<PAGE>
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, 1997
Commission file No. 0-23336
ELECTRIC FUEL CORPORATION
----------------------------------------------------------
Exact name of registrant as specified in its charter
Delaware 95-4302784
- ----------------------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
885 Third Avenue, New York, New York 10022 - Suite 2900
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 230-2172
-----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's
common stock as at August 1, 1997 was 14,216,161.
<PAGE>
ELECTRIC FUEL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION: ----
<S> <C>
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
-------------------------------------------------
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 3-4
Consolidated Statements of Operations for the Six Months
and Three months Ended June 30, 1997 and 1996 5
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1997 6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 7-8
Notes to the Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 10-14
-----------------------------------
PART II - Other Information 15
Item 6 - Reports on Form 8-K 16
</TABLE>
Page 2
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
===========================================================================================
December 31, June 30,
1996 1997
------------ -----------
ASSETS (Audited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,662,776 $15,639,828
Marketable debt securities 11,296,382 5,021,899
Accounts receivable:
Trade 369,442 359,508
Other 1,915,628 1,807,950
Inventories 915,032 714,555
----------- -----------
Total current assets 27,159,260 23,543,740
----------- -----------
INVESTMENT-
Investee company 35,849 35,849
----------- -----------
FIXED ASSETS:
Cost 8,754,771 9,045,357
Less - accumulated depreciation and amortization 1,451,095 1,908,858
----------- -----------
7,303,676 7,136,499
----------- -----------
OTHER ASSETS AND DEFERRED CHARGES net of accumulated
amortization 23,333 18,333
----------- -----------
----------- -----------
$34,522,118 $30,734,421
=========== ===========
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Page 3
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
====================================================================================================
December 31, June 30,
1996 1997
---------------- ---------------
(Audited) (Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,079,284 $ 807,959
Other 3,505,594 3,347,634
Advances from Customers 926,599 834,661
---------------- ---------------
Total current liabilities 5,511,477 4,990,254
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,141,030 1,444,892
---------------- ---------------
Total Liabilities 6,652,507 6,435,146
---------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized -- 28,000,000
shares; issued - 14,257,508 shares as of December 31, 1996
and 14,193,661 as of June 30, 1997 outstanding - 14,185,208
shares as of December 31, 1996 and 14,193,661 as of June
30, 1997. 142,575 141,937
Preferred stock - $0.01 par value; authorized - 1,000,000
shares, no shares outstanding
Additional paid-in capital 57,341,451 56,962,827
Accumulated deficit (26,890,958) (30,479,164)
Unrealized gain on available-for-sale securities 3,157 0
Treasury stock, at cost (common stock -- 72,300 shares
as of December 31, 1996) (456,394) 0
Notes receivable from stockholders (2,270,220) (2,326,325)
---------------- ---------------
Total Stockholders' Equity 27,869,611 24,299,275
---------------- ---------------
---------------- ---------------
$34,522,118 $30,734,421
================ ===============
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Page 4
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================== ===================================
Six months ended June 30, Three months ended June 30,
---------------------------------- -----------------------------------
1996 1997 1996 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES $2,494,607 $2,831,556 $1,228,752 $1,807,584
============= ============= ============== =============
RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF REVENUES:
Expenses incurred 7,356,202 5,346,927 3,606,555 2,600,009
Less - royalty-bearing grants 600,000 600,000
------------- ------------- -------------- -------------
7,356,202 4,746,927 3,606,555 2,000,009
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 1,514,055 2,050,134 886,133 1,123,126
------------- ------------- -------------- -------------
8,870,257 6,797,061 4,492,688 3,123,135
------------- ------------- -------------- -------------
OPERATING LOSS (6,375,650) (3,965,505) (3,263,936) (1,315,551)
FINANCIAL INCOME - NET 379,904 392,299 249,871 195,295
------------- ------------- -------------- -------------
LOSS BEFORE TAXES ON INCOME (5,995,746) (3,573,206) (3,014,065) (1,120,256)
TAXES ON INCOME 51,576 15,000 36,836 15,000
------------- ------------- -------------- -------------
LOSS FOR THE PERIOD (6,047,322) (3,588,206) (3,050,901) (1,135,256)
============= ============= ============== =============
LOSS PER SHARE $ (0.53) $ (0.26) $ (0.25) $ (0.08)
============= ============= ============== =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,375,494 13,797,866 12,213,155 13,817,689
============= ============= ============== =============
==================================================================================== ===================================
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Page 5
<PAGE>
ELECTRIC FUEL CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------- Additional Unrealized gain
paid-in Accumulated on available-for- Treasury
Shares Amount capital deficit sale securities Stock
------------ ------------ ------------ ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 14,257,508 $142,575 $57,341,451 $(26,890,958) $3,157 $(456,394)
CHANGES DURING THE SIX
MONTH PERIOD ENDED JUNE
30, 1997:
Shares issued in connection with the
exercise of option 8,453 85 6,846
Treasury stock retired (72,300) (723) (455,671) 456,394
Accrued Interest on notes receivable
from stockholders 70,201
Payments of interest and principal on
notes receivable from stockholders
Realization of gain on available-for-
sale securities (3,157)
Loss (3,588,206)
------------ ------------ ------------ ------------- ----------------- ------------
BALANCE AT
JUNE 30, 1997 14,193,661 $141,937 $56,962,827 $(30,479,164) $0 $0
============ ============ ============ ============= ================= ============
<CAPTION>
Notes receivable
from shareholders Total
------------------- ---------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1997 $(2,270,220) $27,869,611
CHANGES DURING THE SIX
MONTH PERIOD ENDED JUNE
30, 1997:
Shares issued in connection with the
exercise of option 6,931
Treasury stock retired 0
Accrued Interest on notes receivable
from stockholders (70,201) 0
Payments of interest and principal on
notes receivable from stockholders 14,096 14,096
Realization of gain on available-for-
sale securities (3,157)
Loss (3,588,206)
------------------ ---------------
BALANCE AT
JUNE 30, 1997 $(2,326,325) $24,299,275
================== ===============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
Page 6
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six month ended June 30,
--------------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (6,047,322) $ (3,588,206)
Adjustments required to reconcile loss to net cash used in operating activities:
Depreciation and amortization 470,387 462,763
Loss (gain) from marketable debt securities, net 34,370 (49,158)
Capital loss from disposal of fixed assets 777
Liability for employee rights upon retirement - net 188,736 303,862
Interest accrued on notes and loan to stockholders (44,433)
Changes in operating asset and liability items:
Decrease in accounts receivable 407,351 117,612
Decrease (increase) in inventories (278,656) 200,477
Decrease in accounts payable and accruals (1,673,361) (429,285)
Decrease in advances from customers (2,438,212) (91,938)
-------------- --------------
Net cash used in operating activities $ (9,380,363) $ (3,073,873)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,596,572) (290,586)
Investment grant relating to fixed assets 317,723
Purchase of marketable debt securities (8,900,729) (5,028,516)
Proceeds from disposal of fixed assets 1,371
Proceeds from sale of marketable debt securities 1,037,000 11,349,000
-------------- --------------
Net cash provided by (used in) investing activities $(9,141,207) $ 6,029,898
-------------- --------------
-------------- --------------
FORWARD $(18,521,570) $ 2,956,025
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
Page 7
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================================================
Six month ended June 30,
----------------------------------
1996 1997
---------------- ---------------
FORWARD $(18,521,570) $ 2,956,025
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issue of share capital (including additional paid in capital),
net of offering expenses 22,310,699
Payment on note receivable from Stockholders 14,096
Proceeds from exercise of warants and options 6,931
---------------- ---------------
Net cash provided by financing activities 22,310,699 21,027
---------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS 3,789,129 2,977,052
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,364,867 12,662,776
---------------- ---------------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,153,996 $ 15,639,828
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- CASH PAID DURING THE PERIOD FOR:
Interest $ 3,759 $ 66
================ ===============
Advances to income tax authorities $ 65,675 $ 50,496
================ ===============
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Page 8
<PAGE>
ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. The interim financial statements of Electric Fuel Corporation ("the
Company") reflect all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the Company's management, necessary
for a fair statement of results for the periods presented. Operating revenue
and expenses for any interim period are not necessarily indicative of
results for a full year.
For the purpose of these interim financial statements, certain information
and disclosures normally included in the financial statements have been
condensed or omitted. These unaudited statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended December 31, 1996.
2. Effects of Recent Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS
128). FAS 128 simplifies the earnings per share computation and is to be
applied by the Company commencing with the financial statements for the year
ending December 31, 1997. Upon the implementation of FAS 128, all prior
period earnings per share data shall be restated to conform with the
provisions of this standard. Early adoption of this Statement is not
permitted. FAS 128 requires the presentation of both basic and diluted
earnings per share, instead of the currently required primary and fully
diluted earnings per share. Management believes that the application of FAS
128 should not have a material effect and that both basic and diluted
earnings per share as defined in FAS 128 will not be substantially different
from earnings per share data as presented in the enclosed financial
statements.
Page 9
<PAGE>
ELECTRIC FUEL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Quarterly
Report. Amounts reported here have been rounded to the nearest thousand, unless
such amounts are more than 1.0 million, in which event such amounts have been
rounded to the nearest hundred thousand.
Forward Looking Statements
When used in this discussion, the words "believes", "anticipated" and similar
expressions are intended to identify forward looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. See "Important Factors Regarding
Forward-Looking Statements" attached as Exhibit 99.1 to the Company's Annual
Report for the year ended December 31, 1996 on Form 10-K and incorporated herein
by reference. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations:
Three months ended June 30, 1997 compared to the three months ended June 30,
1996.
Revenues:
Revenues for the second quarter of 1997 totaled $1.8 million compared with $1.2
million in the comparable period in 1996, an increase of $600,000. Revenues for
the second quarter of 1997, were principally derived from fees collected in
relation to a preliminary license agreement completed with Vattenfall AB
("Vattenfall"), under which Vattenfall exercised its right for a license to
establish and operate the Electric Fuel infrastructure for the territory of
Sweden, Denmark, Norway, Finland and St. Petersburg, Russia. Additional revenues
related to Vattenfall will be recognized only after a definitive license
agreement, presently being negotiated, has been signed. Additionally, the
Company continued to recognize revenues relating to its activities in the
Deutsche Post AG ("Deutsche Post") Field Test program. The balance of the
revenues in connection with the Field Test is expected to be recognized during
1997. Revenues from the Field Test are expected to decrease in 1997, in
comparison to prior years, in which the Field Test revenues were primarily
recognized. The Company also continued to recognize revenues from Phase 2 of its
agreement with STN Atlas Elektronic GmbH ("STN") to develop a high power zinc
oxygen battery for torpedoes. Second quarter 1996 revenues were principally
derived from activities
10
<PAGE>
relating to the Field Test. Additionally, the Company completed recognition of
revenues from Phase 1 of its agreement with STN during this period.
Expenses:
Research and development expenses and cost of revenues for the second quarter of
1997 were $2.6 million compared with $3.6 million for the second quarter of
1996. The Company believes that, given the Company's stage of development, it is
not, at this time, meaningful to distinguish between R&D expenses and cost of
revenues. The decrease in expenses of $1.0 million from the second quarter of
1996 is principally attributable to a reduction of expenses in connection with
the Deutsche Post Field Test, particularly the costs of the construction of the
regeneration plant in Bremen and production costs related to the supply of
batteries for the Field Test. With regard to the Company's R&D program, the
Company's 1997 grant application has been approved by the Research Committee of
the Office of the Chief Scientist of the Ministry of Industry and Trade. The
total grant approved for 1997 amounts to approximately $1.6 million. During the
second quarter of 1997, $600,000 of royalty-bearing grants were recognized,
which reduced R&D expenses during this period. During the second quarter of
1996, no royalty bearing grants were recognized, as the 1996 application was not
approved until the third quarter of 1996. Expenses related to the Field Test are
expected to continue through most of 1997 as the Company continues to operate
the Bremen regeneration plant, and service the Field Test vehicles. To date,
Field Test expenses have exceeded, and are expected to continue to exceed any
expected revenues related thereto. In addition, R&D expenses are expected to
rise in the second half of the year as the Company expands its engineering
efforts for electric vehicle development, and uses its resources to research and
develop batteries for portable electronic devices.
The provision for anticipated program losses previously recorded by the Company
reflects the program losses currently estimated by management and accordingly no
increase to the provision was recorded in the second quarter of 1997. In the
future, however, the provision may be increased to reflect any revised estimates
of project costs or any costs related to terminating the program if no
definitive agreement is reached between the Company and the Deutsche Post (see
discussion in "Liquidity and Capital Resources" below). The balance of the
provision for the uncompleted portions of the program amounts to $2.2 million as
at June 30, 1997. The overall provision includes cost estimates based on the
Company's production experience to date for the supply of batteries and battery-
vehicle interface equipment, the estimated service expenses for the Field Test
fleet and costs related to the 100 kg/hour regeneration plant in Bremen, Germany
which is supporting the Field Test vehicles in service at June, 1997. To date,
the costs of the Field Test incurred by the Company have exceeded the related
program budgeted amounts by more than 20%, and during 1996, the Company,
pursuant to the terms of the Field Test Partners Agreement, entered into
discussions to obtain additional funding from the Deutsche Post. To date, the
Company has not obtained any such funding. Accordingly, the Company anticipates
that only a limited number of vehicles will continue to be tested through the
third quarter of 1997. In the fourth quarter of 1996, the Deutsche Post
requested that the Company refund the sum of approximately DM 1.8 million
(approximately $1.1
11
<PAGE>
million) representing milestone payments on account of Opel batteries, which are
the subject of a dispute between the Deutsche Post and the Company. The advances
were made in accordance with mutually agreed contractual milestones, previously
acknowledged by the Deutsche Post as having been achieved, and therefore the
Company does not believe that it is required to refund any of the payments.
However, until the resolution of this issue, the Company has eliminated the
payments from its budgeted Field Test revenues, in addition to other anticipated
revenues related to the supply of the Opel batteries.
Selling, general and administrative expenses for the second quarter of 1997
were $1.1 million vs. $0.9 million in the second quarter of 1996. This increase
was primarily attributable to increased salaries, fees and allocated overhead
expenses with respect to the expanded geographic scope of the Company's
activities including the United States, Scandinavia, and the Far East. The
Company expects further increases in selling, general and administrative
expenses, particularly with respect to marketing expenses, as the Company
continues to focus efforts in these new areas.
Six months ended June 30, 1997 compared to six months ended June 30, 1996.
Revenues:
Revenues for the first half of 1997 amounted to $2.8 million vs. $2.5 million in
the comparable period in 1996, an increase of $300,000. Revenues for the first
half of 1997, were principally derived from fees collected in relation to a
preliminary license agreement completed with Vattenfall under which Vattenfall
exercised its right for a license to establish and operate the Electric Fuel
infrastructure for the territory of Sweden, Denmark, Norway, Finland and St.
Petersburg, Russia. Additional revenues related to Vattenfall will be recognized
only after a definitive license agreement, presently being negotiated, has been
signed. Additionally, the Company continued to recognize revenues relating to
its activities in the Deutsche Post Field Test program. The balance of the
revenues in connection with the Field Test is expected to be recognized during
1997. Revenues from the Field Test are expected to decrease in 1997, in
comparison to prior years, in which the Field Test revenues were primarily
recognized. The Company also continued to recognize revenues from Phase 2 of its
agreement with STN to develop a high power zinc oxygen battery for torpedoes.
Revenues for the first half of 1996 were principally derived from activities
relating to the Deutsche Post Field Test program. Additionally, the Company
completed recognition of revenues related to phase 1 of its development program
with STN to develop a high power zinc oxygen battery for torpedoes.
Expenses
Research and development expenses and cost of revenues were $5.3 million in the
first half of 1997 vs. $7.4 million in the comparable period in 1996. The
Company believes that, given the Company's stage of development, it is not, at
this time, meaningful to distinguish between R&D expenses and cost of revenues.
The decrease in expenses of $2.1 million from the first half of 1996 was
principally attributable to a
12
<PAGE>
reduction of expenses in connection with the Deutsche Post Field Test,
particularly the costs of the construction of the regeneration plant in Bremen
and production costs related to the supply of batteries for the Field Test. With
regard to the Company's R&D program, the Company's 1997 grant application has
been approved by the Research Committee of the Office of the Chief Scientist of
the Ministry of Industry and Trade. The total grant approved for 1997 amounts to
approximately $1.6 million. During the first half of 1997, $600,000 of royalty-
bearing grants were recognized, which reduced R&D expenses during this period.
During the first half of 1996, no royalty bearing grants were recognized, as the
1996 application was not approved until the third quarter of 1996. Expenses
related to the Field Test are expected to continue through most of 1997 as the
Company continues to operate the Bremen regeneration plant, and service the
Field Test vehicles. To date, Field Test expenses have exceeded, and are
expected to continue to exceed any expected revenues related thereto. In
addition, R&D expenses are expected to rise in the second half of the year as
the Company expands its engineering efforts for electric vehicle development,
and uses its resources to research and develop batteries for portable electronic
devices.
The provision for anticipated program losses previously recorded by the Company
reflects the program losses currently estimated by management and accordingly no
increase to the provision was recorded in the first half of 1997. In the future,
however, the provision may be increased to reflect any revised estimates of
project costs, or any costs related to terminating the program if no definitive
agreement is reached between the Company and the Deutsche Post (see discussion
in "Liquidity and Capital Resources" below). The balance of the provision for
the uncompleted portions of the program amounts to $2.2 million as at June 30,
1997. The overall provision includes cost estimates based on the Company's
production experience to date for the supply of batteries and battery-vehicle
interface equipment, the estimated service expenses for the Field Test fleet and
costs related to the 100 kg/hour regeneration plant in Bremen, Germany which is
supporting the Field Test vehicles in service at June, 1997. To date, the costs
of the Field Test incurred by the Company have exceeded the related program
budgeted amounts by more than 20%, and during 1996, the Company, pursuant to the
terms of the Field Test Partners Agreement, entered into discussions to obtain
additional funding from the Deutsche Post. To date, the Company has not obtained
any such funding. Accordingly, the Company anticipates that only a limited
number of vehicles will continue to be tested through the third quarter of 1997.
In the fourth quarter of 1996, the Deutsche Post requested that the Company
refund the sum of approximately DM 1.8 million (approximately $1.1 million)
representing milestone payments on account of Opel batteries, which are the
subject of a dispute between the Deutsche Post and the Company. The advances
were made in accordance with mutually agreed contractual milestones, previously
acknowledged by the Deutsche Post as having been achieved, and therefore the
Company does not believe that it is required to refund any of the payments.
However, until the resolution of this issue, the Company has eliminated the
payments from its budgeted Field Test revenues, in addition to other anticipated
revenues related to the supply of the Opel batteries.
Selling, general and administrative expenses rose in the first half of 1997 to
$2.1 million vs. $1.5 million in the comparable period in 1996. This increase
was primarily attributable to increased salaries, fees and allocated overhead
expenses with respect to
13
<PAGE>
the expanded geographic scope of the Company's activities including the United
States, Scandinavia, and the Far East, as well as increased severance accruals,
incurred during the first quarter of 1997, resulting from annual cost of living
increases to certain named executive officers. The Company expects further
increases in selling, general and administrative expenses, particularly with
respect to marketing expenses, as the Company continues to focus efforts in
these new geographic areas.
Liquidity and Capital Resources
During the second quarter, the Company and Deutsche Post executed a letter of
intent agreeing to enter into negotiations on the establishment of a joint
venture entity that would provide the necessary financial and technological
resources in order to continue to develop and successfully commercialize the
Electric Fuel System in certain European regions. Pursuant to the Letter of
Intent, the parties have agreed to negotiate a definitive agreement by September
30, 1997. The Letter of Intent does not resolve the funding problems associated
with the Field Test, which would only be resolved during the course of, or
subsequent to, the negotiations on the joint venture. In addition, the Company
expects to resolve the dispute with respect to the Opel refund as part of these
negotiations. It is anticipated that following a definitive agreement, the Field
Test program would be modified and that the joint venture entity would succeed
to certain rights and obligations of the Company with respect to the Field Test.
There can be no assurance that a definitive agreement will be reached. In the
event a definitive agreement is not reached by September 30, 1997, the Letter of
Intent will automatically terminate (unless extended by the parties). Both the
Deutsche Post and the Company have indicated that they may decide not to
continue the Field Test after this date if no definitive agreement is reached.
Total consideration to the Company, under its current contractual arrangements,
for the batteries, equipment and services to be supplied in connection with the
Field Test (including DM 1.0 million from Vattenfall) is expected to be DM 22.0
million (approximately $14.5 million), less a contribution to the costs of the
Field Test by the Company of DM 7.0 million (approximately $4.6 million),
leaving a net balance of approximately DM 15.0 million (approximately $9.9
million). However, in connection with the Company's discussions with the
Deutsche Post with respect to the Opel batteries , the Company has reduced
anticipated revenues related to the supply of batteries from its budgeted Field
Test revenues, resulting in a reduction of anticipated net project revenues to
DM 12.2 million (approximately $8.3 million) The Company has recognized to date
approximately 85% of the Field Test revenues. The remaining revenues and
expenses related to the Field Test are expected to be recognized during 1997.
The Company expects that, in connection with its ongoing efforts in the
engineering and commercialization of the Electric Fuel System, the Company's
research and development, operational and selling, general and administrative
expenses will continue to increase.
As of June 30, 1997, the Company had cash, cash equivalents and financial
investments of approximately $20.7 million compared with $24.0 million as of
December 31, 1996.
14
<PAGE>
The Company used available funds in the first half of 1997 primarily for
continued research and development expenditures, the advancement of its
commitments with regard to the Field Test, and other working capital needs. The
Company increased its investment in fixed assets by $300,000 to $ 9.0 million
during the six months ended June 30, 1997. Fixed assets include $3.2 million
related to the value of the Bremen facility after its use in the Field Test,
based on construction costs to date. The Company currently anticipates that the
total residual value of the Bremen facility will be approximately $3.3 million.
The Company presently has a line of credit with the First International Bank of
Israel Ltd. ("FIBI") (the "Credit Facility"). Borrowings under the Credit
Facility bear interest at FIBI's prime rate + 2% per annum, are unconditionally
guaranteed by Electric Fuel Corporation ("EFC") and are secured by a pledge of
foreign currency deposits in the amount of NIS 750,000 (approximately $209,000).
Additionally the Credit Facility imposes financial and other covenants on EFC
and EFL and presently expires on January 31, 1998, at which time the Credit
Facility will be reviewed for renewal by FIBI. The Credit Facility provides EFL
with a line of credit in the maximum principal amount of NIS 3.8 million
(approximately $1.1 million), which is expected to be used as credit support for
various obligations of the Company, and enables EFL to enter into up to U.S.
$4.0 million in currency hedging forward contracts with a 5% collateral
requirement. As of June 30, 1997 the bank had issued letters of credit and bank
guarantees totaling approximately $155,000. At the present time, the Company is
not engaged in any hedging activities.
The Company has no long term debt outstanding and expects that its cash flow
from operations, together with present cash reserves and amounts available under
the Credit Facility, will be sufficient to fund the Company's projected
activities through the third quarter of 1998. While the Company is negotiating
expanding the relationship with Deutsche Post for continued development and
commercialization of the Electric Fuel System, as well as for additional funding
to support the Field Test, there can be no assurance that the Company will be
successful in its negotiations or be able to obtain any such funding. Moreover,
if the Field Test or the joint venture discussions are successful and Deutsche
Post, or any other participant in the Field Test, begins to convert all or a
portion of their fleets, to the Electric Fuel System, the Company could be
required to produce batteries in increased quantities as well as to construct
new regeneration and refueling facilities or expand its existing facility to
commercial capacity. Additional strategic alliances may also require the
establishment or expansion of facilities in Israel or elsewhere. In addition,
the Company may determine that it should invest in certain programs, such as
additional electric vehicle demonstration programs, which it believes will
advance the development and commercialization of the Electric Fuel System. The
Company is also using its resources to research and develop other applications
exploiting its proprietary technology including batteries for portable
electronic devices. Accordingly, the Company may be required to seek additional
funding or pursue other options, such as joint ventures with Field Test partners
or others, during this period. The Company continues to consider financing
alternatives when presented and, if financing becomes available on satisfactory
terms, including price, the Company may obtain additional funding, including
through the issuance of equity securities.
15
<PAGE>
ELECTRIC FUEL CORPORATION
Part II
Item 6
b. No reports on Form 8-K were filed during the second quarter of 1997.
Page 16
<PAGE>
ELECTRIC FUEL CORPORATION
================================================================================
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 1, 1997
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,639,828
<SECURITIES> 5,021,899
<RECEIVABLES> 359,508
<ALLOWANCES> 0
<INVENTORY> 714,555
<CURRENT-ASSETS> 23,543,740
<PP&E> 9,045,357
<DEPRECIATION> 1,908,858
<TOTAL-ASSETS> 30,734,421
<CURRENT-LIABILITIES> 4,990,254
<BONDS> 0
0
0
<COMMON> 141,937
<OTHER-SE> 24,157,338
<TOTAL-LIABILITY-AND-EQUITY> 30,734,421
<SALES> 0
<TOTAL-REVENUES> 2,831,556
<CGS> 0
<TOTAL-COSTS> 4,746,027<F1>
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (392,299)
<INCOME-PRETAX> (3,573,206)
<INCOME-TAX> 15,000
<INCOME-CONTINUING> (3,588,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,588,206)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
<FN>
<F1>TOTAL COSTS INCLUDES RESEARCH AND DEVELOPMENT EXPENSES AND COST OF REVENUES.
BECAUSE OF THE NATURE OF THE COMPANY'S OPERATIONS, MANAGEMENT IS OF THE OPINION
THAT IT IS NOT MEANINGFUL TO SEGREGATE THESE COSTS.
</FN>
</TABLE>