SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _____________ to ________________
Commission File Number: 0-25411
EVERCEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1528142
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
2 LEE MAC AVENUE
DANBURY, CONNECTICUT 06810
(203) 825-3900
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
ROBERT L. KANODE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EVERCEL, INC.
2 LEE MAC AVENUE
DANBURY, CONNECTICUT 06810
(203) 825-3900
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of 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 [ ]
The number of shares outstanding of the Registrants Common Stock, par value
$.0001 as of May 12, 2000 was 6,983,258.
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<PAGE>
EVERCEL, INC.
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements
Condensed Balance Sheets as of
March 31, 2000 and December 31, 1999
Condensed Statements of Operations
for the three months ended March 31, 2000
and March 31, 1999
Condensed Statements of Cash Flows
for the three months ended March 31, 2000
and March 31, 1999
Notes to Unaudited Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k
Signatures
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<PAGE>
EVERCEL, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
-----------------------------
Current assets:
Cash and cash equivalents $ 3,063 $ 6,117
Accounts receivable 21 193
Inventories 292 159
Other current assets 177 35
---------- ----------
Total current assets 3,553 6,504
Property, plant and equipment, net 1,952 1,991
Other assets, net 1,755 315
---------- ----------
TOTAL ASSETS $ 7,260 $ 8,810
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 535 $ 391
Accrued liabilities 734 351
---------- ----------
Total current liabilities 1,269 742
Shareholders'equity:
Preferred Stock ($0.01 par value);
1,000,000 shares authorized: 264,000
issued and outstanding at March 31,
2000 and December 31, 1999 (with
cumulative dividends at 8%). 3 3
Common Stock ($0.01 par value);
10,000,000 shares authorized:
5,733,258 and 5,722,090 issued and
outstanding at March 31, 2000 and
December 31, 1999, respectively. 57 57
Additional paid-in-capital 13,986 14,084
Note receivable from shareholder (300) (300)
Accumulated deficit (7,755) (5,776)
---------- ----------
Total shareholders'equity 5,991 8,068
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,260 $ 8,810
========== ==========
See notes to condensed financial statements.
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EVERCEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
-----------------------------------
March 31, March 31,
2000 1999
------------------ ----------------
Revenues $ 5 $ -
Cost and expenses:
Cost of revenues 5 -
Administrative and selling expenses 1,363 465
Research and development 679 512
---------- ----------
Total operating costs and expenses 2,047 977
========== ==========
Loss from operations (2,042) (977)
Interest Expense - (15)
Interest Income 63 -
---------- ----------
Loss before income tax benefit (1,979) (992)
Income tax benefit - (111)
---------- ----------
Net loss (1,979) (881)
Preferred stock dividends (132) -
---------- ----------
Net loss - common shareholders $ (2,111) $ (881)
========== ==========
Basic and diluted loss per share $ (0.37) $ (0.16)
========== ==========
Basic and diluted shares outstanding 5,733,258 5,555,724
========== ==========
See notes to condensed financial statements.
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EVERCEL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended
--------------------------------
March 31, March 31,
2000 1999
----------------- -------------
Cash flows from operating activities:
Net loss $ (1,979) $ (881)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 89 9
(Increase) decrease in operating assets:
Accounts receivable 172 -
Inventories (133) (159)
Other current assets (142) -
Increase (decrease) in operating
liabilities:
Accounts payable 144 146
Accrued liabilities 251 165
Other, net - (262)
---------- ---------
Net cash used in operating activities (1,598) (982)
---------- ---------
Cash flows from investing activities:
Capital expenditures (1,490) (446)
---------- ---------
Net cash used in investing activities (1,490) (446)
---------- ---------
Cash flows from financing activities:
Borrowings from FuelCell - 1,126
Proceeds from common stock issued 34 669
Contributions from FuelCell - (340)
---------- ---------
Net cash provided by financing activities 34 1,455
---------- ---------
Net decrease (increase) in cash and cash
equivalents (3,054) 27
Cash and cash equivalents - beginning of period 6,117 1
---------- ---------
Cash and cash equivalents - end of period $ 3,063 $ 28
========== =========
Cash paid during the period for:
Income taxes $ - $ -
See notes to condensed financial statements.
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EVERCEL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
On October 6, 1999, the Board of Directors voted to change the fiscal year end
of Evercel, Inc. (the "Company") from October 31 to December 31. The
accompanying financial statements represent the financial position of the
Company as of March 31, 2000 and 1999, and the results of the Company for the
three months ended March 31, 2000, and of the operations of the Battery Group of
FuelCell Energy, Inc. ("FuelCell") for the period from January 1, 1999 through
February 21, 1999 and of the Company from February 22, 1999 through March 31,
1999;
Comparative amounts for the three months ended March 31 are unaudited. In the
opinion of management, the information presented in the unaudited three month
statement reflects all adjustments necessary for a fair presentation of the
Company's results of operations for that period.
(2) Summary of Significant Accounting Policies
Nature of Business
The Company is engaged in the design and manufacture of innovative, patented
nickel-zinc rechargeable batteries, as well as the research and design of other
advanced battery technologies. The Company believes the nickel-zinc battery has
commercial applications in markets requiring long cycle life, light weight and
relative cost efficiency.
Spin-off from FuelCell Energy, Joint Ventures and License Agreements
On February 22, 1999, FuelCell effected a spin-off of the Company by
deconsolidating the financial statements of the Company and a Joint Venture from
its consolidated financial statements. As part of the spin-off of the Company,
FuelCell transferred capital assets (net), prepaid spin-off costs, accounts
receivable and short-term liabilities amounting to $1,228,000, $501,000, $36,000
and $1,096,000, respectively. FuelCell distributed to its shareholders in a
tax-free distribution one share of Evercel common stock for every three shares
of common stock of FuelCell held on the record date of February 22, 1999. On
April 5, 1999, the Company completed a rights offering of its shares at $3.00
per share and began trading.
In February 1998, FuelCell entered into the Nan Ya License Agreement with a
joint venture between Nan Ya Plastics Corporation of Taiwan, a Formosa Plastics
Group company, and Xiamen Three Circles Co., Ltd. of Xiamen, China for the use
of the Company's nickel-zinc batteries in electric and hybrid electric vehicles
in China, Taiwan, Hong Kong and Macao on an exclusive basis and for certain
other Southeast Asian countries on a non-exclusive basis. The license agreement
calls for the payment of $5.0 million in three stages and a royalty for the
exclusive and non-exclusive territories. The payments include $1.5 million
received by FuelCell in 1998, of which $1.3 million and $0.2 million,
respectively were recorded on FuelCell's financial statements in 1999 and 1998.
A further $2.0 million is to be paid to the Company based on completion of cycle
life testing that was substantially achieved in December, 1999 and a final
payment of $1.5 million to be paid to the Company upon completion of duplication
of the battery at its facilities in China. The Nan Ya License Agreement provides
that the Company has the right to invest the final payment in equity in the
joint venture manufacturing and sales organization formed between Nan Ya
Plastics and Xiamen Three Circles Co., Ltd.
In July 1998, FuelCell also entered into a Technology Transfer and License
Contract (the "Three Circles License Agreement") with Xiamen Three Circles-ERC
Battery Corp., Ltd. for the use of the Company's nickel-zinc batteries in
electric bicycles, scooters, three-wheel vehicles, off-road vehicles, and
miner's safety lamps in China on an exclusive basis and Southeast Asia on a
non-exclusive basis. The license included an initial payment to FuelCell of $3
million. In connection with the Three Circles License Agreement, FuelCell also
entered into a joint venture agreement with Xiamen Three Circles Co., Ltd., used
this $3.0 million as its initial investment in the joint venture and
subsequently contributed an additional $80,500 to receive a 50.5% share of the
joint venture called Xiamen Three Circle-ERC Battery Corp. (the "Joint
Venture"). Through December 31, 1999, the results of operations of the Joint
Venture are immaterial. Pursuant to the Three Circles License Agreement, the
Joint Venture must also pay the Company certain royalties based upon the net
sales of nickel-zinc batteries sold, leased or transferred in the applicable
territories. In addition the Joint Venture may sub-license the Company's
technology to third parties in China, Hong Kong, Taiwan and Macao on a
non-exclusive basis.
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<PAGE>
In accordance with a License Assistance Agreement entered into between the
Company and FuelCell, the Company has agreed to provide all services and
assistance necessary for it to effectively fulfill, on behalf of FuelCell, all
of FuelCell's obligations under the Joint Venture and the related license
agreement until such time as FuelCell obtains the approval from the Chinese
partner and appropriate Chinese governmental authority for the assignment of
such agreements to the Company. In return for such assistance, FuelCell will pay
to the Company and the Company will pay to FuelCell an amount equal to the sum
of all money, dividends, profits, reimbursements, distributions and payments
actually paid to FuelCell or paid by FuelCell in cash or in kind or otherwise
accruing to FuelCell pursuant to the Joint Venture contract and related license
agreement. All expenses and costs incurred by the Company in meeting the
obligations under the License Assistance Agreement shall be solely those of the
Company, and FuelCell shall not be liable for their payment. The Company
accounts for its involvement in the Joint Venture under the License Assistance
Agreement in a manner similar to the equity method of accounting as a result of
the fact that it does not have significant control over the Joint Venture.
(3) Inventory
Inventories consists of the following:
March 31, December 31,
2000 1999
---- ----
Raw Materials $ 226 $ 123
Work in Progress 42 23
Finished Goods 24 13
------- -------
Total Inventories $ 292 $ 159
======= =======
(4) Subsequent Events
On May 12, 2000 the Company completed a secondary stock offering of 1,250,000
common shares at $12.50 per share, from which the Company received approximately
$14.1 million of proceeds, net of expenses.
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EVERCEL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains forward looking statements, including statements regarding
the Company's plans and expectations regarding the development and
commercialization of its nickel-zinc battery technology. When used in this
Report, the words "expects", "anticipates", "estimates", "should", "will",
"could", "would", "may", and similar expressions are intended to identify
forward-looking statements. All forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. Factors that could cause such a difference include, without
limitation, the risk that cost reduction in the manufacturing process will not
be achieved to the extent necessary to facilitate commercialization, the risk
that the company will not initiate commercial sales as currently scheduled, the
risk that the Company's manufacturing capacity will not be increased as planned,
general risks associated with product development, manufacturing and
introduction, rapid technological changes and competition as well as other risks
set forth in the Company's filings with the Securities and Exchange Commission.
The forward-looking statements contained herein speak only as of the date of
this Report. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any such statement to reflect any
change in the Company's expectations or any change in events, conditions or
circumstances on which any such statement is based.
Overview
We develop, design and have begun to manufacture high-performance
rechargeable batteries. To date, our operations have mainly consisted of
research and development activities with commercial and manufacturing operations
continuing to accelerate in year 2000. We recognize revenue on the date our
products are shipped. To date, revenues have primarily resulted from shipment of
sample products to potential customers.
FuelCell has licensed the rights to manufacture scooter batteries
through the Joint Venture. Under our license assistance agreement with FuelCell,
we have assumed the rights, benefits and obligations of Fuel Cell's 50.5%
ownership of the Joint Venture. We will account for our involvement in the Joint
Venture under the License Assistance Agreement using the equity method of
accounting, in which we record our share of earnings or losses from the Joint
Venture in our statement of operations.
On February 16, 1999, FuelCell transferred the principal assets,
intellectual property and liabilities related to its battery business group to
its subsidiary Evercel, Inc. On February 22, 1999, FuelCell distributed to its
shareholders shares of our common stock in a tax-free distribution. In April
1999, we received $7.8 million from the sale of shares of our common stock at
$3.00 per share pursuant to a rights offering. We continue to pay FuelCell for
certain administrative services in accordance with a services agreement. Results
shown before the period of the spin-off reflect our activity as the Battery
Group of FuelCell.
Results of Operations
Three Months Ended March 31, 2000 Compared with Three Months Ended
March 31, 1999
We had revenues of $5,000 for the three months ended March 31, 2000
compared to none for the three months ended March 31, 1999. The revenues in the
2000 period were due to consumer samples sold in our efforts to commercialize
our nickel-zinc batteries. Cost of revenues of $5,000 for the three months ended
March 31, 2000 were due to the cost of the samples shipped.
Administrative and selling expenses increased from $465,000 for the
three months ended March 31, 1999 to $1,363,000 for the three months ended March
31, 2000. The increase is the result of the full staffing of administrative
functions during the latter half of 1999, including the addition of a Chief
Executive Officer, Chief Financial Officer and other administrative personnel,
the costs of being an independent publicly traded company, and selling,
marketing and administrative activities to ready us for commercialization of our
nickel-zinc battery technology.
Research and development expenses increased 33% to $679,000 for three
months ended March 31, 2000 from $512,000 for the three months ended March 31,
1999 due to product development activity relating to the commercialization of
our battery technology.
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<PAGE>
Interest income of $63,000 for the three months ended March 31, 2000
increased from none for three months ended March 31, 1999 due to interest income
on funds received from the 1999 offerings. We recognized a tax benefit of
$111,000 in the three months ended March 31, 1999 due to our inclusion in the
consolidated tax return of FuelCell. We have not recorded the tax benefit of
operating losses for the same period in 2000, pursuant to Financial Accounting
Standard No. 109, "Accounting for Income Taxes."
Liquidity and Capital Resources
The Company has funded its operations primarily through cash generated from
sales of equity. On May 12, 2000 we concluded a secondary stock offering of our
common stock with net proceeds of $14,113,000.
At March 31, 2000 the Company had working capital of $2,284,000, including cash
and cash equivalents of $3,063,000, compared to working capital of $5,762,000,
including cash and cash equivalents of $6,117,000 at December 31, 1999.
Preferred stock dividends accrued on the Series A Preferred Stock issued in
December 1999 were $132,000 in the three months ended March 31, 2000 compared to
none in the three months ended March 31, 1999.
The Company's capital expenditures are incurred primarily to support the
expected commencement of full scale production. Capital expenditures for the
first quarter were $1,490,000.
The Company anticipates that its existing capital resources, including those
mentioned above, together with anticipated revenues will be adequate to satisfy
existing financial requirements and agreements for at least the next twelve
months.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The investment portfolio
includes money market accounts in U.S. financial institutions. Cash is invested
overnight with high credit quality financial institutions. Based on the
Company's overall interest exposure, including all interest rate sensitive
instruments, a near-term change in interest rate movements would not materially
affect the results of operations or financial position of the Company.
PART II - OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EVERCEL, INC.
(Registrant)
By: /s/ GREGORY SCHULTE
---------------------------
Name: Gregory Schulte Date: 5/15/00
Title: Chief Financial and Accounting
Officer, Treasurer and Secretary
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