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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001.
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Commission file number: 0-23336
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ELECTRIC FUEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 954302784
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
632 Broadway, Suite 301, New York, New York 10012
(Address of principal executive offices) (Zip Code)
(212) 529-9200
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(Registrant's telephone number, including area code)
120 Wood Avenue South, Suite 300, Iselin, New Jersey 08830
(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's common stock as of May 11, 2001
was 26,359,397.
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INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Interim Consolidated Financial Statements (Unaudited):
- --------------------------------------------------------------
Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 .......................... 3-4
Consolidated Statements of Operations for the Three Months Ended March 31, 2001
and 2000 ................................................................................ 5
Consolidated Statements of Changes in Stockholders' Equity during the Three-Month
Period Ended March 31, 2001 ............................................................. 6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001
and 2000 ................................................................................ 7-8
Note to the Interim Consolidated Financial Statements ........................................ 9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations ........................................................................... 10
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk .......................... 14
- -------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 2 - Change in Securities ................................................................ 15
- -----------------------------
SIGNATURES ................................................................................... 16
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ELECTRIC FUEL CORPORATION
Item 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
------------------ ---------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents ...........................................$ 7,743,541 $ 11,596,225
Trade receivables ................................................... 489,799 2,212,434
Other receivables ................................................... 2,462,202 2,418,715
Inventories ......................................................... 5,709,150 3,208,948
------------------ ---------------------
Total current assets ...................................... 16,405,092 19,436,322
Notes receivable from stockholders ...................................... 797,854 778,677
------------------ ---------------------
Severance pay fund ...................................................... 1,026,283 995,283
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FIXED ASSETS:
Cost ................................................................ 10,955,556 10,572,954
Less - accumulated depreciation and amortization .................... 4,390,888 4,126,890
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6,564,668 6,446,064
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$ 24,793,897 $ 27,656,346
================== =====================
- --------------------------------------------------------------------------------
The accompanying notes are an intergal part of the Financial Statements.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
------------------- --------------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables ............................................................. $ 2,896,181 $ 3,242,460
Other payables ............................................................. 1,665,294 1,544,975
------------------- --------------------
Total current liabilities ............................................... 4,561,475 4,787,435
Liability for Employee Rights Upon Retirement .................................. 2,963,626 2,790,542
------------------- --------------------
Total liabilities ....................................................... 7,525,101 7,577,977
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STOCKHOLDER'S EQUITY:
Common stock - $0.01 par value
Authorized - 100,000,000 shares
Issued - 21,422,691 shares and 21,985,983 shares as of December 31, 2000 and
March 31, 2001 respectively
Outstanding - 21,417,358 shares and 21,980,650 shares as of December 31,
2000 and March 31, 2001 respectively ..................................... 219,858 214,227
Preferred stock - $0.01 par value
Authorized - 1,000,000 shares, no shares outstanding ..................... - -
Additional paid-in capital .............................................. 90,595,581 87,658,990
Deferred stock compensation ............................................. (13,285) (17,240)
Accumulated deficit ..................................................... (66,874,637) (63,449,673)
Treasury stock, at cost (common stock - 5,333 shares) ................... (37,731) (37,731)
Notes receivable from stockholders ...................................... (6,620,990) (4,290,204)
------------------- --------------------
Total stockholders' equity .............................................. 17,268,796 20,078,369
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$ 24,793,897 $ 27,656,346
=================== ====================
- --------------------------------------------------------------------------------
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,
--------------------------------------
2001 2000
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Revenues *) .....................................................$ 725,959 $ 652,946
Cost of revenues *) ............................................. 961,785 -
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Gross loss *) ................................................... (235,826) -
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Research and development expenses, net *) ....................... 769,939 2,090,221
Sales and marketing expenses .................................... 1,797,888 448,034
General and administrative expenses ............................. 896,180 583,878
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3,464,007 3,122,133
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Operating loss .................................................. (3,699,833) (2,469,187)
Financial income (expenses), net ................................ 274,869 (4,560)
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Loss for the period .............................................$ (3,424,964) $ (2,473,747)
================== =================
Loss per share ..................................................$ (0.16) $ (0.14)
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Weighted average number of shares outstanding ................... 21,802,499 17,166,343
================== =================
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*) In the first quarter of 2000, the Company's cost of revenues was combined
with research and development costs, since (i) the Company's production was
integrated with the product development process, (ii) it was impossible to
segregate the cost of revenue from the research and development expenses, and
(iii) these expenses were interrelated by their nature.
The accompanying notes are an integral part of the Financial Statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Common Stock Additional Deferred
---------------------------------- paid-in Stock Accumulated
Shares Amount capital Compensation deficit
-------------- --------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 2000 -
AUDITED ............................ 21,422,691 $ 214,227 $ 87,658,990 $ (17,240) $ (63,449,673)
CHANGES DURING THE THREE-MONTH
PERIOD ENDED MARCH 31, 2001:
Accrued interest on notes
receivable from stockholders ...
Issuance of shares, net .......... 562,929 5,631 2,936,591
Amortization of deferred stock
compensation ................... 3,955
Loss ............................. (3,424,964)
-------------- --------------- -------------- -------------- --------------
BALANCE AT MARCH 31, 2001 -
UNAUDITED .......................... 21,985,620 $ 219,858 $ 90,595,581 $ (13,285) $ (66,874,637)
============== =============== ============== ============== ==============
Notes
receivable
Treasury from
stock shareholders Total
-------------- --------------- --------------
BALANCE AT DECEMBER 31, 2000 -
AUDITED ............................ $ (37,731) $ (4,290,204) $ 20,078,369
CHANGES DURING THE THREE-MONTH
PERIOD ENDED MARCH 31, 2001:
Accrued interest on notes
receivable from stockholders ... (133,286) (133,286)
Issuance of shares, net .......... (2,197,500) 744,722
Amortization of deferred stock
compensation ................... 3,955
Loss ............................. (3,424,964)
-------------- --------------- --------------
BALANCE AT MARCH 31, 2001 -
UNAUDITED .......................... $ (37,731) $ (6,620,990) $ 17,268,796
============== =============== ==============
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The accompanying notes are an integral part of the Financial Statements.
Page 6
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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Three months ended March 31,
---------------------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period ...................................................$ (3,424,964) $ (2,473,747)
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Adjustments required to reconcile loss to net cash used in
operating activities:
Depreciation and amortization ...................................... 275,000 34,750
Expenses due to options and shares granted to suppliers ............ 84,295 107,000
Amortization of deferred stock compensation ........................ 3,955 -
Interest accrued on notes from stockholders ........................ (152,465) (20,069)
Liability for employee rights upon retirement, net ................. 142,084 40,887
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable ......................... 2,054,246 (143,263)
Increase in inventories ............................................ (2,500,202) (198,430)
Increase in accounts payable and accruals .......................... 1,270 57,999
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Net cash used in operating activities .......................... (3,516,781) (2,594,873)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets .............................................. (393,604) (402,513)
Repayment of suppliers due to purchase of fixed assets ................ (227,230) -
Loans granted to shareholders ......................................... - (921,656)
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Net cash used in investing activities .......................... (620,834) (1,324,169)
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FORWARD (4,137,615) $ (3,919,043)
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The accompanying notes are an integral part of the Financial Statement.
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ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
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Three months ended March 31,
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2001 2000
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FORWARD $ (4,137,615) $ (3,919,043)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital, net .......................... (40,294) 3,062,500
Proceeds from exercise of options and warrants ........................ 325,225 4,653,329
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Net cash provided by financing activities .......................... 284,931 7,715,829
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........................$ (3,852,684) 3,796,787
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 11,596,225 2,555,645
--------------------- ----------------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD .....................$ 7,743,541 $ 6,352,432
===================== ======================
SUPPLEMENTARY INFORMATION ON ACTIVITIES NOT INVOLVING CASH FLOW:
Issuance of share capital (including additional paid-in capital)
upon notes receivable ...............................................$ 2,221,000 $ 658,325
===================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- CASH (PAID) RECEIVED DURING THE PERIOD FOR:
Interest ..............................................................$ 103,554 $ 56,636
===================== ======================
Advances to income tax authorities ....................................$ (3,659) $ (20,176)
===================== ======================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
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NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The interim consolidated financial statements of Electric Fuel Corporation
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of our management, necessary for a fair statement of results
for the periods presented. Operating revenues and expenses for any interim
period are not necessarily indicative of results for a full year.
For the purpose of these interim consolidated financial statements, certain
information and disclosures normally included in financial statements have been
condensed or omitted. These unaudited statements should be read in conjunction
with our audited consolidated financial statements and notes thereto for the
year ended December 31, 2000.
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ELECTRIC FUEL CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
inherent risks and uncertainties. When used in this discussion, the words
"believes," "anticipated," "expects" and similar expressions are intended to
identify such forward-looking statements. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors including, but not
limited to, those set forth elsewhere in this report. Please see "Important
Factors Regarding Forward-Looking Statements," filed as Exhibit 99 to our annual
report on Form 10-K for the year ended December 31, 2000 and incorporated herein
by reference.
Electric Fuel(R) is a registered trademark of Electric Fuel Corporation.
Instant Power(TM), PowerCartridge(TM) and SmartCord(TM) are trademarks of
Electric Fuel Corporation. All company and product names mentioned may be
trademarks or registered trademarks of their respective holders.
The following discussion and analysis should be read in conjunction with
the interim financial statements and notes thereto appearing elsewhere in this
Quarterly Report. We have rounded amounts reported here to the nearest thousand,
unless such amounts are more than 1.0 million, in which event we have rounded
such amounts to the nearest hundred thousand.
Subsequent Developments
In April 2001, we announced a major price reduction for our Instant Power
line of disposable cellphone batteries, lowering the manufacturer's suggested
retail price (MSRP) to $9.95. We had previously reduced the MSRPs on our Instant
Power charger (SmartCord and PowerCartridge together) to $19.95 ($24.95 for PDA
kits) and on the PowerCartridge alone to $9.95. These price cuts were enabled by
improved efficiencies achieved through the full operation of our automated
production line. These price reductions will result in a proportionate write-
down of certain portions of our inventory.
In May 2001, we sold an aggregate of 4,045,454 shares of our common stock
to a group of institutional investors for an aggregate of $11,125,000. Investors
in the offering also received an aggregate of 2,696,971 warrants to purchase
shares of common stock at an exercise price of $3.22 per share.
General
During this past quarter, we accelerated our efforts to further develop,
commercialize and market our disposable Instant Power Zinc-Air batteries and
chargers for cellular phones and PDAs. These products use the proprietary
high-rate primary zinc-air technology that we developed in the last three years
for use in portable electronic devices. We also focused during the past quarter
on expanding the distribution channels for our products, in order to continue
the transition from a research and development company to a global consumer
goods company, and on expanding the range of products that we offer.
Our line of existing products now includes batteries for Nokia
5100/6100/7100 phones, Motorola MicroTAC phones, the Ericsson 600/800/1000 line,
the Samsung SCH-3500 phone, and an auxiliary battery for the Motorola StarTAC,
and chargers with SmartCords for various series and models of Nokia,
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ELECTRIC FUEL CORPORATION
Motorola, Ericsson, Panasonic, Siemens, Samsung, Audiovox, Mitsubishi, Sagem and
Philips cellphones, models of Pocket PC, Palm, Handspring, HP and Compaq PDAs
and Novatel wireless modems.
During the first quarter of 2001 we consolidated and increased our
marketing presence with respect to our Instant Power line, particularly in
Germany, where we signed an exclusive distribution agreement with respect to our
chargers with DNT GmbH. Additionally, we had signed distributorship agreements
or received orders in the U.S., the U.K., Australia, Croatia, the Czech
Republic, Greece, Hong Kong, Iceland, Israel (where seven retail chains carry
Instant Power products), Italy, Poland, Spain and Switzerland. These retailers
and distributors include Circuit City, CompUSA, Fred Meyer Stores, CarToys,
Wal-Mart (under the EverActive brand name) in the United States, and the
Carphone Warehouse, the PocketPhone Shop and BT Retail in the UK. We are also
selling through other, smaller distributors and online at www.iGo.com and our
-----------
own website, www.electric-fuel.com, among others. Additionally, our products are
---------------------
available in airport shops in the United States (AltiTUNES and Laptop Lane), the
U.K. and Israel.
While we have successfully marketed our products to retailers such as
Wal-Mart, certain of our customers have indicated to us in response to slower
than anticipated initial sales results that we would benefit from educating
consumers as to the advantages of disposable batteries and chargers for
cellphones and PDAs. We have begun addressing this need, both on our own and in
cooperative programs with certain of our retailers, through an advertising and
public relations campaign in national newspapers, in-flight and consumer
magazines and at major airports, as well as through in-store point-of-sale
efforts.
As of March 31, 2001, we had 32 unexpired U.S. patents and 15 corresponding
European patents issued covering general aspects and various applications of our
zinc-air technology. We also have more than 50 new applications filed, focusing
specifically on Instant Power batteries and chargers for consumer electronic
devices and cellphones.
We are continuing to develop other applications for our disposable Instant
Power batteries and chargers, including for other portable consumer electronic
devices, such as camcorders, as well as devices for the telecommunications,
hand-held computer and defense markets.
Our Electric Vehicle Division is continuing its American all-electric
transit bus development project in Nevada, subcontracted by the Federal Transit
Administration (FTA) and supported by the Israel-US Binational Industrial
Research and Development (BIRD) Foundation. On July 12, 2000, we announced that
we had successfully completed the first actual driving tests of our all-battery
electric bus. This event successfully completed phase I of the FTA program.
Phase II of the program, which focuses on conducting evaluation of the system
and vehicle performance, including track testing and limited on-road
demonstrations, enhancing the all-electric propulsion system developed in Phase
I, including incorporating ultracapacitors and associated interface controls,
and testing and evaluating the zinc-air battery system, received approval in the
fourth quarter of 2000.
Our Safety Products Division is continuing with the introduction of the new
emergency lights for the marine life jackets market, and sales are steadily
increasing.
We have experienced significant fluctuations in the sources and amounts of
our revenues and expenses, and we believe that the following comparisons of
results of operations for the periods presented do not necessarily provide a
meaningful indication of our development. During these periods, we have received
periodic lump-sum payments relating to licensing and other revenues from our
strategic partners, which
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ELECTRIC FUEL CORPORATION
have been based on the achievement of certain milestones, rather than ratably
over time. Our expenses have been based upon meeting the contractual
requirements under our agreements with various strategic partners and,
therefore, have also varied according to the timing of activities, such as the
need to provide prototype products and to establish and engineer refueling and
regeneration facilities. Our research and development expenses have been offset,
to a limited extent, by the periodic receipt of research grants from Israel's
Office of the Chief Scientist. We expect that, because of these and other
factors, including general economic conditions and delays due to legislation and
regulatory and other processes and the development of competing technologies,
future results of operations may not necessarily be meaningfully compared with
those of current and prior periods. Thus, we believe that period-to-period
comparisons of its past results of operations should not necessarily be relied
upon as indications of future performance.
We incurred significant operating losses for the years ended December 31,
2000, 1999 and 1998 and the first three months of 2001. While we expect to
continue to derive revenues from the sale of batteries for portable electronic
devices, components of the Electric Fuel Electric Vehicle System, including
refueling and Electric Fuel services and defense and safety products that we
manufacture, as well as from licensing rights to the Electric Fuel technology to
third parties, there can be no assurance that we will ever derive significant
revenues or achieve profitability.
On May 17, 2000, we entered into a purchase agreement with Koor Industries
Ltd. pursuant to which Koor agreed to purchase one million shares of our common
stock at $10.00 per share, for a total cash investment of $10 million. We and
Koor also entered into a registration rights agreement pursuant to which we
agreed to register the shares issued to Koor, and Koor agreed to certain
limitations on the resale of the shares in the six months following the
investment. The purchase agreement with Koor provided that we would issue
additional shares to Koor based on the extent to which the average closing price
of our common stock on the Nasdaq for the thirty trading days immediately
preceding the six-month anniversary of the closing date was below $10.00 per
share. Pursuant to the terms of this provision, we authorized the issuance of an
additional 92,952 shares of common stock to Koor in April 2001.
Functional Currency
We consider the United States dollar to be the currency of the primary
economic environment in which our Israeli subsidiary, Electric Fuel (E.F.L)
Limited ("EFL") operates. Further, we believe that the operations of EFL's
subsidiaries are an integral part of the Israeli operations. EFL has therefore
adopted and is using the United States dollar as its functional currency.
Transactions and balances originally denominated in U.S. dollars are presented
at the original amounts. Gains and losses arising from non-dollar transactions
and balances are included in net income.
Results of Operations
Three months ended March 31, 2001, compared to the three months ended March 31,
2000.
Revenues. Revenues for the first quarter of 2001 totaled $726,000, compared
to $653,000 in the comparable period in 2000, an increase of $73,000, or 11%.
This increase was the result of an increase in revenues from the Instant Power
Division that resulted from increased marketing of our Instant Power batteries
and chargers for cellular phones, an increase that was only partly offset by the
completion of phase I of the FTA program and the concomitant drop-off in
revenues in the Electric Vehicle Division attributable to that program.
During the first quarter of 2001, we recognized revenues from the sale of
lifejacket lights and sale of consumer batteries. We also recognized revenues
from subcontracting fees received in connection with
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ELECTRIC FUEL CORPORATION
the United States Department of Transportation (DOT) program which began in 1998
and, after we completed Phase I in July of 2000, was extended in the fourth
quarter of 2000. We participate in this program as a member of a consortium
seeking to demonstrate the ability of the Electric Fuel battery system to power
a full-size, all-electric transit bus. The total program cost of Phase II is
approximately $2.7 million, 50% of which will be covered by the DOT
subcontracting fees. Subcontracting fees cover less than all of the expenses and
expenditures associated with our participation in the program. In 2000, we
derived revenues principally from the sale of lifejacket lights and consumer
batteries. Additionally, we also recognized revenues from activities related to
the DOT program.
During the first quarter of 2001, revenues were $221,000 for the Instant
Power division (compared to $363,000 in the comparable period in 2000, a
decrease of $142,000, or 39%), $197,000 for the Electric Vehicle division (there
were no revenues for this division in 2000) and $306,000 for the Defense and
Safety division (compared to $286,000 in the comparable period in 2000, an
increase of $20,000, or 7%).
Cost of revenues and gross loss. Cost of revenues totaled $962,000 during
the first quarter of 2001. Gross loss was $236,000 during the first quarter of
2001. In the first quarter of 2000, our cost of revenues was combined with
research and development costs, since (i) our production was integrated with the
product development process, (ii) it was impossible to segregate the cost of
revenue from the research and development expenses, and (iii) these expenses
were interrelated by their nature. Hence, we are unable to provide comparative
data for the comparable quarter of 2000.
Direct expenses for our three divisions during the first quarter of 2001
were $2.9 million in the Instant Power division (compared to $1.9 million during
the first quarter of 2000, an increase of $1.0 million, or 53%), $210,000 in the
Electric Vehicle division (compared to $160,000 during the first quarter of
2000, an increase of $50,000, or 31%), and $247,000 in the Defense and Safety
division (compared to $210,000 during the first quarter of 2000, an increase of
$37,000, or 18%).
Research and development expenses, net. Research and development expenses
less royalty-bearing grants for the first quarter of 2001 were $770,000. In the
first quarter of 2000, our cost of revenues was combined with research and
development costs, since (i) our production was integrated with the product
development process, (ii) it was impossible to segregate the cost of revenue
from the research and development expenses, and (iii) these expenses were
interrelated by their nature. Hence, we are unable to provide comparative data
for the comparable quarter of 2000.
Our 2001 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 $1.0 million will be available to us
during 2001 to offset R&D expenses. $186,000 of these royalty-bearing grants was
recognized in the first quarter of 2001 (compared to $0 in the first quarter of
2000, since as of the end of that quarter in 2000 our grant applications had not
yet been approved by the relevant authorities).
Selling expenses. Selling expenses for the first quarter of 2001 were $1.8
million, compared to $448,000 in the first quarter of 2000, an increase of $1.4
million, or 301%, primarily attributable to increased sales and marketing
expenses in the Instant Power division. We expect further increases in selling
expenses, particularly with respect to marketing expenses, as we continue to
market our products to consumers and expand the applications for our technology.
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ELECTRIC FUEL CORPORATION
General and administrative expenses. General and administrative expenses
for the first quarter of 2001 were $896,000 compared to $584,000 in the first
quarter of 2000, an increase of $312,000, or 53%. This increase was primarily
attributable to the absence in the first quarter of 2001 of certain one-time
accrual adjustments that took place in the first quarter of 2000, and litigation
expenses incurred in the first quarter of 2001 but not in the comparable period
in 2000 in connection with our lawsuit against ElectroFuel, Inc., which lawsuit
was described in Item 3 of our annual report on Form 10-K for the year ended
December 31, 2000.
Financial income (expense). Financial income, net of interest expenses and
exchange differentials, totaled approximately $275,000 in the first quarter of
2001 compared to $5,000 financial expense in the same quarter in 2000, an
increase of $280,000, due primarily to higher balances of invested funds as a
result of the deposit of the proceeds of private placements of our securities
conducted in 2000.
Income taxes. We and our Israeli subsidiary EFL incurred net operating
losses or had earnings arising from tax-exempt income during the quarters ended
March 31, 2001 and 2000 and, accordingly, we were not required to make any
provision for income taxes. Taxes in these entities incurred in 2001 and 2000
are primarily composed of United States federal alternative minimum taxes.
Net loss. Due to the factors cited above, we reported a net loss of $3.4
million in the first quarter of 2001, compared to a net loss of $2.5 million in
the first quarter of 2000, an increase of $900,000, or 36%.
Liquidity and Capital Resources
As of March 31, 2001 (prior to the sale of securities discussed under
"Recent Developments," above), we had cash and cash equivalents of approximately
$7.7 million, compared to $6.4 million as of March 31, 2000.
We used available funds in the first three months of 2001 primarily for
continued research and development expenditures, and other working capital
needs. We increased our investment in fixed assets by $394,000 during the
quarter ended March 31, 2001, primarily in the Instant Power Division. Our fixed
assets amounted to $6.6 million as at quarter end.
Our Israeli subsidiary EFL presently has a line of credit with the First
International Bank of Israel Ltd. (FIBI) of up to $750,000, guaranteed by our
receivables (up to 75% of the receivables total amount as determined from time
to time). This credit facility imposes financial and other covenants on EFC and
EFL. As of March 31, 2001, the bank had issued letters of credit and bank
guarantees totaling approximately $342,000.
We believe that our cash position and cash flows from operations as of the
date of this report will be sufficient to satisfy our estimated cash
requirements for more than the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to the impact of interest rate changes and foreign currency
fluctuations due to our international sales, production and funding
requirements.
Our research, development and production activities are primarily carried
out by our wholly-owned subsidiary EFL, at its facility in Beit Shemesh, Israel,
and we market some of our products in Israel; accordingly we have sales and
expenses in New Israeli Shekels. However, the majority of our sales are made
outside Israel in U.S. dollars, and a substantial portion of our costs are
incurred in U.S. dollars or in New Israeli Shekels linked to the U.S. dollar.
Therefore, our functional currency is the U.S. dollar. Although we have a line
of credit that may be affected by interest rate changes, given our level of
borrowing, we do not believe the market risk from interest rate changes is
material.
Page 14
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 12, 2001, we issued to certain of our employees a total of
400,000 shares of our common stock, 266,667 Series A warrants to purchase
266,667 shares of our common stock at any time prior to January 12, 2006 at a
price of $8.3438 per share, and 133,333 Series B warrants to purchase 133,333
shares of our common stock at any time prior to October 12, 2001 at a price of
$7.5094 per share. The total purchase price of $2,225,000 (based on the number
of shares of common stock purchased multiplied by the closing sale price of our
common stock on the Nasdaq National Market on January 12, 2001, which was
$5.5625 per share) was paid by such employees by means of a non-recourse
promissory note secured by the shares of common stock and warrants purchased. As
part of the consideration for our agreeing to this arrangement, these employees
agreed to certain changes in the terms of their employments agreements with us.
Additionally, if any of these employees voluntarily leaves our employ prior to
the end of the term of his agreement, the shares and warrants purchased by means
of this non-recourse note will revert back to us.
Pursuant to the terms of our purchase agreement with Koor Industries Ltd.,
which provided that we would issue additional shares to Koor based on the extent
to which the average closing price of our common stock on the Nasdaq for the
thirty trading days immediately preceding the six-month anniversary of the
closing date was below $10.00 per share, we issued an additional 92,952 shares
of common stock to Koor in late March 2001.
We issued all of the above securities in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act as transactions by
an issuer not involving a public offering.
Page 15
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities 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
By: /s/ Robert S. Ehrlich
-------------------------------------------------
Name: Robert S. Ehrlich
Title: Chairman and Chief Financial Officer
Dated: May 14, 2001
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