advances from Customers 926,599 1,104,607
---------------- --------------
Total current liabilities 5,511,477 5,483,565
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,141,030 1,455,257
---------------- --------------
Total Liabilities 6,652,507 6,938,822
---------------- --------------
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized -- 28,000,000 shares; issued -
14,257,508 shares as of December 31, 1996 and 14,216,161 as of September 30,
1997; outstanding - 14,185,208 shares as of December 31, 1996 and 14,216,161
as of September 30, 1997 142,575 142,162
Preferred stock - $0.01 par value; authorized - 1,000,000 shares, no shares
outstanding
Additional paid-in capital 57,341,451 57,028,535
Accumulated deficit (26,890,958) (31,996,785)
Unrealized gain on available-for-sale securities 3,157 0
Treasury stock, at cost (common stock--72,300 shares as of December 31, 1996) (456,394) 0
Notes receivable from stockholders (2,270,220) (2,364,808)
---------------- --------------
Total Stockholders' Equity 27,869,611 22,809,104
---------------- --------------
---------------- --------------
$ 34,522,118 $ 29,747,926
================ ==============
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
========================================================================================= ==================================
Nine months ended September 30, Three months ended September 30,
------------------------------- --------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
REVENUES $3,618,289 $3,931,087 $1,123,682 $1,099,531
------------- ------------- ------------- -------------
RESEARCH AND DEVELOPMENT EXPENSES AND COST OF REVENUES:
Expenses incurred 10,316,159 8,361,287 2,959,957 3,014,360
Less - royalty-bearing grants 908,000 1,838,867 908,000 1,238,867
------------- ------------- ------------- -------------
9,408,159 6,522,420 2,051,957 1,775,493
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,534,914 2,985,555 1,020,859 935,421
------------- ------------- ------------- -------------
11,943,073 9,507,975 3,072,816 2,710,914
------------- ------------- ------------- -------------
OPERATING LOSS (8,324,784) (5,576,888) (1,949,134) (1,611,383)
FINANCIAL INCOME - NET 641,092 591,894 261,188 199,595
------------- ------------- ------------- -------------
LOSS BEFORE TAXES ON INCOME (7,683,692) (4,984,994) (1,687,946) (1,411,788)
TAXES ON INCOME 63,435 120,833 11,859 105,833
------------- ------------- ------------- -------------
LOSS FOR THE PERIOD (7,747,127) (5,105,827) (1,699,805) (1,517,621)
============= ============= ============= =============
LOSS PER SHARE $ (0.67) $ (0.37) $ (0.14) $ (0.11)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,618,955 13,844,911 12,214,392 13,894,608
============= ============= ============= =============
========================================================================================= ==================================
The accompanying notes are an integral part of the Financial Statements.
5
ELECTRONIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------------------
Additional paid-in
Shares Amount capital Accumulated deficit
--------------- ------------ -------------------- ---------------------
BALANCE AT JANUARY 1, 1997 $ 14,257,508 $ 142,575 $57,341,451 $ (26,890,958)
CHANGES DURING THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997:
Shares issued in connection with the
exercise of option 30,953 310 25,071
Option issued as compensation for
services rendered by consultant 9,000
Treasury stock retired (72,300) (723) (455,671)
Accrued Interest on notes receivable
from stockholders 108,684
Payments of interest and principal on
notes receivable from stockholders
Realization of gain on available-for-
sale securities
Loss (5,105,827)
--------------- ------------ ------------- ---------------
BALANCE AT SEPTEMBER 30, 1997 14,216,161 $ 142,162 $57,028,535 $ (31,996,785)
=============== ============ ============= ===============
Unrealized gain
on available-for- Notes receivable
sale securities Treasury Stock from shareholders Total
------------------- ---------------- ------------------- -----------
BALANCE AT JANUARY 1, 1997 3,157 (456,394) (2,270,220) $27,869,611
CHANGES DURING THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997:
Shares issued in connection with the
exercise of option 25,381
Option issued as compensation for
services rendered by consultant 9,000
Treasury stock retired 456,394 0
Accrued Interest on notes receivable
from stockholders (108,684) 0
Payments of interest and principal on
notes receivable from stockholders 14,096 14,096
Realization of gain on available-for-
sale securities (3,157) (3,157)
Loss (5,105,827)
----------- ----------- ------------- ------------
BALANCE AT SEPTEMBER 30, 1997 $ 0 $ 0 $(2,364,808) $22,809,104
=========== =========== ============= ============
The accompanying notes are an integral part of the Financial Statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
Nine month ended September 30,
-----------------------------------
1996 1997
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (7,747,127) $ (5,105,827)
Adjustments required to reconcile loss to net cash used in operating
activities:
Depreciation and amortization 775,310 698,559
Loss (gain) from marketable debt securities, net 50,176 (15,029)
Capital loss from disposal of fixed assets 777
Liability for employee rights upon retirement - net 255,846 314,227
Interest accrued on notes and loan to stockholders (66,478)
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable 334,188 (945,696)
Decrease (increase) in inventories (311,832) 239,487
Decrease in accounts payable and accruals (4,929,714) (205,920)
Increase (decrease) in advances from customers (3,438,212) 178,008
----------------- ----------------
Net cash used in operating activities $ (15,077,066) $ (4,842,191)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,015,573) (402,267)
Investment grant relating to fixed assets 317,723
Purchase of marketable debt securities (6,315,586)
Proceeds from disposal of fixed assets 1,371
Amounts carried to other assets and deferred charges (44,967)
Proceeds from sale of marketable debt securities 2,112,000 11,349,000
----------------- ----------------
Net cash provided by investing activities $ 370,554 $ 4,631,147
----------------- ----------------
----------------- ----------------
FORWARD $ (14,706,512) $ (211,044)
----------------- ----------------
- ------------------------------------------------------------------------------------------------------------
7
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
Nine month ended September 30,
-----------------------------------
1996 1997
----------------- ----------------
FORWARD $(14,706,512) $ (211,044)
----------------- ----------------
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 14,096
Proceeds from exercise of warrants and options 1,529,823 34,381
----------------- ----------------
Net cash provided by financing activities 22,294,627 48,477
----------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,588,115 (162,567)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,364,867 12,662,776
----------------- ----------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,952,982 $ 12,500,209
================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- CASH PAID DURING THE PERIOD FOR:
Interest $ 3,758 $ 136
================= ================
Advances to income tax authorities $ 120,922 $ 55,790
================= ================
- ------------------------------------------------------------------------------------------------------------
8
The accompanying notes are an integral part of the financial statements.
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, 1996.
2. EFFECTS OF RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS
128). FAS 128 simplifies the earnings per share computation and is to be
applied by the Company commencing with the financial statements for the year
ending December 31, 1997. Upon the implementation of FAS 128, all prior
period earnings per share data shall be restated to conform with the
provisions of this standard. Early adoption of this Statement is not
permitted. FAS 128 requires the presentation of both basic and diluted
earnings per share, instead of the currently required primary and fully
diluted earnings per share. Management believes that the application of FAS
128 should not have a material effect and that both basic and diluted
earnings per share as defined in FAS 128 will not be substantially different
from earnings per share data as presented in the enclosed financial
statements.
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, unless
such amounts are more than 1.0 million, in which event such amounts have been
rounded to the nearest hundred 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 99.1 to the Company's Annual
Report for the year ended December 31, 1996 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.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996.
REVENUES:
Revenues for the third quarter of 1997 totaled $1.1 million compared with $1.1
million in the comparable period in 1996. Revenues for the third quarter of
1997, were principally derived from activities related to the Deutsche Post AG
("Deutsche Post") Field Test program, as well as from the supply of batteries
from a more recent order of the Deutsche Post. Additionally, the Company
recognized revenues from the supply of batteries and equipment to Edison
Termoelettrica, Spa (Edison). The balance of the revenues in connection with the
Field Test is expected to be recognized during the fourth quarter of 1997.
Revenues from the Field Test are expected to decrease in 1997, in comparison to
prior years, in which the Field Test revenues were primarily recognized. Third
quarter 1996 revenues were principally derived from activities relating to the
Field Test.
EXPENSES:
Research and development expenses and cost of revenues for the third quarter of
1997 were $3.0 million compared with $3.0 million for the third quarter of 1996.
The Company believes that, given the Company's stage of development, it is not,
at this
10
time, meaningful to distinguish between R&D expenses and cost of revenues. While
there was no change in the overall expenses, the internal division of expenses
changed between the periods. There was a reduction of expenses in connection
with the Deutsche Post Field Test, particularly the costs of the construction of
the regeneration plant in Bremen, production costs related to the supply of
batteries for the Field Test, and operating costs in Bremen. This reduction was
offset by increased R&D expenses, both for electric vehicles as well as for
batteries for portable electronic devices. During the third quarter of 1997, the
Company recorded $1.2 million of royalty bearing grants from the Chief
Scientist's Office, including an increase of $582,000 in grants in connection
with the Company's 1996 research and development program. During the third
quarter of 1996, $908,000 of royalty-bearing grants was recognized, which
reduced R&D expenses during this period. Expenses related to the Field Test are
expected to continue through the end of 1997 as the Company continues to operate
the Bremen regeneration plant, and service Field Test vehicles. In addition, R&D
expenses are expected to continue to rise as the Company expands its engineering
efforts for electric vehicle development, and uses its resources to research and
develop batteries for portable electronic devices.
The provision for anticipated program losses previously recorded by the Company
reflects the program losses currently estimated by management and accordingly no
increase to the provision was recorded in the third quarter of 1997. In the
future, however, the provision may be increased to reflect any revised estimates
of project costs or any costs related to terminating the program if no
definitive agreement is reached between the Company and the Deutsche Post (see
discussion in "Liquidity and Capital Resources" below). The balance of the
provision for the uncompleted portions of the program, including potential
termination costs, amounts to $2.2 million as at September 30, 1997. 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 Field Test
vehicles in service at September, 1997. To date, the costs of the Field Test
incurred by the Company have exceeded the related program budgeted amounts by
more than 20%, and during 1996, the Company, pursuant to the terms of the Field
Test Partners Agreement, entered into discussions to obtain additional funding
from the Deutsche Post. To date, the Company has not obtained any such funding.
Accordingly, the Company anticipates that only a limited number of vehicles will
continue to be tested through the fourth quarter of 1997. In the fourth quarter
of 1996, the Deutsche Post requested that the Company refund the sum of
approximately DM 1.8 million (approximately $1.0 million) representing milestone
payments on account of Opel batteries, which are the subject of a dispute
between the Deutsche Post and the Company. The advances were made in accordance
with mutually agreed contractual milestones, previously acknowledged by the
Deutsche Post as having been achieved, and therefore the Company does not
believe that it is required to refund any of the payments. However, until the
resolution of this issue, the Company has eliminated the payments from its
budgeted Field Test revenues, in addition to other anticipated revenues related
to the supply of the Opel batteries.
Selling, general and administrative expenses for the third quarter of 1997 were
11
$935,000 vs. $1.0 million in the third quarter of 1996. The Company anticipates
increases in marketing expenses for the fourth quarter related to its
participation in the 14th International Electric Vehicle Symposium (EVS-14), and
Exposition, which will take place in Orlando, Florida in December.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996.
REVENUES:
Revenues for the first nine months of 1997 amounted to $3.9 million vs. $3.6
million in the comparable period in 1996, an increase of $300,000. Revenues for
the first nine months of 1997, were principally derived from fees collected in
relation to a preliminary license agreement completed with Vattenfall under
which Vattenfall exercised its right for a license to establish and operate the
Electric Fuel infrastructure for the territory of Sweden, Denmark, Norway,
Finland and St. Petersburg, Russia. Additional revenues related to Vattenfall
will be recognized only after a definitive license agreement has been signed. It
is currently anticipated that the definitive license agreement will only be
executed after the successful conclusion of joint venture negotiations with the
Deutsche Post (see discussion in "Liquidity and Capital Resources" below).
Additionally, the Company continued to recognize revenues relating to its
activities in the Deutsche Post Field Test program. The balance of the revenues
in connection with the Field Test is expected to be recognized during the fourth
quarter of 1997. Revenues from the Field Test are expected to decrease in 1997,
in comparison to prior years, in which the Field Test revenues were primarily
recognized. The Company completed recognition of revenues from Phase 2 of its
agreement with STN Atlas Elektronic GmbH (STN) to develop a high power zinc
oxygen battery for torpedoes. In addition, the Company recognized revenues from
the supply of batteries and equipment to Edison. Revenues for the first nine
months of 1996 were principally derived from activities relating to the Deutsche
Post Field Test program. Additionally, the Company completed recognition of
revenues related to phase 1 of its development program with STN.
EXPENSES
Research and development expenses and cost of revenues were $8.4 million in the
first nine months of 1997 vs. $10.3 million in the comparable period in 1996.
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 $1.9 million from the first nine months of
1996 was principally attributable to a reduction of expenses in connection with
the Deutsche Post Field Test, particularly the costs of the construction of the
regeneration plant in Bremen, and production costs related to the supply of
batteries for the Field Test. This overall decrease was partially offset by
increased R&D expenses, both for electric vehicles as well as for batteries for
portable electronic devices. With regard to the Company's R&D program, the
Company's 1997 grant application has been approved by the Research Committee of
the Office of the Chief Scientist of the Ministry of Industry and Trade. The
total grant approved for 1997 amounts to approximately $1.9
12
million. During the first nine months of 1997, $1.8 million of royalty-bearing
grants were recognized, including an increase of $582,000 in grants in
connection with the Company's 1996 research and development program. 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 through the end of 1997 as the Company continues
to operate the Bremen regeneration plant, and service Field Test vehicles. In
addition, R&D expenses are expected to continue to rise as the Company expands
its engineering efforts for electric vehicle development, and uses its resources
to research and develop batteries for portable electronic devices.
The provision for anticipated program losses previously recorded by the Company
reflects the program losses currently estimated by management and accordingly no
increase to the provision was recorded in the first nine months of 1997. In the
future, however, the provision may be increased to reflect any revised estimates
of project costs or any costs related to terminating the program if no
definitive agreement is reached between the Company and the Deutsche Post (see
discussion in "Liquidity and Capital Resources" below). The balance of the
provision for the uncompleted portions of the program, including potential
termination costs, amounts to $2.2 million as at September 30, 1997. 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 Field Test
vehicles in service at September, 1997. To date, the costs of the Field Test
incurred by the Company have exceeded the related program budgeted amounts by
more than 20%, and during 1996, the Company, pursuant to the terms of the Field
Test Partners Agreement, entered into discussions to obtain additional funding
from the Deutsche Post. To date, the Company has not obtained any such funding.
Accordingly, the Company anticipates that only a limited number of vehicles will
continue to be tested through the fourth quarter of 1997. In the fourth quarter
of 1996, the Deutsche Post requested that the Company refund the sum of
approximately DM 1.8 million (approximately $1.0 million) representing milestone
payments on account of Opel batteries, which are the subject of a dispute
between the Deutsche Post and the Company. The advances were made in accordance
with mutually agreed contractual milestones, previously acknowledged by the
Deutsche Post as having been achieved, and therefore the Company does not
believe that it is required to refund any of the payments. However, until the
resolution of this issue, the Company has eliminated the payments from its
budgeted Field Test revenues, in addition to other anticipated revenues related
to the supply of the Opel batteries.
Selling, general and administrative expenses rose in the first nine months of
1997 to $3.0 million vs. $2.5 million in the comparable period in 1996. This
increase was primarily attributable to increased salaries, fees and allocated
overhead expenses with respect to the expanded geographic scope of the Company's
activities including the United States, Scandinavia, and the Far East, as well
as increased severance accruals, incurred during the first quarter of 1997,
resulting from annual cost of living increases to certain named executive
officers. The Company expects further increases in selling, general and
administrative expenses, particularly with respect to marketing expenses,
13
as the Company continues to focus efforts in these new geographic areas.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1997, the Company and Deutsche Post executed a
letter of intent agreeing to enter into negotiations for the establishment of a
joint venture entity that would provide the necessary financial and
technological resources in order to continue to develop and successfully
commercialize the Electric Fuel System in certain European regions. Pursuant to
the Letter of Intent, the parties agreed to negotiate a definitive agreement by
September 30, 1997. During September, the parties agreed to extend the timetable
for negotiations until December 31, 1997. The Letter of Intent does not resolve
the funding problems associated with the Field Test, which would only be
resolved during the course of, or subsequent to, the negotiations on the joint
venture. In addition, the Company expects to resolve the dispute with respect to
the Opel refund as part of these negotiations. It is anticipated that following
a definitive agreement, the Field Test program would be modified and that the
joint venture entity would succeed to certain rights and obligations of the
Company with respect to the Field Test. There can be no assurance that a
definitive agreement will be reached. In the event a definitive agreement is not
reached by December 31, 1997, the Letter of Intent will automatically terminate
(unless extended further by the parties). Both the Deutsche Post and the Company
have indicated that they expect not to continue the Field Test after this date
if no definitive agreement is reached.
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 ) is expected to be DM 22.0
million (approximately $14.5 million), less a contribution to the costs of the
Field Test by the Company of DM 7.0 million (approximately $4.6 million),
leaving a net balance of approximately DM 15.0 million (approximately $9.9
million). However, in connection with the Company's discussions with the
Deutsche Post with respect to the Opel batteries, the Company has reduced
anticipated revenues related to the supply of batteries from its budgeted Field
Test revenues, resulting in a reduction of anticipated net project revenues to
DM 12.2 million (approximately $8.3 million) The Company has recognized to date
approximately 88% of the Field Test revenues. The remaining revenues and
expenses related to the Field Test are expected to be recognized during the
fourth quarter of 1997.
The Company expects that, in connection with its ongoing efforts in the
engineering and commercialization of the Electric Fuel System, and in connection
with its efforts to research and develop batteries for portable electronic
devices, the Company's research and development, operational and selling,
general and administrative expenses will continue to increase.
As of September 30, 1997, the Company had cash, cash equivalents and financial
investments of approximately $18.8 million compared with $24.0 million as of
December 31, 1996.
The Company used available funds in the first nine months of 1997 primarily for
14
continued research and development expenditures, the advancement of its
commitments with regard to the Field Test, and other working capital needs. The
Company increased its investment in fixed assets by $400,000 to $9.2 million
during the nine months ended September 30, 1997. Fixed assets include $3.2
million related to the value of the Bremen facility after its use in the Field
Test, based on construction costs to date.
The Company presently has a line of credit with the First International Bank of
Israel Ltd. ("FIBI") (the "Credit Facility"). Borrowings under the Credit
Facility bear interest at FIBI's prime rate + 2% per annum, are unconditionally
guaranteed by Electric Fuel Corporation ("EFC") and are secured by a pledge of
foreign currency deposits in the amount of NIS 750,000 (approximately $214,000).
Additionally the Credit Facility imposes financial and other covenants on EFC
and EFL and presently expires on January 31, 1998, 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 $1.1 million), which can be used as credit support for various
obligations of the Company, and enables 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, 1997 the bank had issued letters of credit and bank
guarantees totaling approximately $324,000. 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, together with present cash reserves and amounts available under
the Credit Facility, will be sufficient to fund the Company's projected
activities through the fourth quarter of 1998. While the Company is negotiating
expanding the relationship with Deutsche Post for continued development and
commercialization of the Electric Fuel System, as well as for additional funding
to support the Field Test, there can be no assurance that the Company will be
successful in its negotiations or be able to obtain any such funding. If an
agreement with the Deutsche Post is not reached, the Company may decide to scale
back certain of its efforts in the Electric Vehicle business. Moreover, if the
Field Test or the ongoing commercialization discussions are 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 is also using its resources to research and develop other applications
exploiting its proprietary technology, including batteries for portable
electronic devices. Accordingly, the Company may be required to seek additional
funding or pursue other options, such as joint ventures with Field Test partners
or others. 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.
15
PART II
ITEM 4.
1. Annual meeting took place on July 14, 1997
2. Directors elected (class III) - Robert S. Ehrlich and Harvey M. Krueger
3. Directors whose term of office continued after meeting (Class I and II)
Yehuda Harats, Dr. Jay M. Eastman, Leon S. Gross, Jack E. Rosenfeld and
Lawrence M. Miller.
1. Election of two Class III Directors.
FOR WITHHELD
--- --------
Robert S. Ehrlich 9,798,463 2,717,954
Harvey M. Krueger 9,800,863 2,715,554
2. Proposal to fix the number of Class III directors at two
FOR AGAINST ABSTAIN UNVOTED
--- ------- ------- -------
10,116,363 2,385,704 14,350 0
3. Proposal to amend the 1993 stock option and restricted stock purchase plan.
FOR AGAINST ABSTAIN UNVOTED
--- ------- ------- -------
7,233,605 3,120,069 101,965 2,060,778
4. Ratification of the appointment of Kesselman & Kesselman, a member of
Coopers & Lybrand (International), as independent accountants of the
company.
FOR AGAINST ABSTAIN UNVOTED
--- ------- ------- -------
12,447,310 61,057 8,050 0
ITEM 6.
1. No reports on Form 8-K were filed during the third quarter of 1997.
16
================================================================================
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 7, 1997
17