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: March 31, 1999
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
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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 14,048,054.
ELECTRIC FUEL CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
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Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 3-4
Consolidated Statements of Operations for the Three Months
ended March 31, 1999 and 1998 5
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months ended March 31, 1999 6
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1999 and 1998 7-8
Notes to the Consolidated Financial Statements 9-10
Item 2 - Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 11-13
-----------------------------------
PART II - OTHER INFORMATION: 14
Item 6 - Reports on Form 8-K 14
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ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
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December 31, March 31,
1998 1999
----------------- -------------------
ASSETS (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,242,555 $ 5,042,823
Marketable debt securities 3,700,575 1,555,004
Accounts receivable:
Trade 613,467 266,367
Other 1,299,056 1,230,813
Inventories 374,543 407,165
----------------- -------------------
Total current assets 11,230,196 8,502,172
----------------- -------------------
FIXED ASSETS:
Cost 6,342,171 6,802,833
Less - accumulated depreciation and amortization 2,907,312 3,132,230
----------------- -------------------
3,434,859 3,670,603
----------------- -------------------
----------------- -------------------
$14,665,055 $12,172,775
================= ===================
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The accompanying notes are an integral part of the Financial Statements.
Page 3
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, March 31,
1998 1999
------------- ------------
(Audited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,099,352 $ 1,240,789
Other 1,003,522 845,796
Deferred income 136,549 48,585
------------ ------------
Total current liabilities 2,239,423 2,135,170
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,844,120 1,860,726
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Total Liabilities 4,083,543 3,995,896
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STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value; authorized - 28,000,000 shares; issued -
14,303,387 shares as of December 31, 1998 and March 31, 1999: outstanding -
14,048,054 shares as of December 31, 1998 and March 31, 1999: 143,034 143,034
Preferred stock - $0.01 par value; authorized - 1,000,000 shares, no shares
outstanding
Additional paid-in capital 57,398,814 57,398,814
Accumulated deficit (44,553,027) (46,947,927)
Accumulated other comprehensive income (loss) (1,943) (1,943)
Treasury stock, at cost (common stock - 255,333 shares) (1,806,481) (1,806,481)
Notes receivable from stockholders (598,885) (608,618)
------------ ------------
Total Stockholders' Equity 10,581,512 8,176,879
------------ ------------
------------ ------------
$ 14,665,055 $ 12,172,775
============ ============
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The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three months ended March 31,
------------------------------------
1998 1999
----------------- ----------------
REVENUES $ 1,268,587 $ 547,972
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RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF REVENUES
Expenses incurred 2,638,736 2,224,014
Less - royalty-bearing grants 87,964
----------------- ----------------
2,638,736 2,136,050
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 814,731 874,328
----------------- ----------------
3,453,467 3,010,378
----------------- ----------------
OPERATING LOSS (2,184,880) (2,462,406)
FINANCIAL INCOME - NET 98,847 75,773
----------------- ----------------
LOSS BEFORE TAXES ON INCOME (2,086,033) (2,386,633)
TAXES ON INCOME 18,982 8,267
----------------- ----------------
LOSS FOR THE PERIOD (2,105,015) (2,394,900)
================= ================
LOSS PER SHARE * $ (0.15) $ (0.17)
================= ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 13,979,124 14,048,054
================= ================
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
* See note 4
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
----------------------
Additional paid-in
Shares Amount capital Accumulated deficit
---------- ---------- ------------------- -------------------
BALANCE AT JANUARY 1, 1999 14,303,387 $143,034 $57,398,814 $(44,553,027)
CHANGES DURING THE
THREE MONTH PERIOD
ENDED MARCH 31, 1999:
Accrued Interest on notes receivable
from stockholders
Loss $ (2,394,900)
--------------- -------------- ------------------ -------------------
BALANCE AT MARCH 31, 1999 14,303,387 $143,034 $57,398,814 $(46,947,927)
=============== ============== ================== ===================
Accumulated other
comprehensive Notes receivable
income (loss) Treasury stock from shareholders Total
------------------- -------------------- ---------------------- ------------------
BALANCE AT JANUARY 1, 1999 $(1,943) $(1,806,481) $(598,885) $10,581,512
CHANGES DURING THE
THREE MONTH PERIOD
ENDED MARCH 31, 1999:
Accrued Interest on notes receivable
from stockholders $(9,733) $(9,733)
Loss $(2,394,900)
------------------- -------------------- ---------------------- ------------------
BALANCE AT MARCH 31, 1999 $(1,943) $(1,806,481) $(608,618) $ 8,176,879
=================== ==================== ====================== ==================
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
------------------------------------
1998 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $(2,105,015) $(2,394,900)
Adjustments required to reconcile loss to net cash used in operating activities:
Depreciation and amortization 232,239 224,918
Amortization of net premium (discount) on marketable debt securities 12,013
Interest accrued on notes to stockholders (9,733)
Liability for employee rights upon retirement-net 10,823 16,606
Changes in operating asset and liability items:
Decrease in accounts receivable 1,103,324 415,343
Decrease (increase) in inventories 67,061 (32,622)
(Decrease) in accounts payable and accruals (727,535) (16,289)
Increase (decrease) in advances from customers 125,585 (87,964)
------------------ ----------------
Net cash used in operating activities $(1,281,505) $(1,884,641)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (162,886) (460,662)
Proceeds from disposal of fixed assets 76,715
Sale or redemption of (purchase of) marketable debt securities - net (5,000,000) 2,145,571
------------------ ----------------
Net cash provided by (used in) investing activities $(5,086,171) $ 1,684,909
------------------ ----------------
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FORWARD $(6,367,676) $ (199,732)
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- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
Page 7
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
------------------------------------
1998 1999
------------------ ----------------
FORWARD $(6,367,676) $ (199,732)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 8,890
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Net cash provided by financing activities 8,890 0
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DECREASE IN CASH AND CASH EQUIVALENTS (6,358,786) (199,732)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 11,771,816 5,242,555
------------------ ----------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,413,030 $5,042,823
================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - CASH PAID DURING THE PERIOD FOR:
Interest $ 0 $ 548
================== ================
Advances to income tax authorities $ 0 $ 10,040
================== ================
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The accompanying notes are an integral part of the Financial Statements.
Page 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, 1998.
2. Effects of Recent Pronouncement
In June 1998, the FASB issued FAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities." FAS 133 established a new model for
accounting for derivatives and hedging activities. FAS 133 requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. FAS
133 is effective for calendar-year companies as from January 1, 2000.
The Company is currently evaluating the impact FAS 133 will have on its
financial statements; however, since the use of derivatives by the Company
is limited, it expects that the adoption of FAS 133 will have no material
impact on its consolidated results of operations, financial position or
cash flows.
Page 9
3. Segment Information
The following table shows the results of the Company's main segments for
the first quarter of 1999 and 1998, and fixed assets at March 31, 1999, and
December 31, 1999.
1999
- ----
Defense Electric Consumer
Segment & Safety Vehicle Battery All Other Total
---- ---- ---- ---- ----
Sales $ 256,000 $ 287,000 - $ 4,972 $ 547,972
Direct Expenses $ 357,000 $ 617,000 $ 1,352,000 $ 684,378 $ 3,010,378
--------- ---------- ----------- ----------- -----------
Segment Gross $(101,000) $ (330,000) $(1,352,000) $ (679,406) $(2,462,406)
Loss
--------- ---------- ----------- -----------
Financial income,
net & tax $ 67,506
-----------
Loss $(2,394,900)
-----------
Fixed Assets, Net $ 353,000 $1,047,000 $ 1,149,000 $ 1,121,603 $ 3,670,603
--------- ---------- ----------- ----------- -----------
1998 Defense Electric Consumer
- ---- & Safety Vehicle Battery All Other Total
Segment
---- ---- ---- ---- ----
Sales $ 289,000 $1,009,000 - $ (29,413) $ 1,268,587
Direct Expenses $ 475,000 $1,208,000 $ 436,000 $ 1,334,467 $ 3,453,467
--------- ----------- ----------- ----------- -----------
Segment Gross $(186,000) $ (199,000) $ (436,000) $(1,363,880) $(2,184,880)
Loss
--------- ---------- ----------- -----------
Financial income,
net & tax $ 79,865
-----------
Loss $(2,105,015)
-----------
Fixed Assets, Net $ 369,000 $1,153,000 $ 730,000 $ 1,182,859 $ 3,434,859
--------- ---------- ----------- ----------- -----------
4. Due to the conversion of certain outstanding management promissory notes, the
number of shares outstanding at March 31, 1998 for purposes of calculating
loss per share should have been 13,979,124, rather than 12,472,359, and
accordingly the reported loss per share has been corrected to reflect this
calculation.
Page 10
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, 1998, 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. Until the end of 1997, 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 had not demonstrated
previously anticipated levels of growth, in the latter part of 1997 the Company
began a strategic shift to expand its research and development 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. The
Company is currently focusing its efforts on developing and commercializing its
proprietary zinc-air battery technology for consumer electronics, defense and
safety applications.
Results of Operations:
Three months ended March 31, 1999, compared to the three months ended
March 31, 1998.
Revenues:
Revenues for the first quarter of 1999 totaled $548,000 compared with $1.3
million in the comparable period in 1998, a decrease of $721,000. Revenues were
$256,000 (1998: $289,000) for the Defense and Safety segment and $287,000 (1998:
$1 million) for the Electric Vehicle segment. The Consumer Battery segment has
not yet produced revenues and the remainder were unallocated miscellaneous
revenues. During the first quarter of 1999, the Company recognized revenues from
the sale of Survivor Locator Lights and activities related to the United States
Department of Transportation ("DOT") program. In 1998, the Company signed an
agreement with DOT as part of a consortium that is seeking to demonstrate the
ability of the Electric Fuel battery system to power a full size, all electric
transit bus. The DOT approved $2.0 million in federal funding for the cost-
shared $4.0 million
Page 11
program. The Company's share of the $4.0 million cost is approximately $3.5
million, 50% of which will be reimbursed to the Company out of the DOT funds.
Since this is a cost-shared program, expenses associated with the Company's
participation in the program will exceed the revenues to be earned from the
program. The DOT program is expected to continue until the end of 1999.
Additionally, the Company recognized revenues in connection with various defense
R&D contracts.
Revenues for the first quarter of 1998 were principally derived from
activities relating to the extension of Deutsche Post Field Test, which
terminated in the second quarter of 1998. Additionally, in the first quarter of
1998, 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.
Expenses:
Research and development expenses and cost of revenues for the first
quarter of 1999 were $2.1 million compared with $2.6 million for the first
quarter of 1998. 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 $500,000 from the
first quarter of 1998 is principally attributable to a reduction of personnel
and expenses related to Electric Vehicle battery development. This overall
reduction was partially offset by increases in the costs associated with
Consumer Battery development and production of increased quantities of Survivor
Locator Lights in the Defense and Safety Division. With regard to the Company's
R&D program, since the Company's 1999 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, the Chief Scientist royalty bearing grants have
not been recognized in the first quarter of 1999. During the first quarter of
1998, no royalty bearing grants were recognized, as the 1998 Chief Scientist
application was not approved until later in the year.
As previously announced, the Company has entered into an agreement to
complete development of a battery for powering transit buses, in connection with
a program to develop a new hybrid propulsion system in conjunction with General
Electric Corporate Research and Development ("General Electric"). The program is
being partially funded by the Israel - US Binational Industrial Research and
Development (BIRD) Foundation, and the Company recorded $88,000 of royalty-
bearing grants in the first quarter of 1999, in connection with this program.
The DOT program described above complements the BIRD program. R&D expenses and
cost of operations related to Consumer Battery and Defense and Safety
applications are expected to increase significantly during 1999, as the Company
intensifies its efforts in these new areas. The level of Electric Vehicle
expenses is not expected to increase unless the Company enters into additional
revenue producing agreements in this area.
Selling, general and administrative expenses for the first quarter of 1999
were $874,000 vs. $815,000 in 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.
Financial income, net of interest expense, exchange differentials, bank
charges, and other fees, totaled approximately $76,000 in the first quarter of
1999 compared to $99,000 in same quarter in 1998.
The Company reported a net loss of $2.4 million in the first quarter of
1999 compared with a net loss of $2.1 million in the first quarter of 1998 due
to the factors cited above.
First quarter direct expenses were $357,000 (1998: $475,000), $617,000
(1998: $1.2 million), and $1.4 million (1997: $436,000) in the Defense and
Safety, Electric Vehicle and Consumer Battery segments respectively.
Page 12
Net cost of fixed assets (net of accumulated depreciation) at March 31,
1999, in the Defense and Safety, Electric Vehicle and Consumer Battery segments
was $353,000, (December 31, 1998: $369,000), $1 million (December 31, 1998: $1.2
million), and $1.1 million (December 31, 1998: $730,000) respectively.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. The Company considers a product to be in "Year
2000" compliance if the product's performance and functionality are unaffected
by processing of dates prior to, during and after the year 2000.
The Company has retained an outside consultant to assess the Year 2000
compliance of the Company's computer hardware and software, and other equipment
of the Company with embedded chips that may be date-sensitive. The consultant
completed its initial assessment of the Company's systems in March 1999. Based
on the initial review of the consultant, the Company believes that its core
computer systems and equipment are Year 2000 compliant, and that the Year 2000
issue will not materially affect the Company's operations or business.
Management expects that the expenses incurred and to be incurred in connection
with the Year 2000 issue will not materially exceed amounts budgeted for such
matters.
Liquidity and Capital Resources
As of March 31, 1999, the Company had cash, cash equivalents and financial
investments of approximately $6.6 million compared with $8.9 million as of
December 31, 1998.
The Company used available funds in 1999 primarily for continued research
and development expenditures, and other working capital needs. The Company
increased its investment in fixed assets by $461,000, primarily in the consumer
battery division, during the quarter ended March 31, 1999.
EFL 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 the Company and are secured by a pledge of foreign currency
deposits in the amount of NIS 750,000 (approximately $180,000). Additionally,
the Credit Facility imposes financial and other covenants on EFC and EFL and
presently expires on May 30, 1999, 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
$960,000), which can be used as credit support for various obligations of EFL.
As of March 31, 1999, the bank had issued letters of credit and bank guarantees
totaling approximately $384,000.
The Company has no long term debt outstanding, and is using its cash
reserves and revenues from operations primarily to continue development of
batteries for consumer electronic devices, as well as to participate in the BIRD
and DOT Electric Vehicle programs. Furthermore, in 1999, the Company is planning
to establish a commercial production line and prepare for market penetration of
its new zinc-air battery for cellular telephones. Accordingly, the Company is
seeking additional funding, including through the issuance of equity or debt
securities, and is pursuing other options, such as joint ventures or other
strategic relationships. However, there can be no assurance that the Company
will obtain any such additional funding. If additional funding is not secured,
the Company will have to modify, reduce, defer or eliminate certain of its
anticipated future commitments and/or programs, in order to continue reduced
operations.
Page 13
ELECTRIC FUEL CORPORATION
Part II
Item 6.
1. No reports on Form 8-K were filed during the first quarter of 1999.
Page 14
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, 1999
Page 15