<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: DECEMBER 31, 1999

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from___________to

                         Commission File Number 0-23336


                            ELECTRIC FUEL CORPORATION
             (Exact name of registrant as specified in its charter)

          DELAWARE                                         954302784
   (State or other jurisdiction                         (I.R.S. Employer
 of incorporation or organization)                     Identification No.)


120 WOOD AVENUE SOUTH, SUITE 300, ISELIN, NEW JERSEY         08830
      (Address of principal executive offices)             (Zip Code)


Registrant's telephone number, including area code: (732) 635-7100

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE

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[ ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant as of February 28, 2000 was approximately
$216,827,138 (based on the last sale price of such stock as reported by The
Nasdaq National Market).

As of February 28, 2000, 17,894,746 shares of registrant's Common Stock, $.01
par value per share (the "Common Stock"), were issued and outstanding.
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                                     PART I


ITEM 1.  BUSINESS

GENERAL

     Electric Fuel Corporation ("EFC", "Electric Fuel", or the "Company") is
engaged in the design, development and commercialization of its proprietary
zinc-air battery technology for portable consumer electronic devices such as
cellular telephones, laptop computers, PDA's and camcorders, as well as for
electric vehicles and defense applications.

     The Company's technology has grown out of a research and development
program conducted for nearly 10 years into the field of zinc-air
electrochemistry and battery design. During this period the Company has
successfully demonstrated its electric vehicle technology in on-the-road
programs in Germany, Sweden, Italy, Israel and the United States. The Company
has also successfully applied its technology to a line of disposable high-
capacity zinc-air battery power packs for cellular telephones.Through these
efforts, Electric Fuel has sought to position itself as a major world leader in
the application of zinc-air technology to innovative primary and refuelable
battery systems.

     While zinc-air technology has been in use for over a century in a great
variety of typically low-power devices (such as hearing aids), the Company has
developed technologies that provide its batteries with enhanced performance in
both power and energy at a low manufacturing cost. The Company's high-energy,
high-power zinc-air battery is composed of a zinc anode and an air (oxygen
reduction) cathode. It is different from most other battery technologies in that
one of the electrodes -- the air cathode -- is not consumed during discharge but
instead acts as a kind of electrochemical membrane that extracts oxygen from the
atmosphere and introduces it into the cell. During discharge, the oxygen is
electrochemically reduced to hydroxide ions at the cathode, and zinc at the
anode is consumed by conversion to zinc oxide. In electric vehicles, the
oxidized zinc is replaced with fresh zinc in a refueling process. In the
Company's batteries for consumer electronics devices, the entire pack is
constructed from low-cost, recyclable components and thus can be disposed of in
an environmentally safe manner.

     To fully utilize its zinc-air battery technology for a wide selection of
applications, the Company operates in three business areas: Consumer Batteries,
Electric Vehicles, and Defense and Safety Products.

     The Consumer Batteries Division develops disposable primary zinc-air
batteries as a substitute for lower performing and initially more expensive
rechargeable batteries and has introduced the Company's first commercial zinc-
air battery products. The first series of products consists of four models of
disposable cellphone batteries, suitable for certain models of cellphones
produced by Nokia, Motorola and Ericsson. The Company initiated the production
and limited distribution of these batteries in North and South America and in
Europe in the second half of 1999. With an automatic cell-production line
scheduled to begin operations in the second quarter of 2000, the Company expects
to produce, distribute and sell batteries for cellphones in increased
quantities. Other consumer and industrial applications based on the same zinc-
air cells are currently under development.

     The Electric Vehicle Division is continuing to focus on fleet applications
of the zinc-air battery system with its partners in Europe and the United
States. The division is implementing, in cooperation with General Electric, a
U.S. federally funded program for developing an all-electric battery-powered
transit bus in Nevada. As of early 2000, the division is also cooperating with a
consortium of industrial companies in Germany to advance the use of zinc-air
technology in fleet vehicles through a German government-funded demonstration
project.

     The Defense and Safety Products Division continues to expand the
development of other uses of the battery technology, including a portable zinc-
air battery pack for the U.S. Army. This division also oversees the Company's
water-activated safety light products for the commercial aviation and marine
markets and is pursuing further development of the safety products business.

          For financial information concerning the business segments in which
the Company operates, see Note 10 of the Notes to the Consolidated Financial
Statements. For financial information about geographic areas in which the
Company engages in business, see Note 10(c) of the Notes to the Consolidated
Financial Statements.

     The Company was incorporated in Delaware in 1990. Unless the context
requires otherwise, all references to the "Company" refer collectively to the
Company and its wholly-owned subsidiary incorporated under the laws of Israel,
Electric Fuel (E.F.L.) Limited ("EFL"), Electric Fuel GmbH, a German wholly-
owned subsidiary of EFL, and other subsidiaries of EFC and EFL.

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     In January 2000, the Company established a new headquarters office in New
Jersey, from which it will concentrate its cellphone battery sales and marketing
efforts for North America. EFC's new executive offices are located at 120 Wood
Avenue South, Suite 300, Iselin, New Jersey 08830, and its telephone number at
its executive offices is (732) 635-7100. The Company's website is www.electric-
fuel.com.

     The Company's research, development and production activities are primarily
carried out by EFL at its facility in Beit Shemesh, Israel. The Company also has
a small battery research and development facility in Auburn, Alabama, which
builds and tests prototype cells and batteries.

BUSINESS STRATEGY

     The Company believes that its long-term objectives will be met through a
strategy of commercializing a broad portfolio of products utilizing its zinc-air
technologies.

     This strategy consists of three elements:

[_]  Develop and produce disposable zinc-air batteries for mass-market consumer
     electronic devices such as wireless phones, camcorders, notebook computers
     and hand-held devices.

[_]  Develop and produce zinc-air battery solutions for portable energy
     applications in the consumer, industrial, medical and military sectors.

[_]  Develop and implement refuelable zinc-air battery solutions for electric
     vehicles in large fleets of buses, light trucks and specialty vehicles.

     The Company believes that there is a large market for high-capacity primary
batteries that are capable of powering high-drain electronic devices such as
digital wireless phones, and is seeking ways to commercialize its disposable
zinc-air battery technology for such devices. The Company intends to provide
reasonably priced products for this market, and to market these products through
distributors, wireless carriers, original equipment manufacturers (OEM's),
accessory dealers, specialty and general retailers, and internet resellers.

     The Company also intends to explore the possibility of establishing
strategic marketing and manufacturing partnerships. Potential strategic partners
for cellphone batteries may include cellphone manufacturers, battery producers
and assemblers, cellular accessory distributors, cellular phone service
providers and consumer goods distributors. The Company intends initially to
manufacture zinc-air cells and assemble batteries for use in consumer electronic
devices at its own facilities, although the Company may later outsource part of
this work as volume increases.

     The Electric Vehicle Division continues to focus on obtaining and
implementing co-funded demonstration projects in the U.S. and Europe, and on
building broad industry partnerships that can lead to eventual commercialization
of the zinc-air system. This approach supports the Company's long-term strategy
of achieving widespread implementation of the Electric Fuel zinc-air energy
system for electric vehicles in large commercial and mass transit vehicle
fleets. The Company intends to strengthen existing relationships and to develop
new networks of strategic alliances with fleet operators, companies engaged in
energy production and transportation, automobile manufacturers and others in
order to establish the infrastructure necessary for further development and
commercialization of the Electric Fuel Zinc-Air system.

     The Company bases its strategy in the defense business sector on the
development and commercialization of its next-generation zinc-air battery
technology, as applied in its ongoing work for the U.S. Army's Communications
Electronics Command (CECOM). The Company will continue to seek new applications
for its technology in defense projects, wherever synergistic technology and
business benefits may exist. We intend to continue to develop our battery
products for defense agencies, and plan to sell our products either directly to
such agencies or through prime contractors.

     The Safety Products Division, which produces lifejacket lights based on the
Company's water-activated magnesium-cuprous chloride battery technology, intends
to continue to work with OEM's, distributors and end-user companies to expand
its market share in the aviation and marine segments. In 1999, the Company
introduced two new products, one for use with marine life jackets and another
for use with aviation life vests. Both products were certified under the
applicable marine and aviation safety regulations.

                                       3
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CONSUMER BATTERIES DIVISION

     In the second half of 1999, the Consumer Batteries Division began initial
deliveries of disposable cellphone batteries in the first line of commercial
consumer products based on Electric Fuel's zinc-air battery technology. By the
end of 1999, four battery models were available for certain models of Nokia,
Ericsson and Motorola cellphones. The batteries are already in limited
distribution in North and South America and Europe.

     There are currently more than 400 million cellular telephones in use
worldwide, and industry experts expect that figure to grow to between 800
million and 1 billion by 2003. Moreover, the Company believes that two other
industry trends will have a strong positive impact on the market for Electric
Fuel's line of primary cellphone batteries:

[_]  The Company believes that the emergence and projected growth of so-called
     `convergence' products--those which combine wireless communications with
     computer functions such as data and fax transmission, and internet and
     e-mail connection--will lead to an increased demand for high-power
     batteries. The limited capacity of rechargeables will be underscored by the
     energy consumption of the new phones which incorporate high-drain elements
     such as color screens and video.

[_]  The amount of usage per user (usually measured in minutes of airtime) is
     increasing even faster than the number of users.

PRODUCTS

     Electric Fuel currently offers four models of disposable zinc-air battery
for cellphones, all built from the same Electric Fuel zinc-air cells, which are
connected in series in order to deliver the required voltage. All of them are
sold under the brand name "ZincAir". The four models and their general
characteristics are shown as follows:

[_]  Model No. EF-N6-33 for Nokia 7100, 6100 & 5100 series
     Capacity: 3300 mAh
     Operating Voltage: 3.6V
     9-18 hours talk time
     180-550 hours standby
     Weight: 80g

[_]  Model No. EF-E6-33 for Ericsson 600, 800 and 1000 series
     Capacity: 3300 mAh
     Operating Voltage: 4.8V
     8-16 hours talk time
     130-500 hours standby
     Weight: 97g

[_]  Model No. EF-M1-33 for Motorola MicroTAC series
     Capacity: 3300 mAh
     Operating Voltage: 6V
     9-23 hours talk time
     72-424 hours standby
     Weight: 118g

[_]  Model No. EF-M2-33 for Motorola StarTAC series (Auxiliary Battery)
     Capacity: 3300 mAh
     Operating Voltage: 3.6V
     6-16 hours talk time
     80-350 hours standby
     Weight: 79g

     While marketing and establishing automatic production facilities for these
products, the Company also intends to develop new products based on the same
zinc-air cell technology.

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ADVANTAGES OF ELECTRIC FUEL'S CONSUMER BATTERY PRODUCTS

Battery Performance - Increased talk and standby time

     Electric Fuel's ZincAir batteries deliver a unique combination of high-
energy density and high power density, which provides superior performance in
cellphones. Electric Fuel ZincAir batteries provide 3 to 5 times more talk and
standby time than comparable rechargeable batteries made for these products.

Convenience

     The Electric Fuel ZincAir battery offers two kinds of convenience for
cellphone users:

     First, the battery is fully charged and ready to use right out of the
package, and requires no initial charging, unlike new rechargeable batteries
which are sold (or provided with new phones) in an uncharged or partially
charged state.

     Second, the user is freed from the inconvenience of charging his cellphone
battery. On business and vacation trips, the user of the Zinc-Air battery
benefits both from not having to take along a charger and from not having to
remember to charge the phone every night.

     Thus, the ZincAir battery, with a two-year shelf life, offers cellphone
users the same convenience that disposable alkaline batteries provide for
portable CD players, pagers and many PDA's. A typical user should be able to use
a digital wireless telephone for up to several weeks with a single battery.

Safety & Environment

     Zinc-air is a proven, safe chemistry used extensively in hearing aids and
pagers, as well as other devices where a high-energy, lightweight battery is
desired. Electric Fuel batteries have been tested and found safe by
Underwriters' Laboratories. The Electric Fuel ZincAir battery contains no heavy
metals or hazardous compounds, and is designed to be environmentally benign and
fully recyclable.

     As a disposable battery, the Electric Fuel battery avoids the complications
and hazards associated with recharging such as overcharge and overdischarge.
Electric Fuel ZincAir batteries are designed to be fully recyclable in the same
manner as primary alkaline batteries. At present, there are no commercial
recycling facilities available either in the United States or in Europe for
primary alkaline or zinc-air batteries.

MARKET, MARKETING STRATEGIES AND SALES

Targeting key market segments

     Electric Fuel has identified key market segments that it believes will
purchase disposable cellphone batteries because of their high capacity and added
convenience, and has developed a marketing message for each segment:

[_]  BUSINESS TRAVELERS: "Frequent travelers and road warriors are happy to have
     one less charger to pack - and no special adapters for international
     electrical sockets. One zinc-air battery has enough capacity for almost any
     business trip, and is always ready right out of the pack."

[_]  OUTDOORS ENTHUSIASTS AND VACATIONERS: "Whether on weekend fishing trips or
     week-long camping trips far from the nearest electrical socket, there are
     not many charging opportunities in the great outdoors. With the Electric
     Fuel Zinc- Air battery, `out of town' need not mean `out of touch.'"

[_]  PROFESSIONALS IN THE FIELD: "Maintaining that vital link is crucial, and
     field professionals can't take the chance of being cut off because the
     phone's battery has run down. A ready-to-use, high-capacity disposable
     battery from Electric Fuel will prevent someone `out on the job' from being
     out of contact."

[_]  "JUST IN CASE": "For any cellphone user who has ever experienced the
     sinking feeling that goes with the words `battery low'. Keeping Electric
     Fuel's ready- to-use disposable battery on hand 'just in case' means never
     being caught without power again."

                                       5
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Multi-Channel Sales Implementation Program

     Implementation of the Company's marketing strategy for cellphone batteries
is being undertaken through the following channels, some of which were already
being implemented by the end of 1999, and some of which are expected to be
implemented in 2000:

     (1)  Sales through distributors of cellphone accessories. At the end of
          1999, Electric Fuel had signed distributorship agreements in the U.S.,
          UK and South Africa, and had filled initial orders from the
          distributors. These distributors include Wireless Solutions, Inc., a
          subsidiary of Tessco Technologies in the United States; Banner Telecom
          in the United Kingdom; and Vodac in South Africa. Electric Fuel is
          also selling through other, smaller distributors.

          Through participation in trade shows in the U.S. and Europe, the
          Company is pursuing additional opportunities to expand its growing
          network of distributors, while garnering more publicity and product
          recognition in the industry. Electric Fuel is working to expand its
          network of distributors in the U.S., Western and Eastern Europe, South
          America, Australia and Israel.

     (2)  Direct sales via the Internet. The Company has revamped its website in
          order to facilitate secure on-line ordering of batteries, and believes
          that e-commerce channels (including resellers' websites) will provide
          a convenient way for first-time and repeat customers to purchase
          batteries, although in the short term this is expected to generate a
          modest revenue stream.

     (3)  Retail sales at travel-oriented locations. The Company is working to
          promote retail sales at travel-oriented locations, such as airports
          and train stations, and later supermarkets, convenience stores and
          mass retailers. The Company's batteries are already available in
          airport shops in the UK and Holland. In January 2000, the Company sold
          batteries to distributors who plan to sell them at airport shops in
          Switzerland.

     (4)  Strategic alliances with cellular phone carriers. The Company's
          management sees cooperation with cellular service providers as an
          important step towards broadening the Electric Fuel cellphone battery
          market by appealing to mainstream cellular users. The Company has
          received an initial order for 25,000 batteries from Telefonica de
          Argentina, an Argentinean cellular phone carrier, which order was
          shipped in January 2000. Electric Fuel intends to seek similar
          relationships in additional countries.

     (5)  Strategic alliances with cellular telephone manufacturers. The Company
          seeks cooperation ranging from having advanced design information on
          new phone models to joint product development and marketing.

Promotional Activities

     The Company has developed "Point of Sales" materials and in-store posters
to support its retail effort. It is participating in co-op advertising with its
distributors, running special offers (buy 2 get 3) and Internet promotions.

New U.S. Office

     Electric Fuel in January 2000 opened its U.S. sales headquarters office in
New Jersey, and announced the hiring of a vice president for North American
marketing and sales, who will head the New Jersey office. The Company plans to
open sales offices Europe as well, and will work with more sales
representatives. The Company plans to advertise in trade, travel and consumer
channels, and conduct Public Relations to promote the products.

Trade Shows

     Electric Fuel plans to participate in major Trade Shows scheduled for the
year 2000 in the U.S. and Europe. The Company participated in the Consumer
Electronics Show in Las Vegas in January 2000, and exhibited its products at
both the CTIA Wireless 2000 show (New Orleans) and CeBIT (Hannover, Germany) in
February 2000.

Price

     The Company believes that the Electric Fuel Zinc-Air batteries, when
produced in commercial quantities, could eventually retail between $6.95 - $9.95
depending on the cell phone model and capacity of the battery. At the end of
1999, the manufacturer's suggested retail price, at the small initial production
levels, was $16.95.

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PRODUCTION

     The company's production facilities are located at Electric Fuel Limited's
facilities in Beit Shemesh outside of Jerusalem, Israel. The Company is
currently producing both the Zinc-Air cells and the battery packs. Since May
1999 the Company has been using custom-designed manual and semi-automatic
equipment and tooling to produce up to 2,000 batteries per day. An automated
production line capable of producing up to 500,000 batteries per month is due to
begin production in the second quarter of 2000. The automatic line was built in
the U.S. and shipped to Israel in January 2000.

COMPETITION

     The market for cellphone batteries has been almost entirely dominated by
rechargeable battery packs incorporating nickel-cadmium, nickel-metal hydride
and lithium-ion cells. Typically these batteries are provided in standard
configuration of 800 to 1200 mAh with new handsets, and rechargeable batteries
of up to 3000 mAh or more are now available as aftermarket accessories.
Rechargeable batteries are produced and/or packaged by the leading cellphone
handset manufacturers, such as Nokia Corporation and Motorola, Inc., as well as
by numerous aftermarket producers that sell private-label or off-brand models.

     Rechargeable batteries provide lower life-cycle costs than primary
batteries when measured in terms of cost per total lifetime usage. Further,
rechargeable batteries relieve the user of the need to continually purchase
primary batteries. However, the per-cycle usage time of rechargeable batteries
is generally limited, particularly in the case of standard configuration
batteries in the range of 800 mAh to 1200 mAh. Use of rechargeable batteries
also requires the user to have available a charger and transformer unit; a power
socket(generally one with alternating current (AC) electricity if for indoor
use, or with direct current (DC) if for outdoor or in-vehicle use); and
sufficient time to charge the battery after it is depleted.

     The Company's market penetration strategy is to deliver a primary battery
that offers the convenience of a longer use time and that does not require
charging.

     Until now, rechargeable battery technology for cellphones has evolved in
steps: The first transition, starting in the early to mid-1990s, was from
nickel-cadmium packs to nickel-metal hydride (NiMH) packs, which offered
moderate gains in energy density while eliminating the so-called `memory effect'
which prevented nickel-cadmium batteries from being fully recharged if they were
not first fully discharged. NiMH batteries typically offer practical energy
densities of up to 70 watt-hours per kilogram (Wh/kg). The second transition has
been to lithium-ion (Li-ion), which has offered moderate gains in energy density
but at a higher cost than nickel-metal hydride. NiMH hydride batteries are still
commonly sold alongside Li-ion packs. Li-ion packs typically offer practical
energy densities in the range of 70-100 Wh/kg. A third transition, which
industry experts anticipate will be underway shortly, is expected from lithium-
ion to lithium-ion polymer. The latter promises further gains in energy density
as well as greater flexibility in packaging. Figures promised by lithium-ion
polymer battery manufacturers such as Valence Technologies range from 120 to 135
Wh/kg at the cell level. In comparison, the Company's current commercial
products offer 150 to 167 Wh/kg at the pack level and about 240 Wh/kg at the
cell level. Electrofuel, Inc., a development company, claims to have a lithium-
ion polymer battery pack suitable for notebook computers that delivers 190
Wh/kg.

     Other Primary Batteries

     A huge array of consumer products are designed for and use primary alkaline
batteries. These include toys, flashlights, and small electronic products such
as portable radios and compact disc players. Some information and communication
accessories also fit into this category, such as pagers and many personal
digital assistants (PDA's). Even though rechargeable batteries (such as, for
example, "AA"-size nickel-metal hydride batteries) are widely available to run
these devices, most consumers are currently choosing to purchase primary
batteries rather than rechargeables, despite potential savings in life-cycle
costs that can be derived from using rechargeables.

     The primary distinguishing factor between devices that use primary alkaline
batteries and those that use rechargeables is the power consumption of the
device. Cellphones, notebook computers, camcorders and cordless power tools,
which typically use rechargeables, have a higher power consumption than most
devices that use primary alkaline batteries. The use of alkaline batteries in
the higher power devices is either impossible or impractical because of
prohibitively limited use time and high replacement cost, and therefore they
have traditionally been designed to use rechargeable batteries.

     An example of differentiation in battery selection along the lines of power
consumption can be seen in new PDAs that incorporate wireless communications.
Older PDAs from companies such as 3COM

                                       7
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and Psion were designed to use primary alkaline batteries, while newer models
from these manufacturers, which now incorporate high-current wireless
connectivity options, are being designed to use rechargeable battery packs.

     Until now, primary battery packs for cellphones have not been widely
available, although Duracell (a division of Gillette), among others, now offers
such packs. The Duracell product consists of a reusable battery case with
internal terminals into which the consumer can fit "AA"-size alkaline batteries;
the case is sold with an initial quantity of batteries to allow initial use. The
Company believes that such solutions have not been successful because the talk
and standby times achievable with primary alkaline batteries are often even less
than what is attainable with a rechargeable battery. Such solutions offer
convenience similar to the Company's products in terms of immediate availability
in an emergency situation, but do not offer the convenience of much greater talk
and standby times that the Company's products offer.

     The Company believes that primary batteries other than zinc-air, such as
primary alkaline batteries, will not in the next few years be able to offer an
adequate combination of power and energy capabilities that would make them
acceptable to consumers for use with cellphones in non-emergency situations.
However, there can be no assurance that primary batteries using technology other
than zinc-air and having adequate power and energy capabilities will not be
developed and become available in the near future.

     Other Zinc-Air Batteries

     Primary zinc-air batteries are manufactured by many companies for use in
hearing aids and similar devices. Such batteries are produced in the U.S. by
major battery companies such as Rayovac, Duracell and Energizer, and outside the
U.S. by major battery manufacturers such as Sony and Matsushita. The design of
these batteries does not currently provide sufficient power for high-current
digital cellphone applications.

     To date, the Company is not aware of any major battery manufacturer
producing or announcing an intention to produce zinc-air batteries for
cellphones. The entry into the market of a major battery manufacturer with a
zinc-air pack similar to the Company's would most likely impact the ability of
the Company to market its products.

     Over the last decade, several development companies have announced
intentions to produce zinc-air battery packs for cellphones, notebook computers
and similar devices. MATSI, Inc., a Georgia company, announced such intentions
but apparently has ceased operations. AER Energy, a publicly-traded Georgia
company, was formerly involved in the development and marketing of rechargeable
zinc-air batteries for notebook computers, but in recent years has announced
that it is working instead to bring primary zinc-air batteries for electronic
devices to the market. To date it has not announced the availability of any such
products beyond the prototype stage. AER Energy holds numerous patents related
to zinc-air batteries, including several for an air manager system which they
have licensed to Duracell.

     Other Technologies

     Motorola, Inc., among others, has in recent years announced and published
research concerning the use of micro-fuel cells in cellphones. Such devices
produce electricity from a controlled chemical reaction of hydrogen with oxygen.
Should such devices become economical and available, they would most likely
impact the ability of the Company to market its products. However, the Company
does not believe that such devices will be made feasible or available in the
next ten years, if ever.

ELECTRIC VEHICLE DIVISION

     Electric Fuel believes that environmental concerns and current and proposed
legislation create incentives for fleet operators to use zero emission electric
vehicles, and that the Electric Fuel Zinc-Air Energy System for electric
vehicles is particularly suitable for use by such fleet operations. The Company
believes the U.S. government will continue to support efforts to develop
electric vehicles, which support the Company believes will create incentives for
fleet operators (primarily bus and mass transit operators) to introduce electric
vehicles into their fleets.

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The Electric Fuel Zinc-Air Energy System for Electric Vehicles

     The Electric Fuel Zinc-Air Energy System consists of

     [_]  an in-vehicle, zinc-air battery unit consisting of a series of
          zinc-air cells and refuelable zinc-fuel anode cassettes;

     [_]  a battery exchange unit for fast vehicle turn-around;

     [_]  an automated battery refueling system for mechanically replacing
          depleted zinc-fuel cassettes with charged cassettes; and

     [_]  a regeneration system for electrochemical recycling and mechanical
          repacking of the discharged fuel cassettes.

     With its proprietary high-power air cathode and zinc anode technologies,
Electric Fuel's zinc-air battery delivers a unique combination of high-energy
density and high-power density, which together power electric vehicles with
speed, acceleration, driving range and driver convenience similar to that of
conventionally powered vehicles.

     The Company believes that the Electric Fuel zinc-air battery system for
powering electric vehicles offers numerous advantages over other electric
vehicle batteries, which makes it ideal for fleet and mass transit operators.
Fleet operators require a long operating range, large payload capacity,
operating flexibility, all weather performance, fast vehicle turnaround, and
competitive life-cycle costs. Electric Fuel-powered full-size vehicles, capable
of long-range, high-speed travel, could fulfill the needs of transit operators
in all weather conditions, with fast, cost-effective refueling. An all-electric,
full-size bus powered by the Electric Fuel system can provide to transit
authorities a full day's operating range for both heavy duty city and suburban
routes in all weather conditions.

     In field trials with major European entities, the Company has demonstrated
the commercial viability of the battery system by regularly driving 300 to 400
km in actual drive cycles. In 1996, a Mercedes-Benz MB410 van powered by the
Electric Fuel zinc-air battery crossed the Alps, traveled from Chambray, France
over the Moncenisio Pass, and continued to the zinc-air regeneration plant
operated by Electric Fuel's Italian licensee, Edison Termoelettrica, SpA
("Edison"), in Turin, Italy. The 152 mile (244 km) drive included a 93 mile (150
km) continuous climb over mountainous terrain in which the vehicle climbed over
4,950 feet (1,500 meters) to reach the summit at 6,874 feet (2,083 meters),
using only 65% of the battery's capacity. In November 1997, an electric
Mercedes-Benz MB410 van was driven from central London to Central Paris on a
single charge -- a distance of 272 miles (439 km), not including the rail
transport through the English Channel Tunnel.

Major Programs

     The Company has formed several strategic partnerships and is engaged in
demonstration programs involving the Electric Fuel Zinc-Air Energy System for
electric vehicles in various locations in the U.S. and Europe.

THE DOT-FTA ZINC-AIR ALL ELECTRIC TRANSIT BUS PROGRAM

     In the United States, Electric Fuel's zinc-air technology is the focus of a
$4 million 50%-cost sharing electric bus development program funded by the U.S.
Department of Transportation's Federal Transit Administration.

     The Zinc-Air All Electric Transit Bus Program, which includes General
Electric and Volvo's subsidiary Nova Bus Corporation ("Nova") as project
partners, seeks to demonstrate the ability of the Electric Fuel battery system
to power a full-size, all-electric transit bus, providing a full day's range for
heavy duty city and suburban routes, under all weather conditions. In November
1998, a consortium consisting of Electric Fuel, the Center for Sustainable
Technology, L.L.C., and the Regional Transportation Commission of Clark County,
Nevada received approval for $2 million in federal funding for the $4 million
Zinc-Air Electric Transit Bus Program. Additional project partners include the
Community College of Southern Nevada and the Desert Research Institute.

     The program provides that the bus will utilize the new all-electric,
battery/battery-hybrid propulsion system being jointly developed by Electric
Fuel and General Electric with funding from the Israeli-U.S. Bi-National
Industrial Research and Development ("BIRD") Foundation. The all-electric hybrid
system consists of an Electric Fuel zinc-air battery as the primary energy
source, and an auxiliary battery to provide supplementary power and energy for
recovery when braking. The vehicle draws cruising

                                       9
<PAGE>

energy from the zinc-air battery, and supplementary power for acceleration,
merging into traffic and hill climbing, from the auxiliary battery.

     Electric Fuel believes that electric buses represent a particularly
important market for electric vehicles in the United States. Transit buses
powered by diesel engines operate in large urban areas where congestion is a
fact of life and traffic is largely stop-and-go. As a result, they are the
leading contributor to inner city toxic emissions, and are a major factor for
those U.S. cities that have been designated as in "non-attainment" with respect
to air quality standards. Moreover, the U.S. Environmental Protection Agency has
identified particulate emissions from diesel engine emissions as a carcinogen.

     The Electric Fuel zinc-air energy system is particularly suitable for
transit buses because transit buses must operate for up to 12 hours a day on a
single battery charge. Furthermore, transit buses require a large energy storage
battery to power the vehicle while attending to passenger needs such as air-
conditioning and handicapped access. The test program is designed to prove that
an all-electric bus can meet these and all other Los Angeles and New York
Municipal Transit Authority mass transit requirements including requirements
relating to performance, speed, acceleration, and hill climbing.

ALL-ELECTRIC HYBRID PROPULSION SYSTEM FOR TRANSIT BUSES AND HEAVY DUTY VEHICLES
- THE BIRD Program

     Electric Fuel and General Electric are also jointly developing an all-
electric, battery/battery-hybrid propulsion system for powering electric buses
and heavy-duty trucks. In July 1998 the two companies were awarded funding from
the Israeli-U.S. Bi-National Industrial Research and Development ("BIRD")
Foundation for the joint development of the electric propulsion system. The
first application for the system will be an all-electric, zero-emission, full-
size transit bus, in a program funded by the Federal Transit Administration of
the U.S. Department of Transportation.

     Weighing approximately 20 tons with a capacity for 90 passengers, the all-
electric transit bus is expected to be capable of running a full 8-10 hour shift
without recharging. The program requires the bus to meet all power and
performance levels required by U.S. transportation authority standards,
including the operation of energy-consuming accessories such as air-conditioning
and handicap lifts.

     The hybrid system consists of a primary energy source, provided by the
Electric Fuel zinc-air battery, and an auxiliary battery. The vehicle draws
cruising energy from the zinc-air battery, and supplementary power for
acceleration, merging into traffic and hill-climbing from the auxiliary battery.
When stopping or slowing down, the bus retarding system is designed to act as an
energy-generator recharging the auxiliary battery. The new propulsion system
will incorporate a General Electric drive system with General Electric's energy
management systems, adapted specifically for this application.

     The zero-emission electric hybrid system is expected to offer significant
economic advantages over other alternative-fuel solutions by greatly lowering
vehicle maintenance cost with reduced brake wear-and-tear and virtually
eliminating engine/transmission maintenance. The driving range of the bus is
also expected to be expanded by up to 25%, enhancing energy efficiency and
further reducing operating costs.

GERMANY - CONSORTIUM PROJECT

     In January 2000, the Company's Electric Vehicle Division announced that
Electric Fuel has agreed to participate in a new cooperative, all-electric
hybrid vehicle development and demonstration program in Germany. The program
will be implemented by a consortium consisting of major German industrial firms
such as DaimlerChrysler AG and Varta Batterie AG. The German Post, which
sponsored an extensive field test of Electric Fuel's zinc-air battery system for
electric vehicles from 1995-98, has also joined the consortium as an Advisory
Partner.

     During the course of the 4-year, DM 24 million program, the German firms
and certain academic institutions will develop and demonstrate a hybrid vehicle
based on a DaimlerChrysler cargo van, using Electric Fuel's refuelable zinc-air
batteries (to provide the main energy storage), high-power booster batteries
provided by Varta, and ultracapacitors under development by Dornier GmbH (a
division of DaimlerChrysler Aerospace) and by a Siemens-Matsushita subsidiary.
Consortium organizers hope that the program will eventually lead to
commercialization of clean electric transportation based on these technologies.
Electric Fuel will be paid by the project for providing battery modules and
battery refueling services, at a level that has not been finalized.

     The consortium's organizers include the Bremen Institute for Drive
Technology and Ergonomics at the University of Bremen ("BIBA") and funding is
being made available by the German Federal Science

                                       10
<PAGE>

Ministry. According to BIBA's press announcement, the Ministry selected the
project, called "Electrical Power Supply for Vehicles with Long Range and High
Acceleration" (abbreviated in German as "EFRB"), along with 5 other
energy-related projects, from 68 applicants for financing under the ministry's
major scientific energy initiative called "Energy Production and Storage for
Peripheral and Mobile Applications."

     In a previous field test managed by Deutsche Post, the German postal
service, the Electric Fuel Zinc-Air Energy System was tested by Deutsche Post in
electric cargo vans that ran in Germany and Sweden from 1996 until 1998. This
field test, which was successfully completed in May 1998, was managed by
Deutsche Post to conduct a representative operating test of the Electric Fuel
System. Initiated in Bremen, Germany, in 1996, the Deutsche Post program
involved the use of several models of postal vans powered by the Electric Fuel
zinc-air battery system and the establishment of the infrastructure for
refueling and regenerating the batteries. Deutsche Post has stated that it is
interested in adopting emission-free vehicles once such technology is available
in large-scale production, and has joined the new Consortium as an Advisory
Partner.

ITALY - EDISON

     Edison SpA, Italy's leading private energy producer, has been Electric
Fuel's exclusive licensee in Southern Europe (Italy, France, Spain and Portugal)
since 1993. Edison conducts marketing activities in its territory with electric
vehicles powered by the Electric Fuel battery system. Edison has built, and is
operating, a demonstration regeneration facility in Trofarello, near Turin,
Italy.

     An Edison Fiat Ducato van powered by the Electric Fuel System has recently
been in service at the Polyclinic hospital in Milan, distributing cargo from the
hospital's central pharmacy. Based on the success of the test program, Edison
plans to add new vehicles to be powered by Electric Fuel Zinc-Air batteries that
will be used in Turin, Italy to carry both passengers and cargo.

     Under the terms of the license, which terminates in 2008, Edison is
authorized to manufacture, use and sell Electric Fuel's zinc-air batteries,
refueling systems, regeneration systems and related services based on the
Company's technology within Edison's territory.

COMPETITION

     Electric Fuel believes that its products must be available at a price that
is competitive with alternative technologies, particularly those intended for
use in zero or low-emission vehicles. Besides other battery technologies, these
include "hybrid systems" which combine internal combustion engine, diesel
engine, battery technologies, use of hydrogen, and use of regular or low-
pollution fuels such as gasoline, diesel, compressed natural gas, liquefied
natural gas, ethanol and methanol. Other alternative technologies presently use
costly components, including use of fuel cells, supercapacitors, flywheels and
catalytic removal of pollutants. These various technologies are at differing
stages of development and any one of them, or a new technology, may prove to be
more cost effective, or otherwise more readily acceptable by consumers, than the
Electric Fuel Zinc-Air Energy System for electric vehicles. In addition, the
California Air Resource Board has expressed concerns to the Company about the
costs associated with the zinc-air regeneration infrastructure as compared to
battery technologies which use electrical recharging.

     The competition to develop electric vehicle battery systems and to obtain
funding for the development of electric vehicle battery systems is, and is
expected to remain, intense. The Company's technology competes with other
battery technologies as well as with different zinc-air batteries and with
advanced vehicle propulsion systems. The competition consists of development
stage companies as well as major international companies and consortia including
such companies, including automobile manufacturers, battery manufacturers, and
energy production and transportation companies, many of which have financial,
technical, marketing, sales, manufacturing, distribution and other resources
significantly greater than those of the Company.

     An area of increased development has been that of fuel cell powered
vehicles, spearheaded by the Ballard Corporation's solid polymer electrolyte
hydrogen-air fuel cell program. Significant investments in this technology have
been made by major automobile companies. However, Electric Fuel believes that
its zinc-air cell technology is more likely to be commercially viable than the
hydrogen or methanol systems, with a lower system cost and with more
advantageous performance characteristics.

     The Company believes that competing zinc-air battery technologies are at a
much earlier stage of development, not just in terms of size and number of
cells, modules and demonstrations in electric vehicles, but also in terms of the
scale of development effort. The Company is not aware of a competing

                                       11
<PAGE>

zinc-air battery development effort that could yield a product that is superior
to the Company's in terms of vehicle performance or life-cycle cost.

MARKETING

     The Company plans to seek to expand its existing strategic alliances in
Europe, the United States and the Far East, benefiting from experience gained in
connection with the DOT/FTA and its alliances with GE, Nova, Edison and
Vattenfall. The Company also intends to seek support of government agencies,
electric utilities and zinc manufacturers.

DEFENSE AND SAFETY PRODUCTS DIVISION

     The Defense and Safety Products Division is continuing to expand the
development of other advanced uses of the battery technology, including an
advanced portable zinc-air battery for the U.S. Army. This division also
oversees the Company's water-activated lifejacket lights for commercial aviation
and marine applications, and will pursue further development of the safety
products business.

DEFENSE PROJECTS

     In recent years, the Company has undertaken a number of funded, defense-
related research and development projects related to its zinc-air battery
technology. These projects, in the Company's opinion, can expand its future
product line and revenue base, while allowing it to exploit the technology
synergies between these development projects and the Company's other zinc-air
battery development programs.

MAJOR PROJECT - CECOM

     In December 1997, the Company was awarded a contract from the U.S. Army's
Communications-Electronics Command (CECOM) to develop an advanced primary zinc-
air battery. The original $398,000 contract was to run from January 1, 1998
through June 30, 1999. The contract has since been extended through March 31,
2000, and total funding has been increased to approximately $487,000.

     Under the terms of the modified contract, the Company is to deliver a total
of 30 prototype battery packs of at least 400 watt-hours each. CECOM has set 400
watt-hours per kilogram as the desired specific energy content of the prototype
batteries to be delivered under the contract.

     The battery is to be developed for portable forward field chargers, and is
later to be adapted for other field applications such as backpack (wearable) and
man-portable power sources and chargers.

     The primary zinc-air battery cell under development for the Army represents
some technological advancements over the cell being produced by the Company for
consumer battery applications, and could be the basis for a new generation of
zinc-air cells for consumer batteries. Because of this type of beneficial
interaction between defense projects and the evolution of new commercial
products, the Company intends to continue to pursue additional military
contracts for primary zinc-air battery development.

MARKET AND MARKETING STRATEGIES

     With shrinking defense budgets in most Western countries, fewer funds are
being made available for research and development. The defense establishment in
many countries, including the U.S., is looking to adopt so-called dual-use
technologies, i.e., technologies that are produced for commercial markets and
that can be adapted to military specifications with a minimum of expenditure.
The Electric Fuel zinc-air technology fits this latter requirement, as the
batteries being developed for military applications are based on the batteries
that Electric Fuel has developed and continues to develop for the electric
vehicle and consumer battery markets.

     Because the Electric Fuel technology appears capable of achieving energy
and power densities in combinations heretofore unachieved by other battery
technologies, it appears that there may be a sustainable market in military
applications for the Company's products following the development stages. The
Company's chances of success in the military markets would be adversely
affected, however, should alternative battery technologies prove capable of
achieving similar performance levels.

SAFETY PRODUCTS

     In 1996, the Company began to produce and market products for the aviation
and marine safety and emergency markets.

                                       12
<PAGE>

     At present the Company has a product line consisting of four lifejacket
light models. Each model has been approved under various safety regulations by
one or more regulatory agencies.

     For the aviation market, the model WAB-H12 Survivor Locator Light (SLL) is
a battery-powered light used to locate survivors of airplane accidents in the
water. The battery itself is activated by immersion in water, and therefore is
called a water-activated battery. The SLL is typically attached to life vests,
life rafts, and similar flotation devices by the manufacturers of the flotation
devices. These manufacturers are the Company's primary customers for this
product.

     The WAB-H12 SLL consists of a magnesium-cuprous chloride battery attached
to a light assembly that includes a mini-bulb inside a plastic focusing lens.
The battery is activated by either sea water or fresh water, and lasts for more
than 8 hours.

     The Company manufactures, assembles and packages the SLL in its factory in
Beit Shemesh, Israel. The Company also manufactures a marine version of the WAB-
H12 light with U.S. Coast Guard (USCG) approval.

     Having received regulatory certification in early 1999 for a new aviation
light, the model WAB-H18, the Company began production of this new model during
1999. The WAB-H18 light is similar in form and function to the WAB-H12, but is
lighter in weight and carries a more up-to-date certification.

     At the end of 1998 the Company received certification for a new product for
the marine market, in which new certification requirements have taken effect.
(See "Certification" below.) This new product, designated the model WAB-MX8
lifejacket light, utilizes two batteries of a type similar to that used in the
WAB-H12 light, and uses a high efficiency bulb enclosed in a non-focusing dome-
type lens intended to maximize light intensity throughout the upper hemisphere
of the light sub-assembly, as dictated by the new marine certification
requirements. The Company began manufacturing the WAB-MX8 lifejacket light in
the first quarter of 1999.

CERTIFICATION

     Each of the Company's lifejacket lights is certified for use by relevant
governmental agencies under various U.S. and international regulations.

     For use in commercial aviation, the model WAB-H12 light is certified by the
U.S. Federal Aviation Administration (FAA) under Technical Specification Order
(TSO) C85, and the model WAB-H18 light is certified by the FAA under the newer
TSO-C85a. Both lights are certified for production in Israel by the Civil
Aviation Administration of Israel.

     For marine use, the model WAB-H12 light is certified by the U.S. Coast
Guard (USCG) under Section 161.012 of the USCG regulations. The model WAB-MX8
light is certified by the USCG under Section 161.112 as meeting the Safety of
Life at Sea (SOLAS) requirements of the International Maritime Organization. The
WAB-MX8 is also certified by Lloyd's Register on behalf of the Marine and
Coastguard Agency of the United Kingdom under the European Commission's Marine
Equipment Directive, thus being the only marine lifejacket light fully approved
for use by both the USCG and the relevant authorities of the European Union.

MARKET AND MARKETING STRATEGIES

     The annual market for lifejacket lights is estimated at 2 - 3 million units
worldwide, of which about 50% is in Europe and 30% is in the United States.
Approximately 80% of the sales are in the marine market; less than 20% of the
sales are in the aviation market. Recent economic developments in the Asian
markets, along with lengthened lifejacket maintenance cycles in the aviation
industry, have led to a reduction in the aviation market over the last two
years. The marine market has seen tremendous growth over the last two years,
primarily because of new IMO SOLAS regulations expanding the categories of ships
and ferries that are required to carry lifejacket lights, and in part because of
the EU's adoption of IMO SOLAS regulations as EU directives. In addition, the
average wholesale selling price of a marine lifejacket light has grown by more
than 50% following the adoption of the 1998 SOLAS specification, which in
general requires larger and more powerful batteries and more efficient lamps
than the previous requirements.

     The marine safety market is characterized by several differentiable
distribution channels: lifejacket manufacturers, shipping companies,
chandlers/distributors, and distributors to the retail market.

                                       13
<PAGE>

There are over 200 manufacturers of lifejackets for the marine market, and many
companies active in the other distribution channels.

     The Company markets its lights to the commercial aviation industry in the
United States exclusively through The Burkett Company of Houston, Texas, which
receives a commission on sales. For its marine safety products, The Company has
established its own network of distributors in the U.S., Europe, Asia and
Oceania.

COMPETITION

     Two of the largest manufacturers of aviation and marine safety products,
including TSO and SOLAS-approved lifejacket lights, are ACR Electronics Inc. of
Hollywood, Florida ("ACR"), and Pains Wessex McMurdo Ltd. of England
("McMurdo").

     ACR uses a water-activated magnesium-cuprous iodide battery for its TSO and
USCG-approved lifejacket lights, and a primary LiSO2 battery product to meet the
new SOLAS regulations. McMurdo uses water-activated magnesium-silver chloride
batteries in its TSO-approved lights, and offers both water-activated and LiSO2-
based lights for the marine market. McMurdo has several primary LiSO2 battery
based products meeting the new SOLAS regulations. Other significant competitors
in the marine market include Daniamant Aps of Denmark, and EJE Translite of
Canada, both of whom use primary lithium batteries in their SOLAS-approved
products.

REGULATORY AND ENVIRONMENTAL MATTERS

     Electric Fuel believes that its zinc-air batteries as currently produced
are in compliance with applicable Israeli, European, and United States federal,
state and local standards that govern the manufacture, storage, use and
transport of the various chemicals used, and waste materials produced, in the
manufacture and use of the Company's zinc-air battery, including zinc and
potassium hydroxide. The Company has obtained the necessary permits under the
Israeli Dangerous Substances Law, 1993, required for the use of zinc metal,
potassium hydroxide and certain other substances in its facilities in Israel.

     The presence of potassium hydroxide as an electrolyte in the Company's
electric vehicle batteries may subject its disposal to regulation under some
circumstances. This electrolyte is the same as the electrolyte used in primary
alkaline batteries and rechargeable nickel-cadmium and nickel-metal hydride
batteries. The Company's electric vehicle battery technology uses relatively
small amounts of spillable potassium hydroxide. The United States Department of
Transportation regulates the transport of potassium hydroxide, and it is likely
that any over-the-road transport of spillable potassium hydroxide in the United
States will require manifesting and placarding.

     The EPA, the Occupational Safety and Health Administration and other
federal, state and local governmental agencies would have jurisdiction over
operations of Company production facilities were they to be located in the
United States. Based upon risks associated with potassium hydroxide, government
agencies may impose additional restrictions on the manufacture, transport,
handling, use, and sale of the Company's products.

     Electric Fuel's disposable zinc-air batteries for cellular phones are
similar in chemical makeup to primary alkaline batteries. Accordingly, the
Company's cellular phone battery, like those products, is not expected to be
regulated as to transport and is expected to be exempt from dangerous goods
regulations. Furthermore, like state-of-the-art zinc alkaline cells which must
be mercury and cadmium free, Electric Fuel's products are also completely free
of toxic mercury and cadmium additives.

PATENTS AND TRADE SECRETS

     The Company relies on certain proprietary technology and seeks to protect
its interests through a combination of patents, know-how, trade secrets and
security measures, including confidentiality agreements. The Company's policy
generally is to secure protection for significant innovations to the fullest
extent practicable. Further, the Company continuously seeks to expand and
improve the technological base and individual features of its batteries through
ongoing research and development programs.

     The Company has been filing patents on its zinc-air battery system for
electric vehicles since 1990. These applications have resulted in 32 unexpired
U.S. patents and 15 corresponding European patents. These patents cover various
aspects of the Electric Fuel System technology, including the overall system,
the zinc anode, including its physical and mechanical attributes, the
construction of the air cathode,

                                       14
<PAGE>

cell structure and arrangements, connectors, the automatic refueling system,
zinc regeneration, and safety features.

     The Company also holds two unexpired U.S. patents covering its high-power
zinc-oxygen battery for torpedoes, two more covering the use of Electric Fuel's
zinc in other alkaline batteries, and one covering the Company's water-activated
magnesium-cuprous chloride batteries.

     In early 1998, building on the development work that began at EFL in late
1996 on smaller zinc-air cells for consumer batteries, EFL began filing new
patent applications specifically covering its consumer batteries. To date, more
than 20 such applications have been filed in the U.S., and numerous
corresponding PCT applications have been filed for appropriate worldwide
coverage. The Company expects to file additional applications in 2000 and
succeeding years. The consumer battery patent applications cover all aspects of
the cell and battery pack, including cell components and design, pack components
and design, and air access management.

     In addition to patent protection, the Company relies on the laws of unfair
competition and trade secrets to protect its proprietary rights. The Company
attempts to protect its trade secrets and other proprietary information through
confidentiality and non-disclosure agreements with customers, suppliers,
employees and consultants, and through other security measures. Although the
Company intends to protect its rights vigorously, there can be no assurance that
these measures will be successful.

RESEARCH AND DEVELOPMENT

     During the years ended December 31, 1997, 1998, and 1999, the Company's
gross research and product development expenditures, including costs of
revenues, of prototype batteries and components of the Electric Fuel System,
were $12.2 million, $10.0 million and $7.8 million respectively. During these
periods, the Office of the Chief Scientist of the Israel Ministry of Industry
and Trade (the "Chief Scientist") participated in research and development
efforts of the Company thereby reducing the Company's gross research and product
development expenditures in the amounts of $2.4 million, $447,000 and $926,000
for the years 1997, 1998 and 1999, respectively. During 1998 the Israel-U.S.
Binational Industrial Research and Development Foundation ("BIRD") also began
participating in the research and development efforts of the Company by
sponsoring a joint project to develop a hybrid propulsion system for transit
buses with General Electric Corporate Research and Development. The Company
received grants from BIRD totaling $43,000 and $277,000 during the years ended
December 31, 1998 and 1999, respectively.

     Under the terms of the grants from the Chief Scientist and current Chief
Scientist regulations, the Company is obligated to pay royalties at the rate of
3% of the sales of products developed from projects funded by the Chief
Scientist for the first three years of sales, increasing thereafter, up to 5%.
The Company currently pays royalties at the rate of 3% of Electric Vehicle and
Cellphone batteries revenues. The obligation to make such royalty payments ends
when 100% of the amount granted (in NIS linked to the U.S. dollar) is repaid.
The Government of Israel does not acquire proprietary rights in the technology
developed using its funding, but certain restrictions with respect to the
technology apply, including the obligation to obtain the Israeli Government's
consent to manufacture the product based on such technology outside of Israel or
to transfer the technology to a third party, which consent may be conditioned
upon an increase in royalty rates or in the amount to be repaid. Current
regulations require that, in the case of the approved transfer of manufacturing
rights out of Israel, the maximum amount to be repaid through royalty payments
will be increased to between 120% and 300% of the amount granted, depending on
the extent of the manufacturing to be conducted outside of Israel, and that an
increased royalty rate will be applied.

     Under the terms of the grants from BIRD, the Company is obligated to pay
royalties at the rate of 2 1/2% of the first year's gross sales and, in
succeeding years, at the rate of 5% of gross sales until 100% of the Grant has
been repaid, whereupon the repayment rate shall decrease to 2 1/2 % of the gross
sales. The total amount to be repaid reaches a maximum of 150% of the grant if
it takes five years or longer for the grant to be repaid. Should any portion of
the technology developed be sold outright to a third party, one-half of all
proceeds of the sale shall be applied as received on account of royalties. The
repayment obligation is in U.S. dollars linked in value to the U.S. Consumer
Price Index.

EMPLOYEES

     As of February 20, 2000, the Company had 132 full-time employees in its
Israeli subsidiary. Of these employees, 4 hold doctoral degrees and 53 hold
other advanced degrees. Of the total, 27 employees were engaged in product
research and development, 93 were engaged in production and operations, and the
remainder in general and administrative functions. The Company also had 2
employees at its Auburn,

                                       15
<PAGE>

Alabama research facility and 2 employees in its New Jersey office. The
Company's success will depend in large part on its ability to attract and retain
skilled and experienced employees.

     The employees and the Company are not parties to any collective bargaining
agreements. However, as substantially all of the Company's employees are located
in Israel and employed by EFL, certain provisions of the collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the
Coordination Bureau of Economic Organizations (including the Manufacturers'
Association of Israel) are applicable to EFL's employees by order (the
"Extension Order") of the Israeli Ministry of Labor and Welfare. These
provisions principally concern the length of the work day and the work week,
minimum wages for workers, contributions to a pension fund, insurance for work-
related accidents, procedures for dismissing employees, determination of
severance pay and other conditions of employment, including certain automatic
salary adjustments based on changes in the Israeli CPI.

     Israeli law generally requires severance pay upon the retirement or death
of an employee or termination of employment without due cause. EFL currently
funds its ongoing severance obligations by making monthly payments to approved
severance funds or insurance policies. In addition, Israeli employees and
employers are required to pay specified sums to the National Insurance
Institute, which is similar to the United States Social Security Administration.
Since January 1, 1995, such amounts also include payments for national health
insurance. The payments to the National Insurance Institute are approximately
14.6% of wages (up to a specified amount), of which the employee contributes
approximately 66% and the employer contributes approximately 34%. The majority
of the permanent employees of EFL are covered by "managers insurance," which
provides life and pension insurance coverage with customary benefits to
employees, including retirement and severance benefits. The Company contributes
14.33% to 15.83% (depending on the employee) of base wages to such plans and the
permanent employees contribute 5% of their base wages.

     In 1993, an Israeli court held that companies that are subject to the
Extension Order are required to make pension contributions exclusively through
contributions to Mivtachim Social Institute of Employees Ltd. ("Mivtachim"), a
pension fund managed by the Histadrut. The Company subsequently reached an
agreement with Mivtachim with respect to providing coverage to certain
production employees and bringing it into conformity with the court decision.
The agreement does not materially increase the Company's pension costs or
otherwise materially adversely affect its operations. Mivtachim has agreed not
to assert any claim against EFL with respect to any past practices of EFL
relating to this matter. Although the arrangement does not bind employees with
respect to instituting claims relating to any nonconformity by EFL, the Company
believes that the likelihood of the assertion of claims by employees is low and
that any potential claims by employees against EFL, if successful, would not
result in any material liability to the Company.


ITEM 2.  PROPERTIES

     EFC's corporate headquarters are located in New Jersey and leased on a
month-to-month basis. The Auburn, Alabama research facility, constituting
approximately 2,000 square feet, is leased on an annual basis. The Company's
administrative facilities and research, development and production facilities
for the manufacture and assembly of Electric Fuel batteries, related Electric
Fuel System components, and Survivor Locator Lights, constituting approximately
34,000 square feet, are located in Beit Shemesh, near Jerusalem, Israel. The
original lease for these facilities in Israel expired on December 31, 1997. The
Company extended the lease for a period of ten years, with the ability to
terminate the lease every two years beginning December 31, 1999 upon three
months' written notice. Moreover, the Company may terminate the lease at any
time upon 12 months written notice. In addition, the Company previously leased
in Beit Shemesh additional space of approximately 16,000 square feet. The lease
agreement for this space has expired and the Company is presently negotiating an
extension of the terms of the lease. As more fully described below, the Company
intends to transfer the production facilities currently located in Beit Shemesh
to a new facility in Jerusalem once the facilities are constructed.

     The Company has been looking for additional land to construct larger
premises near its Jerusalem facilities. In January 1999, the Company received a
letter from the Israel Ministry of Industry and Trade authorizing the allocation
to the Company of approximately 5.9 dunam (approximately 1.5 acres) with rights
to construct facilities of up to approximately 95,000 square feet in Jerusalem.
The Company has paid the Jerusalem Land Development Authority approximately
$171,000 in development fees related to this site to complete its obligations in
this regard. The Company has yet to enter into a formal lease agreement for the
site with the Israel Land Authority. When such a lease agreement is entered
into, a capitalized lease

                                       16
<PAGE>

fee will be due in the approximate amount of $1.2 million. If an agreement is
not reached, the development fees will be returned to the Company.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, the Company may be involved in litigation relating to
claims arising out of its operations. As of the date of this filing, the Company
is not engaged in any legal proceedings that are expected, individually or in
the aggregate, to have a material adverse effect on the Company's business,
financial condition or result of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                       17
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

     Since February 1994, the Company's Common Stock has been traded under the
symbol EFCX in the Nasdaq National Market. The following table sets forth, for
the periods indicated, the range of high and low closing prices of the Company's
Common Stock in the Nasdaq National Market System.

                                       HIGH          LOW
          1999
          First Quarter                       $4.00         $2.69
          Second Quarter                       3.22          1.34
          Third Quarter                        1.94          1.22
          Fourth Quarter                       4.00          1.13

          1998
          First Quarter                       $4.38         $2.38
          Second Quarter                       5.94          2.44
          Third Quarter                        5.41          2.88
          Fourth Quarter                       3.59          2.50

     As of February 28, 2000 the Company had approximately 223 holders of record
of its Common Stock.

DIVIDENDS

     The Company has never paid any cash dividends on its Common Stock. The
Board of Directors presently intends to retain all earnings for use in the
Company's business. Any future determination as to payment of dividends will
depend upon the financial condition and results of operations of the Company and
such other factors as are deemed relevant by the Board of Directors.

RECENT SALES OF UNREGISTERED SECURITIES

  Since September 30, 1999, the Company has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act"):

     (1)  On December 28, 1999, pursuant to a Securities Purchase Agreement
          between the Company and a group of purchasers (including Leon S.
          Gross, a director of the Company), the Company issued an aggregate of
          1,425,000 shares of Common Stock. The shares were issued at a price of
          $2.00 per share. The Company also issued in this transaction warrants
          to purchase an additional 1,425,000 shares of Common Stock, of which
          warrants to purchase 950,000 shares of Common Stock have an exercise
          price of $1.25 per share and are exercisable for a period of six
          months, and warrants to purchase 425,000 shares of Common Stock have
          an exercise price of $4.50 per share and are exercisable for one year.
          All the shares of Common Stock issued in this private placement,
          including the shares of Common Stock underlying the warrants, were
          subsequently registered for resale pursuant to a registration
          statement on Form S-3 that was declared effective on February 10,
          2000.

     (2)  On December 3, 1999, Robert S. Ehrlich and Yehuda Harats each
          purchased 125,000 shares of Common Stock out of the Company's treasury
          at $1.3438 per share, the closing price of the Common Stock on
          December 2, 1999. Payment was rendered by Messrs. Ehrlich and Harats
          for their purchases in the form of promissory notes in the amount of
          $167,975 each.

     (3)  On January 10, 2000, pursuant to a Common Stock Purchase Agreement
          dated January 5, 2000 between the Company and a group of purchasers,
          the Company issued an aggregate of 385,000 shares of Common Stock at a
          price of $2.50 per share. All the shares of Common Stock issued in
          this private placement were subsequently registered

                                       18
<PAGE>

          for resale pursuant to a registration statement on Form S-3 that was
          declared effective on February 10, 2000.

     All of the above shares were issued in reliance upon the exemption from
     registration provided by Section 4(2) of the Securities Act as transactions
     by an issuer not involving a public offering.

ITEM 6.  SELECTED FINANCIAL DATA

     The selected financial information set forth below with respect to the
statements of income (loss) for the fiscal year in the period ended December 31,
1999, and with respect to the balance sheets at the end of the year has been
derived from the financial statements of the Company, which have been audited by
Kost Forer & Gabbay, independent certified public accountants in Israel and a
member firm of Ernst & Young International.

     The selected financial information set forth below with respect to the
statements of income (loss) for each of the four fiscal years in the period
ended December 31, 1998, and with respect to the balance sheets at the end of
each such fiscal year has been derived from the financial statements of the
Company, which have been audited by Kesselman & Kesselman, independent certified
public accountants in Israel, and a member firm of PriceWaterhouseCoopers
International Limited.

     The financial information set forth below is qualified by and should be
read in conjunction with the Financial Statements contained in Item 8 of this
Report and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 7 of this
Report."

                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                       1995            1996              1997              1998              1999
                                 -------------------------------------------------------------------------------------
                                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                <C>           <C>               <C>               <C>               <C>
STATEMENT OF OPERATIONS DATA:
Revenues                              $  4,372          $  5,405           $ 4,526           $ 4,013           $ 2,694
                                 -------------------------------------------------------------------------------------
Research and development
expenses and costs of revenues          12,818            11,562             9,953             9,680             6,631

Provision for anticipated
 program losses                          2,600                --                --                --                --

Selling, general and
 administrative   expenses               2,752             4,693             4,333             3,561             3,163
                                 -------------------------------------------------------------------------------------
Operating (loss)                      $(13,798)         $(10,850)          $(9,760)           (9,228)           (7,100)
Financial income                           664               794               775               652               190
                                 -------------------------------------------------------------------------------------
(Loss) before taxes on income         $(13,134)         $(10,056)          $(8,985)          $(8,576)           (6,910)
Taxes on income                             35               (38)              144               (43)                6
                                 -------------------------------------------------------------------------------------
(Loss) from the operations of
the Company and its subsidiaries      $(13,169)         $(10,018)          $(9,129)          $(8,533)          $(6,916)
                                 =====================================================================================

Share in loss of investee Company           52                --                --                --                --
                                 -------------------------------------------------------------------------------------
Net (loss)                             (13,221)          (10,018)           (9,129)           (8,533)           (6,916)

(Loss) per share                        $(1.86)           $(0.91)           $(0.73)           $(0.61)           $(0.48)
                                 =====================================================================================
Weighted average number of
 common shares outstanding (in
 thousands)                              7,104            10,962            12,502            14,013            14,334



                                                                    AS AT DECEMBER 31
                                          1995              1996              1997              1998              1999
                                 -------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash, cash equivalents and
 investments in marketable debt
 securities                           $  9,580          $ 23,959           $16,717           $ 8,943           $ 2,556


Receivables and other assets             4,135             3,922             3,985             3,021             3,307
Fixed assets, net of depreciation        5,986             7,304             4,754             3,435             4,166
                                 -------------------------------------------------------------------------------------
Total Assets                          $ 19,701          $ 35,185           $25,456           $15,399           $10,029
                                 =====================================================================================

Liabilities                           $ 13,880          $  7,315           $ 6,697           $ 4,818           $ 5,787
Long term debt                               0                 0                 0                 0                 0
Stockholders' equity                     5,821            27,870            18,759            10,581             4,242
                                 -------------------------------------------------------------------------------------
Total liabilities and
 stockholders equity                  $ 19,701          $ 35,185           $25,456           $15,399           $10,029

                                 =====================================================================================
</TABLE>

                                       20
<PAGE>

ITEM 7.  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 contained in Item 8 of this report, and the notes
thereto. 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.

GENERAL

     During 1999, the Company accelerated its efforts on the development and the
commercialization of its disposable ZincAir batteries for cellular phones. These
batteries use the proprietary high-rate primary zinc-air technology developed by
the Company in the last two years for portable electronic devices.

     The Company has signed several distribution agreements with after-market
distributors of cellular accessories, and has received initial orders from these
distributors. Towards the end of the third quarter, the Company began shipping
batteries to its distributors. The Company's line of existing products includes
batteries for Nokia 5100/6100/7100 phones, Motorola MicroTAC phones, an
auxiliary battery for the Motorola StarTAC and batteries for the Ericsson
600/800/1000.

     Batteries are currently being produced using a manually operated production
line. A custom designed, high-capacity automatic line ordered as a turnkey
project from an experienced vendor is currently in the final stage of the
acceptance test at the Company's plant in Israel.

     During 1999, the Company continued to invest in strengthening its
intellectual property position. The Company has more than 30 patents issued
covering general aspects and various applications of its ZincAir technology. The
Company also filed a significant number of new applications focusing
specifically on ZincAir batteries for consumer electronic devices and
cellphones.

     The Company continues to develop other applications for its disposable
ZincAir batteries, including devices for the telecommunications, medical and
defense markets.

     The Safety Products Division of the Company is introducing new emergency
lights for the marine life jackets market, and sales are gradually growing.
Sales of emergency lights for the aviation market are stable with a potential
for an increase, assuming contracts currently under negotiation materialize.

     The Electric Vehicle Division is continuing its American all-electric
transit bus development project in Nevada, supported by the Federal Transit
Administration and the Israel-US Binational Industrial Research and Development
(BIRD) Foundation. The Company is supporting its Italian partner, Edison, in its
effort to establish a 50-100 electric vehicle project in Milan, and the Company
is joining a consortium to commercialize electric vehicle technology in Germany.

     The Company has experienced significant fluctuations in the sources and
amounts of its revenues and expenses, and the Company believes that the
following comparisons of results of operations for the periods presented do not
provide a meaningful indication of the development of the Company. During these
periods, the Company has received periodic lump-sum payments relating to
licensing and other revenues from its strategic partners, which have been based
on the achievement of certain milestones, rather than ratably over time. The
Company's expenses have been based upon meeting the contractual requirements
under its 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. The Company's research and development expenses have been offset, to
a limited extent, by the periodic receipt of research grants from the Israeli
Chief Scientist. The Company expects 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 be meaningfully compared with those of
current and prior periods. Thus, the Company believes that period-to-period
comparisons of its past results of operations should not be relied upon as
indications of future performance.

     The Company incurred significant operating losses for the years ended
December 31, 1999, 1998 and 1997. While the Company expects 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 manufactured by the
Company, as well as from

                                       21
<PAGE>

licensing rights to the Electric Fuel technology to third parties, there can be
no assurance that the Company will ever derive such revenues or achieve
profitability.

Recent Developments

     On March 15, the Company announced that it had entered into a definitive
agreement with Koor Industries Ltd. ("Koor"), pursuant to which the Company will
acquire Koor's subsidiary Tadiran Batteries Ltd. for $40,000,000 in the
Company's Common Stock valued at $17.125 per share, the price on March 8, 2000
when this agreement was reached. The number of total shares of the Company's
Common Stock to be issued for Tadiran Batteries Ltd. is subject to upward
adjustment if the average closing price of the Company's Common Stock over the
thirty days immediately preceding the first anniversary of the closing date of
the transaction falls below $17.125, subject to a maximum of 467,153 shares to
be issued. If less than 467,153 shares are so issued, Koor will have an option
to purchase the remainder of such shares at a price of $20.55 per share. Under
the parties' agreement, Koor will also acquire an additional 613,139 shares of
the Company's Common Stock at $17.125 per share, for a total cash investment of
$10,500,000. Tadiran Batteries Ltd. is headquartered in Rehovot, Israel, and
manufactures and develops high energy lithium thionyl chloride batteries for
critical applications in remote locations and severe climates.

Functional Currency

     The Company's management considers the United States dollar to be the
currency of the primary economic environment in which EFL operates and,
therefore, EFL has adopted and is using the United States dollar as its
functional currency. Further, the Company believes that the operations of EFL's
subsidiaries are an integral part of the Israeli operations. 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.

Forward Looking Statements

     When used in this discussion, the words "believes," "anticipated,"
"expects" 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" filed as Exhibit 99 to
this Report 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

Fiscal Year 1999 compared to Fiscal Year 1998


     REVENUES. Revenues for the year ended December 31, 1999 totaled $2.7
million, compared with $4.0 million for 1998. During 1999, the Company
recognized revenues from the sale of Survivor Locator Lights and sale of
consumer batteries. The Company also recognized revenues from activities related
to the United States Department of Transportation ("DOT") program which began in
1998 and which is expected to continue until the first quarter of year 2000. The
Company participates 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 program is a cost-sharing program. The
Company's share is approximately $3.5 million, 50% of which will be reimbursed
to the Company out of the DOT funds. Since this is a cost-shared program,
expenses associated with the Company's participation in the program will exceed
the revenues to be earned from the program. Additionally, the Company recognized
revenues during 1999 in connection with various defense R&D contracts.

     Revenues for 1998 were principally derived from recognizing the previously
deferred advances form the Deutsche Post as well as from activities relating to
the Deutsche Post Field Test extension (reflecting payment by the Deutsche Post
of expenses incurred by the Company). Additionally, the Company recognized
revenues from the sale of additional batteries to the Deutsche Post as well as
sales of Electric Fuel Vehicle batteries to Edison. The Company also recognized
revenues from the sale of Survivor Locator Lights. The Company began recognizing
revenues from the activities related to the DOT program in the second half of
1998.

     In 1999, revenues were $979,000 for the Defense and Safety division
(compared to $1,181,000 in 1998), $1,229,000 for the Electric Vehicle division
(compared to $2,792,000 for 1998) and 255,000 for the Consumer Battery division
(there were no revenues for this division in 1998).

     RESEARCH AND DEVELOPMENT EXPENSES AND COST OF REVENUES. Research and
development expenses and cost of revenues totaled $7.8 million during 1999,
compared with $10.2 million during 1998. The Company believes that, given the
Company's stage of development, it is not yet meaningful to distinguish between
research and development expenses and cost of revenues. In addition to the
reduction in the overall expenses in 1999, the internal division of expenses
also changed between 1998 and 1999. This was principally attributable to a
reduction of expenses related to Electric Vehicle battery development. This
overall reduction was partially offset by significant increases in the costs
associated with consumer battery development and the production of increased
quantities of Survivor Locator Lights in the Defense and Safety Division.

     R&D expenses were reduced by $1.2 million during 1999 as a result of
recognition of grants from the Office of the Chief Scientist of the Ministry of
Industry and Trade and the BIRD Foundation. The

                                       22
<PAGE>

Company's 1999 R&D grant applications have been approved by the Research
Committee of the Office of the Chief Scientist of the Ministry of Industry and
Trade. As a result, royalty- bearing grants of $926,000 from the Chief Scientist
were recognized during 1999 (compared to $447,000 in 1998) to offset R&D
expenses. In addition, $277,000 of royalty bearing grants from the BIRD
Foundation were recognized during 1999 (compared to $43,000 in 1998). R&D
expenses and cost of operations related to Consumer Battery and Defense and
Safety applications are expected to continue to increase for 2000, as the
Company intensifies its efforts in these new areas.

     Direct expenses for the Company's three divisions for fiscal year ended
1999 were $1.2 million (1998: $1.2 million), $2.7 million (1998: $4.8 million),
and $3.0 million (1998: $3.0 million) in the Defense and Safety, Electric
Vehicle and Consumer Battery divisions, respectively.

     Net costs of fixed assets (net of accumulated depreciation) at December 31,
1999 in the Defense and Safety, Electric Vehicle and Consumer Battery divisions
were $360,000, $1,130,000 and $1,517,000 respectively.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1999 were $3.2 million
compared with $3.6 million in 1998. This decrease was primarily attributable to
reduced salaries, professional fees and Electric Vehicle marketing expenses
during 1999. The Company expects increases in selling, general and
administrative expenses during 2000, particularly relating to marketing expenses
in consumer battery applications, as the Company continues to expand the
applications for its technology.

     FINANCIAL INCOME. Financial income, net of interest expense, exchange
differentials, bank charges, and other fees, totaled approximately $190,000 in
1999, compared to $652,000 in 1998.

     INCOME TAXES. The Company, and its Israeli subsidiary EFL, have incurred
net operating losses or had earnings arising from tax-exempt income during the
years ended December 31, 1999 and 1998 and, accordingly, no provision for income
taxes was required. Taxes in these entities incurred in 1999 and 1998 are
primarily composed of United States federal alternative minimum taxes.

     NET LOSSES. Due to the factors cited above, the Company reported a net loss
of $6.9 million in 1999, compared with a net loss of $8.5 million in 1998.

Fiscal Year 1998 compared to Fiscal Year 1997

     REVENUES. Revenues for the year ended December 31, 1998 totaled $4.0
million, compared with $4.5 million for 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 repayment of
advances made by the Deutsche Post to the Company with respect to Opel batteries
which were subject to a dispute. Consequently, revenues for 1998 were
principally derived from recognizing the previously deferred advances from the
Deutsche Post, as well as from activities relating to the Field Test extension
(reflecting payment by the Deutsche Post of expenses incurred by the Company).
Additionally, the Company recognized revenues from the sale of additional
batteries to the Deutsche Post as well as sales of Electric Fuel Vehicle
batteries to Edison. The Company also recognized revenues from the sale of
Survivor Locator Lights. In 1998, the Company signed the agreement with the DOT
as part of a consortium seeking to demonstrate the ability of the Electric fuel
battery system to power a full-size, all-electric transit bus. The DOT approved
$2.0 million in federal funding for the cost-shared $4.0 million program. The
Company's share of the $4.0 million cost is approximately $3.5 million, 50% of
which will be reimbursed to the Company out of the DOT funds. The Company began
recognizing revenues from the activities related to the DOT program in the
second half of 1998. 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, in 1998 the Company began recognizing
revenues in connection with various defense R&D contracts.

     Revenues for 1997 were principally derived from fees collected in relation
to a Rights Agreement 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 as well as from the sale of
Survivor Lights to various customers in the United States, principally in the
fourth quarter of 1997.

                                       23
<PAGE>

     In 1998, revenues were $1,181,000 for the Defense and Safety segment and
$2,792,000 for the Electric Vehicle division. The Consumer Battery division did
not produce any revenues in 1998. Direct expenses were $1,225,000, $5,292,000
and $3,018,000 in the Defense and Safety, Electric Vehicle and Consumer Battery
divisions respectively.

     RESEARCH AND DEVELOPMENT EXPENSES AND COST OF REVENUES. Research and
development expenses and cost of revenues totaled $10.2 million during 1998
compared with $12.3 million during 1997. The Company believes that, given the
Company's stage of development, it is not yet meaningful to distinguish between
research and development expenses and cost of revenues. In addition to the
reduction in the overall expenses, the internal division of expenses also
changed between the fiscal years. This was principally attributable to a
reduction of expenses in 1998 related to Electric Vehicle battery development,
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 significant 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
$422,000. During the fourth quarter of 1998, the Company began dismantling its
regeneration facility in Bremen. Consequently, the remaining salvage value for
the facility was reduced by $830,000 to a net book value of zero. During the
year ended December 31, 1998, the Company recorded $490,000 of royalty-bearing
grants in connection with the Company's 1998 research and development program.
During the year ended December 31, 1997, the Company recorded $2.4 million of
royalty-bearing grants in connection with the Company's 1997 research and
development program, including an increase of $582,000 in Chief Scientist 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. The program is being partially
funded by the Israel - U.S. Binational Industrial Research and Development
(BIRD) Foundation, and the Company recorded $43,000 of royalty-bearing grants in
1998, in connection with this program. Net cost of fixed assets (net of
accumulated depreciation) at December 31, 1998 in the Defense and Safety,
Electric Vehicle and Consumer Battery segments was $369,000, $1,153,000 and
$730,000 respectively.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1998 were $3.6 million,
compared with $4.3 million in 1997. This decrease was primarily attributable to
reduced salaries, professional fees and Electric Vehicle marketing expenses
during 1998.

     FINANCIAL INCOME. Financial income, net of interest expense, exchange
differentials, bank charges, and other fees, totaled approximately $652,000 in
1998, compared to $775,000 in 1997.

     INCOME TAXES. The Company, and its Israeli subsidiary EFL, incurred net
operating losses or had earnings arising from tax-exempt income during the years
ended December 31, 1998 and 1997; accordingly, no provision for income taxes was
required. Taxes in these entities incurred in 1998 and 1997 were primarily
composed of United States federal alternative minimum taxes. During 1998, the
Company's German subsidiary had net losses, which under the German tax code were
used to reduce previously accrued income taxes in the amount of $74,000, and
$8,000 was recorded as a provision for taxes in another European subsidiary. For
1997, the Company's European subsidiaries had net income, which arose as a
result of intercompany transactions, and they recorded a provision for income
taxes in the amount of $106,000.

     NET LOSSES. Due to the factors cited above, the Company reported a net loss
of $8.5 million in 1998, compared with a net loss of $9.1 million in 1997.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1999, the Company had cash, cash equivalents and
financial investments of approximately $2.6 million, compared with $5.2 million
as of December 31, 1998.

     The Company used available funds in 1999 primarily for continued research
and development expenditures, and other working capital needs. The Company
increased its investment in fixed assets by $1.4 million during the year ended
December 31, 1999. The Company's fixed assets amounted to $7.8 million as at
year end.

                                       24
<PAGE>

     EFL presently has a line of credit with the First International Bank of
Israel Ltd. ("FIBI") ("the Credit Facility"). Borrowings under the Credit
Facility bear interest at FIBI's prime rate + 2% per annum, are unconditionally
guaranteed by the Company and are secured by a pledge of foreign currency
deposits in the amount of NIS 3.8 million (approximately $930,000).
Additionally, the Credit Facility imposes financial and other covenants on EFC
and EFL. The agreement expired on January 20, 2000, and the Company is currently
negotiating the renewal by FIBI. The Credit Facility provides EFL with a line of
credit in the maximum principal amount of NIS 3.8 million (approximately
$930,000), which can be used as credit support for various obligations of EFL.
The Company has an additional credit line of up to $750,000 guaranteed by the
Company's receivables (up to 75% of the receivables total amount as determined
from time to time). As of December 31, 1999, the bank had issued letters of
credit and bank guarantees totaling approximately $373,000.

     In December 1999 and January 2000, the Company issued shares of the
Company's Common Stock and warrants to purchase the Company's Common Stock in
two private placements. The aggregate proceeds from these placements, totaling
approximately $3.8 million, were held in escrow (with the exception of proceeds
received from Leon S. Gross, as discussed below on pages 39-40) pending the
effectiveness of a resale registration statement filed by the Company in
connection with such securities. The registration statement was declared
effective on February 10, 2000, and accordingly the funds have been released
from escrow. Also, certain investors have, as of February 28, 2000, exercised
warrants pursuant to the investment agreements above totaling approximately
$1,620,000.

     In January 2000, employees of the company exercised options under the
Company's registered employee stock option plan. The proceeds to the Company
from the exercised options are approximately $2.2 million.

     The Company has no long term debt outstanding, and is using its cash
reserves and revenues from operations primarily to continue development of
batteries for consumer electronic devices, as well as to participate in the BIRD
and DOT Electric Vehicle programs. Furthermore, in 2000, the Company is planning
to establish a commercial production line and prepare for market penetration of
its new Zinc-Air battery for cellular telephones.

     Approximately 42.3% of the stock of the Company's Israeli-based subsidiary
EFL, is now owned (directly, indirectly or by application of certain attribution
rules) by three United States citizens. If at any time in the future, 50% or
more of the shares of EFL are held or deemed to be held by five or fewer
individuals (including, if applicable, those individuals who currently own an
aggregate of 42.3% of the Company) who are United States citizens or residents,
EFL would satisfy the foreign personal holding company ("FPHC") stock ownership
test under the Internal Revenue Code and the Company could be subject to
additional U.S. taxes on any undistributed FPHC income of EFL. For 1999, EFL had
no income which would qualify as undistributed FPHC income. However, no
assurance can be given that in the future EFL will not have income that
qualifies as undistributed FPHC income.

     The Company believes that its present cash position and cash flows from
operations will be sufficient to satisfy the Company's estimated cash
requirements for at least 12 months. However, the Company will seek additional
funding in order to accelerate its future plans.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

     Historically, the majority of the Company's revenues have been in U.S.
dollars. The United States dollar cost of the Company's operations in Israel,
with regard to expenses incurred in NIS, is influenced by the extent to which an
increase in the rate of inflation in Israel is not offset by the devaluation of
the NIS in relation to the dollar. In the past two years, inflation in Israel
has been more than fully compensated by the devaluation of the NIS and,
accordingly, the dollar cost of the Company's NIS expenses has decreased. Even
if the recent trend is reversed (as was the case in previous years), the Company
does not believe that continuing inflation in Israel or delays in the
devaluation of the NIS are likely to have a material adverse effect on the
Company, except to the extent that such circumstances have an impact on Israel's
economy as a whole. In the years ended December 31, 1997, 1998 and in 1999, the
annual rates of inflation in Israel were 7.0, 8.6%, and 1.3%, respectively,
compared to the devaluation of the NIS against the dollar during such periods of
8.8%, 17.6%, and 0%, respectively.

EFFECTIVE CORPORATE TAX RATE

     The Company's production facilities in Israel have been granted "Approved
Enterprise" status under the (Israeli) Law for Encouragement of Capital
Investments, 1959 (the "Investment Law"), and consequently are eligible for
certain tax benefits for seven to ten years after they first generate taxable

                                       25
<PAGE>

income (provided the maximum period as prescribed by the Investment Law has not
elapsed). The Company has elected to receive a grant of funds together with a
reduced tax rate for the aforementioned period.

     EFL's effective corporate tax rate may be affected by the classification of
certain items of income as being "approved income" for purposes of the Approved
Enterprise Law, and hence subject to a lower tax rate (25% to 10%, depending on
the extent of foreign ownership of EFL - presently 15%) than is imposed on other
forms of income under Israeli law -(presently 36%). The effective tax upon
income distributed by the Company to its stockholders would be increased as a
result of the withholding tax imposed upon dividends distributed by EFL to EFC,
resulting in an overall effective corporate tax rate of approximately 28% for
income arising from EFL's Approved Enterprises and 44% regarding other income.

     EFC and EFL have incurred net operating losses or had earnings arising from
tax-exempt income during the years ended December 31, 1999 and 1998 and
accordingly no provision for income taxes was required. Taxes in these entities
paid in 1999 and 1998 are primarily composed of United States federal
alternative minimum taxes.

     As of December 31, 1999, the Company has U.S. net operating loss carry
forwards of approximately $469,000 which are available to offset future taxable
income, expiring primarily in 2009, and foreign net operating loss carry
forwards of approximately $59 million, which are available indefinitely to
offset future taxable income.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations due to its international sales, production, and funding
requirements.

   The Company's research, development and production activities are primarily
carried out by the Company's Israeli subsidiary, EFL, at its facility in Beit
Shemesh, and accordingly the Company has sales and expenses in new Israeli
shekels. However, the majority of the Company's sales are made outside Israel in
U.S. dollars, and a substantial portion of the Company's costs are incurred in
U.S. dollars. Therefore, the Company's functional currency is the U.S. dollar.
See "Impact of Inflation and Currency Fluctuations" above and Note 2 to the
Notes to the Consolidated Financial Statements.

   Although the Company has a line of credit that may be affected by interest
rate changes, given the Company's level of borrowing, the Company does not
believe the market risk from interest rate changes is material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL
STATEMENTS
<TABLE>

<S>                                                                                      <C>
Report of Independent Auditors.......................................................... F-2

Consolidated Balance Sheets at December 31, 1998 and 1999............................... F-3

Consolidated Statements of Operations for the Three Years in the Period
     Ended December 31, 1999............................................................ F-5

Consolidated Statements of Changes in Stockholders' Equity for the Three Years
     in the Period Ended December 31, 1999.............................................. F-6

Consolidated Statements of Cash Flows for the Three Years in the Period
     Ended December 31, 1999............................................................ F-8
</TABLE>

                                       26
<PAGE>

<TABLE>

<S>                                                                                    <C>
Notes to Consolidated Financial Statements.............................................. F-10
</TABLE>



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     Effective as of January 12, 2000, Kost Forer & Gabbay, a member of Ernst &
Young International, replaced Kesselman & Kesselman as the Company's independent
accountants. This change was reported on Form 8-K, filed on January 18, 2000 (as
amended on January 21, 2000). There have been no disagreements with accountants
on any matter of accounting principles or financial disclosure required to be
reported under this Item.

                                       27
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES

EXECUTIVE OFFICERS AND DIRECTORS

     The Company's executive officers and directors and their ages as of
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME                          AGE           POSITION WITH THE COMPANY
----                          ---           -------------------------
<S>                           <C>          <C>
Robert S. Ehrlich              61           Chairman of the Board of Directors and Chief Financial
                                            Officer of EFC

Yehuda Harats                  49           President, Chief Executive Officer and Director

Joshua Degani                  52           Executive Vice President  of Technical Operations and
                                            Chief Operating Officer of EFL

Avihai Shen                    32           Controller and Treasurer of EFC and Chief Financial
                                            Officer of EFL

Dr. Jay M. Eastman             51           Director

Jack E. Rosenfeld              61           Director

Lawrence M. Miller             53           Director

Leon S. Gross                  93           Director
</TABLE>


     The Company's By-Laws provide for a Board of Directors of one or more
directors. There are currently six directors. Under the terms of the Company's
certificate of incorporation, the Board of Directors is composed of three
classes of similar size, each elected in a different year, so that only one-
third of the Board of Directors is elected in any single year. Mr. Harats, Dr.
Eastman and Mr. Gross are designated Class I directors and have been elected for
a term expiring in 2001 and until their successors are elected and qualified;
Messrs. Rosenfeld and Miller are designated Class II directors elected for a
term expiring in 2002 and until their successors are elected and qualified; and
Mr. Ehrlich is a designated Class III director elected for a term which expires
in 2000. Mr. Harvey Krueger, previously a Class III director, resigned from the
Board in July 1999. Pursuant to the Securities Purchase Agreement entered into
in connection with the Company's private placement in December 1999, the
purchasers in that placement are entitled to have one designated nominee elected
to the Board of Directors and serve in such capacity as long as they hold in the
aggregate 950,000 shares of Common Stock.

     ROBERT S. EHRLICH has been Chairman of the Board of the Company since
January 1993 and Chief Financial Officer of the Company since May 1991. From May
1991 until January 1993, Mr. Ehrlich was Vice Chairman of the Board. Mr. Ehrlich
has been a director of Eldat, Ltd., an Israeli manufacturer of electronic shelf
labels, since June 1999.  Since 1987, Mr. Ehrlich has served as a director of
PSC Inc. ("PSCX"), a manufacturer and marketer of hand-held laser diode bar code
scanners, and, since April 1997, Mr. Ehrlich has been the chairman of the board
of PSCX. Mr. Ehrlich received a B.S. and J.D. from Columbia University in New
York, New York.

     YEHUDA HARATS has been President, Chief Executive Officer and a director of
the Company since May 1991. Previously, from 1980 to May 1991, he was the
Executive Vice President, Director of the Process Division and head of the Heat
Collection Element Division at Luz Industries Israel Limited ("LII"). In 1989,
he was part of the team awarded the Rothschild Award for Industry, granted by
the President of the State of Israel, for his work at LII. Mr. Harats received a
B.SC. in Mechanical Engineering from the Israel Institute of Technology
(Technion) in Haifa, Israel.

     DR. JOSHUA DEGANI has been Chief Operating Officer of the Company since
January 1998, and has been Executive Vice President for Technical Operations
since he joined the Company in June 1997. From December 1991 through May 1997,
Dr. Degani was Vice President for Research Development and Engineering in Laser
Industries Ltd. (Sharplan), a world leader in the development and productions of

                                       28
<PAGE>

systems and applications of surgical lasers. From November 1989 until August
1991, he was Program Manager of Large Scale Battery Storage, and Vice President
of Engineering at LII. From February 1983 through October 1989, Dr. Degani was
Director of Research and Development and later Plant Manager for Semiconductor
Devices, a company which develops and manufactures advanced Infrared Detectors
for thermal vision for military applications. From January 1980 through January
1983, he was employed by Bell Telephone Laboratories in New Jersey, USA, as a
Post Doctorate, and later as a Member of the Technical Staff. Dr. Degani
received a B.Sc., M.Sc., and Ph.D., in Physics from Hebrew University in
Jerusalem Israel.

     AVIHAI SHEN has been Controller and Treasurer of EFC and the Chief
Financial Officer of EFL since September 1999. Mr. Shen was the CFO of Commtouch
Software Ltd., an internet company based in California that develops e-mail
solutions, from 1996 to early 1999, and worked previously at Ernst and Young in
Israel. Mr. Shen is a certified Public Accountant and has a B.A. in Economics
from Bar Ilan University.

     DR. JAY EASTMAN has been a director of the Company since October 1993.
Since November 1991, Dr. Eastman has served as President and Chief Executive
Officer of Lucid Technologies, Inc., which is developing laser technology
applications for medical diagnosis and treatment.  Dr. Eastman has served as a
director of PSCX since April 1996 and served as Senior Vice President of
Strategic Planning from December 1995 through October 1997.  Dr. Eastman is also
a director of Chapman Instruments, Inc., which develops manufacturers and
selling surface profiling instruments, Dimension Technologies, Inc., a developer
and manufacturer of 3D displays for computer and video displays, and Centennial
Technologies Inc., a manufacturer of PCMCIA cards.  From 1981 until January
1983, Dr. Eastman was Director of the University of Rochester's Laboratory for
Laser Energetics, where he was a member of the staff from September 1975 to
1981.

     JACK E. ROSENFELD has been a director of the Company since October 1993.
Mr. Rosenfeld is also a director of Maurice Corporation and a director of PSCX.
Since April 1998, Mr. Rosenfeld has been President and Chief Executive Officer
of Potpourri Collection Inc., a specialty catalog direct marketer.  Mr.
Rosenfeld was President and Chief Executive Officer of Hanover Direct, Inc.,
formerly Horn & Hardart Co., which operates a direct mail marketing business,
from September 1990 until December 1995, and had been President and Chief
Executive Officer of its direct marketing subsidiary, since May 1988.

     LAWRENCE M. MILLER was elected to the Board of Directors in November 1996.
Mr. Miller has been a senior partner in the Washington D.C. law firm of
Schwartz, Woods and Miller since 1990. He served from August 1993 through May
1996 as a member of the board of directors of The Phoenix Resource Companies,
Inc., a publicly traded energy exploration and production company, and as a
member of the Audit and Compensation Committee of that board. That company was
merged into Apache Corporation in May 1996.

     LEON S. GROSS was elected to the Board in March 1997.  Mr. Gross' principal
occupation for the past five years has been as a private investor in various
publicly held corporations, including the Company.

BOARD OF DIRECTORS

     The Board of Directors of the Company has an Audit Committee consisting of
Messrs. Rosenfeld, Miller and Dr. Eastman, and a Compensation Committee
consisting of Dr. Eastman and Messrs. Rosenfeld and Miller. Created in December
1993, the purpose of the Audit Committee is to review the results of operations
of the Company with officers of the Company who are responsible for accounting
matters and, from time to time, with the Company's independent auditors., The
Compensation Committee, also created in December 1993, recommends annual
compensation arrangements for the Chief Executive Officer and Chief Financial
Officer and reviews annual compensation arrangements for all officers and
significant employees.

VOTING AGREEMENTS

     Messrs. Ehrlich and Harats are parties to a Stockholders Voting Agreement
pursuant to which each of the parties agrees to vote the shares of the Company's
Common Stock held by that person in favor of the election of Messrs. Ehrlich and
Harats (or their designees) as directors of the Company. Messrs. Gross, Ehrlich
and Harats are parties to a Voting Rights Agreement dated September 30, 1996
pursuant to which each of the parties agrees to vote the shares of the Company's
Common Stock held by that person in favor of the election of Messrs. Ehrlich,
Harats and Miller for five years following October 1996. Pursuant to an
Amendment to the Voting Rights Agreement entered into in connection with the
December 1999 private placement, the purchasers in that placement are entitled
to have one designated nominee elected to

                                       29
<PAGE>

the Board of Directors and serve in such capacity as long as they hold in the
aggregate 950,000 shares of Common Stock.

DIRECTOR COMPENSATION

     Non-employee members of the Board of Directors of the Company are paid
$1,000 (plus expenses) for each Board of Directors meeting attended and $500
(plus expenses) for each meeting of a committee of the Board of Directors
attended. In addition, the Board of Directors has adopted a Non-Employee
Director Stock Option Plan pursuant to which non-employee directors receive an
initial grant of options to purchase 15,000 shares of the Company's Common Stock
upon the effective date of such plan or upon the date of his or her election as
a director. Thereafter, non-employee directors will receive options to purchase
5,000 shares of Common Stock for each year of service on the Board. All such
options will be granted at fair market value and vest ratably over three years
from the date of the grant.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under the securities laws of the United States, the Company's directors,
certain of its officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and the
Company is required to report any failure to file by these dates during 1999. To
the Company's knowledge, there were no instances during 1999 where such
"reporting persons" failed to file the required reports on or before the
specified dates.

SIGNIFICANT EMPLOYEES

     The Company's significant employees and their ages as of February 20, 2000
are as follows:

<TABLE>
<CAPTION>
     NAME                        AGE     POSITION WITH THE COMPANY
     ----                        ---     -------------------------
<S>                           <C>    <C>
     Jonathan Whartman           45      Vice President - Marketing
     Dr. Neal Naimer             41      Vice President - Battery Technology
     Binyamin  Koretz            42      Vice President - Strategic Planning
     Menashe Ben Haim            38      Vice President of Operation
     Mitchell L. Horwitz         44      Vice President-Sales and Marketing, North America
     Menachem Givon              52      Application Manager, Regeneration
     Yair Ein-Eli                33      Head of Electrochemistry/Chemistry & Material
     Yoel Gilon                  47      Director, Electric Vehicle Technologies
     Robert Dopp                 53      Director of Research, New Products
     Ron Putt                    52      Director of Technology, New Products
</TABLE>

     JONATHAN WHARTMAN has been Vice President of Marketing since 1994. From
1991 until his election to Vice President of Marketing, Mr. Whartman was
Director of Special Projects of the Company. Mr. Whartman was also Director of
Marketing of Amtec from its inception in 1989 through the merger of Amtec into
the Company. Before joining Amtec, Mr. Whartman was Manager of Program
Management at LII, Program Manager for desk-top publishing at ITT Qume in San
Jose, California from 1986 to 1987, and Marketing Director at Kidron Digital
Systems, an Israeli computer developer, from 1982 to 1986. Mr. Whartman holds a
BA in Economics and an MBA from the Hebrew University, Jerusalem, Israel.

     DR. NEAL NAIMER has been Vice President of Battery Technology since June
1997. Dr. Naimer was previously Director of Electrode Engineering of the
Company's Air Electrode development program. From 1987 to 1989, he was the
Manager of the Chemical Vapor Deposition (Thin Films) Group at Intel Electronics
in Jerusalem, and was Project Manager of the photo voltaic IR detector
development program at Tadiran Semiconductor Devices in Jerusalem from 1984 to
1987. Dr. Naimer was educated at University College of London, England, where he
received his B.Sc. in Chemical Engineering and a Ph.D. in Chemical Engineering.

     BINYAMIN KORETZ has been Vice President of Strategic Planning since January
1998, responsible for new business development, economic modeling, intellectual
property protection, and other planning activities. Mr. Koretz has also been
responsible for the Company's defense and safety applications since January
1998. Mr. Koretz was the Company's Treasurer from 1993 until December 1994, and
upon the

                                       30
<PAGE>

termination of Mr. Edelman's employment in February 1999, was re- elected
Treasurer until November 1999. Mr. Koretz previously spent six years at American
Telephone and Telegraph, where he was responsible for planning and management of
capital investment in that company's long-distance network. He holds a B.Sc. in
Civil Engineering/Transportation Systems from the Massachusetts Institute of
Technology and an MBA from the University of California at Berkeley.

     MENASHE BEN HAIM has been Vice President of Operations since January 2000.
Mr. Ben Haim has over 12 years of industrial and engineering experience. He
spent 7 years in the paper converting industry as General Manager and Vice
President of Operations. He previously worked in the Israeli Aircraft industry
in the MLM division. Mr. Ben Haim holds a Mechanical Engineering degree from Tel
Aviv University and a Bachelor's degree in Business Management from Haifa
University.

     MITCHELL L. HORWITZ has been Vice President of Sales and Marketing, North
America, since January 2000. Mr. Horwitz has been involved in the wireless
industry since 1986 as President and Founder of Eastern Marketing Associates
Inc. ("EMA"), the exclusive sales and marketing company to Novatel/Carcom Inc.
Since EMA's acquisition by Novatel Communications in 1994, Mr. Horwitz has held
several senior level sales position in the wireless industry, most recently as
Vice President, Worldwide Sales and Marketing, for Globewave, Inc., a
manufacturer of wireless modem devices based in New Jersey. Prior to that he was
Executive Vice President of Formosa Electronics, a cellphone battery
manufacturer with headquarters in New York and Taiwan. Mr. Horwitz holds a
Bachelor of Science degree from Ohio University, with a major in Business
Administration and a minor in Communications.

     MENACHEM GIVON has been Application Manager of Regeneration since January
1999. Mr. Givon earned his Bachelor's and Master's Degrees in Physics at Ben-
Gurion University. He has also taken considerable coursework in Electrical
Engineering. From 1978 to 1990, he specialized in the development of production
and quality control systems at Shoval Metal Industries in the Negev.

     YAIR EIN-ELI has been the Head of Electrochemistry, Chemistry and Material
Groups at the Company since joining the Company in September 1998.  Previously,
he spent more than three years at Covalent Associates Inc., where he was
responsible for the Li and Li-ion battery groups.  Dr. Ein-Eli also held a post-
doctoral position at Covalent for a period of 18 months.  Dr. Ein-Eli holds a
Ph.D. degree in chemistry and electrochemistry from Bar-Ilan University in Tel
Aviv.

     YOEL GILON has been Director of Electric Vehicle Technologies at the
Company's Beit Shemesh facility since joining the Company in 1994.  From 1991 to
1994, Mr. Gilon was Project Development Manager at Ormat Industries.
Previously, Mr. Gilon was Vice President of System Engineering Development at
Luz Industries.  Mr. Gilon holds a B.Sc. in Mathematics and Physics and a M.Sc.
in Mathematics from the Hebrew University of Jerusalem.  He also holds a BA in
Fine Arts from the Bezalel Academy in Jerusalem.

     ROBERT DOPP has been Director of Research, New Products at the Company's
Auburn Laboratory since joining the Company in December 1997.  From February
1997 until November 1997, Mr. Dopp was Manager of Advanced Components
Development at AER Energy Resources. From December 1979 to February 1997, he was
Principal Engineer, Zinc Air Development at Rayovac Corporation.  Mr. Dopp holds
a B.S. in Biology from the University of Wisconsin.

     RON PUTT has been Director of Technology, New Products at the Company's
Auburn R&D Facility since April 1997.  From October 1995 until April 1997, Mr.
Putt worked as a consultant for Auburn University and Electro-Energy Inc. From
April 1990 to October 1995, Mr. Putt was Vice President at MATSI, Inc. Mr. Putt
holds Bachelor's and Master's Degrees in Chemical Engineering from the
University of Delaware and University of California at Berkeley.

                                       31
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table shows the compensation paid (or accrued) by the
Company, in connection with services rendered for 1997, 1998 and 1999, to the
Chief Executive Officer and the other highest paid executive officers (of which
there were only two) who received more than $100,000 in salary and bonuses
during the year ended December 31, 1999 (collectively, the "Named Executive
Officers").


SUMMARY COMPENSATION TABLE



<TABLE>
<CAPTION>
                                                                                       LONG TERM
                                                                                       ---------
                                      ANNUAL COMPENSATION                             COMPENSATION
                                      -------------------                             ------------
                                                                                         AWARDS
                                                                                         ------
NAME AND PRINCIPAL                                                                     SECURITIES
------------------                                                                     ----------
   POSITION AT                                                      OTHER ANNUAL       UNDERLYING           ALL OTHER
   -----------                                                      ------------       ----------           ---------
DECEMBER 31, 1999       YEAR     SALARY($)       BONUS($)          COMPENSATION($)     OPTIONS (#)        COMPENSATION($)
-----------------       ----     ---------       --------          ---------------     -----------        ---------------
<S>                   <C>       <C>            <C>                    <C>              <C>                  <C>
YEHUDA HARATS(1)        1999      141,710        80,011(2)              8,055(4)         100,000              78,060(5)
President, Chief        1998      118,246        77,652                15,942            368,177             146,386
Executive Officer       1997      154,968        50,000                10,691                  0             280,748
 and
Director

ROBERT EHRLICH(1)       1999      137,466        80,011(2)              6,094(4)          47,500             173,384(6)
Chairman and Chief      1998      118,246        77,652                14,536            372,577             202,030
Financial Officer       1997      154,968        50,000                14,193                  0             264,501

JOSHUA DEGANI (1)       1999      110,259        17,500(3)              5,063(4)          35,000              34,825(7)
Executive Vice          1998      109,497        14,250                 6,241            185,071              41,996
 President, Chief
Operating Officer       1997       59,105        15,062                 3,449            122,500              51,906
</TABLE>
     ----------------------------


(1)  The amounts reported for each Named Executive Officer were paid in New
     Israeli Shekels ("NIS") and have been translated into U.S. dollars at the
     exchange rate of NIS into U.S. dollars at the time of payment or accrual.

(2)  No cash bonuses for fiscal year 1999 were paid out in 1999. However, the
     Company accrued for each of Messrs. Ehrlich and Harats $52,000 in partial
     satisfaction of the $80,011 in bonuses they were entitled to as per their
     contracts. During 1999, the Company paid each of Messrs. Harats and Ehrlich
     $30,000 of their respective bonuses for 1998 and anticipates paying the
     balance in 2000.

(3)  No cash bonuses for fiscal year 1999 were paid out in 1999. The Company did
     not accrue any bonus for Mr. Degani for 1999, but anticipates paying Mr.
     Degani the full amount of his 1999 bonus in 2000. In January 2000, the
     Company paid Mr. Degani $10,000 of his 1998 bonus and anticipates paying
     the balance of the 1998 bonus in 2000.

(4)  Represents the costs of taxes paid by the Named Executive Officer and
     reimbursed by the Company.

(5)  Of this amount, $13,968 represents the Company's accrual for severance pay
     that would be payable to Mr. Harats upon a "change of control" of the
     Company or upon the occurrence of certain other events; $30,523 represents
     the Company's accrual for sick leave and vacation redeemable by Mr. Harats;
     ($12,066) represents the Company's reduction of the accrual for severance
     pay that would be payable to Mr. Harats under the laws of the State of
     Israel upon the

                                       32
<PAGE>

     termination of his employment by the Company; and $28,569 consists of the
     Company's payments and accruals to a pension fund which provides a savings
     plan, insurance and severance pay benefits and an education fund which
     provides for the on-going education of employees. Additionally, $7,017
     represents the reduction of the Company's accrual to fund Mr. Harats'
     pension and education funds as well as provide him with certain other
     post-termination benefits, and $8,448 as provide him with certain other
     post-termination benefits, and $8,448 represents the value charged for tax
     purposes for the use of a car provided by the Company.

(5)  Of this amount, $85,328 represents the Company's accrual for severance pay
     that would be payable to Mr. Ehrlich upon a "change of control" of the
     Company or upon the occurrence of certain other events; ($79,618)
     represents the Company's reduction of the accrual for sick leave and
     vacation redeemable by Mr. Ehrlich; ($15,391) represents a reduction of the
     Company's accrual for severance pay that would be payable to Mr. Ehrlich
     under the laws of the State of Israel upon the termination of his
     employment by the Company; and $30,171 represents the Company's payments
     and accruals to pension and education funds. Additionally, $40,868
     represents the Company's accrual to fund Mr. Ehrlich's pension fund as well
     as provide him with certain other post-termination benefits, and $6,487
     represents the value charged for tax purposes for the use of a car provided
     by the Company.

(6)  Of this amount, $6,459 represents the Company's accrual for vacation
     redeemable by Dr. Degani; ($591) represents the Company's the reduction in
     the accrual for severance pay that would be payable to Dr. Degani under the
     laws of the State of Israel upon the termination of his employment by the
     Company; and $16,496 represents the Company's payments and accruals to
     pension and education funds. Additionally, $5,467 represents the value
     charged for tax purposes for the use of a car provided by the Company.

                                       33
<PAGE>

     The table below sets forth information with respect to stock options
granted to the Named Executive Officers for the fiscal year 1999.

     OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                          INDIVIDUAL GRANTS                                   POTENTIAL  REALIZABLE VALUE OF
                                                                              ASSUMED ANNUAL RATES OF STOCK
                                                                            PRICE APPRECIATION FOR OPTION TERM
                ---------------------------------------------------------------------------------------------------

                                             % OF TOTAL
                          NUMBER OF          OPTIONS
                          SECURITIES         GRANTED TO        EXERCISE
                          UNDERLYING         EMPLOYEES IN      OR BASE
                          OPTIONS            FISCAL            PRICE        EXPIRATION
NAME                      GRANTED            YEAR              ($/SH)       DATE           5% ($)          10% ($)
                ---------------------------------------------------------------------------------------------------

<S>                   <C>                   <C>              <C>            <C>            <C>            <C>
Yehuda Harats             100,000               20.14%          $1.38       26-Jul-09      $223,973        $356,640
                          (54,345)(1)         (10.95)%          $2.50       29-Dec-08

Robert Ehrlich             47,500                9.57%          $1.38       26-Jul-09      $106,387        $169,404
                          (54,345)(1)         (10.95)%          $2.50       29-Dec-08

Joshua Degani              35,000                7.05%          $1.38       26-Jul-09      $ 78,391        $124,824
                          (18,000)(2)          (3.63)%          $2.50       29-Dec-08
</TABLE>

(1)  During 1998, Messrs. Ehrlich and Harats agreed that for 1999 they would
     each waive approximately 27% of their base salary, for a total of $43,476
     for the calendar year. In lieu of the amount waived, Messrs. Ehrlich and
     Harats were each granted options at an exercise price equal to the fair
     market value of the Company's Common Stock on the date of grant. The number
     of options granted was based on a variety of factors considered by the
     Board of Directors of the Company. Messrs. Ehrlich and Harats each received
     108,690 options in this program on December 29, 1998. These options were to
     vest 1/12 per month over the calendar year. However, the program was
     terminated as of June 30, 1999 and the unvested portion of the option
     grant, or 54,345 options, were therefore forfeited.

(2)  During 1998, Dr. Degani agreed that for 1999, he would waive $1,200 per
     month of his base salary, or $14,400 for the calendar year. In lieu of the
     amount waived, Dr. Degani was granted options at an exercise price equal to
     the fair market value of the Company's Common Stock on the date of grant.
     Dr. Degani received 36,000 options in this program on December 29, 1998.
     However, the program was terminated as of June 30, 1999 and the unvested
     portion of the option grant, or 18,000 options, were therefore forfeited.

                                       34
<PAGE>

The table below sets forth information for the Named Executive Officers with
respect to fiscal 1999 year-end option values.

                          FISCAL YEAR-END OPTION VALUES
                          -----------------------------

<TABLE>
<CAPTION>
                       NUMBER OF SECURITIES UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
                               OPTIONS AT FISCAL YEAR END                           AT FISCAL-YEAR-END (1)

                          -------------------------------------------------------------------------------------------

NAME                         EXERCISABLE (#)          UNEXERCISABLE (#)     EXERCISABLE ($)        UNEXERCISABLE ($)
                          -------------------------------------------------------------------------------------------

<S>                          <C>                      <C>                     <C>                  <C>
Yehuda Harats                     441,665                  122,167             $151,665                $234,667
Robert S. Ehrlich                 536,065                   69,667             $213,678                $123,105
Joshua Degani                     121,954                   80,117             $121,954                $111,992
</TABLE>

-----------------------

(1)  In-the-money options are options for which the fair market value of the
     underlying securities exceeds the exercise or base price of the option.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS


     Each of Messrs. Ehrlich and Harats are parties to similar employment
agreements with the Company (the "Employment Agreements"). The terms of each of
the Employment Agreements expires on December 15, 2000, but are extended
automatically for additional terms of two years each unless terminated sooner by
either the executive or the Company.

     The Employment Agreements provide for a base salary of $11,736 per month
for each of Messrs. Ehrlich and Harats (the "Base Salary"). On January 1 of each
year, the Base Salary is adjusted in an amount equal to the greater of (a) 3% or
(b) the excess, if any, of any increase in the Israeli Consumer Price Index over
any devaluation in the currency of Israel compared to the U.S. Dollar, in each
case during the immediately preceding year. Accordingly, the Base Salary for
each of Messrs. Ehrlich and Harats was, as of January 1, 1999, $13,330 per
month.

     Each Employment Agreement provides for a bonus (the "Bonus") to be paid to
each of Messrs. Ehrlich and Harats in an amount equal to the greater of (a) not
less than 50% of Base Salary or (b) 2% of Net Earnings (defined as net income
before taxes and extraordinary and other nonrecurring items), subject to certain
conditions, as well as other benefits such as vacation, sick leave, provision of
automobiles and insurance contributions. The determination of the amount of the
Bonus to be paid pursuant to the Employment Agreements is based on attainment of
the Company's budgeted results, including Net Earnings. Additionally, the
Compensation Committee sets qualitative goals annually as a basis for paying the
Bonus to each of Messrs. Ehrlich and Harats. During 1999, no cash bonuses were
paid to Messrs. Ehrlich and Harats. However, the Company accrued $52,000 for
each of them for their bonuses, in partial satisfaction of the $80,011 each was
entitled to. The Company paid each of Messrs. Ehrlich and Harats $30,000 of
their 1998 Bonuses in 1999, and anticipates paying the balance of their 1998
Bonuses in 2000.

     The Employment Agreements also contain confidentiality and non-competition
covenants. Pursuant to the Employment Agreements, each of Messrs. Ehrlich and
Harats was granted demand and "piggyback" registration rights covering shares of
the Company's Common Stock held by them. The Employment Agreements may be
terminated by the Company in the event of death or disability or for "Cause"
(defined as conviction of certain crimes, willful failure to carry out
directives of the Company's Board of Directors or gross negligence or willful
misconduct). Messrs. Ehrlich and Harats both have the right to terminate their
employment for "Good Reason," which is defined to include adverse changes in
employment status or compensation, insolvency of the Company, material breaches
and certain other events. Upon termination of employment, the Employment
Agreements provide for payment of all accrued and unpaid compensation, as well
as bonuses due for the year in which employment is terminated. The Employment
Agreements also provide for a termination payment equal to thirty-six times the
monthly Base Salary at the highest rate in effect within the 90-day period prior
to the termination of employment. Furthermore, certain benefits will continue
and all outstanding options will be fully vested. In addition, Messrs. Harats
and Ehrlich are entitled to an amount equal to the greater of (x) the average of
all bonuses paid to the executive during the three most recent full calendar
years immediately preceding the

                                       35
<PAGE>

termination date or (y) all bonuses paid to the executive during the most recent
full calendar year immediately preceding the termination date. Finally, Mr.
Harats has the right to terminate his employment even without "Good Reason"
prior to the end of the employment agreement, and will still be entitled to all
the termination benefits indicated above.

     On December 29, 1998, Messrs. Ehrlich and Harats each agreed that for 1999,
they would waive approximately 27% of their base salary, totaling $43,476 each
for the calendar year. The Compensation Committee, in December 1998, approved a
grant of 108,690 options to each of Messrs. Ehrlich and Harats in lieu of the
amount waived, at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. The options were to vest 1/12th per
month over the calendar year. Messrs. Ehrlich and Harats each have the right to
cancel the arrangement upon two weeks` notification to the Company prior to the
beginning of each calendar quarter. Any unvested options would immediately be
forfeited. Furthermore, while their base salary was decreased, their social
benefits and 1999 bonuses were still calculated on the full base salary that
they are entitled to by contract. This arrangement continued through July 1999,
at which time, the Company resumed full payment of Messrs. Ehrlich's and
Harats's base salary and canceled the unvested portion of these options.

     Dr. Degani entered into an employment agreement with the Company upon
joining the Company in June 1997 (the "Degani Employment Agreement"). The Degani
Employment Agreement has no fixed termination date and, subject to advance
notice by either party of two months, may be terminated at will. The Degani
Employment Agreement provides for a monthly base salary of $9,000. This was
adjusted to $9,500, effective January 1998. The Degani Employment Agreement
provides for an annual bonus of not less than 1.5 times the monthly base salary
then in effect, in accordance with Dr. Degani's success in the position, as well
as other benefits such as vacation, sick leave, provision of an automobile and
insurance contributions. Furthermore, Dr. Degani is entitled to a termination
payment (in addition to severance pay by law) in an amount between 2-5 months`
base salary, depending on who gives notice of termination and how long Dr.
Degani has been employed with the Company. The Degani Employment Agreement also
contains confidentiality and non-competition covenants.

     During 1998, no cash bonus was paid to Dr. Degani. However, the Company
accrued $14,250 for him, as per his contract. This bonus is to be paid out in
cash in 2000. Dr. Degani's 1999 bonus, which was not paid out in 1999, is also
expected to be paid out in cash in 2000. On December 29, 1998, Dr. Degani agreed
that for 1999, he would waive $1,200 per month of his base salary, totaling
$14,400 for the calendar year. The Compensation Committee, in December 1998,
approved a grant of 36,000 options to Dr. Degani in lieu of the amount waived,
at an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant. The options were to vest 1/12th per month over the
calendar year. Dr. Degani had the right to cancel the arrangement upon two
weeks` notification to the Company prior to the beginning of each calendar
quarter. Any unvested options would immediately be forfeited. Furthermore, while
his base salary was decreased, his social benefits and 1999 bonuses were still
calculated on the basis of the full base salary that he is entitled to by
contract. This arrangement continued through June 1999, at which time the
Company resumed full payment of Dr. Degani's base salary and the unvested
portion of the options was canceled

     On March 12, 1998, the Company and Mr. Korall entered into an agreement
(the "Termination Agreement") to terminate, effective as of January 31, 1998,
Mr. Korall's Employment Agreement and all of the Company's and Mr. Korall's
respective rights and obligations thereunder. Pursuant to the Termination
Agreement, the Company paid Mr. Korall all salary, other benefits and legally
mandated severance pay due to him through the effective date. In addition, the
Company agreed to pay to Mr. Korall additional severance pay in the amount of
$120,000, payable in 24 equal monthly installments of $5,000 each, and to extend
the date by which options held by Mr. Korall to purchase 90,000 shares of the
Company may be exercised to February 28, 2000. The Termination Agreement also
contains mutual general releases between the Company and Mr. Korall.
Simultaneously, the Company entered into a consulting agreement (the "Consulting
Agreement") with Shampi Ltd., a consulting company with which Mr. Korall is
affiliated. Pursuant to the terms of the Consulting Agreement, Mr. Korall will
prepare several reports for the Company dealing with the Company's existing
vehicle battery product and with a proposal for a new battery project. The
Consulting Agreement terminates on April 10, 2000 unless renewed by mutual
agreement of the parties. In consideration of Mr. Korall's consulting services,
the Company will make 24 equal monthly payments of $6,000 each to Shampi Ltd.,
in addition to two lump sum payments of $31,500 each at the beginning and end of
the contract period. Furthermore, the Company has agreed to provide to Shampi
Ltd. a motor vehicle for Mr. Korall's use during the contract period. Pursuant
to the Consulting Agreement, Shampi Ltd. and Mr. Korall have agreed to a five-
year confidentiality provision and an agreement not to compete with the Company
nor to solicit customers, suppliers or employees of the Company during the term
of the Consulting Agreement and for a period of

                                       36
<PAGE>

twelve months thereafter. In July 1999, the Company and Mr. Korall entered into
a final settlement, pursuant to which all consulting arrangements were
terminated and a sum of approximately $160,000 was paid to Shampi.

     Other employees have entered into individual employment agreements with the
Company. These agreements govern the basic terms of the individual's employment,
such as salary, vacation, overtime pay, severance arrangements and pension
plans. Subject to Israeli law, which restricts a company's right to relocate an
employee to a work site farther than sixty kilometers from his or her regular
work site, the Company has retained the right to transfer certain employees to
other locations and/or positions provided that such transfers do not result in a
decrease in salary or benefits. All of these agreements also contain provisions
governing the confidentiality of information and ownership of intellectual
property learned or created during the course of the employee's tenure with the
Company. Under the terms of these provisions, employees must keep confidential
all information regarding the Company's operations (other than information which
is already publicly available) received or learned by the employee during the
course of employment. This provision remains in force for five years after the
employee has left the service of the Company. Further, intellectual property
created during the course of the employment relationship belongs to the Company.

     A number of the individual employment agreements, but not all, contain non-
competition provisions which restrict the employee's rights to compete against
the Company or work for an enterprise which competes against the Company. Such
provisions remain in force for a period of two years after the employee has left
the service of the Company.

     Under the laws of Israel, an employee of the Company who has been dismissed
from service, died in service, retired from service upon attaining retirement
age, or left due to poor health, maternity or certain other reasons, is entitled
to severance pay at the rate of one month's salary for each year of service. The
Company currently funds this obligation by making monthly payments to approved
private provident funds and by its accrual for severance pay in the consolidated
financial statements. See Note 2r of the Notes to the Consolidated Financial
Statements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee of the Board of Directors for the 1999 fiscal
year consisted of Dr. Jay Eastman, Jack Rosenfeld and Lawrence Miller. None of
the members have served as officers or employees of the Company.

     Robert S. Ehrlich, Chairman and Chief Financial Officer of the Company,
serves as Chairman and a director of PSCX, for which Dr. Eastman serves as
director and Mr. Rosenfeld serves as director and member of the Compensation
Committee.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding the security
ownership, as of February 28, 2000, of those persons owning of record or known
by us to own beneficially more than 5% of our Common Stock and of each of the
Company's Named Executive Officers and directors, and the shares of Common Stock
held by all directors and executive officers of the Company as a group. There
are no persons owning of record or known by the Company to own beneficially more
than 5% of the Company's Common Stock other than directors and Named Executive
Officers of the Company as listed below.

                                       37
<PAGE>

<TABLE>
<CAPTION>
                                                   SHARES BENEFICIALLY             PERCENTAGE OF TOTAL SHARES
NAMED EXECUTIVE OFFICERS AND DIRECTORS                  OWNED(1)(2)                       OUTSTANDING(2)
--------------------------------------            -----------------------------------------------------------
<S>                                              <C>                               <C>
Leon S. Gross                                        4,296,004(4)(12)                         23.5%
Robert S. Ehrlich                                    1,308,566(5)(8)(12)                       7.2%
Yehuda Harats                                        1,782,872(6)(8)(12)                       9.8%
Joshua Degani                                          125,954(7)                                *
Dr. Jay M. Eastman                                      25,000(9)                                *
Jack E. Rosenfeld                                       27,000(10)                               *
Lawrence M. Miller                                      31,914(11)                               *

All Directors and Executive Officers of              7,597,310(4)(5)(6)(7)(8)(9)              39.57%
 the Company as a group (7 persons)                           (10)(11)(12)
</TABLE>

* Less than one percent.

(1)  Unless otherwise indicated in these footnotes, each of the persons or
     entities named in the table has sole voting and sole investment power with
     respect to all shares shown as beneficially owned by that person, subject
     to applicable community property laws.

(2)  For purposes of determining beneficial ownership of the Company's Common
     Stock, owners of options exercisable within sixty days are considered to be
     the beneficial owners of the shares of Common Stock for which such
     securities are exercisable. The percentage ownership of the outstanding
     Common Stock reported herein is based on the assumption (expressly required
     by the applicable rules of the Securities and Exchange Commission) that
     only the person whose ownership is being reported has converted his options
     into shares of Common Stock.

(3)  All shares are held in the name of the Becker Family Trust of which Mr.
     Becker is the trustee and sole beneficiary during his lifetime.

(4)  Includes 20,000 shares of Common Stock issuable upon exercise of options
     exercisable within 60 days, 175,000 shares held by Leon S. Gross and
     Lawrence M. Miller as co-trustees of the Rose Gross Charitable Foundation,
     and 375,000 shares of Common Stock issuable upon exercise of warrants.

(5)  Includes 404,400 shares of Common Stock issuable upon exercise of options
     exercisable, or potentially exercisable, within 60 days.

(6)  Includes 310,000 shares of Common Stock issuable upon exercise of options
     exercisable, or potentially exercisable, within 60 days.

(7)  Shares of Common Stock issuable upon exercise of options
     exercisable within 60 days.

(8)  Messrs. Ehrlich and Harats are parties to a Stockholders Voting Agreement
     pursuant to which each of the parties agrees to vote the shares of the
     Company's Common Stock held by that person in favor of the election of
     Messrs. Ehrlich and Harats (or their designees) as directors of the
     Company.

(9)  Shares of Common Stock issuable upon exercise of options exercisable within
     60 days. (10) Includes 25,000 shares of Common Stock issuable upon exercise
     of options exercisable within 60 days.

(11) Includes 20,000 shares of Common Stock issuable upon exercise of options
     exercisable within 60 days.

(12) Messrs. Gross, Ehrlich and Harats are parties to a Voting Rights Agreement
     pursuant to which each of the parties agrees to vote the shares of the
     Company's Common Stock held by that person in favor of the election of
     Messrs. Ehrlich, Harats and Miller for five years following October 1996.

                                       38
<PAGE>

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Messrs. Ehrlich and Harats have issued promissory notes for previously
exercised options in the principal amounts $423,116 and $719,304, respectively.
The notes will mature on December 31, 2007. The Company has recourse only to
certain compensation due Messrs. Ehrlich and Harats upon termination, other than
for cause, in which case Messrs. Ehrlich and Harats would continue to be
personally liable on the notes. The Company's reserve for termination benefits
to each of Messrs. Ehrlich and Harats is greater than the outstanding amount due
the Company under the Promissory Notes. Additionally, the Company has agreed to
repurchase shares of the Company's Common Stock, at any time, at current market
prices, from either Messrs. Ehrlich or Harats as payment in full for the
promissory notes. If the shares were sold to the Company, Messrs. Ehrlich and
Harats would be granted new options at current market prices to purchase the
same amount of shares of the Company's Common Stock as were sold. As of December
31, 1999, the aggregate amount outstanding pursuant to the Promissory Notes for
each of Messrs. Ehrlich and Harats was $238,758 and $410,066, respectively
(including an aggregate of $87,096 in accrued interest receivable), which are
also the largest aggregate amounts outstanding since the issuance of the
Promissory Notes.

     Pursuant to a Stock Purchase Agreement, dated September 30, 1996, between
the Company and Leon S. Gross (the "1996 Purchase Agreement"), on October 2,
1996 the Company issued 1,538,462 shares of Common Stock to Mr. Gross at a price
of $6.50 per share, for a total purchase price of $10 million.

     Pursuant to a Securities Purchase Agreement dated December 28, 1999,
between the Company and a group of purchasers, including Mr. Gross (the "1999
Purchase Agreement," and together with the 1996 Purchase Agreement, the
"Purchase Agreements"), the Company issued an aggregate of 1,425,000 shares of
Common Stock, including 375,000 shares to Mr. Gross. Such shares were issued at
a price of $2.00 per share. The Company also issued in this transaction warrants
to purchase an additional 1,425,000 shares of Common Stock, of which warrants to
purchase 950,000 shares of Common Stock have an exercise price of $1.25 per
share and are exercisable for a period of six months ("six-month warrants"), and
warrants to purchase 425,000 shares of Common Stock have an exercise price of
$4.50 per share and are exercisable for one year ("one-year warrants"). Of
these, Mr. Gross purchased six-month warrants to purchase 250,000 shares of
Common Stock and one-year warrants to purchase 125,000 shares of Common Stock.

     Pursuant to the terms of both Purchase Agreements, Mr. Gross agreed that
for a period of five years from the date of each Purchase Agreement, neither Mr.
Gross nor his "affiliates" (as such term is defined in the Securities Act)
directly or indirectly or in conjunction with or through any "associate" (as
such term is defined in Rule 12b-2 of the Exchange Act), will (i) solicit
proxies with respect to any capital stock or other voting securities of the
Company under any circumstances, or become a "participant" in any "election
contest" relating to the election of directors of the Company (as such terms are
used in Rule 14a-11 of Regulation 14A of the Exchange Act); (ii) make an offer
for the acquisition of substantially all of the assets or capital stock of the
Company or induce or assist any other person to make such an offer; or (iii)
form or join any "group" within the meaning of Section 13(d)(3) of the Exchange
Act with respect to any capital stock or other voting securities of the Company
for the purpose of accomplishing the actions referred to in clauses (i) and (ii)
above, other than pursuant to the Voting Rights Agreement described below.

     In connection with the 1996 Purchase Agreement, the Company and Mr. Gross
also entered into a Registration Rights Agreement, dated September 30, 1996,
setting forth registration rights with respect to the shares of Common Stock
issued to Mr. Gross in connection with the offering. These rights include the
right to make two demands for a shelf registration statement on Form S-3 for the
sale of the Common Stock that may, subject to certain customary limitations and
requirements, be underwritten. In addition, Mr. Gross was granted the right to
"piggyback" on registrations of Common Stock in an unlimited number of
registrations. In addition, under the Registration Rights Agreement, Mr. Gross
is subject to customary underwriting lock-up requirements with respect to public
offerings of the Company's securities.

     Pursuant to the 1999 Purchase Agreement, the Company agreed to register for
resale the shares of Common Stock issued thereunder and the shares of Common
Stock issuable pursuant to the warrants issued thereunder. Pending the
registration of the shares, the proceeds from the private placement (with the
exception of the proceeds from the sale of securities to Mr. Gross) were placed
in escrow.

                                       39
<PAGE>

The registration statement registering these shares became effective on February
10, 2000, and the proceeds from the placement have therefore been released from
escrow.

     Pursuant to a Voting Rights Agreement dated September 30, 1996 and as
amended December 10, 1997, between the Company, Mr. Gross, Robert S. Ehrlich and
Yehuda Harats (the "Voting Rights Agreement"), Lawrence M. Miller, Mr. Gross's
advisor, is entitled to be nominated to serve on the Company's Board of
Directors so long as Mr. Gross, his heirs or assigns retains at least 1,375,000
shares of Common Stock. In addition, under the Voting Rights Agreement, Mr.
Gross and Messrs. Ehrlich and Harats agreed to vote and take all necessary
action so that Messrs. Ehrlich, Harats and Miller shall serve as members of the
Board of Directors until the earlier of December 10, 2002 or the 5th Annual
Meeting after December 10, 1997. In addition, so long as Mr. Miller serves as a
director, Mr. Gross, who shall succeed Mr. Miller should he cease to serve on
the Board (unless Mr. Gross is then serving on the Board, in which case Mr.
Gross may designate a director), shall be entitled to attend and receive notice
of Board meetings.

     Pursuant to Amendment No. 1 to the Voting Rights Agreement dated December
28, 1999 between the parties to the Voting Rights Agreement and the purchasers
under the 1999 Purchase Agreement, such purchasers are entitled to have one
designated nominee elected to the Board of Directors and serve in such capacity
so long as they hold in the aggregate 950,000 shares of Common Stock.

     On December 3, 1999, Messrs. Ehrlich and Harats each purchased 125,000
shares of the Company's Common Stock out of the Company's treasury at the
closing price of the Common Stock on December 2, 1999. Payment was rendered by
Mr. Ehrlich in the form of a recourse promissory note in the amount of $167,975,
secured by certain compensation due Mr. Ehrlich upon termination. Payment was
rendered by Mr. Harats in the form of a non-recourse promissory note in the
amount of $167,975, secured by the shares of Common Stock purchased and other
shares of Common Stock previously held by Mr. Harats. The other terms of these
notes are similar to the terms of the previous notes as described above.

     On February 9, 2000, Messrs. Ehrlich and Harats each exercised 131,665
options. Payment was rendered by Messrs. Ehrlich and Harats in the form of non-
recourse promissory notes in the amount of $789,990 each, secured by the shares
of the Company's Common Stock acquired through the exercise of the options.

                                       40
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1.   Financial Statements - See Index to Financial Statements on pages 26-27
     above.
2.   Financial Statements Schedules - All schedules are omitted because of the
     absence of conditions under which they are required or because the required
     information is presented in the financial statements or related notes
     thereto.
3.   Exhibits -The following Exhibits are either filed herewith or have
     previously been filed with the Securities and Exchange Commission and are
     referred to and incorporated herein by reference to such filings.

Exhibit     Description
Number      -----------
------

3.1  Amended and Restated Certificate of Incorporation of the Registrant.(8)

3.2  Amended and Restated By-Laws of the Company.(2)

4    Specimen Certificate for shares of Common Stock, $.01 par value of the
     Registrant.(1) 10.1 Option Agreement dated October 29, 1992 between
     Electric Fuel B.V. ("EFBV") and Electric Storage Advanced Technologies, Sr
     ("ESAT").(1)

10.2 Sublicense Agreement dated May 20, 1993 between EFBV and ESAT.(1)

10.3 Letter Agreement dated May 20, 1993 between EFBV and ESAT.(1)

10.4 Notice of Edison's assumption of ESAT's obligations under the Sublicense
     Agreement with EFBV.(1)

10.5 Letter of Intent between the Company and Deutsche Post AG dated November
     18, 1993.(1)

10.6 Amended and Restated 1993 Stock Option and Restricted Stock Purchase Plan
     dated November 11, 1996.(6)+

10.7.1 Form of Management Employment Agreements. (1)+

10.7.2 General Employee Agreements.(1)*+

10.8 Office of Chief Scientist documents.(1)*

10.8.1 Letter from the Office of Chief Scientist to the Company dated January 4,
     1995.(2)

10.9 Lease Agreement dated December 2, 1992 between the Company and Har Hotzvim
     Properties Ltd.(1)*

10.10 Letter of Approval by the Investment Center of the Ministry of Trade.(1)*

10.11 Summary of the terms of the Lease Agreements dated as of November 11,
     1994, November 11, 1994 and April 3, 1995 between EFL and Industries
     Building Company, Ltd.(2)*


10.12 Amended and Restated 1995 Non-Employee Director Stock Option Plan.(3)+

10.13 Letters of Approval of Lines of Credit from First International Bank of
     Israel Ltd. dated March 14, 1996 and March 18, 1996.(3)

10.14 Stock Purchase Agreement between the Company and Leon S. Gross ("Gross")
     dated September 30, 1996.(4)

10.15 Registration Rights Agreement between the Company and Gross dated
     September 30, 1996.(4)

10.16 Voting Rights Agreement between the Company, Gross, Robert Ehrlich and
     Yehuda Harats dated September 30, 1996. (4)

                                       41
<PAGE>

10.17 Agreement between the Company and Walter Trux dated December 18, 1996. (5)

10.18 Cooperation Agreement between The Israel Electric Corporation and EFL
     dated as of October 31, 1996.(5)

10.19 Amended and Restated Employment Agreement, dated as of October 1, 1996
     between the Company, EFL and Yehuda Harats+ (5)

10.20 Amended and Restated Employment Agreement dated as of October 1, 1996
     between the Company, EFL and Robert S. Ehrlich+ (5)

10.21 Agreement dated February 20, 1997 between STN ATLAS Elektronik GmbH and
     EFL.(5)

10.22 Employment Agreement dated May 13, 1997 between the Company, EFL, and
     Joshua Degani.+ (6)

10.23 Termination Agreement dated March 12, 1998 between the Company, EFL and
     Menachem Korall.+ (6)

10.24 Consulting Agreement dated March 12, 1998 between the Company, EFL, and
     Shampi Ltd. (6)

10.25 Amendment No. 1 to the Voting Rights Agreement between the Company, Gross,
     Robert Ehrlich, and Yehuda Harats dated December 10, 1997. (6)

10.26 Amendment No. 2 to the Registration Rights Agreement between the Company,
     Gross, Robert Ehrlich and Yehuda Harats dated December 10, 1997. (6)

10.27 1998 Non-Executive Stock Option and Restricted Stock Purchase Plan. (7)

10.28 Distribution Agreement dated December 31, 1998 between the Company and
     TESSCO Technologies Inc. (8)

10.29 Amendment to the Company's Restated Certificate of Incorporation. (9)

10.30 Securities Purchase Agreement, dated December 28, 1999, and exhibits
     thereto, by and among the Company and the Purchasers listed on Exhibit A
     thereto. (10)

10.31 Form of Warrant dated December 28, 1999. (10)

10.32 Amendment No. 1 to Voting Rights Agreement, dated December 28, 1999, by
     and between the Company, Leon S. Gross, Robert S. Ehrlich, Yehuda Harats
     and the Purchasers listed on Exhibit A to the Securities Purchase Agreement
     dated December 28, 1999. (10)

10.33 Common Stock Purchase Agreement, dated January 5, 2000, and exhibits
     thereto, by and among the Company and the Purchasers listed on Exhibit A
     thereto. (11)

10.34.1 Promissory Note, dated January 3, 1998, from Yehuda Harats to the
     Company.**

10.34.2 Amendment, dated April 1, 1998, to Promissory Note dated January 3, 1998
     between Yehuda Harats and the Company.**

10.35.1 Promissory Note, dated January 3, 1993, from Robert S. Ehrlich to the
     Company.**

10.35.2 Amendment, dated April 1, 1998, to Promissory Note dated January 3, 1993
     between Robert S. Ehrlich and the Company.**

10.36 Promissory Note, dated December 3, 1999, from Yehuda Harats to the
     Company.**

10.37 Promissory Note, dated December 3, 1999, from Robert S. Ehrlich to the
     Company.**

10.38 Promissory Note, dated February 9, 2000, from Yehuda Harats to the
     Company.**

10.39 Promissory Note, dated February 9, 2000, from Robert S. Ehrlich to the
     Company.**

21   List of Subsidiaries of the Registrant.(2)

23.1 Consent of Kost Forer & Gabbay.**

23.2 Consent of Kesselman & Kesselman.**

27   Financial Data Schedule.**

27.1 Amended Financial Data Schedule Nine Months Ended September 30, 1997. (6)

                                       42
<PAGE>

27.2 Amended Financial Data Schedule Six Months Ended June 30, 1997. (6)

27.3 Amended Financial Data Schedule Three Months Ended March 31, 1997. (6)

99   Important factors regarding forward-looking statements.**


(b) Reports on Form 8-K.

     The Company did not file any Current Reports on Form 8-K during the last
quarter of fiscal year 1999.

----------------

*    English translation or summary from original

**   Filed herewith.

+    Includes management contracts and compensation plans and arrangements.

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (Registration No. 33-73256), which became effective on
     February 23, 1994.

(2)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (Registration No. 33-97944), which became effective on
     February 5, 1996.

(3)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.

(4)  Incorporated by reference to the Company's Report on Form 8-K dated
     October 4, 1996.

(5)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996, as amended.

(6)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997, as amended.

(7)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 (Registration No. 333 - 74197), which became effective on
     March 10, 1998.

(8)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1998.

(9)  Incorporated by reference to the Company's Registration Statement on Form
     S-3 (Registration No. 333-95361), which became effective on
     February 10, 1999.

(10) Incorporated by reference to the Company's Report on Form 8-K filed
     January 7, 2000.

(11) Incorporated by reference to the Company's Current Report on Form 8-K filed
     January 24, 2000.

                                       43
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, on March 16, 2000.

                            ELECTRIC FUEL CORPORATION


                              By:  /s/ Robert S. Ehrlich
                                  -----------------------------
                                  Robert S. Ehrlich
                                  Chairman and Chief Financial Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 16, 2000.


     Signature                           Title
     ---------                           -----

/s/ Yehuda Harats
-----------------------------
Yehuda Harats                          President, Chief Executive Officer, and
                                       Director (Principal Executive Officer)

/s/ Robert S. Ehrlich
-----------------------------
Robert S. Ehrlich                      Chairman, Chief Financial Officer and
                                       Director (Principal Financial Officer)
/s/ Avihai Shen
-----------------------------
Avihai Shen                            Controller (Principal Accounting Officer)

/s/ Jay M. Eastman
-----------------------------
Jay M. Eastman                         Director

/s/ Leon S. Gross
-----------------------------
Leon S. Gross                          Director

/s/ Lawrence M. Miller
-----------------------------
Lawrence M. Miller                     Director

/s/ Jack E. Rosenfeld
-----------------------------
Jack E. Rosenfeld                      Director


                                       44
<PAGE>


                            ELECTRIC FUEL CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                            AS OF DECEMBER 31, 1999

                                 IN U.S. DOLLARS


                                      INDEX
<TABLE>
<CAPTION>
                                                                    Page
                                                                  --------
<S>                                                               <C>
Report of Independent Auditors                                       2

Consolidated Balance Sheets                                        3 - 4

Consolidated Statements of Operations                                5

Statements of Changes in Shareholders' Equity                      6 - 7

Consolidated Statements of Cash Flows                              8 - 9

Notes to Consolidated Financial Statements                        10 - 31
</TABLE>

                             - - - - - - - - - - -

<PAGE>

ERNST & YOUNG
KOST FORER & GABBAY



                        REPORT OF INDEPENDENT AUDITORS

                            To the Shareholders of

                           ELECTRIC FUEL CORPORATION



         We have audited the accompanying consolidated balance sheet of Electric
Fuel Corporation ("the Company") and its subsidiaries as of December 31, 1999
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The consolidated
financial statements of the Company as of December 31, 1998 and for the period
of two years then ended, were audited by other auditors, whose report dated
February 26, 1998, expressed an unqualified opinion on those statements.


         We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.


         In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiaries as of December 31, 1999, and the
consolidated results of their operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles in the United
States.






Tel Aviv, Israel                                  KOST FORER & GABBAY
February 25, 2000                       A Member of Ernst & Young International

                                      F-2
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                            December 31,
                                                              ------------------------------------------
                                                                    1999                    1998
                                                              ------------------      ------------------
                                                                            U.S. dollars
                                                              ------------------------------------------
<S>                                                            <C>                     <C>
   ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                       $  2,555,645            $  5,242,555
  Marketable debt securities (Note 8c)                                       -               3,700,575
  Trade receivables                                                    498,077                 613,467
  Other accounts receivable and prepaid expenses (Note 8a)             950,390               1,299,056
  Inventories (Note 3)                                               1,045,480                 374,543
                                                              ------------------      ------------------

Total current assets                                                 5,049,592              11,230,196
-----                                                         ------------------      ------------------

SEVERANCE PAY FUND (Note 2r)                                           813,535                 734,465
                                                              ------------------      ------------------

PROPERTY AND EQUIPMENT, NET (Note 4)                                 4,165,769               3,434,859
                                                              ------------------      ------------------

                                                                  $ 10,028,896            $ 15,399,520
                                                              ==================      ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-3
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                      ------------------------------------------
                                                                            1999                    1998
                                                                      ------------------      ------------------
                                                                                    U.S. dollars
                                                                      ------------------------------------------
<S>                                                                   <C>                      <C>
   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade payables                                                          $  2,026,175           $   1,099,352
  Other accounts payable and accruals (Note 8b)                              1,400,763               1,003,522
  Deferred income                                                                    -                 136,549
                                                                      ------------------      ------------------

Total current liabilities                                                    3,426,938               2,239,423
-----                                                                 ------------------      ------------------

ACCRUED SEVERANCE PAY (Note 2r)                                              2,359,599               2,578,585
                                                                      ------------------      ------------------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)

SHAREHOLDERS' EQUITY (Note 6):
  Common shares - $ 0.01 par value each;
   Authorized: 28,000,000 shares as of
     December 31, 1999 and 1998;
   Issued: 15,978,387 shares and 14,303,387 shares as of
     December 31, 1999 and 1998, respectively                                  159,784                 143,034
  Outstanding - 15,973,054 shares and 14,048,054 shares as of
   December 31, 1999 and 1998, respectively
  Preferred shares - $ 0.01 par value each;
   Authorized: 1,000,000 shares as of December 31, 1999 and 1998;
   No shares issued and outstanding as of December 31, 1999 and 1998
  Additional paid-in capital                                                60,108,315              57,398,814
  Accumulated deficit                                                      (51,468,715)            (44,553,027)
  Accumulated other comprehensive loss                                               -                  (1,943)
  Treasury stock, at cost (Common shares - 5,333 shares and
    255,333 shares as of December 31, 1999 and 1998, respectively)          (1,470,531)             (1,806,481)
  Notes receivable from shareholders                                        (3,086,494)               (598,885)
                                                                      ------------------      ------------------

Total shareholders' equity                                                   4,242,359              10,581,512
-----                                                                 ------------------      ------------------

                                                                          $ 10,028,896            $ 15,399,520
                                                                      ==================      ==================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-4
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                   ---------------------------------------------------------------
                                                          1999                  1998                  1997
                                                   -------------------   -------------------    ------------------
                                                                U.S. dollars (except per share data)
                                                   ---------------------------------------------------------------
<S>                                                <C>                   <C>                   <C>
Revenues                                              $   2,693,998         $   4,013,263          $  4,526,216
                                                   -------------------   -------------------    ------------------
Research and development expenses and
  cost of revenues net (Note 9a)                          6,631,075             9,680,410              9,952,504

Selling, general and administrative expenses
  (Note 9b)                                               3,162,643             3,560,639              4,333,472
                                                   -------------------   -------------------    ------------------

Total operating expenses                                  9,793,718            13,241,049             14,285,976
-----                                              -------------------   -------------------    ------------------

Operating loss                                           (7,099,720)           (9,227,786)            (9,759,760)
Financial income, net (Note 9c)                             190,049               652,042                775,111
                                                   -------------------   -------------------    ------------------

Loss before income taxes                                 (6,909,671)           (8,575,744)            (8,984,649)
Income taxes (Note 7)                                         6,017               (43,174)               144,850
                                                   -------------------   -------------------    ------------------

Net loss                                              $  (6,915,688)        $  (8,532,570)          $ (9,129,499)
                                                   ===================   ===================    ==================

Basic and diluted net loss per share (Note 2m)        $       (0.48)        $       (0.61)          $     (0.73)
                                                   ===================   ===================    ==================

Weighted average number of shares outstanding            14,334,277            14,013,305             12,502,330
                                                   ===================   ===================    ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-5
<PAGE>

                                                       ELECTRIC FUEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         other
                                               Common shares           Additional                    comprehensive
                                        ----------------------------    paid-in       Accumulated       income
                                           Shares         Amount        capital         deficit         (loss)
                                        -------------  -------------  -------------  --------------  --------------
                                                                              U.S. dollars
                                                       ------------------------------------------------------------
<S>                                     <C>              <C>         <C>             <C>                <C>
 Balance as of January 1, 1997            14,257,508      $ 142,575   $ 57,341,451   $(26,890,958)        $ 3,157

 Comprehensive loss:
   Realization of gain on
     available-for-sale securities                 -              -              -              -          (2,721)
   Net loss                                        -              -              -     (9,129,499)              -

 Total comprehensive loss
   Exercise of options                        32,953            330         36,552              -               -
   Purchase of treasury stock                (72,300)          (723)      (455,671)             -               -
   Amortization of deferred
     compensation                                  -              -          9,000              -               -
   Loans granted to shareholders                   -              -              -              -               -
   Payment of interest and principal
     on notes receivable from
     shareholders                                  -              -              -              -               -
   Accrued interest on notes
     receivable from shareholders                  -              -        146,376              -               -
                                        -------------  -------------  -------------  --------------  --------------
 Balance as of December 31, 1997          14,218,161        142,182     57,077,708    (36,020,457)            436
 Comprehensive loss:
   Unrealized loss on
     available-for-sale securities                 -              -              -              -          (2,379)
   Net loss                                        -              -              -     (8,532,570)              -

 Total comprehensive loss
 Exercise of options                          81,226            812         90,094              -               -
   Purchase of treasury stock (255,333
    shares) for notes receivable from
    shareholders and compensation costs
    in respect thereof                             -              -        110,302              -               -
   Amortization of deferred compensation           -              -        110,000              -               -
   Issuance of shares as
     compensation for services rendered
     by directors                              4,000             40         10,710              -               -
   Loans granted to shareholders                   -              -              -              -               -
   Payment of interest and principal on
    notes receivable from shareholders             -              -              -              -               -
   Accrued interest on notes receivable
    from shareholders                              -              -              -              -               -
                                        -------------  -------------  -------------  --------------  --------------
 Balance as of December 31, 1998          14,303,387      $ 143,034   $ 57,398,814   $(44,553,027)       $ (1,943)
                                        =============  =============  =============  ==============  ==============
<CAPTION>
                                                           Total        receivable
                                           Treasury     comprehensive       from
                                            stock           loss        shareholders       Total
                                        -------------  --------------  --------------  -------------
                                                               U.S. Dollars
                                        -------------------------------------------------------------
<S>                                     <C>            <C>           <C>              <C>
 Balance as of January 1, 1997            $ (456,394)                  $ (2,270,220)   $ 27,869,611

 Comprehensive loss:
   Realization of gain on
     available-for-sale securities                 -           2,721              -          (2,721)
   Net loss                                        -      (9,129,499)             -      (9,129,499)
                                                      --------------
 Total comprehensive loss                               $ (9,126,778)
   Exercise of options                             -                              -          36,882
   Purchase of treasury stock                456,394                              -               -
   Amortization of deferred
     compensation                                  -                              -           9,000
   Loans granted to shareholders                   -                        (38,395)        (38,395)
   Payment of interest and principal
     on notes receivable from
     shareholders                                  -                         14,096          14,096
   Accrued interest on notes
     receivable from shareholders                  -                       (146,376)              -
                                        -------------                  --------------  -------------
 Balance as of December 31, 1997                   -                     (2,440,895)     18,758,974
 Comprehensive loss:
   Unrealized loss on
     available-for-sale securities                 -          (2,379)             -          (2,379)
   Net loss                                        -      (8,532,570)             -      (8,532,570)
                                                      --------------
 Total comprehensive loss                             $   (8,534,949)
 Exercise of options                               -                              -          90,906
   Purchase of treasury stock (255,333
    shares) for notes receivable from
    shareholders and compensation costs
    in respect thereof                    (1,806,481)                     1,806,481         110,302
   Amortization of deferred compensation           -                              -         110,000
   Issuance of shares as
     compensation for services rendered
     by directors                                  -                              -          10,750
   Loans granted to shareholders                   -                        (19,158)        (19,158)
   Payment of interest and principal on
    notes receivable from shareholders
   Accrued interest on notes receivable
    from shareholders                              -                        147,299         147,299

 Balance as of December 31, 1998                   -                        (92,612)        (92,612)
                                        -------------                  --------------  -------------
                                         $(1,806,481)                    $ (598,885)   $ 10,581,512
                                        =============                  ==============  =============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-6
<PAGE>

                                                       ELECTRIC FUEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                      other
                                           Common shares            Additional                    comprehensive
                                   ------------------------------    paid-in       Accumulated        income
                                      Shares          Amount         capital         deficit          (loss)
                                   --------------  --------------  -------------  --------------  ---------------
                                                                          U.S. Dollars
                                                   --------------------------------------------------------------
<S>                               <C>               <C>            <C>            <C>             <C>
 Balance as of December 31, 1998      14,303,387       $ 143,034    $ 57,398,814   $(44,553,027)    $   (1,943)

 Comprehensive loss:
   Net realized loss on
    available-for-sale  securities             -               -               -              -         (1,943)
   Net loss                                    -               -               -     (6,915,688)             -

 Total comprehensive loss
   Issuance of shares, net             1,675,000          16,750       2,709,501              -              -
   Accrued interest on notes
    receivable from shareholders               -               -               -              -              -
                                   --------------  --------------  -------------  --------------  ---------------

 Balance as of December 31, 1999      15,978,387      $  159,784    $ 60,108,315   $(51,468,715)  $           -
                                   ==============  ==============  =============  ==============  ===============

<CAPTION>

                                                                       Notes
                                                      Total         receivable
                                     Treasury     comprehensive        from
                                      stock            loss        shareholders        Total
                                   -------------  ---------------  -------------- ----------------
                                                        U.S. Dollars
                                   ---------------------------------------------------------------
<S>                               <C>             <C>              <C>             <C>
 Balance as of December 31, 1998   $ (1,806,481)                   $   (598,885)    $ 10,581,512

 Comprehensive loss:
   Net realized loss on                                                                    `
    available-for-sale securities             -         (1,943)               -            1,943
   Net loss                                   -     (6,915,688)               -       (6,915,688)
                                                  ----------------
                                                  $ (6,917,631)
                                                  ================
 Total comprehensive loss
   Issuance of shares, net              335,950                      (2,435,950)         626,251
   Accrued interest on notes
    receivable from shareholders              -                         (51,659)         (51,659)
                                   -------------                   --------------  ---------------

 Balance as of December 31, 1999   $ (1,470,531)                   $ (3,086,494)     $ 4,242,359
                                   =============                   ==============  ===============

</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-7
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                            ---------------------------------------------------------------
                                                                   1999                  1998                  1997
                                                            -------------------   -------------------    ------------------
                                                                                     U.S. dollars
                                                            ---------------------------------------------------------------
<S>                                                        <C>                      <C>                  <C>
Cash flows from operating activities:
  Net loss                                                    $   (6,915,688)         $ (8,532,570)          $ (9,129,499)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Write-down of investment in an investee                                -                35,849                      -
    Depreciation and amortization                                    710,759               903,945                866,327
    Amortization of net premium (discount) on
      marketable securities                                                -                21,897                (44,591)
    Capital loss (gain) from sale of property and
    equipment                                                         (2,868)                5,321                  6,405
    Capital loss (gain) on sale of marketable debt
      securities, net                                                    107                   150                      -
    Accrued severance pay, net                                      (298,056)                1,371                701,719
    Write-down of property and equipment                                   -             1,251,604                      -
    Compensation expense resulting from director
      shares options granted                                               -                10,750                      -
    Compensation expense resulting from employee
      share options granted                                                -               110,000                      -
    Compensation expense resulting from purchasing
      of treasury stock for notes receivable
      from shareholders                                                    -               110,302                      -
    Issuance of options as compensation for
      services rendered by consultants                                     -                     -                  9,000
    Accrued interest on notes and loan to
      shareholders                                                   (51,659)              (92,612)                     -
    Decrease (increase) in trade receivables and
     other accounts receivable and prepaid                           464,056               222,540               (233,457)
     expenses
    Decrease (increase) in inventories                              (670,937)              164,139                376,350
    Increase (decrease) in trade payables and
     other accounts payable and accruals                           1,200,315              (852,660)               570,656
    Increase (decrease) in deferred income                          (136,549)             (878,399)                88,349
                                                            -------------------   -------------------    ------------------

    Net cash used in operating activities                         (5,700,520)           (7,518,373)            (6,788,741)
                                                            -------------------   -------------------    ------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-8
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                            ---------------------------------------------------------------
                                                                   1999                  1998                  1997
                                                            -------------------   -------------------    ------------------
                                                                                     U.S. dollars
                                                            ---------------------------------------------------------------
<S>                                                          <C>                    <C>                    <C>
Cash flows from investing activities:
------------------------------------
  Purchase of property and equipment                              (1,473,444)             (985,507)              (507,882)
  Investment grant relating to property and
    equipment                                                              -               377,901                      -
  Loans granted to shareholders                                            -               (19,158)               (38,395)
  Proceeds from sale of property and equipment                        34,643               157,500                      -
  Proceeds from sale of marketable debt
    securities                                                     3,702,411             1,220,171              6,393,080
                                                            -------------------   -------------------    ------------------

Net cash provided by investing activities                          2,263,610               750,907              5,846,803
                                                            -------------------   -------------------    ------------------

Cash flows from financing activities:
------------------------------------
  Proceeds from issuance of share capital, net                       750,000                     -                      -
  Proceeds from exercise of options                                        -                90,906                 36,882
  Payment on note receivable from shareholders                             -               147,299                 14,096
                                                            -------------------   -------------------    ------------------

Net cash provided by financing activities                            750,000               238,205                 50,978
                                                            -------------------   -------------------    ------------------

Decrease in cash and cash equivalents                             (2,686,910)           (6,529,261)              (890,960)
Cash and cash equivalents at the beginning of
  the year                                                         5,242,555            11,771,816             12,662,776
                                                            -------------------   -------------------    ------------------

Cash and cash equivalents at the end of the year            $      2,555,645      $      5,242,555           $ 11,771,816
                                                            ===================   ===================    ==================

Supplementary information on activities not
-------------------------------------------
 involving cash flows:
 ---------------------
Write-down of property and equipment                        $              -      $              -       $      2,200,000
                                                            ===================   ===================    ==================
Purchase of treasury stock in respect of notes
    receivable from stockholders.                           $              -      $      1,806,481        $             -
                                                            ===================   ===================    ==================
Issuance of share capital (including additional
    paid-in capital) upon notes receivable.                 $      2,435,950      $              -       $              -
                                                            ===================   ===================    ==================

Liabilities in respect to share issuance expenses           $       (123,749)      $               -      $              -
                                                            ===================   ===================    ==================

Supplemental disclosure of cash flows information:
-------------------------------------------------
 Cash paid during the year for:
    Interest                                                $         38,202      $          1,045       $         30,001
                                                            ===================   ===================    ==================

    Income taxes                                            $         23,430      $         88,340       $         49,563
                                                            ===================   ===================    ==================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-9
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 1:-      GENERAL

              Electric Fuel Corporation ("EFC", "Electric Fuel", or the
              "Company") is engaged in the design, development and
              commercialization of its proprietary zinc-air battery technology
              for portable consumer electronic devices such as cellular
              telephones, as well as for electric vehicles and defense
              applications. The Company is primarily operating through Electric
              Fuel Ltd. ("EFL"), a wholly-owned Israeli subsidiary. The
              operations of the other active subsidiaries are immaterial.

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES

              The consolidated financial statements have been prepared in
              accordance with generally accepted accounting principles ("GAAP")
              in the United States.

              a.     Use of estimates:

                     The preparation of financial statements in conformity with
                     generally accepted accounting principles requires
                     management to make estimates and assumptions that affect
                     the amounts reported in the financial statements and
                     accompanying notes. Actual results could differ from those
                     estimates.

              b.     Financial statements in U.S. dollars:

                     The Company's transactions are recorded in dollars, and its
                     subsidiary's transactions are recorded in new Israeli
                     shekels; however, the majority of EFL's sales are made
                     outside Israel in U.S. dollars, and a substantial portion
                     of EFL's costs are incurred in U.S. dollars. Accordingly,
                     the Company has determined the U.S. dollar as the currency
                     of its primary economic environment and thus its functional
                     and reporting currency.

                     The Company's transactions and balances denominated in U.S.
                     dollars are presented at their original amounts. Non-dollar
                     transactions and balances have been remeasured to U.S.
                     dollars in accordance with Statement No. 52 of the
                     Financial Accounting Standards Board ("FASB"). All
                     transaction gains and losses from remeasurement of monetary
                     balance sheet items denominated in non-dollar currencies
                     are reflected in the statements of operations as financial
                     income or expenses, as appropriate.

              c.     Principles of consolidation:

                     The consolidated financial statements include the accounts
                     of the Company and its subsidiaries. Intercompany
                     transactions and balances, including profits from
                     intercompany sales not yet realized outside the group, have
                     been eliminated in consolidation.

                                      F-10
<PAGE>

                                                       ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------





              d.     Cash equivalents:

                     The Company considers all highly liquid investments
                     originally purchased with maturities of three months or
                     less to be cash equivalents.

              e.     Marketable debt securities:

                     The Company accounts for its investments using Statement of
                     Financial Accounting Standard Board No. 115, "Accounting
                     for Certain Investments in Debt and Equity Securities"
                     ("SFAS No. 115"). This standard requires that certain debt
                     and equity securities be adjusted to market value at the
                     end of each accounting period.

                     The Company's securities are classified as
                     available-for-sale. Accordingly, these securities are
                     stated at market value, and the changes in their market
                     value are carried directly to a separate item of
                     shareholders' equity, under other comprehensive income
                     (loss). Realized gains and losses are carried to the
                     statements of operations.

              f.     Inventories:

                     Inventories are stated at the lower of cost or market
                     value. Cost is determined as follows:

                     Raw materials - by the "moving average basis" method.

                     Work in progress - represents the cost of development
                     in progress.

                     Finished products - on the basis of direct manufacturing
                     costs.

              g.     Property and equipment:

                     Property and equipment are stated at cost net of
                     accumulated depreciation and investment grant.

                     Depreciation is calculated by the straight-line method over
                     the estimated useful lives of the assets, at the following
                     annual rates:
<TABLE>
<CAPTION>
                                                                            %
                                                              ------------------------------
<S>                                                       <C>
                     Machinery and equipment                       10 - 25 (mainly 10)
                     Computers and peripheral equipment                    33
                     Office furniture and equipment                      6 - 10
                     Motor vehicles                                        15
                     Leasehold improvements                    Over the term of the lease
</TABLE>

                                      F-11
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



              h.     Revenue recognition:

                     Revenues in respect of contracts for prototype equipment,
                     technical assistance, services, etc. are recognized upon
                     the delivery of the equipment or as the services are
                     performed. Payment from technology licenses is recognized
                     upon sale of the license.

                     If such payment is uncertain, revenue is recognized to the
                     extent of non-refundable fee received.

                     Revenue and costs in connection with the Company's
                     contractual program commitments are recognized on the
                     "percentage of completion" method. The percentage of
                     completion is determined according to the ratio of amounts
                     already expended to estimated total cost as projected at
                     balance sheets dates. Full provision is made for losses
                     arising from these commitments upon their anticipation.

              i.     Impairment in value of property and equipment:

                     In accordance with Statement No. 121 of the FASB,
                     "Accounting for the Impairment and Disposal of Long-lived
                     Assets", the Company records impairment losses on
                     long-lived assets used in operations when events and
                     circumstances indicate that the assets might be impaired
                     and the undiscounted cash flows estimated to be generated
                     by those assets are less than the carrying amounts of those
                     assets. Based on the Company's estimate of future
                     undiscounted cash flows, the Company expects to recover the
                     carrying amounts of its remaining propety and equipment.

              j.     Income taxes:

                     The Company accounts for income taxes in accordance with
                     Statement of Financial Accounting Standards (SFAS) No. 109,
                     "Accounting for Income Taxes". This Statement prescribes
                     the use of the liability method, whereby deferred tax asset
                     and liability account balances are determined based on
                     differences between financial reporting and tax bases of
                     assets and liabilities and are measured using the enacted
                     tax rates and laws that will be in effect when the
                     differences are expected to reverse.

              k.     Royalty-bearing grants:

                     Royalty-bearing grants from the Government of Israel for
                     funding for research and development are recognized at the
                     time the Company is entitled to such grants on the basis of
                     the related costs incurred .

                     Royalty-bearing grants for the years ended December 31,
                     1997, 1998 and 1999 amounted to $ 2,381,771, $ 489,546 and
                     $ 1,202,976, respectively.

                                      F-12
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


              l.     Concentrations of credit risk:

                     Financial instruments that potentially subject the Company
                     to concentrations of credit risk consist principally of
                     trade receivables, notes receivable, cash and cash
                     equivalents, and marketable debt securities. The Company's
                     cash and cash equivalents are invested in dollar and dollar
                     linked deposits with major Israeli and U.S. banks.
                     Management believes that the financial institutions that
                     hold the Company's investments are financially sound and,
                     accordingly, minimal credit risk exists with respect to
                     these investments.

                     The Company's trade receivable are mainly derived from
                     sales to customers in the United States and Europe. The
                     Company has adopted credit policies and standards intended
                     to accommodate industry growth the inherent risk.
                     Management believes that credit risks are moderated by the
                     diversity of its end customers and geographic sales areas.
                     The Company performs ongoing credit evaluations of its
                     customers' financial condition and requires collateral as
                     deemed necessary.

              m.     Basic and diluted net loss per share:

                     Basic net loss per share is computed based on the weighted
                     average number of Common shares outstanding during each
                     year. Diluted net loss per share is computed based on the
                     weighted average number of Common shares outstanding during
                     each year, plus dilutive potential Common shares considered
                     outstanding during the year, in accordance with FASB
                     Statement No. 128, "Earnings Per Share".

                     All, outstanding stock options, and warrants have been
                     excluded from the calculation of the diluted net loss per
                     Common share because all such of these securities are
                     anti-dilutive for all periods presented. The total number
                     of shares related to the outstanding, options and warrants
                     excluded from the calculations of diluted net loss per
                     share was 1,616,363, 2,964,255 and 2,820,679 for the years
                     ended December 31, 1997, 1998 and 1999, respectively.

              n.     Accounting for stock-based compensation:

                     The Company has chosen to continue accounting for
                     stock-based compensation in accordance with the provisions
                     of Accounting Principles Board Opinion No. 25 ("APB-25"),
                     "Accounting for Stock Issued to Employees". Under APB-25,
                     when the exercise price of the Company's shares options
                     equals or is higher than the market price of the underlying
                     shares on the date of grant, no compensation expense is
                     recognized. The pro-forma information with respect to the
                     fair value of the options is provided in accordance with
                     the provisions of Statement No. 123 (see Note 6).

                     In accounting for warrants granted to those other than
                     employees, the provisions of Statement of Financial
                     Accounting Standard Board No. 123, "Accounting for
                     Stock-Based Compensation", were applied. The fair value of
                     these warrants was estimated at the grant date using the
                     Black-Scholes option pricing model.

                                      F-13
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



              o.     Advertising costs:

                     The Company expenses advertising costs as incurred.
                     Advertising expense for the years ended December 31, 1997,
                     1998 and 1999 was approximately $ 240,353, $ 255,520 and $
                     364,957, respectively.

              p.     Fair value of financial instruments:

                     SFAS No. 107, "Disclosure About Fair Value of Financial
                     Instruments", requires disclosures about the fair value of
                     financial instruments. The following disclosures of the
                     estimated fair value of financial instruments have been
                     determined by the Company using available market
                     information and valuation methodologies described below.
                     However, considerable judgment is required in interpreting
                     market data to develop the estimates of fair value.
                     Accordingly, the estimates presented herein may not be
                     indicative of the amounts that the company could realize in
                     a current market exchange. The use of different market
                     assumptions or valuation methodologies may have a material
                     effect on the estimated fair value amounts.

                     The carrying values of cash and cash equivalents,
                     receivables, bank overdrafts, trade payables and trade
                     receivables approximate fair values due to the short-term
                     maturities of these instruments.

                     The financial instruments of the Company consist of cash
                     and cash equivalents, accounts receivable and accounts
                     payable and accruals. The fair value of the financial
                     instruments usually equals to or approximates their
                     carrying value, due their short-term maturities.



                                      F-14
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



              q.     Related party disclosures:

                     FASB 57 has been asked to provide guidance on disclosures
                     of transactions between related parties. Transactions
                     between related parties commonly, occur in the normal
                     course of business.

                     Related parties included in other accounts payable and
                     accruals for the years ended December 31, 1998 and 1999 was
                     $ 131,981, and $ 157,000, respectively.

                     Related parties included in selling, general and
                     administrative expenses for the years ended December 31,
                     1997, 1998 and 1999 was $ 43,009, $ 38,404 and $ 15,750,
                     respectively.

                     Related parties included in financial income, net for the
                     years ended December 31, 1997, 1998 and 1999 was $ 0, $
                     92,612 and 49,924 respectively.

              r.     Accrued severance pay:

                     The Company's liability for severance pay is calculated
                     pursuant to Israeli severance pay law based on the most
                     recent salary of the employees multiplied by the number of
                     years of employment as of the balance sheet date. The
                     Company records as expense the net increase in its funded
                     or unfunded severance liability. Employees are entitled to
                     one month salary for each year of employment, or a portion
                     thereof. The Company's liability is fully provided by
                     monthly deposits with severance pay funds, insurance
                     policies and by an accrual. Deposits with severance pay
                     funds and insurance policies are under the control of the
                     Company.

                     The deposited funds include profits accumulated up to the
                     balance sheet date. The deposited funds may be withdrawn
                     only upon the fulfillment of the obligation pursuant to
                     Israeli severance pay law or labor agreements. The value of
                     the deposited funds are based on the cash surrendered value
                     of these policies, and include immaterial profits.

                     Severance expenses for the years ended December 31, 1997,
                     1998 and 1999 were $ 1,636,900, $ 257,160 and $ 203,690,
                     respectively.

              s.     Impact of recently issued accounting standards:

                     In June 1998, the Financial Accounting Standards Board
                     issued No. 133 ("SFAS 133"), "Accounting for Derivative
                     instruments and Hedging Activities" ("SFAS No. 133"). This
                     statement establishes accounting and reporting standards
                     requiring that every derivative instrument (including
                     certain derivative instruments embedded in other contracts)
                     be recorded in the balance sheet as either an asset or
                     liability measured at its fair value. The statement also
                     requires that changes in the derivative's fair value be
                     recognized currently in earnings unless specific hedge
                     accounting criteria are met. Special accounting for
                     qualifying hedges allows a derivative's gains and losses to
                     offset related results on the hedged item in the income
                     statement, and requires that a company must formally
                     document, designate, and assess the effectiveness of
                     transactions that receive hedge accounting. The FASB has
                     issued SFAS No. 137, "Accounting for Derivative Instruments
                     and Hedging Activities - Deferral of the Effective Date of
                     FASB Statement No. 133". The Statement defers for one year
                     the effective date of SFAS No. 133. The rule will apply to
                     all fiscal quarters of all fiscal years beginning after
                     June 15, 2000. The Company does not expect the impact of
                     this new statement on the Company's consolidated balance
                     sheets or results of operations to be material.


NOTE 3:-      INVENTORIES

<TABLE>
<CAPTION>

                                                            December 31,
                                                  ----------------------------------
                                                       1999              1998
                                                  ---------------   ----------------
<S>                                             <C>                <C>
             Raw and packaging materials                783,768           351,505
             Work in progress                           142,300                 -
             Finished products                          119,412            23,038
                                                  ---------------   ----------------

                                                      1,045,480           374,543
                                                  ===============   ================

</TABLE>

                                      F-15
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 4:-      PROPERTY AND EQUIPMENT

              a.     Composition of property and equipment is as follows:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                  -----------------------------------------
                                                                                       1999                    1998
                                                                                  ----------------      -------------------
<S>                                                                            <C>                    <C>
                    Cost:

                        Leasehold improvements
                        Computers and related equipment                             $   475,674           $   460,004
                        Motor vehicles                                                  529,790               513,142
                        Office furniture and equipment                                   52,851               659,768
                        Machinery, equipment and installations                          300,570               300,570
                        Software                                                      5,849,813             4,408,687
                                                                                  ----------------      -------------------

                                                                                    $ 7,676,698           $ 6,342,171
                                                                                  ----------------      -------------------
                    Accumulated depreciation:

                        Leasehold improvements                                      $   543,265           $   425,932
                        Computers and related equipment                                 357,180               269,381
                        Motor vehicles                                                  200,882               273,619
                        Office furniture and equipment                                  144,840                70,273
                        Machinery, equipment and installations
                        Software                                                      2,264,761             1,868,107
                                                                                  ----------------      -------------------

                    Depreciated cost                                                $ 3,510,929           $ 2,907,312
                                                                                  ================      ===================
</TABLE>
              b.     Depreciation expense amounted to $ 710,759, $ 893,940, and
                     $856,327 for the years ended December 31, 1999, 1998 and
                     1997, respectively.*

                     *)     Net of related investment grant in the amount of $ 0
                            and $ 989,036 as of December 31, 1999 and 1998,
                            respectively (see also Note 7b). As for charges,
                            see Note 5d.


                                      F-16
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




NOTE 5:-      COMMITMENTS

              a.     Royalty commitments:

                     1.     EFL has received royalty-bearing research and
                            development ("R&D") grants from the Office of the
                            Chief Scientist ("OCS") of the Israel Ministry of
                            Industry and Trade. Pursuant to the terms of these
                            grants, EFL is obligated to pay royalties to the OCS
                            on proceeds from the sale of products in which the
                            OCS participated.

                            Royalties in respect of grants received are payable
                            at a rate of 3%-5% of net sales (up to 100% of
                            grants received). In the event of transfer of
                            technology out of Israel, the rate of payment may be
                            accelerated and total payments may reach 300% of the
                            amount granted.

                     2.     EFL, in cooperation with a U.S. participant,
                            has received approval from the Israeli-U.S.
                            Bi-national Industrial Research and Development
                            Foundation ("BIRD-F") for 50% funding of a project
                            for the development of a hybrid propulsion system
                            for transit buses. The maximum approved cost of the
                            project is approximately $ 1.8 million, and the
                            Company's share in the project costs is anticipated
                            to amount to approximately $ 1.1 million, which will
                            be reimbursed by BIRD-F at the aforementioned rate
                            of 50%.

                            Royalties at rates from 2.5%-5% of sales are payable
                            up to a maximum of 150% of the grant received,
                            linked to the U.S. Consumer Price Index. Accelerated
                            royalties are due under certain circumstances.

                     3.     The Company shall be obligated to pay royalties only
                            on sales of products in respect of which OCS and
                            BIRD participated in their development. Should the
                            project fail, the Company shall not be obligated to
                            pay any royalties.

                            As of December 31, 1999, total contingent liability
                            to pay royalties are as follows: OCS (at 100%) -
                            approximately $ 8,283,000; BIRD-F (at 150%) -
                            approximately $ 478,000.

              b.     Lease commitments:

                     The premises of the Company are rented under non-cancelable
                     operating lease for periods ending in 2000.

                     Further rental payments under the abovementioned leases is
                     $ 247,000, due in the year 2000.

                     The rental payments are primarily payable in Israeli
                     currency, linked to the Israeli Consumer Price Index (CPI).

                                      F-17
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



                     Rental expenses totaled approximately $ 345,000, $ 470,000
                     and $ 525,000 in 1999, 1998 and 1997, respectively.

              c.     Agreements relating to the Company's technology:

                     U.S. government:

                     In 1998, the Company, in cooperation with U.S.
                     participants, received approval from the U.S. government
                     (Department of Transportation - Federal Transit
                     Administration) for 50% funding of a project for the
                     construction and operation of a passenger bus, using the
                     Company's technology. The maximum approved cost of the
                     project is approximately $ 4,000,000. The Company's share
                     in the project costs is anticipated to amount to
                     approximately $ 3,500,000, which will be reimbursed by the
                     U.S. Government at the aforementioned rate of 50%.

              d.     Conditions for entitlement to benefits:

                     As security for compliance with the terms attached to the
                     investment grants, EFL has registered floating charges on
                     all of its assets, in favor of the state of Israel.


NOTE 6:-      SHAREHOLDERS' EQUITY

              a.     Financial transactions:

                     1.     Non-recourse notes receivable from employee-
                            shareholders arising from the purchase of 1,500,000
                            of the Company's shares matured in 1998. The notes
                            were renewed as recourse notes, due on December 31,
                            2007, bearing interest of 5.5% or linked to the
                            Israeli CPI, whichever is higher. In June 1998, the
                            terms of the recourse notes were amended such that
                            the Company would have recourse only to certain
                            termination compensation due to the employee-
                            shareholders (which exceeds the amounts outstanding
                            under the notes), or if terminated for cause, the
                            employee-shareholders would continue to be
                            personally liable.

                            Additionally, the Company agreed to purchase Company
                            shares from the employee-shareholders, at prevailing
                            market prices, up to the full amount outstanding
                            under the notes. The Company agreed to grant new
                            options at exercise prices equal to prevailing
                            market prices, in the amount of shares sold by the
                            employee-shareholder.

                     2.     In 1996, 255,333 share options were exercised and
                            the purchase price of the share was financed by the
                            Company's acceptance of interest-bearing
                            non-recourse notes receivable. In addition, the
                            income and other taxes due were added to the note
                            balance. As a result of this transaction,
                            compensation expense in the amount of approximately
                            $ 160,000 was recorded in 1996.

                                      F-18
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


                            In 1998, the Company purchased the aforementioned
                            255,333 shares for the aggregate amount outstanding
                            under the aforementioned non-recourse notes. As a
                            result of this transaction, compensation expense in
                            the amount of approximately $ 110,000 was recorded
                            in 1998.

                     3.     Under the Common share option plans (see b. below),
                            0, 81,226 and 32,953 options were exercised to
                            purchase the Company's shares in 1999, 1998 and
                            1997, respectively.

                     4.     In 1998, 4,000 shares of the Company's Common shares
                            were issued to directors. Accordingly, the Company
                            recorded compensation expense of $ 10,710.

                     5.     On December 3, 1999, two officers of the Company
                            purchased 125,000 shares of Common stock out of the
                            Company's treasury at the closing price of the
                            Common stock on December 2, 1999. The Company loaned
                            to each of the purchasers $ 167,975 for the
                            purchase.

                     6.     On December 28, 1999 the Company entered into an
                            agreement with a group of private investors,
                            including Mr. Leon S. Gross, a director of Electric
                            Fuel Corporation and one of the existing
                            shareholders. Pursuant to the agreement, the Company
                            issued 1,425,0000 shares of Common stock to the
                            investors at a price of $ 2.00 per share, for total
                            purchase price of $ 2,850,000. The Company also
                            issued warrants to purchase an additional 1,425,000
                            shares of the Common stock to the investors. Of
                            these, warrants to purchase 950,000 shares of Common
                            stock have an exercise price of $ 1.25 per share and
                            are exercisable for a period of six months, and
                            warrants to purchase 475,000 shares have an exercise
                            price of $ 4.50 per share and are exercisable for a
                            period of one year.

              b.     Common share option plans:

                     1.     The Company has adopted the following share option
                            plans, whereby options may be granted for purchase
                            of the Company's Common shares:

                            a)     1991 Employee Option Plan - 2,115,600 shares
                                   reserved for issuance.

                            b)     1993 Employee Option Plan - as amended,
                                   2,700,000 shares reserved for issuance.

                            c)     1998 Employee Option Plan - 1,500,000 shares
                                   reserved for issuance.

                                   Under the terms of the employee plans, the
                                   Board of Directors or the designated
                                   committee will grant options and will
                                   determine the vesting period and the exercise
                                   terms.

                            d)     1995 Non-Employee Director Plan - 500,000
                                   shares reserved for issuance.

                                   Non-employee directors will receive an
                                   initial grant of options to purchase 15,000
                                   shares of the Company's Common stock and
                                   thereafter will receive options to purchase
                                   5,000 shares of Common stock per year of
                                   serving on to the Board of Directors. All
                                   employee options will be granted at fair
                                   market value.

                                      F-19
<PAGE>

                                                       ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


                     2.     As of December 31, 1999, the total number of options
                            authorized under the plans is 6,815,600, and which
                            1,942,724 options are available for future grant.
                            Under these plans, options usually expire no later
                            than 10 years from the date of grant. Each option
                            can be exercised to purchase one share, conferring
                            the same rights as the other Common shares.

                            The options usually vest over a three-year period
                            (33.3% per annum).

                     3.     A summary of the status of the Company's plans and
                            other share options granted as of December 31, 1999,
                            1998 and 1997, and changes during the years ended on
                            those dates, is presented below:
<TABLE>
<CAPTION>
                                                              1999                    1998                    1997
                                                       -------------------    -------------------    --------------------
                                                                  Weighted                Weighted                Weighted
                                                                  average                 average                 average
                                                                  exercise                exercise                exercise
                                                       Number      price       Number      price       Number      price
                                                       ------     --------     ------     --------     ------     --------
                                                                     $                       $                       $
                                                                  --------                -------                  ------
<S>                                                 <C>          <C>         <C>          <C>        <C>          <C>
                          Options outstanding at
                             beginning of year        2,964,255   $   3.70    1,616,363    $ 5.38     1,472,381     $ 5.24

                          Changes during year:
                             Granted(2)(3)              496,475   $   1.56    1,775,421    $ 2.79       187,085     $ 5.79
                             Exercised                        -                 (81,226)   $ 1.12       (32,953)    $ 1.12
                             Repriced:                        -
                              Old exercise price              -                (536,450)   $ 6.16             -       -
                              New exercise price              -                 536,450    $ 3.08             -       -
                          Forfeited or canceled        (640,051)  $   3.25     (346,303)   $ 2.70       (10,150)    $ 6.64
                                                     ----------               ---------               --------

                          Options outstanding at
                             end of year              2,820,679   $   3.44    2,964,255    $ 3.70     1,616,363     $ 5.38
                                                      ==========              ==========              =========

                          Options exercisable at
                             end of year              2,082,390   $   3.91    1,638,834    $ 3.67       784,800     $ 4.35
                                                      ==========              ==========              =========
                          Weighted average fair
                             value of options
                             granted during the
                             year (1)                 $    1.32               $    1.64               $    2.71
                                                      ==========              ==========              =========
</TABLE>
                            (1)    The fair value of each option granted is
                                   estimated on the date of grant, using the
                                   Black-Scholes option-pricing model, with the
                                   following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                              1999              1998             1997
                                                                         ----------------  ---------------  ---------------
<S>                                                                       <C>               <C>                <C>
                                  Dividend yield                                     0%                0%               0%
                                  Expected volatility                              120%              103%              80%
                                  Risk-free interest                               5.5%          4.5-5.6%             6.1%
                                  Expected life of up to                        5 years          10 years         10 years
</TABLE>

                                      F-20
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



                            (2)    Includes options issued to consultants as
                                   compensation for services rendered: 1997 -
                                   3,273 options. The compensation cost that has
                                   been charged against income is $ 9,000.

                            (3)    Includes 182,500, 803,325 and 122,500 options
                                   granted to related parties in 1999, 1998 and
                                   1997, respectively.

                                   Of the aforementioned options, 1,099,684
                                   options are fully vested as of December 31,
                                   1999.

                     4.     The following table summarizes information about
                            options outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
                                                Options outstanding                              Options exercisable
                          -----------------------------------------------------------------  --------------------------
                                                              Weighted
                                                Number         average         Weighted         Number         Weighted
                                            outstanding at    remaining        average      exercisable at     average
                              Range of       December 31,    contractual       exercise      December 31,      exercise
                          exercise prices        1999            life           price            1999           price
                         ----------------    ------------    ------------      --------      --------------    --------
                                 $                              Years             $                               $
                         ---------------                     -------------      -------                        --------
<S>                                          <C>              <C>               <C>           <C>            <C>
                                   0-2            447,695       9.33              1.37             2,645         0.35
                                   3-4          1,729,091       6.77              2.86         1,447,520         2.83
                                   4-6            256,607       4.71              5.73           249,940         5.74
                                   6-8            377,286       6.04              6.75           375,619         6.75
                                   8-10            10,000       7.75              9.06             6,666         9.06
                                                 --------                                      ---------
                                                2,820,679       6.89              3.44         2,082,390         3.91
                                                =========                                      =========
</TABLE>

                     The compensation cost that has been charged in the
                     consolidated statements of operations in respect of
                     options to employees in 1999, 1998 and 1997 was $ 0,
                     $ 222,302 and $ 0, respectively.

                     Weighted-average fair values of options whose
                     exercise price is equal to the market price of the
                     stock on the date of grant are as follows:

<TABLE>
<CAPTION>
                                                                            Weighted-average fair value of options
                                                                                 granted at an exercise price
                                                                        -----------------------------------------------
                                                                                         December 31,
                                                                        -----------------------------------------------
                                                                           1997              1998             1999
                                                                        ------------     -------------    -------------
<S>                                                                    <C>              <C>               <C>
                          Weighted average exercise price                $  5.38          $  3.7           $  3.44
                                                                        ============     =============    =============
                          Weighted average fair value on
                            date of grant                                $  3.38          $  2.29          $  1.33
                                                                        ============     =============    =============
</TABLE>

                          Pro forma information under SFAS 123:

                                      F-21
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
                            Had compensation cost for the Company's plans been
                            determined based on the fair value at the grant
                            dates for awards granted in 1997 and thereafter
                            during 1998 and 1999 under the plans consistent with
                            the method of Statement 123, the Company's loss and
                            loss per share would have been increased to the
                            proforma amounts indicated below:
<TABLE>
<CAPTION>
                                                      1999                       1998                        1997
                                             ----------------------     ---------------------     -----------------------
                                                As                         As                          As
                                             reported     Pro-forma     reported      Proforma      reported     Pro-forma
                                            ------------ ----------     ----------   ----------     ---------    -----------
                                                                              U.S. dollars
                                           ---------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>          <C>           <C>           <C>
                          Loss             $ 6,915,688   $ 8,367,584    $ 8,532,570  $11,633,365    $9,129,499    $9,753,337
                                           ===========   ===========    ===========  ===========    ==========    ==========
                          Basic and
                             diluted loss
                             per share     $      0.48   $      0.58    $      0.61  $      0.83     $    0.73   $      0.78
                                           ===========   ===========    ===========  ===========     =========   ===========
</TABLE>
NOTE 7:-      INCOME TAXES

              a.     Taxation of U.S. parent company (EFC):

                     The parent company provided valuation allowances in respect
                     of deferred tax assets resulting from tax loss
                     carryforwards and other temporary differences. Management
                     currently believes that it is more likely than not that the
                     deferred tax regarding the loss carryforwards and other
                     temporary differences will not be realized.

                     As of December 31, 1999, EFC has operating loss
                     carryforwards for U.S. federal income tax purposes of
                     approximately $ 469,000, which are available to offset
                     future taxable income, if any, expiring in 2009.

              b.     Israeli subsidiary (EFL):

                     1.     Tax benefits under the Law for the Encouragement of
                            Capital Investments, 1959 ("the law"):

                            EFL's manufacturing facility has been granted
                            "Approved Enterprise" status under the
                            abovementioned law, and is entitled to investment
                            grants from the State of Israel of 38% on property
                            and equipment located in Jerusalem, and 20% on
                            property and equipment located at its plant in Beit
                            Shemesh, and to reduced tax rates on income arising
                            from the "Approved Enterprise", as detailed below.

                            The approved investment program is in the amount of
                            approximately $ 500,000. EFL effectively operated
                            the program during 1993, and is entitled to the tax
                            benefits available under the law. EFL is entitled to
                            additional tax benefits as a "foreign investment
                            company", as defined by the law. In 1995, EFL
                            received approval for a second "Approved Enterprise"
                            program for investment in property and equipment, in
                            the amount of approximately $ 6,000,000, and
                            approval for grants at the abovementioned rates, for
                            these approved property and equipment.

                                      F-22
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



                            The main tax benefits available to EFL are:

                            a)     Reduced tax rates:

                                   During the period of benefits (seven to ten
                                   years), commencing in the first year in which
                                   EFL earns taxable income from the "Approved
                                   Enterprise", a reduced corporate tax rate of
                                   10%-25% (depending on the percentage of
                                   foreign ownership, based on present ownership
                                   percentages of 15%) will apply, instead of
                                   the regular tax rates (see 4. below).

                                   The period of tax benefits, detailed above,
                                   is subject to limits of 12 years from the
                                   commencement of production, or 14 years from
                                   the approval date, whichever is earlier.
                                   Hence, it will expire in the year 2009.

                            b)     Accelerated depreciation:

                                   EFL is entitled to claim accelerated
                                   depreciation in respect of machinery and
                                   equipment used by the "Approved Enterprise"
                                   for the first five years of operation of
                                   these assets.

                     2.     Measurement of results for tax purposes under the
                            Income Tax Law (Inflationary Adjustments), 1985.

                            Results for tax purposes are measured in real terms
                            of earnings in NIS after certain adjustments for
                            increases in the consumer price index. As explained
                            in Note 2b, the financial statements are presented
                            in U.S. dollars. The difference between the annual
                            change in the Israeli consumer price index and in
                            the NIS/dollar exchange rate causes a difference
                            between taxable income and the income before taxes
                            shown in the financial statements. In accordance
                            with paragraph 9(f) of SFAS No. 109, the Company has
                            not provided deferred income taxes on this
                            difference between the reporting currency and the
                            tax bases of assets and liabilities.

                     3.     Tax benefits under the Law for the Encouragement of
                            Industry (Taxation), 1969:

                            EFL is an "industrial company", as defined by this
                            law and, as such, is entitled to certain tax
                            benefits, mainly accelerated depreciation, as
                            prescribed by regulations published under the
                            inflationary adjustments law, the right to claim
                            public issuance expenses and amortization of
                            know-how, patents and certain other intangible
                            property rights as deductions for tax purposes.

                     4.     Tax rates applicable to income from other sources:

                            Income from sources other than the "Approved
                            Enterprise", is taxed at the regular rate of 36%.

                     5.     Tax rates applicable to income distributed as
                            dividends by EFL:

                                      F-23
<PAGE>

                                                       ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
                            The effective tax on income distributed by EFL to
                            its parent company, EFC, would be increased as a
                            result of the Israeli withholding tax imposed upon
                            such dividend distributions. The overall effective
                            tax rate on such distribution would be 28%, in
                            respect to income arising from EFL's "Approved
                            Enterprise", and 44% in respect of other income. EFL
                            does not have any earnings available for
                            distribution as dividend, nor does it intend to
                            distribute any dividends in the foreseeable future.

                     6.     Tax loss carryforwards:

                            As of December 31, 1999, EFL has operating loss
                            carryforwards for Israeli tax purposes of
                            approximately $ 59 million, which are available,
                            indefinitely, to offset future taxable income.

              c.     European subsidiaries:

                     Income of the European subsidiaries, which is derived from
                     intercompany transactions, is based on the tax laws in
                     their countries of domicile.

              d.     Deferred income taxes:

                     Deferred income taxes reflect the net tax effects of
                     temporary differences between the carrying amounts of
                     assets and liabilities for financial reporting purposes and
                     amounts used for income tax purposes. Significant
                     components of the Company's deferred tax liabilities and
                     assets are as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                              -----------------------------------------
                                                                    1999                    1998
                                                              ------------------      -----------------
                                                                            U.S. dollars
                                                              -----------------------------------------
<S>                                                           <C>                     <C>
                    Domestic income taxes:
                       Deferred tax asset                       $      70,000          $       67,000
                       Less - valuation allowance                     (70,000)                (67,000)
                                                              ------------------      -----------------
                                                              $             -         $             -
                                                              ==================      =================
                    Foreign income taxes:
                       Deferred tax asset *)                  $     7,300,000         $     6,500,000
                       Less - valuation allowance                  (7,300,000)             (6,500,000)
                                                              ------------------      -----------------
                                                              $              -        $             -
                                                              ==================      =================
</TABLE>
                     *)     Mainly in respect of loss carryforwards, deductible
                            expenditures reported as a reduction in the proceeds
                            from issuing shares, accrued severance pay and
                            depreciation on property and equipment.

              e.     Income (loss) before taxes on income:
<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                               ----------------------------------------------------
                                                                  U.S. dollars
                                               ----------------------------------------------------
                                                   1997               1998               1999
                                               --------------    ---------------    ---------------
<S>                                           <C>                 <C>                  <C>
                          Domestic              $  (232,205)     $   (313,902)       $  (241,474)
                          Foreign                (6,677,466)       (8,261,842)        (9,226,123)
                                               --------------    ---------------    ---------------
                                                 (6,909,671)       (8,575,744)        (8,984,649)
                                               ==============    ===============    ===============
</TABLE>
              f.     Income taxes included in the statements of operations:

                                      F-24
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                                 Year ended December 31
                                                               -----------------------------------------------------------
                                                                     1999                 1998                 1997
                                                               -----------------    -----------------    -----------------
                                                                                     U.S. dollars
                                                               -----------------------------------------------------------

<S>                                                         <C>                    <C>                 <C>
                    U.S.                                            $   6,017           $   22,993           $   39,000
                    Europe                                                  -              (66,167)             105,850
                                                               -----------------    -----------------    -----------------

                                                                    $   6,017            $ (43,174)           $ 144,850
                                                               =================    =================    =================
</TABLE>

NOTE 8:-      SUPPLEMENTARY BALANCE SHEET INFORMATION

              a.     Other accounts receivable and prepaid expenses:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                  -----------------------------------------
                                                                                        1999                    1998
                                                                                  ------------------      -----------------
                                                                                                U.S. dollars
                                                                                  -----------------------------------------
<S>                                                                               <C>                      <C>
                    Government authorities and agencies:                                  450,825                 438,619
                                                                                  ------------------      -----------------

                    U.S. government                                                       273,187                 380,776
                    Employees                                                              23,412                  19,937
                    Prepaid expenses                                                       22,194                 141,321
                    Interest receivable                                                         -                 141,951
                    Other                                                                 180,772                 176,452
                                                                                  ------------------      -----------------

                                                                                          499,565                 860,437
                                                                                  ------------------      -----------------

                                                                                      $   950,390             $ 1,299,056
                                                                                  ==================      =================

</TABLE>
              b.     Other accounts payable and accruals:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                             ----------------------------------------------
                                                                                    1999                      1998
                                                                             --------------------      --------------------
                                                                                             U.S. dollars
                                                                             ----------------------------------------------
<S>                                                                          <C>                       <C>
                    Employees and employee institutions                            $   288,580             $   347,950
                    Accrued vacation pay                                               233,749                 214,303
                    Accrued expenses                                                   831,989                 408,597
                    Other                                                               46,445                  32,672
                                                                             --------------------      --------------------

                                                                                   $ 1,400,763             $ 1,003,522
                                                                             ====================      ====================

</TABLE>

                                      F-25
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



              c.     Investment in marketable debt securities:
<TABLE>
<CAPTION>

                                                               December 31, 1998                 December 31, 1999
                                                         ------------------------------   --------------------------------
                                                                              Fair                               Fair
                                                          Amortized         market          Amortized           market
                                                             Cost            value            Cost              value
                                                         -------------    -------------   -------------    ---------------
                                                                                   U.S. dollars
                                                         -----------------------------------------------------------------
<S>                                                      <C>            <C>               <C>             <C>
                    Obligations of states and
                       political subdivisions             $3,702,518       $3,700,575        $      -         $      -
                    Less - portion due in one
                       year or less - presented
                       among current assets               $3,702,518       $3,700,575        $      -         $      -
                                                         -------------    -------------   -------------    ---------------
                                                          $                $                 $                $
</TABLE>
                     Unrealized gain (loss) in respect of these securities - at
                     December 31, 1999 aggregate $ (1,943).

NOTE 9:-      SELECTED STATEMENTS OF OPERATIONS DATA

              a.     Research and development expenses and cost of revenues:
<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                               -----------------------------------------------------------
                                                                     1999                 1998                 1997
                                                               -----------------    -----------------    -----------------
                                                                                     U.S. dollars
                                                               -----------------------------------------------------------

<S>                                                          <C>                     <C>                <C>
                    Materials, subcontracted work
                       and consulting                              $  2,555,984        $   2,527,183        $   3,005,443
                    Salaries and related expenses                     3,521,622            4,366,995            6,365,241
                    Royalties (Note 6a)                                  16,188              114,385              106,722
                    Other                                             1,740,257            3,161,393            2,856,875
                                                               -----------------    -----------------    -----------------

                    Less royalty-bearing grant                        1,202,976              489,546            2,381,777
                                                               -----------------    -----------------    -----------------

                                                                    $ 6,631,075       $    9,680,410         $  9,952,504
                                                               =================    =================    =================
</TABLE>
              b.     Selling, general and
                     administrative expenses:
<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                               -----------------------------------------------------------
                                                                     1999                 1998                 1997
                                                               -----------------    -----------------    -----------------
                                                                                     U.S. dollars
                                                               -----------------------------------------------------------
<S>                                                         <C>                     <C>                  <C>
                    Salaries and related expenses                  $  1,422,441         $  1,608,743         $  1,724,498
                    Consulting and professional fees                    537,761              544,525            1,304,349
                    Other                                             1,202,441            1,407,371            1,304,625
                                                               -----------------    -----------------    -----------------

                    Total                                          $  3,162,643         $  3,560,639         $  4,333,472
                                                               =================    =================    =================
</TABLE>
                                      F-26
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

              c.     Financial income and expenses:
<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                               -----------------------------------------------------------
                                                                     1999                 1998                 1997
                                                               -----------------    -----------------    -----------------
                                                                                     U.S. dollars
                                                               -----------------------------------------------------------
<S>                                                           <C>                  <C>                  <C>
                    Financial expenses:
                      Interest, bank charges and
                        fees                                        $   71,074          $     9,485          $    58,159
                    Exchange rate differences                           32,661               34,154              128,871
                                                               -----------------    -----------------    -----------------
                                                                       103,735               63,639              187,030

                    Financial income:
                      Interest                                      $  293,784          $   715,681          $   962,141
                                                               -----------------    -----------------    -----------------
                    Total                                              190,049              652,042              775,111
                                                               -----------------    -----------------    -----------------

</TABLE>

NOTE 10:-     SEGMENT INFORMATION

              a.     General:

                     In 1998, the Company adopted, , FAS 131, "Disclosures About
                     Segments of an Enterprise and Related Information", which
                     was issued in June 1997 by the FASB.

                     1.     Criteria used by management to determine the
                            enterprise's reportable segments:

                            The Company's reportable segments are strategic
                            business units that offer different products. They
                            are managed separately because each business
                            requires different marketing strategies.

                     2.     The Company is involved in the research, development
                            and commercial exploitation of zinc-air
                            electrochemical technology for primary and reusable
                            battery systems. The Company operates in three
                            business segments: consumer batteries, electric
                            vehicles, and defense and safety products.

                                      F-27
<PAGE>

                                                      ELECTRIC FUEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

              b.     Information about reported segment gains, losses and
                     assets:

                     The Company evaluates performance based on gross profit and
                     loss.
<TABLE>
<CAPTION>
                                                                 Defense
                                                  Electric      and safety      Consumer          All
                                                  vehicles       products       batteries        other          Total
                                                 -----------    -----------     ----------   -----------     ----------
<S>                                             <C>            <C>            <C>           <C>              <C>
                     1999:
                     ----
                     Revenues from outside
                        customers                $ 1,229,854     $   979,123   $    254,991  $     230,030    $ 2,693,998
                     Depreciation expense           (234,550)        (85,291)      (149,259)      (241,659)      (710,759)
                     Direct expenses (1)          (2,659,478)     (1,242,652)    (3,007,398)    (2,179,448)    (9,088,976)
                                                ------------     -----------   ------------  -------------   ------------
                     Segment gross loss          $(1,664,174)    $  (348,820)  $ (2,901,666) $  (2,191,077)    (7,105,737)
                     Financial income, net      ============     ===========   ============    ===========        190,049

                     Net loss                                                                                  (6,915,688)
                                                                                                            ==============


                     Segment assets              $ 1,129,771     $   360,553   $  1,516,518   $  1,158,926    $ 4,165,769
                                                 ===========     ===========    ===========    ===========    ===========
                     Expenditures for segment
                        assets                   $   221,808     $    80,657   $    942,450   $    228,529    $ 1,473,444
                                                 ===========     ===========    ===========    ===========    ===========

                     1998:
                     ----
                     Revenues from outside
                        customers                $ 2,792,000     $ 1,181,000   $          -   $     40,263   $  4,013,263
                     Depreciation expense           (526,000)        (37,000)        (7,000)      (323,940)      (893,940)
                     Direct expenses (1)(2)       (4,766,000)     (1,188,000)    (3,011,000)    (3,338,935)   (12,303,935)
                                                ------------     -----------   ------------   ------------    -----------
                     Segment gross loss          $(2,500,000)    $   (44,000)  $ (3,018,000)  $ (3,622,612)    (9,184,612)
                                                 ===========     ===========    ===========    ===========
                     Financial income, net                                                                        652,042
                                                                                                            -------------
                     Net loss                                                                                $ (8,532,570)
                                                                                                            ==============
<CAPTION>
                                                                 Defense
                                                  Electric      and safety      Consumer          All
                                                  vehicles       products       batteries        other          Total
                                                ------------     -----------   ------------  -------------   ------------

<S>                                             <C>            <C>            <C>           <C>              <C>
                     Segment assets              $ 1,153,000     $   369,000   $    730,000  $   1,182,859   $  3,434,859

                     Expenditures for segment
                        assets                   $    75,000     $    67,000   $    694,000  $     149,507   $    985,507

                     1997:
                     ----
                     Revenues from outside
                        customers                $ 3,397,000     $ 1,129,216   $          -  $           -   $  4,526,216
                     Depreciation expense           (556,000)        (17,000)             -       (283,327)      (856,327)
                     Direct expenses (1)          (8,550,000)       (713,000)      (281,000)    (4,030,499)   (13,574,499)
                                                ------------     -----------   ------------  -------------   ------------
                     Segment gross loss          $(5,709,000)    $   399,216   $   (281,000)  $ (4,313,826)    (9,904,610)
                     Financial income, net       ===========     ===========    ===========    ===========        775,111
                                                                                                            -------------
                     Net loss                                                                                $ (9,129,499)
                                                                                                            ==============
</TABLE>
                     (1) Including selling, general and administrative expenses
                         and income taxes.

                                      F-28
<PAGE>

                                                      ELECTRIC FUEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------





                     (2)    Including non-cash expense derived from write-down
                            of property and equipment in the amount of $ 1.25
                            million.

              c.     Summary information about geographic areas:

                     The following presents total revenues for the years ended
                     December 31, 1997, 1998 and 1999, and long-lived assets as
                     of December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
                                               1997                          1998                            1999
                                   ---------------------------    ---------------------------    ---------------------------
                                      Total       Long-lived         Total      Long-lived           Total      Long-lived
                                    revenues        assets         revenues       assets           revenues       assets
                                   ----------    -------------    ----------   --------------     ----------   -------------
<S>                                <C>           <C>              <C>          <C>                <C>          <C>
                       U.S.A.      $2,282,643    $      36,038    $1,374,261   $       43,757     $  473,250   $      38,879
                       Germany         71,198               --     2,138,690               --      3,558,141              --
                       Italy           20,712               --       295,937               --        494,825              --
                       Israel          50,966        4,129,731       204,375        3,391,102             --         471,510
                       England         59,400               --            --               --             --              --
                       Other          209,079               --            --               --             --              --
                                   ----------    -------------    ----------   --------------     ----------   -------------

                                   $2,693,998    $   4,165,769    $4,013,263   $    3,434,859     $4,526,216   $   4,754,389
                                   ==========    =============    ==========   ==============     ==========   =============
</TABLE>
              d.     Revenues from major customers:
<TABLE>
<CAPTION>
                                                                     1999                 1998                 1997
                                                               -----------------    -----------------    -----------------
                                                                                           %
                                                               -----------------------------------------------------------
<S>                                                           <C>                   <C>                 <C>
                    Electric vehicles:
                       Customer A                                       -                   51                   33
                       Customer B                                       -                    7                   30
                       Customer C                                       -                    -                   11
                       Customer D                                      45                    8                    -
                    Defense and safety products:
                       Customer A                                       -                    -                   14
                       Customer B                                      13                    8                    -

</TABLE>
NOTE 11:-     SUBSEQUENT EVENTS

              On January 5, 2000, the Company entered into a Common Stock
              Purchase Agreement with a group of private investors. Pursuant to
              this agreement, on January 10, 2000 the Company issued 385,000
              shares of common stock to the investors at a price of $ 2.50 per
              share, for a total purchase price of $ 962,000.

              a. On January 5, 2000, the Company entered into a Common Stock
                 Purchase Agreement with a group of private investors. Pursuant
                 to this agreement, on January 10, 2000 the Company issued
                 385,000 shares of common stock to the investors at a price of
                 $2.50 per share, for a total purchase price of $962,000.

              b. On March 15, 2000, Electric Fuel Corporation and Koor
                 Industries Ltd. jointly announced an agreement that will allow
                 Electric Fuel to acquire the Tadiran Batteries subsidiary of
                 Koor Industries Inc., and for Koor Industries also to invest
                 $10.5 million in Electric Fuel.

                 According to the terms of the agreement, Electric Fuel will
                 acquire Tadiran Batteries from Koor for $40,000,000 in Electric
                 Fuel's common stock. Based on Electric Fuel's closing price of
                 $17.125 per share on March 8, the date on which the two
                 companies reached agreement in principle, Koor will receive
                 2,335,767 shares, reflecting a total transaction value of $4.16
                 million based on the closing price of $17.8125 on March 14,
                 2000. The transaction is subject to the approval of the Israeli
                 restrictive trade practice controller.

                                - - - - - - - -

                                      F-29