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: June 30, 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
--------------
(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 August 13, 1999 was 14,048,054.
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
-------------------------------------------------
Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998 3-4
Consolidated Statements of Operations for the Six Months
ended June 30, 1999 and 1998 5
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months ended June 30, 1999 6
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1999 and 1998 7-8
Notes to the Consolidated Financial Statements 9-11
Item 2 - Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 12-16
-----------------------------------
PART II - OTHER INFORMATION: 17
Item 6 - Reports on Form 8-K 17
Page 2
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, June 30,
1998 1999
-------------------- -----------------------
ASSETS (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,242,555 $ 4,262,771
Marketable debt securities 3,700,575
Accounts receivable:
Trade 613,467 264,781
Other 1,299,056 1,573,428
Inventories 374,543 478,988
-------------- --------------
Total current assets 11,230,196 6,579,968
-------------- --------------
FIXED ASSETS:
Cost 6,342,171 7,401,517
Less - accumulated depreciation and amortization 2,907,312 3,347,649
-------------- --------------
3,434,859 4,053,868
-------------- --------------
-------------- --------------
$ 14,665,055 $ 10,633,836
============== ==============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
Page 3
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
------------------------------------------------
December 31, June 30,
1998 1999
-------------------- -----------------------
(Audited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,099,352 $ 1,450,912
Other 1,003,522 1,010,119
Deferred income 136,549 10,813
--------------- ---------------
Total current liabilities 2,239,423 2,471,844
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,844,120 1,610,592
--------------- ---------------
Total Liabilities 4,083,543 4,082,436
--------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized -- 28,000,000 shares; issued - 143,034 143,034
14,303,387 shares as of December 31, 1998 and June 30, 1999: outstanding -
14,048,054 shares as of December 31, 1998 and June 30, 1999:
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) (48,565,496)
Accumulated other comprehensive income (loss) (1,943)
Treasury stock, at cost (common stock - 255,333 shares) (1,806,481) (1,806,481)
Notes receivable from stockholders (598,885) (618,471)
--------------- ---------------
Total Stockholders' Equity 10,581,512 6,551,400
--------------- ---------------
--------------- ---------------
$ 14,665,055 $ 10,633,836
=============== ===============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
Page 4
- --------------------------------------------------------------------------------
Six months ended June 30, Three months ended June 30,
--------------------------------- ------------------------------------
1998 1999 1998 1999
---------------- --------------- ----------------- -----------------
REVENUES $2,851,512 $1,120,149 $1,582,925 $572,177
---------------- --------------- ----------------- -----------------
RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF REVENUES
Expenses incurred 5,258,668 4,389,473 2,619,932 2,165,459
Less - royalty-bearing grants 670,236 582,272
---------------- --------------- -------------- -----------------
5,258,668 3,719,237 2,619,932 1,583,187
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,570,478 1,530,089 755,747 655,761
---------------- --------------- ----------------- -----------------
6,829,146 5,249,326 3,375,679 2,238,948
---------------- --------------- ----------------- ----------------
OPERATING LOSS (3,977,634) (4,129,177) (1,792,754) (1,666,771)
FINANCIAL INCOME - NET 273,208 122,725 174,361 46,952
---------------- --------------- ----------------- -----------------
LOSS BEFORE TAXES ON INCOME (3,704,426) (4,006,452) (1,618,393) (1,619,819)
TAXES ON INCOME 27,031 6,017 8,049 (2,250)
---------------- --------------- ----------------- -----------------
LOSS FOR THE PERIOD (3,731,457) (4,012,469) (1,626,442) (1,617,569)
================ =============== ================= =================
LOSS PER SHARE * $ (0.27) ($0.29) $ (0.12) $ (0.12)
================ =============== ================= =================
WEIGHTED AVERAGE NUMBER OF 13,966,314 14,048,054 13,985,827 14,048,054
SHARES OUTSTANDING * ================ =============== ================= =================
- --------------------------------------------------------------------------------
* See note 3
The accompanying notes are an integral part of the Financial Statements.
Page 5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
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 SIX
MONTH PERIOD ENDED JUNE
30, 1999:
Realization of loss on available
for sale securities
Accrued Interest on notes receivable
from stockholders
Loss $ (4,012,469)
----------- -------- ----------- ------------
BALANCE AT
JUNE 30, 1999 14,303,387 $143,034 $57,398,814 $(48,565,496)
=========== ======== =========== ============
Accumulated other
comprehensive Notes receivable
loss Treasury stock from shareholders Total
----------------- --------------- ----------------- -----
BALANCE AT JANUARY 1, 1999 $(1,943) $(1,806,481) $(598,885) $10,581,512
CHANGES DURING THE SIX
MONTH PERIOD ENDED JUNE
30, 1999:
Realization of loss on available
for sale securities $ 1,943 $ 1,943
Accrued Interest on notes receivable
from stockholders $ (19,586) $ (19,586)
Loss $(4,012,469)
------- ----------- --------- -----------
BALANCE AT
JUNE 30, 1999 $ 0 $(1,806,481) $(618,471) $ 6,551,400
======= =========== ========= ===========
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements
Page 6
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------
Six months ended June 30,
------------------------------------
1998 1999
------------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (3,731,457) $ (4,012,469)
Adjustments required to reconcile loss to net cash used in operating activities:
Depreciation and amortization 438,255 440,337
Amortization of net premium (discount) on marketable debt securities 17,413
Interest accrued on notes to stockholders (19,586)
Liability for employee rights upon retirement-- net (37,919) (233,528)
Shares issued as compensation for services rendered by directors 10,750
Loss on sale of marketable securities 110 1,943
Capital loss on sale of fixed assets 4,535
Writedown of fixed assets 442,154
Changes in operating asset and liability items:
Decrease in accounts receivable 1,180,007 74,314
Decrease (increase) in inventories 74,055 (104,445)
Increase (Decrease) in accounts payable and accruals (546,865) 358,157
(Decrease) in deferred income (974,948) (125,736)
------------------ ----------------
Net cash used in operating activities $ (3,123,910) $ (3,621,013)
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (451,948) (1,059,346)
Proceeds from disposal of fixed assets 88,659
Sale of (purchase of) marketable debt securities - net (2,900,727) 3,700,575
------------------ ----------------
Net cash provided by (used in) investing activities $ (3,264,016) $ 2,641,229
------------------ ----------------
------------------ ----------------
FORWARD $ (6,387,926) $ (979,784)
------------------ ----------------
The accompanying notes are an integral part of Financial Statemants.
Page 7
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six months ended
June 30,
------------------------------------
1998 1999
------------------ ----------------
FORWARD $ (6,387,926) $ (979,784)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note receivable from stockholders 147,299
Proceeds from exercise of options 58,406
------------------ ----------------
Net cash provided by financing activities 205,705 0
------------------ ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (6,182,221) (979,784)
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 $ 5,589,595 $ 4,262,771
================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - CASH PAID DURING THE PERIOD FOR:
Interest $ 716 $ 3,760
================== ================
Advances to income tax authorities $ 40,371 $ 17,702
================== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of Financial Statemants.
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, 2001.
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.
3. Due to the conversion of certain outstanding management promissory
notes, the number of shares outstanding at June 30, 1998 for
purposes of calculating loss per share should have been 13,985,827
rather than 12,644,199, and accordingly the reported loss per share
has been corrected to reflect this calculation.
Page 9
4. Segment Information
The following table shows the results of the Company's main segments
for the first six months of 1999 and 1998, and fixed assets at June
30, 1999, and December 31, 1998.
1999
Segment Defense & Electric Consumer All Other Total
Safety Vehicle Battery
Revenue from external $ 585,000 $ 506,000 $ 13,000 $ 16,149 $ 1,120,149
customers
Direct Expenses $ 720,000 $1,397,000 $ 1,781,000 $ 1,351,326 $ 5,249,326
=========== ========== =========== =========== ===========
Segment Gross Loss $ (135,000) $ (891,000) $(1,768,000) $(1,335,177) $(4,129,177)
=========== ========== =========== ===========
Financial income, $ 116,708
-----------
net & tax
Loss $(4,012,469)
===========
Fixed Assets, Net $ 361,000 $ 923,000 $1,732,000 $ 1,037,868 $ 4,053,868
========= ========== =========== =========== ===========
1998
Segment Defense & Electric Consumer All Other Total
Safety Vehicle Battery
Revenue from external $ 519,000 $2,318,000 - $ 14,512 $ 2,851,512
customers
Direct Expenses $ 824,000 $2,714,000 $ 1,313,000 $ 1,978,146 $ 6,829,146
=========== ========== =========== =========== ===========
Segment Gross Loss $ (305,000) $ (396,000) $(1,313,000) $(1,963,634) $(3,977,634)
=========== ========== =========== ===========
Financial income, $ 246,177
-----------
net & tax
Loss $(3,731,457)
===========
Fixed Assets, Net $ 369,000 $1,153,000 $ 730,000 $ 1,182,859 $ 3,434,859
=========== ========== =========== =========== ===========
Page 10
The following table shows the results of the Company's main segments
for the second quarter of 1999 and 1998.
1999
Segment Defense & Electric Consumer All Other Total
Safety Vehicle Battery
Revenue from external $ 329,000 $ 219,000 $ 13,000 $ 11,177 $ 572,177
customers
Direct Expenses $ 363,000 $ 780,000 $ 429,000 $ 666,948 $ 2,238,948
========== ========== ========== ========== ===========
Segment Gross Loss $ (34,000) $ (561,000) $ (416,000) $(655,771) $(1,666,771)
========== ========== ========== ==========
Financial income, $ 49,202
-----------
net & tax
Loss $(1,617,569)
===========
Segment Defense & Electric Consumer All Other Total
Safety Vehicle Battery
Revenue from external $ 230,000 $1,309,000 - $ 43,925 $ 1,582,925
customers
Direct Expenses $ 349,000 $1,506,000 $ 877,000 $ 643,679 $ 3,375,679
========== ========== ========== ========== ===========
Segment Gross Loss $ (119,000) $ (197,000) $ (877,000) $ (599,754) $(1,792,754)
========== ========== ========== ==========
Financial income, $ 166,312
-----------
net & tax
Loss $(1,626,442)
===========
Page 11
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, electric
vehicles and defense and safety applications.
Results of Operations:
Three months ended June 30, 1999 compared to the three months ended June 30,
1998.
Revenues:
Revenues for the second quarter of 1999 totaled $572,000 compared with $1.6
million in the comparable period in 1998, a decrease of $1 million. Revenues
were $329,000 (1998: $230,000) for the Defense and Safety segment, $219,000
(1998: $1.3 million) for the Electric Vehicle segment and $13,000 (1998: $0) for
the Consumer Battery segment.
During the second quarter of 1999, the Company recognized revenues from the
sale of Survivor Locator Lights, sale of consumer batteries 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 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
12
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.
During 1998, the Deutsche Post AG ("Deutsche Post") and the Company agreed
to extend the operations of the Field Test through May 1998. Following the
completion of the Field Test, the Deutsche Post and the Company agreed to
mutually release each other from any financial claims regarding the Field Test,
including additional funding due the Company or repaying advances made by the
Deutsche Post to the Company with respect to Opel batteries, which were
previously subject to a dispute. Consequently revenues for the second quarter
were principally derived from recognizing the previously deferred advances, as
well as from activities relating to the Field Test extension (reflecting
coverage of expenses by the Deutsche Post). Additionally, the Company recognized
revenues from the sale of Survivor Locator Lights. The Company also recognized
revenues from the sale of additional batteries to the Deutsche Post, and began
recognizing revenues in connection with various defense R&D contracts.
Expenses:
Research and development expenses and cost of revenues less royalty bearing
grants for the second quarter of 1999 were $1.6 million compared with $2.6
million for the second 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.
R&D expenses were reduced by $582,000 in the second quarter of 1999. This
was in respect of recognition of grants from the Office of the Chief Scientist
of the Ministry of Industry and Trade and the Israel-US Binational Industrial
Research and Development (BIRD) Foundation. The Company's 1999 R&D grant
applications have been approved by the Research Committee of the Office of the
Chief Scientist of the Ministry of Industry and Trade. As a result, royalty-
bearing grants of up to $947,000 will be available to the company during 1999 to
offset R&D expenses. $545,000 of these royalty-bearing grants were recognized in
the second quarter of 1999. Also, $37,000 of royalty bearing grants from the
BIRD Foundation were recognized in the second quarter of 1999.
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. 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.
Expenses in the second quarter of 1998 included a write off of certain
production equipment related to the earlier generation Field Test version of the
Electric Vehicle Battery, for a net amount of approximately $430,000.
Furthermore, the Company's 1998 R&D grant applications were not approved by the
Research Committee of the Office of the Chief Scientist of the Ministry of
Industry and Trade until later in the year and so no royalty bearing grants were
recognized in the second quarter of 1998.
Selling, general and administrative expenses for the second quarter of 1999
were $656,000 vs. $756,000 in the second quarter of 1998. The decrease was
primarily attributable to reduced salaries and professional fees during the
second quarter of 1999. The Company expects increases in selling, general and
administrative expenses, particularly with respect to marketing expenses, as the
Company expands the applications for its technology.
13
Direct expenses for segments for the second quarter were $363,000 (1998:
$349,000), $780,000 (1998: $1.5 million), and $429,000 (1998: $877,000) in the
Defense and Safety, Electric Vehicle and Consumer Battery segments respectively.
The Company reported a net loss of $1.6 million in the second quarter of
1999 compared with a net loss of $1.6 million in the second quarter of 1998 due
to the factors cited above.
Results of Operations:
Six months ended June 30, 1999, compared to the six months ended June 30, 1998.
Revenues:
Revenues for the first six months of 1999 totaled $1.1million compared with
$2.9 million in the comparable period in 1998, a decrease of $1.7 million.
Revenues were $585,000 (1998: $519,000) for the Defense and Safety segment,
$506,000 (1998: $2.3 million) for the Electric Vehicle segment, and $13,000
(1998: $0) for the Consumer Battery segment for the first six months of the
year.
During the first six months of 1999, the Company recognized revenues from
the sale of Survivor Locator Lights, Defense R&D contracts, consumer batteries
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 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.
Revenues for the first six months 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 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
and defense R&D contracts.
Expenses:
Research and development expenses and cost of revenues less royalty bearing
grants for the first six months of 1999 were $3.7 million compared with $5.3
million for the six months 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 $1.5 million from the first six months of 1998 is principally attributable to
a reduction of expenses and personnel related to Electric Vehicle battery
development, and the recognition of royalty bearing grants. These royalty-
bearing grants were from the Office of the Chief Scientist of the Ministry of
Industry and Trade and the BIRD foundation. The company incurred increased costs
associated with Consumer Battery development and production of increased
quantities of Survivor Locator Lights in the Defense and Safety Division in the
first six months of 1999. The Company's 1999 grant applications have been
approved by the Research Committee of the Office of the Chief Scientist of the
Ministry of Industry and Trade and royalty bearing grants have therefore been
recognized in the first six months of 1999 in the amount of $545,000. During the
first six months 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
14
("General Electric"). The program is being partially funded by the Israel - US
Binational Industrial Research and Development (BIRD) Foundation, and the
Company recorded $126,000 of royalty-bearing grants in the first six months 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.
Selling, general and administrative expenses for the first six months of
1999 were $1.5 million vs. $1.6 million in the first six months of 1999. 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.
Direct expenses for segments for the first six months of the year were
$720,000 (1998: $824,000), $1,4 million (1998: $2.7 million), and $1.8 million
(1998: $1.3 million) in the Defense and Safety, Electric Vehicle and Consumer
Battery segments respectively.
Financial income, net of interest expense, exchange differentials, bank
charges, and other fees, totaled approximately $123,000 in the first six months
of 1999 compared to $273,000 in same period in 1998.
The Company reported a net loss of $4 million in the first six months of
1999 compared with a net loss of $3.7 million in the first six months of 1998
due to the factors cited above.
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 will be
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 will be 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 June 30, 1999, the Company had cash, cash equivalents and financial
investments of approximately $4.2 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 $1.1 million primarily in the
consumer battery division, during the six months ended June 30, 1999.
15
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 December 16, 1999. As of June 30, 1999, the bank had issued
letters of credit and bank guarantees totaling approximately $381,000.
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, as previously announced in July
1999, the Company entered into a three - year exclusive distribution contract
with the Banner Telecom group for Electric Fuel's line of zinc - air cellular
phone batteries. In order to manufacture the quantities envisioned under the
contract, the company will have to operate an automatic production line, which
has already been ordered. Accordingly, the Company is seeking additional
funding, including through the issuance of equity or debt securities to put this
automated production line into operation and continue its operations. Also, the
company 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.
16
Part II
Item 6.
1. No reports on Form 8-K were filed during the first six months of 1999.
Page 17
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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: August 13, 1999
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