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 priod ended: March 31, 1998
Commission file No. 0-23336
ELECTRIC FUEL CORPORATION
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Exact name of registrant as specified in its charter
Delaware 95-4302784
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
885 Third Avenue, New York, New York 10022 - Suite 2900
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(Address of principal executive offices)
(Zip Code)
(212) 230-2172
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(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 May 13, 1998 was 14,229,003.
ELECTRIC FUEL CORPORATION
INDEX
Page
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PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
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Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 3-4
Consolidated Statements of Operations for the Three Months
ended March 31, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months ended March 31, 1998 6
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997 7-8
Notes to the Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial
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Condition and Results of Operations 10-13
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PART II - OTHER INFORMATION: 14
Item 6 - Reports on Form 8-K 14
ELECTRIC FUEL CORPORATION
CONSOLIDATION BALANCE SHEETS
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DECEMBER 31, MARCH 31,
1997 1998
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ASSETS (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $11,771,816 $ 5,413,030
Marketable debt securities 3,101,846 3,704,211
Accounts receivable:
Trade 801,927 687,424
Other 1,711,037 722,216
Inventories 538,682 471,621
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TOTAL CURRENT ASSETS 17,925,308 10,998,502
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MARKETABLE DEBT SECURITIES 1,843,326 6,232,583
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FIXED ASSETS:
Cost 7,058,716 7,144,886
Less - accumulated depreciation and amortization 2,304,327 2,534,058
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4,754,389 4,610,828
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OTHER ASSETS net of accumulated amortization 49,182 46,675
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$24,572,205 $21,888,588
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ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31, MARCH 31,
1997 1998
-------------------- ------------------
(Audited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,169,371 $ 816,052
Other 1,786,163 1,411,947
Advances from Customers 1,014,948 1,140,533
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TOTAL CURRENT LIABILITIES 3,970,482 3,368,532
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,842,749 1,853,572
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TOTAL LIABILITIES 5,813,231 5,222,104
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STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized -- 28,000,000 shares; issued
and outstanding - 14,218,161 shares as of December 31, 1997 and 14,229,003
shares as of March 31, 1998: 142,182 142,290
Preferred stock - $0.01 par value; authorized - 1,000,000 shares, no shares
outstanding
Additional paid-in capital 57,077,708 57,124,907
Accumulated deficit (36,020,457) (38,125,472)
Unrealized gain on available-for-sale securities 436 4,071
Notes receivable from stockholders (2,440,895) (2,479,312)
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TOTAL STOCKHOLDERS' EQUITY 18,758,974 16,666,484
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$ 24,572,205 $ 21,888,588
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED MARCH 31,
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1997 1998
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REVENUES $ 1,023,972 $ 1,268,587
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RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF REVENUES
Expenses incurred 2,746,918 2,638,736
Less - royalty-bearing grants
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2,746,918 2,638,736
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 927,008 814,731
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3,673,926 3,453,467
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OPERATING LOSS (2,649,954) (2,184,880)
FINANCIAL INCOME - NET 197,004 98,847
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LOSS BEFORE TAXES ON INCOME (2,452,950) (2,086,033)
TAXES ON INCOME 18,982
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LOSS FOR THE PERIOD (2,452,950) (2,105,015)
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LOSS PER SHARE $(0.20) $(0.17)
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,472,359 12,525,943
================== =================
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
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COMMON STOCK
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ADDITIONAL PAID-IN
SHARES AMOUNT CAPITAL ACCUMULATED DEFICIT
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BALANCE AT JANUARY 1, 1998 14,218,161 $142,182 $57,077,708 $(36,020,457)
CHANGES DURING THE THREE
MONTH PERIOD ENDED MARCH 31, 1998:
Shares issued in connection with the
exercise of option 10,842 $ 108 $ 8,782
Accrued Interest on notes receivable
from stockholders $ 38,417
Unrealized gain on available-for-sale
securities
Loss $ (2,105,015)
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BALANCE AT
MARCH 31, 1998 14,229,003 $142,290 $57,124,907 $(38,125,472)
============= ============ ======================== =======================
UNREALIZED GAIN
ON AVAILABLE-FOR-SALE NOTES RECEIVABLE FROM
SECURITIES SHAREHOLDERS TOTAL
------------------------ ------------------------ ------------
BALANCE AT JANUARY 1, 1998 $ 436 $ (2,440,895) $18,758,974
CHANGES DURING THE THREE MONTH PERIOD
MONTH PERIOD ENDED MARCH 31, 1998:
Shares issued in connection with the
exercise of option $ 8,890
Accrued Interest on notes receivable $ (38,417) $ 0
from stockholders
Unrealized gain on available-for-sale $3,635 $ 3,635
securities
Loss $(2,105,015)
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BALANCE AT
MARCH 31, 1998 $4,071 $ (2,479,312) $16,666,484
======================== ======================== ============
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED MARCH 31,
--------------------------------
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $(2,452,950) $(2,105,015)
Adjustments required to reconcile loss to net cash used in operating
activities:
Depreciation and amortization 233,132 232,239
Amortization of net premium (discount) on marketable debt securities * (44,476) 12,013
Liability for employee rights upon retirement -- net 222,920 10,823
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable 107,044 1,103,324
Decrease (increase) in inventories 174,616 67,061
Increase (decrease) in accounts payable and accruals (159,081) (727,535)
Increase (decrease) in advances from customers 175,059 125,585
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NET CASH USED IN OPERATING ACTIVITIES $(1,743,736) $(1,281,505)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (106,518) (162,886)
Proceeds from disposal of fixed assets 76,715
Sale or redemption of (purchase of) marketable debt securities - net * 3,447,381 (5,000,000)
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NET CASH PROVIDED BY INVESTING ACTIVITIES $ 3,340,863 $(5,086,171)
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FORWARD $ 1,597,127 $(6,367,676)
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*Reclassified
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
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1997 1998
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FORWARD $ 1,597,127 $(6,367,676)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 6,931 8,890
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Net cash provided by financing activities 6,931 8,890
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INCREASE IN CASH AND CASH EQUIVALENTS 1,604,058 (6,358,786)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 12,662,776 11,771,816
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BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 14,266,834 $ 5,413,030
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ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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, 1997.
2. EFFECTS OF RECENT PRONOUNCEMENTS
a) In February 1997, the FASB issued Statement No. 128, "Earnings per
share" ("Statement 128"), which is effective as from 1997. All earning
per share amounts for all periods have been presented and where
appropriate restated to conform to the Statement 128 requirements.
Consequently, the loss per share for the quarter ended March 31, 1997
increased from $0.18, as previously reported, to $0.20 as reported in
these financial statements.
b) In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income" (Statement 130), which is effective for fiscal
years beginning after December 15, 1997. Except for unrealized gains
on available-for-sale securities in immaterial amounts, the provisions
of Statement 130 require no additional reporting by the Company.
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 to the Company's Annual
Report for the year ended December 31, 1997 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.
GENERAL
From its inception, the Company has been engaged principally in the research,
design, development and commercialization of an innovative, advanced zinc-air
battery. To date, the main application for the Company's technology has been a
system for powering zero emission electric vehicles. In part, because the market
for electric vehicles has not demonstrated previously anticipated levels of
growth in 1997, the Company began a strategic shift to actively expand its
activities into additional applications for its zinc-air battery technology. In
January 1998, the Company announced the creation of three market-related
divisions to expand its zinc-air battery technology for wider applications. The
three divisions are Electric Vehicle, Consumer Batteries, and Defense and
Safety Products.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
REVENUES:
Revenues for the first quarter of 1998 totaled $1.3 million compared with $1.0
million in the comparable period in 1997, an increase of $300,000. During the
first quarter of 1998, the Deutsche Post and the Company agreed to extend the
operations of the Field
Test through May, 1998, and revenues for the quarter were principally derived
from activities relating to this extension. The balance of the revenues
(reflecting coverage of expenses by the Deutsche Post) in connection with the
Field Test extension is expected to be recognized during the second quarter of
1998. There can be no assurance that there will be any on-going relationship
with the Deutsche Post following May 31, 1998. Additionally, the Company
recognized revenues from the sale of additional batteries to the Deutsche Post
as well as sales of Electric Vehicle batteries to Edison Termoelettrica, SpA
("Edison"). The Company also recognized revenues from the sale of Survivor
Locator Lights. Revenues for the first quarter of 1997, were principally derived
from activities relating to the Deutsche Post Field Test program. Additionally,
in 1997, the Company continued to recognize revenues from Phase 2 of its
agreement with STN Atlas Elektronic GmbH ("STN") to develop a high power zinc
oxygen battery for torpedoes, and from the sale of batteries to Edison.
EXPENSES:
Research and development expenses and cost of revenues for the first quarter of
1998 were $2.6 million compared with $2.7 million for the first quarter of 1997.
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 $100,000 from the first quarter of 1997 is
principally attributable to a reduction of expenses related to Electric Vehicle
battery development. This overall reduction was partially offset by increases in
the costs associated with Consumer Battery development, production of increased
quantities of Survivor Locator Lights in the Defense and Safety Division, as
well as increased costs related to the operation of the Company's test facility
in Bremen, Germany to support the Field Test extension. With regard to the
Company's R&D program, since the Company's 1998 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, no royalty bearing grants have been
recognized in the first quarter of 1998. During the first quarter of 1997, no
royalty bearing grants were recognized, as the 1997 application was not approved
until the second quarter of 1997. Expenses related to the Field Test are
expected to continue to be incurred through the second quarter of 1998,
although, direct Field Test expenses during 1998, in contrast to previous years,
are being covered by the Deutsche Post. As the Field Test comes to its
conclusion , the Company expects a reduction in its expenditures in connection
with the engineering and commercialization of the Electric Vehicle battery, that
may be partially offset by expenditures in connection with new Electric Vehicle
demonstration programs. R&D expenses and cost of operations related to Consumer
Battery and Defense and Safety applications are expected to increase
significantly during 1998, as the Company intensifies its efforts in these new
areas.
The provision for anticipated program losses previously recorded by the Company
was eliminated during the fourth quarter of 1997 as the Company does not expect
to incur losses during 1998 on the Field Test. Overall, the costs of the Field
Test incurred by the Company have exceeded the related program budgeted amounts
by more than 20% and during 1997, 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, and
accordingly, the Company operated only a limited number of vehicles during 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 deferred
recognizing this amount in revenues.
Selling, general and administrative expenses for the first quarter of 1998 were
$815,000 vs. $927,000 in the first quarter of 1997. The decrease was primarily
attributable to reduced salaries and professional fees during the first quarter
of 1998. The Company expects further increases in selling, general and
administrative expenses, particularly with respect to marketing expenses, as the
Company expands the applications for its technology.
IMPACT OF YEAR 2000
The Company has instituted a program to analyze all computer software and
hardware, as well as other operating equipment that are reliant on date related
functions, to ensure year 2000 compliance. This program is expected to be
completed prior to December 31, 1998. At the present time, the Company does not
expect to incur material expenditures to resolve year 2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash, cash equivalents and financial
investments of approximately $15.3 million compared with $16.7 million as of
December 31, 1997.
The Company used available funds during the first quarter of 1998 primarily for
continued research and development expenditures, and other working capital
needs. The Company increased its net investment in fixed assets by $86,000
during the three months ended March 31, 1998 to $7.1 million.
Under an existing line of credit with the First International Bank of Israel
Ltd., the Company had outstanding issued letters of credit and bank guarantees
totaling approximately $487,000 as of March 31, 1998.
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 second quarter of 1999. If there is no ongoing program
with the Deutsche Post, the Company may decide to further scale back certain of
its efforts in its Electric Vehicle division. However, additional strategic
alliances may 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 Electric Vehicle System. The Company is
also using its resources to research and develop other applications exploiting
its proprietary technology, including batteries for consumer electronic devices.
Accordingly, the Company may be required to seek additional funding or pursue
other options, such as joint ventures or other strategic relationships. The
Company continues to consider financing alternatives when presented and, if
financing becomes available on satisfactory terms, including prices, the Company
may obtain additional funding, including through the issuance of equity
securities.
PART II
ITEM 6.
1. No reports on Form 8-K were filed during the first quarter of 1998.
ELECTRIC FUEL CORPORATION
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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: May 13, 1998