SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| Mark One |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended:March 31, 2002 |
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OR |
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o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from: _____________ to ________________ |
Commission File Number: 001-14919
EVERCEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization) | | 06-1528142
(I.R.S. Employer Identification Number) |
5 POND PARK ROAD
HINGHAM, MASSACHUSETTS 02043
(781) 741-8800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
GARRY A. PRIME, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EVERCEL, INC.
5 POND PARK ROAD
HINGHAM, MASSACHUSETTS 02043
(781) 741-8800
(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.
Yesþ Noo
The number of shares outstanding of the Registrant's Common Stock, par value $.01 as of April 30, 2002 was 10,390,708.
EVERCEL, INC.
FORM 10-Q
INDEX
EVERCEL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
ASSETS | | March 31,
2002
(unaudited) | | December 31,
2001 |
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Current assets: | | | | |
Cash and cash equivalents | | $ 13,547 | | $ 16,199 |
Accounts receivable | | 293 | | 66 |
Inventories | | 158 | | 101 |
Other current assets | | 758 | | 387 |
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Total current assets | | 14,756 | | 16,753 |
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Property, plant and equipment, net | | 1,503 | | 1,374 |
Other assets, net | | 3,101 | | 3,328 |
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TOTAL ASSETS | | $ 19,360 | | $ 21,455 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
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Current liabilities: | | | | |
Accounts payable | | $ 319 | | $ 274 |
Accrued salaries and benefits | | 323 | | 421 |
Accrued liabilities | | 1,080 | | 2,500 |
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Total current liabilities | | 1,692 | | 3,195 |
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Other non-current liabilities | | 32 | | 40 |
Minority interest | | 5,286 | | 5,369 |
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Total liabilities | | 7,040 | | 8,604 |
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Shareholders' equity: | | | | |
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Preferred Stock ($0.01 par value); 1,000,000 shares authorized: 197,915 and 194,035 issued and outstanding at March 31, 2002 and December 31, 2001, respectively (with cumulative dividends at 8%). | | 2 | | 2 |
Common Stock ($0.01 par value); 30,000,000 shares authorized: 10,390,708 and 10,377,375 issued and outstanding March 31, 2002 and December 31, 2001, respectively. | | 104 | | 104 |
Additional paid-in-capital | | 58,190 | | 58,179 |
Accumulated deficit | | (45,976) | | (45,434) |
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Total shareholders' equity | | 12,320 | | 12,851 |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ 19,360 | | $ 21,455 |
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See condensed notes to consolidated financial statements.
EVERCEL, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
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| March 31,
2002 | | March 31,
2001 |
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Revenues | $ 152 | | $ 600 |
Cost and expenses: | | | |
Cost of revenues | 148 | | 2,651 |
Administrative and selling expenses | 626 | | 1,836 |
Research and development | 81 | | 681 |
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Total operating costs and expenses | 855 | | 5,168 |
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Loss from operations | (703) | | (4,568) |
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Interest income, net | 44 | | 197 |
Other income, net | 34 | | - |
Loss attributable to minority interest | 83 | | 34 |
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Loss before income taxes | (542) | | (4,337) |
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Income tax expense | - | | - |
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Net loss | (542) | | (4,337) |
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Preferred stock dividends | (95) | | (97) |
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Net loss -- common shareholders | $ (637) | | $ (4,434) |
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Basic and diluted loss per share | $ (.06) | | $ (0.48) |
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Basic and diluted shares outstanding | 10,391 | | 9,176 |
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See condensed notes to consolidated financial statements.
EVERCEL, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | Three Months Ended |
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| | March 31,
2002 | | March 31,
2001 |
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Cash flows from operating activities: | | | | |
Net loss | | $ (542) | | $ (4,337) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | 117 | | 327 |
Other non-cash expenses | | | | 17 |
Minority interest | | (83) | | (34) |
(Increase) decrease in operating assets: | | | | |
Accounts receivable | | (227) | | (495) |
Inventories | | (57) | | (1,159) |
Other current assets | | (371) | | (910) |
Increase (decrease) in operating liabilities: | | | | |
Accounts payable | | 45 | | (534) |
Accrued liabilities | | (1,510) | | (104) |
Other long term assets | | 185 | | 41 |
Other non-current liabilities | | (16) | | - |
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Net cash used in operating activities | | (2,459) | | (7,188) |
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Cash flows from investing activities: | | | | |
Capital expenditures | | (204) | | (455) |
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Net cash used in investing activities | | (204) | | (455) |
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Cash flows from financing activities: | | | | |
Repayments on loans payable | | | | (71) |
Repayments on leases payable | | | | (13) |
Preferred stock dividends paid | | | | (107) |
Net proceeds from common stock issued | | 11 | | 25,212 |
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Net cash provided by financing activities | | 11 | | 25,021 |
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Net increase in cash and cash equivalents | | (2,652) | | 17,378 |
Cash and cash equivalents - beginning of period | | 16,199 | | 12,195 |
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Cash and cash equivalents - end of period | | $ 13,547 | | $ 29,573 |
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Cash paid during the period for: | | | | |
Income taxes | | $ - | | $ - |
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Interest paid | | $ - | | $ 41 |
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See condensed notes to consolidated financial statements.
EVERCEL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying financial statements represent our financial position as of March 31, 2002 and December 31, 2001 and results of operations for the three months ended March 31, 2002 and 2001.
Comparative amounts for the three months ended March 31 are unaudited. In the opinion of management, the information presented in the unaudited three month statements reflect all adjustments necessary for a fair presentation of our results of operations for those periods.
(2) Summary of Significant Accounting Policies
Nature of Business
We are engaged in the design and manufacture of innovative, patented nickel-zinc rechargeable batteries. The nickel-zinc battery has commercial applications in markets requiring long cycle life, light weight and relative cost efficiency. We manufacture our batteries at our majority owned subsidiary, the Xiamen Three Circles-ERC Battery Corp., Ltd. in the People's Republic of China (PRC).
We believe our battery technology has applications in the small electric vehicle market such as scooters; neighborhood electric vehicles, golf carts; wheelchairs, electric bicycles and bass fishing boats. Additional potential applications are in medical devices and yard tools, including lawn mowers and trimmers.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and the accounts of our majority owned joint venture -- the Xiamen Three Circles-ERC Battery Corp.
All intercompany account balances have been eliminated.
(3) Relocation of Corporate Offices
In January 2002 we entered into a lease for 4,000 square feet of office space in Hingham, MA to be used as our corporate headquarters. In April 2002 we negotiated the termination of the Connecticut lease at a cost of $175,000 for which we had previously recorded a reserve.
(4) Cash and Cash Equivalents
Included in cash and cash equivalents is $6,558,000 held by our joint venture subsidiary in Xiamen, in the Peoples Republic of China.
(5) Capitalization
On February 9, 2001 we completed a stock offering of 3,000,000 common shares at $9.00 per share, resulting in total net proceeds of $25,107,000 after commissions and other expenses.
EVERCEL, INC.
Item 2: | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
When used in this report, the words "expects", "anticipates", "believes", "estimates", "should", "will", "could", "would", "may", and similar expressions are intended to identify forward-looking statements. Such statements include statements relating to Evercel's continued development and commercialization schedule for its patented nickel-zinc ("Ni-Zn") rechargeable battery technology and its joint venture partner, expansion plans, licensing opportunities and the expected cost competitiveness of its technology. These and other forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results to differ materially from those forward-looking statements, including, without limitation, general risks associated with product development and introduction, changes in worldwide environmental laws and policies, potential volatility of material costs, government appropriations, rapi d technological change, and competition, as well as other risks. The forward-looking statements contained herein speak only as of the date of this Report. Evercel Inc. (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 have developed and, through our joint venture in the Peoples Republic of China, are manufacturing rechargeable nickel-zinc batteries. The nickel-zinc battery technology is suited for applications requiring long cycle life, light weight and relative cost efficiency. We believe that we will be able to develop markets that utilize nickel-zinc technology both in the U.S. and internationally. However, to date there has not been wide spread acceptance of our technology.
We are focusing our marketing efforts on specialty applications of our rechargeable nickel-zinc batteries where our technology has competitive advantages and where the channels of distribution are relatively narrow. At the present time, we are principally addressing applications in transportation, including:
- the small electric vehicle market, principally scooters, bicycles, wheelchairs and neighborhood electric vehicles; and
- the electric trolling motor market, primarily focused on bass fishing boats
We believe our rechargeable nickel-zinc battery has a variety of other applications. We are continuing to look at additional applications such medical devices, portable power tools and lawn equipment.
Results of Operations
Three Months Ended March 31, 2002 Compared with Three Months Ended March 31, 2001
We had revenues of $152,000 for the three months ended March 31, 2002 compared to $600,000 for the three months ended March 31, 2001. The revenues in the 2002 and 2001 periods were from the sale of our scooter and marine batteries. Cost of revenues of $148,000 for the three months ended March 31, 2002 decreased as a percent of sales compared to the corresponding period in the prior year as a result of transferring our manufacturing to our joint venture in China and eliminating the costs associated with operating the Newport News, VA. facility.
Administrative and selling expenses decreased 66 percent to $626,000 for the three months ended March 31, 2002 from $1,836,000 for the three months ended March 31, 2001. The decrease is the result of reductions of administrative, financial and sales and marketing staff and elimination of relocation and other employee costs, as a result of the closing of the manufacturing facility in Virginia and relocating the corporate offices from Danbury, CT. to Hingham, MA.
Research and development expenses decreased 88 percent to $81,000 for the three months ended March 31, 2002 from $681,000 for the three months ended March 31, 2001. This reduction is a direct result of transferring our research and development activity to our joint venture in China.
Net interest income of $44,000 for the three months ended March 31, 2002 decreased from $197,000 for three months ended March 31, 2001, as a result of lower interest rates combined with the reduced cash balance of the company.
Liquidity and Capital Resources
We have funded our operations primarily through cash generated from sales of equity. On February 9, 2001 we concluded a stock offering of 3 million shares of our common stock resulting in total net proceeds of $25.1 million.
At March 31, 2002 we had working capital of $13.1 million, including cash and cash equivalents of $13.5 million, compared to working capital of $13.6 million, including cash and cash equivalents of $16.2 million at December 31, 2001
As part of a preferred stock offering in December 1999, investors and the underwriter, Burnham Securities Inc., were issued warrants to purchase our common stock. If our common stock reaches certain price levels, we can redeem the warrants. If all the warrants were exercised, we would receive approximately $4.3 million in gross proceeds.
Our capital expenditure of $204,000 in the three months ended March 31, 2002 was for production equipment at our joint venture facility in China.
We anticipate that our existing capital resources will be adequate to satisfy current obligations arising from existing financial requirements and agreements, as we continue to manage our cost structure and evaluate strategic alternatives.
Item 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We have invested and expect to invest excess funds in money market accounts in U.S. and PRC financial institutions. Based upon the cash and cash equivalents balance at March 31, 2002, an increase or decrease of interest rates of 100 basis points would have an effect on the Company's results of operations and cash flows of approximately $34,000.
PART II - OTHER INFORMATION
Item 6: | EXHIBITS AND REPORTS ON FORM 8-K |
(A) EXHIBITS
None
(B) REPORTS ON FORM 8-K
None
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/ Anthony P. Kiernan |
| Name: | Anthony P. Kiernan |
Date: May 15, 2002 | Title: | Chief Financial Officer |
