<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: September 30, 1998
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 November 11, 1998 was 14,303,387.
<PAGE>
ELECTRIC FUEL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1 - INTERIM FINANCIAL STATEMENTS (UNAUDITED):
-------------------------------------------------
Consolidated Balance Sheets at September 30, 1998 and
December 31, 1997 3-4
Consolidated Statements of Operations for the Nine Months and
Three Months ended September 30, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended September 30, 1998 6
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1998 and 1997 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:
Item 5 - Other Information 15
Item 6 - Reports on Form 8-K 15
</TABLE>
Page 2
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------------- ---------------------
ASSETS (Audited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,771,816 $ 3,862,691
Marketable debt securities and other short term investments 3,101,846 6,991,401
Accounts receivable:
Trade 801,927 757,450
Other 1,711,037 929,984
Inventories 538,682 515,026
------------------- ---------------------
TOTAL CURRENT ASSETS 17,925,308 13,056,552
------------------- ---------------------
MARKETABLE DEBT SECURITIES 1,843,326 0
------------------- ---------------------
FIXED ASSETS:
Cost 7,058,716 7,122,245
Less - accumulated depreciation and amortization 2,304,327 2,757,839
------------------- ---------------------
4,754,389 4,364,406
------------------- ---------------------
OTHER ASSETS, net of accumulated amortization 49,182 41,675
------------------- ---------------------
$24,572,205 $17,462,633
=================== =====================
- ---------------------------------------------------------------------------------------------------------------------
</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, September 30,
1997 1998
------------------- -------------------
(Audited) (Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals:
Trade $ 1,169,371 $ 686,131
Other 1,786,163 1,488,580
Advances from Customers 1,014,948 211,049
------------------ -------------------
TOTAL CURRENT LIABILITIES 3,970,482 2,385,760
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
net of amount funded 1,842,749 1,842,391
------------------ -------------------
TOTAL LIABILITIES 5,813,231 4,228,151
------------------ -------------------
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value; authorized -- 28,000,000 shares; issued and
outstanding - 14,218,161 shares as of December 31, 1997 and 14,303,387 shares
as of September 30, 1998: 142,182 143,034
Preferred stock - $0.01 par value; authorized - 1,000,000 shares, no shares
outstanding
Additional paid-in capital 57,077,708 57,261,470
Accumulated deficit (36,020,457) (41,774,540)
Unrealized gain on available-for-sale securities 436 230
Treasury stock, at cost (common stock - 255,333 shares as of September 30, 1998) (1,806,481)
Notes receivable from stockholders (2,440,895) (589,231)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 18,758,974 13,234,482
------------------- -------------------
=================== ===================
$24,572,205 $17,462,633
=================== ===================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELECTRIC FUEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ------------------------------------
1997 1998 1997 1998
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REVENUES $3,931,087 $3,529,328 $1,099,531 $677,816
--------------- ---------------- ----------------- ----------------
RESEARCH AND DEVELOPMENT
EXPENSES AND COST OF REVENUES
Expenses incurred 8,361,287 7,153,612 3,014,360 1,894,944
Less - royalty-bearing grants 1,838,867 1,238,867
--------------- ---------------- ----------------- ----------------
6,522,420 7,153,612 1,775,493 1,894,944
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,985,555 2,476,615 935,421 906,137
--------------- ---------------- ----------------- ----------------
9,507,975 9,630,227 2,710,914 2,801,081
--------------- ---------------- ----------------- ----------------
OPERATING LOSS (5,576,888) (6,100,899) (1,611,383) (2,123,265)
FINANCIAL INCOME - NET 591,894 379,269 199,595 106,061
--------------- ---------------- ----------------- ----------------
LOSS BEFORE TAXES ON INCOME (4,984,994) (5,721,630) (1,411,788) (2,017,204)
TAXES ON INCOME 120,833 32,453 105,833 5,422
--------------- ---------------- ----------------- ----------------
LOSS FOR THE PERIOD (5,105,827) (5,754,083) (1,517,621) (2,022,626)
=============== ================ ================= ================
LOSS PER SHARE $ (0.41) ($0.45) $ (0.12) $ (0.16)
=============== ================ ================= ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,494,263 12,733,250 12,522,508 12,907,241
=============== ================ ================= ================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock
-----------------------------
Additional paid-in
Shares Amount capital Accumulated deficit
-------------- -------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 14,218,161 $142,182 $57,077,708 $(36,020,457)
CHANGES DURING THE NINE
MONTH PERIOD ENDED
SEPTEMBER 30, 1998:
Shares issued in connection with the
exercise of option 81,226 $812 $90,094
Shares issued as compensation for
services rendered by directors 4,000 $40 $10,710
Purchase of treasury stock (255,333
shares)
Accrued interest on notes receivable
from stockholders $82,958
Payments of interest and principal on
notes receivable from stockholders
Loans granted to stockholders
Unrealized loss on available-for-sale
securities
Loss $(5,754,083)
-------------- -------------- ------------------------ ------------------------
BALANCE AT
SEPTEMBER 30, 1998 14,303,387 $143,034 $57,261,470 $(41,774,540)
============== ============== ======================== ========================
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain
on
available-for-sale Notes receivable
securities Treasury stock from shareholders Total
-------------------- --------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $436 $(2,440,895) $18,758,974
CHANGES DURING THE NINE
MONTH PERIOD ENDED
SEPTEMBER 30, 1998:
Shares issued in connection with the
exercise of option $90,906
Shares issued as compensation for
services rendered by directors $10,750
Purchase of treasury stock (255,333
shares) (1,806,481) $1,806,481 $0
Accrued interest on notes receivable
from stockholders $(82,958) $0
Payments of interest and principal on
notes receivable from stockholders $147,299 $147,299
Loans granted to stockholders $(19,158) $(19,158)
Unrealized loss on available-for-sale
securities $(206) $(206)
Loss $(5,754,083)
-------------------- --------------- ----------------------- -----------------
BALANCE AT
SEPTEMBER 30, 1998 $230 $(1,806,481) $(589,231) $13,234,482
==================== =============== ======================= =================
- ------------------------------------------------------------------------------------------------------------------------
</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>
Nine months ended September 30,
------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (5,105,827) $ (5,754,083)
Adjustments required to reconcile loss to net cash used in operating activities:
Depreciation and amortization 698,559 656,353
Amortization of net premium (discount) on marketable debt securities (15,029) 17,137
Liability for employee rights upon retirement - net 314,227 (358)
Shares issued as compensation for services rendered by directors 10,750
Loss (gain) from marketable debt securities, net 260
Capital loss from disposal of fixed assets 4,535
Writedown of fixed assets 442,154
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable (945,696) 825,530
Decrease in inventories 239,487 23,656
(Decrease) in accounts payable and accruals (205,920) (780,823)
Increase (decrease) in advances from customers 178,008 (803,899)
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES $ (4,842,191) $ (5,358,788)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (402,267) (794,211)
Loans granted to stockholders (19,158)
Proceeds from disposal of fixed assets 88,659
Sale or redemption of (purchase of) marketable debt securities and
other short term investments- net 5,033,414 (2,063,832)
----------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $4,631,147 $(2,788,542)
----------------- -----------------
----------------- -----------------
FORWARD $(211,044) $(8,147,330)
----------------- -----------------
</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>
- -----------------------------------------------------------------------------------------------
Nine months ended
September 30,
-----------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
FORWARD $(211,044) $(8,147,330)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note receivable from Stockholders $14,096 $147,299
Proceeds from exercise of warants and options 34,381 90,906
---------------- ----------------
Net cash provided by financing activities 48,477 238,205
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (162,567) (7,909,125)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 12,662,776 11,771,816
================ ================
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,500,209 $ 3,862,691
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - CASH PAID DURING THE PERIOD FOR:
Interest $ 136 $ 736
================ ================
Advances to income tax authorities $ 55,790 $ 56,659
================ ================
- -----------------------------------------------------------------------------------------------
</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, 1997.
2. EFFECTS OF RECENT PRONOUNCEMENTS
a) In February 1997, the FASB issued Statement No. 128, "Earnings per
share" ("Statement 128"), which is effective as from 1997. All earning
per share amounts for all periods have been presented and where
appropriate restated to conform to the Statement 128 requirements.
Consequently, the loss per share for the quarter ended September 30,
1997 increased from $0.11, as previously reported, to $0.12 as
reported in these financial statements, and the loss per share for the
nine months ended September 30, 1998 increased from $0.37, as
previously reported, to $0.41 as reported in these financial
statements.
b) In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income" (Statement 130), which is effective for fiscal
years beginning after December 15, 1997. Except for unrealized gains
on available-for-sale securities in immaterial amounts, the provisions
of Statement 130 require no additional reporting by the Company.
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 to the Company's Annual
Report for the year ended December 31, 1997 on Form 10-K and incorporated herein
by reference . Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
GENERAL
From its inception, the Company has been engaged principally in the research,
design, development and commercialization of an innovative, advanced zinc-air
battery for powering zero emission electric vehicles. In part, because the
market for electric vehicles had not demonstrated previously anticipated levels
of growth, the Company began a strategic shift to actively expand its activities
into additional applications in zinc-air battery technology. In January 1998,
the Company announced the creation of three market-related divisions to expand
its business activities into wider applications. The three divisions are
Electric Vehicle, Consumer Batteries, and Defense and Safety Products.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUES:
Revenues for the third quarter of 1998 totaled $678,000 compared with $1.1
million in the comparable period in 1997, a decrease of $422,000. Since the
Deutsche Post AG ("Deutsche Post") Field Test concluded in the second quarter of
1998, no revenues from that program were recognized in the third quarter. This
was the primary
page 10
<PAGE>
reason for the reduction of revenues as compared to the third quarter of 1997.
The Company recently signed an agreement with the United States Department of
Transportation ("DOT") as part of a consortium that will 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. Consequently, revenues for the third quarter were principally
derived from activities related to the DOT program. 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. Additionally, the
Company recognized revenues from the sale of Survivor Locator Lights and
continued recognizing revenues in connection with various defense R&D contracts.
Revenues for the third quarter of 1997, were principally derived from activities
related to the Deutsche Post Field Test, as well as from the supply of batteries
from a more recent order of the Deutsche Post. Additionally, the Company
recognized revenues from the supply of batteries and equipment to Edison
Termoelettrica, Spa (Edison).
EXPENSES:
Research and development expenses and cost of revenues for the third quarter of
1998 were $1.9 million compared with $3.0 million for the third quarter of 1997,
a decrease of $1.1 million. 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. In addition to the reduction in the overall
expenses, the internal division of expenses also changed between the periods.
This was principally attributable to a reduction of expenses related to Electric
Vehicle battery development, and most particularly expenses related to the
Deutsche Post Field Test, which came to its conclusion during the second quarter
of 1998. This overall reduction was partially offset by increases in the costs
associated with Consumer Battery development, and production of increased
quantities of Survivor Locator Lights in the Defense and Safety Division. With
regard to the Company's R&D program, since the Company's 1998 grant applications
have not yet been approved by the Research Committee of the Office of the Chief
Scientist of the Ministry of Industry and Trade, no royalty bearing grants were
recognized in the third quarter of 1998. The Company believes that its R&D
program will be approved for funding during the fourth quarter. However, the
Company anticipates a reduced grant as compared to prior years. During the
third quarter of 1997, the Company recorded $1.2 million of royalty bearing
grants from the Chief Scientist's Office, including an increase of $582,000 in
grants in connection with the Company's 1996 research and development program.
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 noted above complements the BIRD
program. Accordingly, the Company expects that, for the balance of 1998 and
through late 1999, expenditures in connection with the Electric Vehicle battery,
will increase as compared to the first nine months of 1998. R&D expenses and
cost of operations related to Consumer
page 11
<PAGE>
Battery and Defense and Safety applications are also expected to continue to
increase for the balance of 1998, as the Company intensifies its efforts in
these new areas.
Selling, general and administrative expenses for the third quarter of 1998 were
$906,000 vs. $935,000 in the third quarter of 1997. 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.
RESULTS OF OPERATIONS:
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997.
REVENUES:
Revenues for the first nine months of 1998 were $3.5 million vs. $3.9 million in
the comparable period in 1997. During 1998, the 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 first nine
months of 1998 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 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. The company recently signed an agreement with
the DOT as part of a consortium that will 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. Accordingly, the Company began recognizing revenues in connection with
this program. 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. Additionally, the Company began recognizing revenues in
connection with various defense R&D contracts.
Revenues for the first nine months of 1997 were principally derived from fees
collected in relation to a preliminary license agreement completed with
Vattenfall AB. Additionally, the Company continued to recognize revenues
relating to its activities in the Deutsche Post Field Test program. The Company
completed recognition of revenues from Phase 2 of its agreement with STN Atlas
Elektronic GmbH (STN) to develop a high power zinc oxygen battery for torpedoes.
In addition, the Company recognized revenues from the supply of batteries and
equipment to Edison.
page 12
<PAGE>
EXPENSES
Research and development expenses and cost of revenues were $7.2 million in the
first nine months of 1998 vs. $8.4 million in the comparable period in 1997, a
decrease of $1.2 million. 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. In addition to the reduction in the overall
expenses, the internal division of expenses also changed between the periods.
This was principally attributable to a reduction of expenses related to Electric
Vehicle battery development, and most particularly expenses related to the
Deutsche Post Field Test, which came to its conclusion during the second quarter
of 1998. This overall reduction was partially offset by increases in the costs
associated with Consumer Battery development, and production of increased
quantities of Survivor Locator Lights in the Defense and Safety Division.
Expenses also 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. With regard to the Company's R&D program,
since the Company's 1998 grant applications have not yet been approved by the
Research Committee of the Office of the Chief Scientist of the Ministry of
Industry and Trade, no royalty bearing grants were recognized in the third
quarter of 1998. The Company believes that its R&D program will be approved for
funding during the fourth quarter. However, the Company anticipates a reduced
grant as compared to prior years. During the first nine months of 1997, the
Company recognized $1.8 million of royalty bearing grants from the Chief
Scientist's Office, including an increase of $582,000 in grants in connection
with the Company's 1996 research and development program. 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 noted above complements the BIRD program.
Accordingly, the Company expects that, for the balance of 1998 and through late
1999, expenditures in connection with the Electric Vehicle battery, will
increase as compared to the first nine months of 1998. R&D expenses and cost of
operations related to Consumer Battery and Defense and Safety applications are
also expected to continue to increase for the balance of 1998, as the Company
intensifies its efforts in these new areas.
Selling, general and administrative expenses decreased in the first nine months
of 1998 to $2.5 million vs. $2.9 million in the comparable period in 1997. This
decrease was primarily attributable to reduced salaries and professional fees
during the first nine months of 1998. 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.
page 13
<PAGE>
IMPACT OF YEAR 2000
The Company has instituted a program to analyze all computer software and
hardware, as well as other operating equipment that are reliant on date related
functions, to ensure year 2000 compliance. It is expected that this program will
be completed prior to December 31, 1998. When this review is completed, the
Company will be in a position to take appropriate action to bring such hardware
or software to year 2000 compliance. Management is currently of the opinion that
year 2000 issues will not materially affect the Company's operations, and the
Company does not expect to incur material expenditures to resolve these issues.
Similarly, management believes, that the company is not exposed to material
risks as a result of vendors not being compliant with year 2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash, cash equivalents and financial
investments of approximately $10.9 million compared with $16.7 million as of
December 31, 1997.
The Company used available funds during the first nine months of 1998 primarily
for continued research and development expenditures, and other working capital
needs. The Company increased its net investment in fixed assets by approximately
$706,000 during the nine months ended September 30, 1998. However, fixed assets
were adjusted downward to reflect a write off of certain production equipment
related to the earlier generation Field Test version of the Electric Vehicle
Battery. As a result, the balance of fixed assets as at September 30, 1998 was
$7.1 million.
Under an existing line of credit with the First International Bank of Israel
Ltd., the Company had outstanding issued letters of credit and bank guarantees
totaling approximately $488,000 as of September 30, 1998.
The Company has no long term debt outstanding and expects that its cash flow
from operations, together with present cash reserves and amounts available under
the Credit Facility, will be sufficient to fund the Company's projected
activities into the third quarter of 1999. The Company is largely using its
resources to continue development of other applications exploiting zinc air
technology, primarily batteries for consumer electronic devices, as well as to
participate in the BIRD & DOT programs. Accordingly, the Company is seeking
additional funding, including through the issuance of equity securities, and is
pursuing other options, such as joint ventures or other strategic relationships.
There can be, however, no assurance that the Company will obtain any such
additional funding. As a result, the Company might have to modify, reduce, defer
or eliminate certain of its anticipated future commitments and/or programs, in
order to continue operations.
page 14
<PAGE>
ELECTRIC FUEL CORPORATION
PART II
ITEM 5
On July 5, 1998 the Company repurchased shares of the Company's common stock
from Robert Ehrlich, Yehuda Harats and Stewart Edelman. Mr. Edelman is an
officer of the Company, and each of Messrs. Ehrlich and Harats is a director and
officer of the Company. The Company purchased 80,000 shares from Mr. Ehrlich,
170,000 shares from Mr. Harats and 5,333 shares from Mr. Edelman. As payment for
these repurchases, the Company canceled the non-recourse notes executed by each
of Messrs. Ehrlich, Harats and Edelman in favor of the Company in 1996 as
payment for the purchase of the shares now being repurchased by the Company. The
repurchases were approved by the Company's Board of Directors on July 1, 1998.
ITEM 6.
No reports on Form 8-K were filed during the third quarter of 1998.
Page 15
<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: November 11, 1998
Page 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,862,691
<SECURITIES> 6,991,401
<RECEIVABLES> 1,687,434
<ALLOWANCES> 0
<INVENTORY> 515,026
<CURRENT-ASSETS> 13,056,552
<PP&E> 7,122,245
<DEPRECIATION> 2,757,839
<TOTAL-ASSETS> 17,462,633
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0
13,091,448
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</TABLE>
