OR

         For the transition period from: ___________________________________

Commission File Number: 0-24852

EVERCEL, INC.

(Exact Name of Registrant as Specified in Its Charter)

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Indicate by check mark whether the registrant (1) has filed all 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 voting stock held by non-affiliates of the registrant was approximately $66,495,541, which is based on the closing price of $7.00 on March 20, 2001. On March 20, 2001 there were 10,453,770 shares of Common Stock of the registrant issued and outstanding.

      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. Such statements include statements relating to the Evercel's continued development and commercialization schedule for its patented nickel-zinc ("Ni-Zn") rechargeable battery technology and its joint venture partners, expansion plans, licensing opportunities, the expected cost competitiveness of its technology, and the timing and availability of products under development. 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, rapid 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.

     We have developed and are manufacturing rechargeable nickel-zinc batteries. We believe that our batteries have superior characteristics when compared to conventional lead-acid batteries. We are introducing this product into the domestic and international markets. We believe that our patented, independently tested and proven technology is superior to the competing battery technologies in our target markets. For a comparison of the battery performance characteristics of our nickel-zinc batteries with other types of batteries, see "Business - Competitive Battery Technologies" beginning on page 9. During 2001, we intend to manufacture and sell our rechargeable nickel-zinc batteries principally in two markets:

• the electric trolling motor market, primarily focused on sportfishing boats, which we estimate to have 1999 sales of approximately 3,000,000 lead acid batteries; and 
  

• the scooter market, which we estimate to have 1999 worldwide sales of approximately 6,000,000 new gas and electric powered scooters.

     We are producing batteries (comparable in size to average car batteries) in the United States for use with electric trolling motors. We are also producing smaller batteries for the scooter market through our joint venture in Xiamen, PRC. We have received a commercial order from Oxygen, S.p.A., an affiliated manufacturer and distributor of electric vehicles, for our rechargeable nickel-zinc batteries for scooters in Italy. Our joint venture in the PRC began building these batteries in January 2001.

     We are focusing our marketing efforts on specialty applications of our rechargeable nickel-zinc batteries where our technology has significant competitive advantages and where the channels of distribution are relatively narrow, such as the electric trolling motor and scooter markets.

     We believe our rechargeable nickel-zinc batteries have a variety of other applications. We have developed and are prepared to market our rechargeable nickel-zinc batteries for lawn equipment. We are currently developing batteries for neighborhood electric vehicles, electric bicycles, and prototype battery packs for 42-volt battery automobile and truck systems. In addition, we intend to develop batteries for additional applications, such as uninterruptible power supplies and wheelchairs.

    Our proprietary nickel-zinc rechargeable battery is the result of over 30 years of research and a substantial investment in the development of advanced battery technologies. We believe that our technology resulting from this investment has created significant barriers for competition to enter the market. Our manufacturing process and patented technology allow us to produce batteries with the following unique combination of characteristics:

    These characteristics combine to result in a high-power, low-weight, low-maintenance battery with a lower lifetime cost when compared to other technologies in our target markets.

     From June 1999 to February 2000, JBI Corporation, an internationally recognized independent testing laboratory, conducted a cycle test on two of our rechargeable nickel-zinc batteries under controlled conditions. JBI repeatedly discharged 80% of the full energy of our batteries. At the conclusion of the test in February 2000, our batteries had run for over 500 cycles and the capacity of each of the batteries remained at over 80% of its original strength. Each cycle is one discharge and one charge. We believe that this independent test result is evidence of our success in developing the first commercially viable nickel-zinc battery.

     During 1999, the Nan Ya Plastics Division of Formosa Plastics Corporation conducted an internal test program for our nickel-zinc battery. The objective of its testing was to confirm our claims of performance and cycle life. The testing was considered successful by Nan Ya in December 1999 with over 600 cycles completed at an 80% depth of discharge.

     In late 1999, the Nan Ya Plastics Division submitted one of our batteries to the Taiwan Government Laboratory for testing in accordance with the Government of Taiwan Incentive Standard for Electric Scooters. This test simulates a severe driving environment for a scooter. The results of this test, which was completed in December 1999, showed that our battery in simulation exceeded 14,000 kilometers while the closest competitor traveled only 4,000 kilometers. As a result, scooter manufacturers installing our battery will receive the highest subsidy allowed under Taiwan Government regulations for the year 2001.

     In most deep discharge applications where the battery functions as the primary power source, we believe our nickel-zinc batteries will offer superior performance and lower lifetime cost than any other battery chemistries currently available on a commercial basis. 


     The Electric Trolling Motor Market

     The electric trolling motor market exists almost exclusively in the United States sportfishing industry. We estimate that approximately 3,000,000 lead-acid batteries are sold in this market annually, priced at $100 to $300 (retail) per battery.

     Our electric trolling motor batteries are priced at $600 (retail) per battery, including a built-in charger. In addition, we offer a warranty which is longer than existing warranties for trolling motor batteries. While the retail price of the Evertroll battery is significantly higher than that of a lead-acid battery, we believe that the durability and extended life of the Evertroll battery will result in a cost per hour of operation over the life of the battery that will be less than one-half that of a lead-acid battery.

     Direct consumer sales make up 99% of the total trolling motor market. Therefore, we expect that our initial sales of electric trolling motor batteries will be to sportfishermen. In January and March 2001, our rechargeable nickel-zinc batteries were featured in major sporting catalogues that have a combined distribution of 6.2 million copies. In addition, we are working on building relationships with boat manufacturers and expect that our market will expand to include wholesale revenues.

     We believe, due to the popularity and technical equipment requirements of sport fishing, consumers are willing to spend over $600 for a premium trolling motor battery that will facilitate longer fishing and lower maintenance costs. Our technology provides a deep discharge cycle life that extends the total hours of trolling before charging is required. Other advanced technologies such as lithium-ion and nickel-metal hydride are not practical in this market due to their cost. Our maintenance-free design and fast-charge capability also increase the value of our battery.

     We estimate that in 2000 approximately 6,000,000 new gas and electric-powered scooters were sold worldwide. The scooter market primarily exists in Taiwan, India, southeast Asia, Japan and Europe. Of these sales of new scooters, we estimate that at least 1% of these scooters were electric powered. The scooters that will initially use our technology will require a battery, that will be priced at approximately $750 (retail). Within the scooter market, we expect that the majority of our sales will be direct sales to scooter manufacturers, with a small aftermarket for battery sales directly to consumers.

     The scooter market is a good fit for our technology because of the particular characteristics of our batteries. Electric scooters require a power source capable of providing adequate acceleration and load carrying through high energy content at a low weight. Our technology enables scooter manufacturers to incorporate in their scooters a high energy power source relative to the weight of the battery. The deep cycle capability of our technology provides significantly longer total range than lower cost technologies. We believe the cost of ownership of our battery over its entire life is less than other available technologies.

     We believe that the electric scooter market is expanding due to global pollution concerns, increasing gasoline prices and restrictions on noise pollution. For example, the Government of Taiwan has mandated that a minimum of 2% of all new scooters produced be electric. Additionally, the Italian government has provided for subsidies at the local and national level for electric powered vehicles and has initiated inner city travel restrictions for gas powered vehicles.

     Our technology lends itself to many other applications. We believe the electric bicycle market, the majority of which is in the PRC and Japan, will also benefit from our technology. The same strengths that make the scooter market accessible to our batteries also apply to the electric bicycle market. We believe that over 40 million bicycles are produced annually in the PRC, and a small percentage of those are expected to be electric. Other potential applications include lawn equipment, low speed neighborhood vehicles and wheelchairs, the general marine market (outside the trolling market), uninterruptible power supplies (such as back-up power supplies for computers) and 42-volt battery systems for automobiles and trucks. While the market for 42-volt battery systems has yet to develop, automobile manufacturers expect to offer them in two to five years. Each of the other markets varies in size from a few thousand units annually for low speed neighborhood electric vehicles to the $1.5 billion market in 1997 for uninterruptible power supplies. We believe that our technology will be able to address specialized segments of these markets as well.

     We expect to develop our technology to expand into additional markets as opportunities arise. Certain states, including California, Arizona and Colorado, are strengthening environmental laws and granting consumer rebates for purchasing electric vehicles. We expect this trend to continue. As the market for mass produced electric vehicles grows in the United States, we believe that we are well positioned to be a major participant in this market.

     We have recently introduced our battery technology to the motive power market. We intend to penetrate the market segments particularly suited for our current products and, in particular, the electric trolling motor and scooter markets. We intend to reach this goal by leveraging our strengths to achieve the following specific benchmarks:

• establish Evercel and Evertroll as a premium brand names;
   
• create a manufacturing and distribution network with global reach;
   
• sell trolling motor batteries to consumers and boat manufacturers;
   
• sell scooter batteries directly to original equipment manufacturers;
   
• pursue strategic alliances to access additional markets for our batteries; and
   
• maintain our technical leadership through continued research and development.

     We believe that we can achieve these benchmarks by leveraging three core strengths of Evercel: our technology, our relationships and our management

     Through our focus on technical innovation in battery chemistry, we believe we have created proprietary products that are particularly well suited for our target markets. By modifying the preexisting technology relating to nickel-zinc batteries, we have developed and patented unique technologies that will permit scalable, high volume manufacture of our rechargeable batteries. We believe our batteries have a longer cycle life, are lighter in weight and lower in cost than comparable batteries currently available in our target markets. Although the basic characteristics of nickel-zinc battery technology have been known for many years, our patents and proprietary production process create a significant barrier of entry for potential competition in our chosen market. Our batteries also have the additional advantage of lower environmental impact compared to lead-acid or nickel-cadmium batteries.

     We believe that one of our greatest strengths lies in our relationships and strategic alliances. To successfully commercialize our rechargeable nickel-zinc battery technology, we intend to pursue a range of battery markets whose performance requirements match the attributes of our nickel-zinc batteries. These markets have diverse technical and manufacturing specifications driven by differing applications. Therefore, we will continue to rely on, and expand, our relationships with our industry partners, as well as seek new relationships.

     In addition to our joint venture in the PRC, we have signed endorsement contracts with ten well-known bass fishing professionals and four well-known walleye fishing professionals in the United States who regularly appear on television, both in competition and in instructional sportfishing programs. We expect that these endorsements will generate support for our products in the trolling motor market. Finally, we intend to continue to enter into joint venture agreements and license our technology to companies with established manufacturing or distribution capabilities in specific markets.

     Collectively, our management has over 80 years of experience in the battery, electrochemical and consumer electronics industries. This experience includes decades of research and development in batteries and consumer electronics and the successful rollout of both power source and consumer products. Our management has a proven track record of designing and constructing domestic and foreign manufacturing facilities capable of scalable production of consumer and technical products and then successfully marketing those products on a global basis.

     Our products are the culmination of decades of research in rechargeable nickel-zinc battery technology. The rechargeable nickel-zinc battery was first patented in 1923, but until now the technology has never been commercially viable. During the early 1980's, extensive research and development efforts by other researchers to develop a nickel-zinc battery were not successful due to unacceptably short battery cycle life.

     We solved the short cycle life problem with our proprietary cell consisting of layers of positive (nickel) electrodes and negative (zinc) electrodes separated by both electrolyte absorptive layers and microporous separator layers. By sealing the battery cell and reducing the solubility of the zinc electrode, we have increased the cycle life of our batteries to commercially viable levels. This is evidenced by independent tests that have achieved more than 500 cycles per battery under deep discharge test standards. We believe that the average user will experience superior cycle life performance under normal operating conditions. Our patents reflect the methods we use to reduce the solubility, as well as the construction features of our sealed cell technology.

     Evercel operated as the battery business group of FuelCell Energy, Inc. (FuelCell) between 1970 and 1999. FuelCell's main business is the development of carbonate fuel cells, which are designed for stationary power systems. In February 1999, FuelCell made a tax-free distribution of our stock to its stockholders, which resulted in our current structure as an independent, publicly held company.

     While we were part of FuelCell, we focused primarily on the development and engineering of electricity production and storage by electrochemical means. Prior to becoming independent, our product sales emphasized high performance battery cells for the submarine, aerospace and military markets where application needs and engineering excellence outweighed the concerns of cost. We pursued several battery technologies, including silver-zinc, nickel-cadmium, and nickel-zinc. During the mid-1970's to early 1980's, we manufactured high energy density silver-zinc batteries for submarines and submersibles for both main propulsion and auxiliary power. During the 1980's, we were contracted by the United States Navy to develop nickel-cadmium batteries for nuclear submarines as well as the U.S. Department of Energy to develop nickel-zinc batteries for electric vehicles. Historically, we relied on corporate and government contracts for our revenue and as the source of internal research and development funds.

     We expect to continue working on improving the characteristics of our nickel-zinc batteries and are pursuing research and development of other rechargeable zinc battery technologies beyond our current nickel-zinc battery technology.

     There are two types of batteries, disposable and rechargeable batteries. Our nickel-zinc batteries are rechargeable. Rechargeable batteries can often be used in battery applications where disposable batteries are most commonly employed. Disposable batteries are, in most cases, too costly for widespread use in applications currently utilizing rechargeable batteries.

     No one rechargeable battery system is ideal for all applications. There are numerous performance variables that vary in importance by application. Important variables in our markets include:

• specific energy (energy capacity per unit weight);

• specific power (how rapidly energy can be drawn from the battery relative to its weight);

• cycle life (which varies with discharge rate and depth of discharge, response to ambient temperatures, rate of self-discharge, charged and discharged shelf life, size, shape and design);

• energy density (energy capacity per unit volume); and

• cost of materials per kilowatt hour.

     We believe nickel-zinc technology is suitable for our target markets because of its potential to compete well in several rechargeable battery applications. The following chart illustrates the primary performance characteristics by which batteries are judged in our target markets and compares nickel-zinc to certain other competitive battery technologies:

     Our technology is well suited to our target markets due to the combination of the characteristics listed in the table above. Specific energy provides extra range or run-time given a realistic weight limit in a scooter or boat. Specific power provides the necessary acceleration for the vehicle to meet the expectations of the user or, in a marine application that does not require acceleration, the ability of the trolling motor to pull reliably in heavy wind or current. Energy density provides extra range or run time given a realistic size and configuration in a scooter or boat.

     In the trolling and scooter markets, the costs must be seen to be justified by cycle life. Cycle life directly affects the economics of paying more for a premium battery. Longer cycle life correlates to more total hours of trolling or more miles in total range for a scooter over the life of the battery. We expect that our battery will perform for at least five years when usage is measured by average fishermen. We believe that, on average, lead-acid trolling batteries require replacement annually. In the scooter market, the Taiwan government has tested our battery against lead-acid batteries. The results of these tests reflected that a scooter powered by our batteries traveled 3.5 times longer than scooters powered by lead-acid batteries.

     In addition to our nickel-zinc technology, the market for rechargeable batteries consists of lead-acid, nickel-cadmium, nickel-metal hydride and lithium-ion batteries.

• Lead-acid batteries are the most common rechargeable batteries and are primarily used in automobile starting, uninterruptible power supplies and motive power applications such as golf carts and fork lifts. Although lead-acid is the lowest cost rechargeable technology currently available, these batteries are characterized by low cycle life and low energy density.
  
• Nickel-cadmium is the oldest commercialized rechargeable system in the market, primarily used in power tools and uninterruptible power supplies. Nickel-cadmium is considered the most powerful and robust technology in the rechargeable battery marketplace. In the last decade, nickel-cadmium has increasingly been the subject of tightening environmental and workplace regulations and related pressures for recycling and mandatory collection due to the toxicity of cadmium as a principal component.
  
• Nickel-metal hydride technology, primarily used in portable electronics, including mobile phones and computers, offers high energy density relative to nickel-cadmium. Although the metal hydride electrode is considered environmentally preferable to cadmium, nickel-metal hydride cells and batteries typically carry a cost premium that detracts from the appeal of this technology.
  
• Lithium-ion batteries, primarily used in portable electronics, offer the highest energy density of all commercial rechargeable technologies available today. On a weight basis, the technology offers two to three times the energy content of nickel-cadmium and offers higher voltage than nickel-metal hydride or nickel-cadmium technologies. However, lithium-ion cells and batteries are expected to continue to be more expensive than our nickel-zinc technology.

     Competition in our markets continues to be, and is expected to remain, intense. Competitors range from development stage companies to major domestic and international companies, many of which have resources significantly greater than ours. Several of these companies are attempting to develop commercial nickel-zinc batteries; however, we believe that their technology is less mature than ours.

     In our target trolling and scooter motor markets, we expect to compete against suppliers of rechargeable lead-acid and, to a lesser extent, nickel-cadmium and nickel-metal hydride batteries. We are competing on the basis of battery performance and economics, as well as stability, safety and environmental impact considerations.

     The trolling motor battery market is supplied mainly by Delco Battery and Johnson Controls, Inc., who are producing and distributing lead-acid batteries. The major drawbacks of these batteries as compared to our nickel-zinc batteries are power retention, cycle life and ability to charge quickly relative to cycle life.

     The scooter market is dominated by gasoline powered, internal combustion engines. However, electric battery powered scooters are becoming popular with regulators, manufacturers and consumers alike. Our largest competitors in the battery market for scooters are GEL and AGM lead acid manufacturers in Asia and Europe..

     We intend to compete only in specialized markets, where we believe consumers are willing to pay a premium for superior characteristics. Several other battery manufacturers are attempting to develop and market higher performance versions of lead-acid batteries. We believe it is unlikely that those developments will match the performance of nickel-zinc batteries.

     Nickel-zinc batteries are more environmentally acceptable than other commonly available rechargeable battery systems. Lead-acid batteries, our principal competitors, contain chemicals which are harmful to the environment and must be recycled. Nickel-zinc batteries are recyclable. Nickel-zinc batteries also contain no cadmium or mercury, which are difficult to dispose of under current environmental regulation. In addition, we anticipate little waste generation and no wastewater effluents due to our simple manufacturing process. We use electrode materials in dough form that can be reprocessed and reutilized, thereby producing low levels of waste. We also use solvent in the electrode production process that can be reclaimed, purified and reintroduced into the manufacturing process with low levels of waste.

     Our sales and marketing organization is composed at present of a domestic, U.S. based marketing staff and an independent sales and marketing organization in our joint venture in the PRC. We expect to hire additional staff to support our expanding production capabilities.

     We are focusing our general sales and marketing efforts in the following areas:

• generating direct sales to equipment manufacturers and distributors in selected applications and geographical territories and launching the trolling battery through a multi-channel approach directly to consumers;
   
• developing joint venture partnerships for manufacturing and distribution in applications and territories where we believe strategic partners can improve our sales revenues; and
   
• licensing our technology and know-how to strategic partners in applications for businesses other than our core applications, such as consumer electronics.

     In the trolling motor market, we have engaged a team of ten bass and four walleye fishermen to endorse and represent our products in this market. We launched our Evertroll^TM battery and generated initial orders in September 2000. We have purchased both print and television advertising targeted specifically at the fishing market for 2000 and 2001. We expect that this effort will create a demand outside sportfishing in other marine related markets based on word of mouth and cross-market benefits. Telephone sales and sales through our web site were our primary retail sales channels in 2000. We have approached mass distribution partners to further penetrate the manufacturing market. We have begun to distribute our products through third party catalogs and outdoor and fishing stores.

     With regard to the scooter market we are primarily focused on marketing directly to equipment manufacturers. We have contacted and briefed most of the major scooter companies in Italy and Taiwan as well as several smaller manufacturers on the advantages of our nickel-zinc batteries. We have conducted demonstrations, tests and evaluations for several key manufacturers, some of which are ongoing, that already have or may in the future lead to orders for our products.

     We expect to license our technology in situations where there is a strong barrier to market entry, such as high capital cost, difficult political environment, or unique market positioning. In these cases, we will ensure that the licensee has sufficient incentive to aggressively pursue the implementation and sale of our technology in their market or technical niche. We will use quotas, compensation for results and up-front payments to motivate our licensees to actively pursue high volume sales.

     In July 1998, FuelCell entered into a joint venture agreement with Xiamen Three Circles Company, Ltd. (the "Joint Venture"), a government-owned manufacturing company located in Xiamen, PRC. In connection with our spin off from FuelCell, FuelCell transferred it's interest in the joint venture to us. The mission of our joint venture in the PRC is the manufacture and sale of nickel-zinc batteries based on our technology and the sublicensing of that technology to third parties. We received a 50.5% ownership interest in the joint venture and Xiamen Three Circles received a 49.5% ownership interest. Our joint venture in the PRC is managed by a board of directors, a majority of whom are elected by us and the balance are elected by Xiamen Three Circles.

     In July 1998, as part of the joint venture arrangement, FuelCell, Xiamen Three Circles and the joint venture entered into a license agreement pursuant to which FuelCell licensed certain intellectual property to our joint venture for the development, manufacture and sale of nickel-zinc batteries for two applications in the PRC and other countries in Southeast Asia. In connection with our spin off from FuelCell, FuelCell transferred the license agreement to us. In addition, our joint venture may sublicense our technology to third parties in the PRC, Hong Kong, Taiwan and Macao on a non-exclusive basis. The joint venture agreement has a term of 20 years and contains a standard termination clause. In December 2000, the joint venture agreement was formally transferred from FuelCell to us.

     Under the Three Circles License Agreement, the joint venture made an initial payment to FuelCell of $3.0 million, which FuelCell immediately reinvested in the joint venture. Following our spin off from FuelCell, in August 2000, we invested an additional $2.5 million and Xiamen Three Circles invested an additional $2.4 million in the joint venture. As a result, the current ownership interests in the joint venture did not change. The joint venture has contracted to pay us a royalty of 2.67% of the net sales of nickel-zinc batteries in the exclusive territory and 2.0% of the net sales in the non-exclusive territory.

     The joint venture agreement provides for the distribution of revenue after payment of all operating expenses and costs required by law. We do not expect any distribution of revenues in the foreseeable future, as it is intended that all excess revenues will be reinvested in our joint venture.

     Our responsibilities to our joint venture in the PRC include purchasing machinery, equipment and materials outside the PRC, marketing, sales and distribution of batteries outside the PRC and handling United States immigration and export licensing matters. Xiamen Three Circles' responsibilities include handling all legal and regulatory matters in the PRC, obtaining suitable land and facilities in the PRC, and purchasing, marketing, sales and distribution in the PRC.

     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 us based on completion of cycle life testing that was substantially achieved in December 1999. Although we believe the principal milestone conditions have been achieved and we have received $572,000, we cannot guarantee that we will receive the remaining balance. If we receive the balance of the $2.0 million payment, we may also be entitled to a final payment of $1.5 million to be paid to us upon completion of duplication of the battery at its facilities in China. The Nan Ya License Agreement provides that we have 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.

     Our manufacturing plan is to produce batteries for use in marine electric trolling motors and similar applications at our facility in Newport News, Virginia, and batteries for use in scooters and similar applications in Xiamen, PRC.

     We have moved into a new facility in Newport News, Virginia where we have installed an automated production line to manufacture batteries for the trolling motor market. The line will ultimately have the capability to produce approximately 100,000 trolling motor batteries annually.

     In the PRC, we are establishing a manual production process due to the availability of relatively inexpensive labor. Our joint venture in the PRC has recently installed production equipment in a 32,000 square foot facility in Xiamen, PRC which will enable annual battery production capacity of an estimated 30,000 kilowatt hours (kWh), or the equivalent of 20,000 scooter batteries. Our joint venture in the PRC also plans to continue to acquire additional manufacturing space and equipment in 2001 to allow for capacity of 90,000 kWh annually by December 2001.

     Our joint venture in the PRC also expects to reach an annual production capacity of 60,000 scooter batteries in the PRC by the middle of 2001. While we expect to achieve and fully utilize our manufacturing capacity, no assurance can be given that we will be able to do so. Even if we are able to fully utilize our capacity, we cannot assure you that there will be adequate demand for our products.

     Our facility in Danbury, Connecticut tests prototypes and product samples and houses research and development and administrative functions.

     The chemical materials required to manufacture our nickel-zinc battery are readily available from multiple sources in North America and the PRC. Certain separator materials are only available from one U.S. supplier. Prices for both nickel and zinc, the primary raw materials for our batteries, are subject to market forces beyond our control. We do not currently utilize financial instruments to mitigate risk of component prices.

     Our joint venture in the PRC has received an order from Taiwan EVT Technology Co., Ltd., an unaffiliated scooter manufacturer, to supply 1,500 scooters batteries for a total price of $1.4 million. The joint venture has delivered in the first quarter of 2001 the initial qualification order of 400 batteries from Flying Electric Motor Co. of Taiwan. We also have an order from Oxygen, S.p.A. for electric scooter batteries to be manufactured by our joint venture in the PRC. The joint venture expects to begin shipping these batteries during the second quarter of 2001. Orders to our joint venture are subject to cancellation and are not necessarily indicative of our future revenues.

     We have nine United States patents which, combined, have an average of nine years remaining before expiration. Our patents expire at various times through 2017. We do not believe that the expiration of any of our earlier patents will have a material adverse effect on our business. We have registered "Evercel" and have applied to register "Evertroll" as trademarks. We seek to protect our technology through U.S. patents and trade secrets and other agreements. Many of these patents are also filed in Hong Kong, Europe, Japan, Taiwan, India and the PRC.

     We continue to advance our battery technologies by conducting additional research and development. Research and development expenses were $4.6 million in the year ended December 31, 2000, $.5 million for the two months ended December 31, 1999, $2.4 million in the year ended October 31, 1999, and $1.8 million in the year ended October 31, 1998.

     We employ a staff of approximately 212 people. Approximately 28 full-time employees are located in our Danbury, Connecticut facility and 55 full time and 129 temporary employees are located at our manufacturing facility in Newport News, Virginia.We consider relations with our employees to be good.

     Our joint venture in the PRC employs approximately 103 full-time and 97 temporary people, most of whom are engaged in the manufacturing process.

     We lease approximately 28,500 square feet of space in Danbury, Connecticut, that is used as our corporate headquarters. The lease term has four years remaining with an option for us to extend the term for an additional four years. The annual rent is $171,000 for the next two years and increases to $178,000 and $185,000 in the next two subsequent years.

     We also lease approximately 100,000 square feet of space in Newport News, Virginia that we use for our U.S. manufacturing facility. The lease term is 20 years with four five-year options. The annual rent is $717,000 for the first year with an escalation of 1.5% per year.

     We are not a party to any material legal proceedings.

     You should carefully consider the risks described below as well as the other information included in or incorporated by reference in this annual report on Form 10-K. If any of these risks occur our business prospects, results of operations or financial condition could be harmed.

     Until February 1999, we operated as the battery business group of FuelCell and currently are in the early stage of a large-scale commercial release of our initial products. Accordingly, we only have a limited operating history from which you can evaluate our business and prospects. Our limited operating history makes predicting the future results of our operations or the risks we will face difficult. Our business model has not been tested and, accordingly, we cannot be certain that our business strategy will be successful.

     We are not profitable and have had limited revenues. We cannot assure you that we will become profitable in the foreseeable future, if ever. For the twelve months ended December 31, 2000 and 1999 we had losses available to common stockholders of $12.0 million and $5.9 million, respectively. We expect that we will continue to incur losses through 2001. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.

     We believe that we will depend on sales of our nickel-zinc batteries for substantially all of our revenues for the foreseeable future. Our success will depend upon the market acceptance of our nickel-zinc battery technology. Our nickel-zinc batteries have not achieved, and may never achieve, market acceptance. Our introduction of new products may be delayed or unsuccessful. Our batteries will be a more expensive initial purchase than competing batteries and other technologies. We cannot assure you that we will be successful in convincing customers of the value of our batteries over their life cycles and their other performance advantages. Our success will depend, in large part, on our ability to meet customer requirements by developing and introducing, on a timely basis, new products and enhanced and modified versions of our current products. We cannot assure you that we will be able to do so. Our competitors may introduce new technologies or refine existing technologies that will be more appealing to customers than our products.

     Patents, trade secrets and other proprietary rights are important to our success and competitive position. Our efforts to protect our proprietary rights, including our patents, may be inadequate and may not prevent others from claiming violations by us of their property rights. In addition, because of the intense competition in battery technology and the large number of patents filed, or being filed, we may need to use other companies' patents under license agreements. We are uncertain if we could reach an agreement to use those patents and whether the terms of such an agreement would be acceptable to us. If any court or competent authority concludes that our products or manufacturing processes have infringed upon the product or process rights held by others, our business, financial condition and results of operations could be harmed. Additionally, a determination that we have infringed upon the product or process rights held by others could result in the loss of our proprietary rights, subject us to liability to third parties or prevent us from manufacturing or selling our products, any of which could have a material negative effect on our business and hinder our intentions to sell our nickel-zinc battery technology. We cannot assure you that patents will be issued from any pending applications, that the claims allowed under any patents will be sufficiently broad to protect our technology, that any patents issued to us will not be challenged, invalidated or circumvented, or as to the degree or adequacy of protection any patents or patent applications may afford. We could incur substantial costs in prosecuting and defending patent and other proprietary rights suits.

     Our policy is to also protect our proprietary rights in our products and operations through contractual obligations including nondisclosure agreements with certain employees, customers, consultants, licensees and strategic partners. We also cannot assure you as to the degree of protection these contractual measures may afford.

     We have not filed for patent protection in certain potential major markets such as southeast Asia. Any agreements that we reach with partners in these areas would have to be based on trade secrets and know-how. In the future, we may seek patent protection in those areas. In addition, some foreign countries in which we may do business provide significantly less patent and proprietary rights protection than the United States.

     We also rely on know-how and trade secrets to establish our battery technologies for commercial applications and we cannot assure you that we can adequately protect this information in our dealings with other companies. If other competitors or organizations develop similar or better battery technologies through their own efforts, these developments could have an adverse effect on our business.

     Rapid growth of our advanced rechargeable nickel-zinc battery business may significantly strain our management, operations and technical resources. If we are successful in obtaining rapid market penetration of our rechargeable nickel-zinc batteries, we will wish to either satisfy customer orders with quality products on a timely basis at a reasonable cost to those customers or license our technology to others who can manufacture and distribute our products. We also have no experience with the capabilities of our shipping contractors and cannot assure you that our shipping contractors will be able to ship our products in a timely manner. Additionally, we currently have limited manufacturing capability and no experience in large-scale manufacturing of our rechargeable nickel-zinc batteries or in automated assembly and packaging technology.

     We currently operate our Virginia facility with one automated line, and we may, in the future, add a second automated line. Our joint venture in the PRC also intends to expand its manufacturing capability. We have had production difficulties with our current automated line in Virginia. In addition, we cannot assure you that our efforts to expand manufacturing will be successful. Manufacturing capability is dependent upon a number of factors, including manufacturing concerns and process control issues. In addition, we cannot assure you that we will not have difficulties meeting necessary quality control standards as we expand our manufacturing capabilities. Our business, financial condition and results of operations may be severely harmed if we encounter difficulties in effectively managing either the current production process or the budgeting, forecasting, quality control and other issues presented by rapid growth. Additionally, we cannot assure you that we or our licensees will be able to satisfy commercial-scale production requirements on a timely and cost-effective basis. Our failure to manufacture our nickel-zinc battery products in the volume necessary to exceed our fixed overhead expenses would have a significant adverse impact on our results of operations.

     We conduct business in the People's Republic of China (the PRC) through:

• our 50.5% ownership interest in a joint venture with Xiamen Three Circles Co., Ltd. that manufactures rechargeable nickel-zinc batteries for the scooter markets in Italy and Taiwan from a plant in Xiamen; and 
   
• the licensing of our technology to that joint venture pursuant to the Three Circles License Agreement.

     The following risk factors relate to our business in the PRC.

     The value of our interest in our joint venture in the PRC and the profitability of that joint venture may be adversely affected by changes in the political environment in the PRC. The PRC is a socialist state which, since 1949, has been, and is expected to continue to be, controlled by the Communist Party of China. Changes in the political leadership in the PRC could lead to changes in legal and business regulation and the general political, economic and social environment in that country. Those changes could adversely affect our business, financial condition and results of operations if they prohibit or restrict foreign investment in the PRC or result in increased costs for our joint venture.

     One of the target markets for nickel-zinc batteries manufactured from the Xiamen plant is Taiwan. The relationship between the PRC and Taiwan has been marked with political and economic tension. Our joint venture in the PRC could be adversely affected if bans or restrictions were imposed on trade between those two countries.

     In addition, we have relationships with individuals in the PRC whose status and political influence could be adversely affected as a result of political changes in that country. Any such changes in the political leadership or current economic reform policies or the imposition of additional restrictions of foreign-owned enterprises could have a material adverse effect on the business of our joint venture in the PRC and, as a result, our interest in that joint venture. Any such changes could also adversely affect our rights and revenues under the Three Circles License Agreement.

     We have licensed our technology for use by our joint venture in the PRC pursuant to the Technology Transfer and the Three Circles License Agreement. This agreement provides for the use of our nickel-zinc batteries for miners' lamps, two- and three-wheel vehicles, industrial traction equipment, off-road golf carts, boats and all terrain vehicles in the PRC on an exclusive basis and in southeast Asia on a non-exclusive basis. We protect our technology in the PRC through a combination of patent applications, contractual arrangements and trade secrets. Patent and other intellectual property rights receive substantially less protection in the PRC than is available in the United States. We cannot assure you that we will be able to protect our proprietary rights in the PRC or elsewhere. The unauthorized use of our technology by others, particularly in the PRC where labor costs are low, could have a material adverse effect on our business, financial condition and results of operation.

     The PRC regulates the repatriation of foreign currencies as payments to foreigners, including investors and licensors, and the conversion of renminbi (the official currency of the PRC) into foreign currencies, such as the U.S. dollar. As a result, we may be restricted or prevented from receiving distributions, license payments or royalties from our joint venture in the PRC even if they are needed to meet obligations of our business or would be better employed in our business outside of the PRC. In addition, distributions from our joint venture in the PRC, license payments and royalties may be subject to taxation by the PRC as well as tax authorities in the United States.

     We expect that our joint venture in the PRC will receive a substantial portion of its revenues in renminbi. A portion of those revenues will have to be converted to other currencies to meet contractual obligations (such as payment obligations to suppliers) or for purposes of remitting these funds to us as return of capital, dividends or license payments. Under our joint venture agreement, we are entitled to receive distributions and royalties based on sales using our technology and other distributions from our joint venture. Our joint venture may be unable to convert sufficient renminbi into foreign currency to enable it to comply with its foreign currency payment obligations, including royalty payments distributions to us. In the event of a depressed market in renminbi, the cost of foreign currency could prevent our joint venture in the PRC from paying distributions and license fees to us. In addition, fluctuations in the exchange rate of the renminbi into U.S. dollars could have an adverse effect on the license fees owed to us.

     The PRC does not have a well-developed, consolidated body of laws governing foreign investment enterprises. As a result, the administration of laws and regulations by government agencies may be subject to considerable discretion and variation. As the legal system in the PRC develops, our investment in our joint venture may be adversely affected by new laws, changes to existing laws (or interpretations thereof) and preemption of provincial or local laws by national laws. In circumstances where adequate laws exist, we may not be able to obtain timely and equitable enforcement of those laws.

     Following the formation of the PRC in 1949, the PRC government renounced various debt obligations incurred by predecessor governments, which obligations remain in default, and expropriated assets without compensation. We cannot assure you that, in the future, expropriation or nationalization of the assets of our joint venture in the PRC or any of our other assets in the PRC will not occur. Such an expropriation or nationalization could result in a total loss of our investment in our joint venture in the PRC.

     A substantial portion of our business will depend upon the success of products sold by manufacturers that may use our batteries or license our technology. For example, one factor determining the quantity of purchase orders we may receive from scooter manufacturers in the future is the success of that company's scooter. We are subject to many risks beyond our control that influence the success or failure of manufacturers' particular products including, among others factors:

• competition faced by those manufacturers in their particular industry; 
   
• market acceptance of the manufacturers' products; 
   
• engineering, sales and marketing and management capabilities of those manufacturers; 
   
• technical challenges unrelated to our technology or problems faced by any of those manufacturers in developing their products; and 
   
• financial and other resources of those other manufacturers.

We may not be able to compete successfully if we fail to keep pace with rapidly changing technologies.

     The battery industry has experienced, and is expected to continue to experience, rapid technological change. Our growth and future success will depend, in part, on our ability to enhance and modify existing products and to introduce new products in new markets. Our product development efforts require and are expected to continue to require, substantial investments by us for research, refinement and testing. We cannot assure you that we will have the resources to do this.

     The rechargeable battery industry is characterized by intense competition with a large number of companies offering or seeking to develop technology and products similar to ours. We are subject to competition from manufacturers of traditional rechargeable batteries, from manufacturers of rechargeable batteries with advanced technologies, as well as from companies engaged in the development of batteries incorporating new technologies. We cannot assure you that we will be successful in competing with these manufacturers, many of which have substantially greater financial, technical, manufacturing, distribution, marketing, sales and other resources than we have. A number of companies with substantially greater resources than ours are pursuing the development of a wide variety of battery technologies which are expected to compete with our technology.

     Other companies undertaking research and development activities of solid-polymer batteries have already developed prototypes and are constructing commercial scale production facilities. If other companies successfully market their batteries prior to the introduction of our products, there may be a material adverse effect on our business, financial condition and results of operations. The market for our products, as well as the products that use our batteries and technology, is characterized by changing technology and evolving industry standards, often resulting in product obsolescence or short product life cycles. We cannot assure you that competitors will not develop technologies or products that would render our technology and products obsolete or less marketable.

     Our growth and success will be dependent to a substantial extent on our reputation. Since we anticipate licensing our technology to others, our reputation may be affected by the performance of the companies to which we license our technology. Our licenses may grant exclusivity with respect to certain uses or geographic areas. As a result, we will be wholly dependent on the success of the licensee for success with respect to any exclusive use or geographical area. We cannot assure you that we will be successful in granting our licenses to those who are likely to succeed. In addition, license agreements with foreign companies may be subject to additional risks, such as exchange rate fluctuations, political instability or weaknesses in the local economy. Certain provisions of the license agreements that benefit us may be subject to restrictions in foreign laws that limit our ability to enforce those contractual provisions. In addition, it may be more difficult to register and protect our proprietary rights in certain foreign countries. Our failure to obtain suitable licensees of our technology or the failure of our licensees to achieve our manufacturing or quality control standards or otherwise meet our expectations could have a material adverse effect on our business, financial condition and results of operations.

     We intend to enter into additional joint venture arrangements in the future to sell or license our battery technology. Our joint venture in the PRC is with a foreign partner and we anticipate that future joint ventures may be with foreign partners or entities. As a result, such future joint ventures may be subject to the political climate and economies of the foreign countries where such partners reside. We cannot assure you that our joint venture partners or other partners will provide us with the support we anticipate, or that any of the joint ventures or other relationships will be successful in developing batteries for use with their intended products, or that any of the joint ventures or other relationships will be successful in manufacturing and marketing their batteries for such products once developed. Any of our international operations will also be subject to certain external business risks such as exchange rate fluctuations, political instability and a significant weakening of a local economy in which a foreign joint venture operates or is located. Certain provisions of the joint venture agreements that are for our benefit may be subject to restrictions in foreign laws that limit our ability to enforce those contractual provisions. Failure of these joint ventures to be successful could have a material adverse effect on our business and prospects.

     Because of the specialized, technical nature of our business, we are highly dependent on certain members of our management, marketing, engineering and technical staff including Robert L. Kanode, President and Chief Executive Officer, and Allen Charkey, Executive Vice President and Chief Technology Officer, the loss of whose services could have a material adverse effect on our business, financial condition and results of operations. Based on our commercialization and expansion plans, we will require a significant increase in the number of our employees and the employees of our joint venture in the PRC. Our success will depend upon, among other factors, attracting and retaining additional highly skilled and experienced managerial, sales, marketing, engineering and technical personnel. We cannot assure you that we will be able to recruit or retain such personnel.

     Foreign, federal, state and local regulations impose various environmental controls on the manufacture, transportation, storage, use and disposal of batteries and certain chemicals used in the manufacture of batteries. We cannot assure you that conditions relating to our historical operations which require expenditures for clean-up will not be discovered in the future or that changes in environmental laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Our batteries contain a limited amount of lead in the negative electrodes. We cannot assure you that the United States Environmental Protection Agency or other governmental agencies in the U.S. or abroad will not determine that the lead content or the nickel in our batteries makes them unsuitable for landfill disposal. Although we believe we are presently in compliance with all foreign, federal, state and local governmental regulations, we cannot assure you that additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our batteries or restricting disposal of batteries will not be imposed or as to the effect such regulations may have on us or our customers.

     The principal raw materials used in the production of our battery products are nickel and zinc. Prices for both nickel and zinc are subject to market forces beyond our control. Our future profitability may be materially adversely affected by increased nickel or zinc prices to the extent we are unable to pass on higher raw material costs to our customers. To attempt to reduce such risks, we may engage in forward purchases and hedging transactions to manage raw material costs and inventory relative to anticipated production requirements. We cannot assure you that such activities will be successful or will not result in increased losses.

     Certain separator materials used in the production of our batteries are only available from one supplier. We cannot assure you that alternate materials would be available to us at an acceptable price, or quickly enough so as not to disrupt production.

     We offer an extended warranty for our trolling motor batteries. Our warranty is substantially greater than the existing warranties of most of our competitors. We have no historical experience in evaluating the potential liability that could be created by claims under that warranty. If the claims made under that extended warranty exceed expected levels against which we have reserved, our results of operations and financial condition could be adversely affected.

     The sale of our products may expose us to product liability claims from consumers. Certain materials we use in our batteries could, if used improperly, cause injuries to others. In addition, because our batteries are new products, any accident involving them or other battery products could impede demand for our products.

     We cannot be certain that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-related or debt securities, those securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders may experience additional dilution. In the past, we have experienced negative cash flow from operations. We completed a public offering in February 2001. This offering raised net proceeds of $25.4 million through the sale of 3,000,000 shares of our common stock at $9.00 per share and we currently anticipate that our available funds will be sufficient to meet our anticipated needs for working capital and capital expenditures through at least 2001. We may need to raise additional funds prior to the expiration of this period if, for example, we pursue business acquisitions or experience operational losses that exceed our current expectations. We also cannot assure you that we will be able to put in place any future credit facilities that will address our future capital needs, in whole or in part.

     We expect that our quarterly operating results will fluctuate significantly. As a result, the market price for our common stock is likely to be highly volatile and subject to wide fluctuations. Factors, many of which are beyond our control, that may affect our quarterly results include:

• announcements of technological innovations or new products or services or pricing changes by us or our competitors; 
   
• conditions or trends in the battery or electric vehicle industries; 
   
• changes in the economic performance and/or market valuations of other battery or electric power companies; 
   
• announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; 
   
• additions or departures of key personnel; 
   
• currency fluctuations; 
   
• release of lock-up or other transfer restrictions on our outstanding shares of common stock or sales of additional shares of common stock; or 
   
• potential litigation.

     Many companies that have experienced volatility in the market price of their stocks have been the subject of securities class action litigation. We may be involved in a securities class action lawsuit in the future. Litigation often results in substantial costs and the diversion of management's attention and resources and could harm our business, financial condition and results of operations.

     If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and warrants or the conversion of our Series A preferred stock, in the public market, the market price of our common stock could fall. These sales might also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. At December 31, 2000 we had outstanding 7,431,952 shares of common stock, assuming no conversion of our Series A preferred stock and no exercise of our outstanding options or warrants. As of December 31, 2000, an additional 1,946,222 shares of common stock were issuable upon conversion of the Series A preferred stock and exercise of outstanding options and warrants.

     We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends on our common stock in the foreseeable future.

     Provisions in our certificate of incorporation and by-laws and in the Delaware and Connecticut corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors.

     We have never declared or paid any cash dividends on our common stock and we do not intend to pay any cash dividends in the near future on our common stock. At this time, we intend to retain our future earnings to fund the expansion of our business. Our dividend policy may be reviewed by our board of directors from time to time, based on our performance and our financial condition.

We lease approximately 28,500 square feet of space in Danbury, Connecticut, that is used as our corporate headquarters. The annual lease cost in Danbury, Connecticut is approximately $171,000 for the next two years and will increase to $178,000 and $185,000 in the next two subsequent years.

We have negotiated a lease to occupy 100,000 square feet of manufacturing space in Newport News, Virginia in August 2000. The automated nature of the new facility will enable us to reduce our reliance on relatively expensive domestic labor. We expect the new facility will have the capability to produce 100,000 kWh, or the equivalent of 100,000 trolling motor batteries, annually, per line of automation. We expect to invest an estimated $8.0 million in each line of automation and will require 20,000-30,000 square feet of manufacturing space per line. We have installed one line of automation during year 2000, and will construct the second line as needed and expect that our existing working capital will be sufficient to complete both lines.

The Company is not a party to any material legal proceeding.

     The following table sets forth the range of high and low sales prices of our common stock for the quarters indicated, as reported by the Nasdaq National Market and the Nasdaq Small Cap Market for the applicable periods.

     Our common stock has been traded on the Nasdaq National Market since May 4, 2000, and previously on the Nasdaq Small Cap Market from April 5, 1999.

     As of February 8, 2001, there were approximately 160 holders of record of our common stock.

     The selected financial data set forth below is for the fiscal years ended December 31, 2000, October 31, 1999 and 1998, and the two months ended December 31, 1999. You should read this information together with our financial statements and the notes to those statements beginning on page 3 of this report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. The statement of operations data for the fiscal years ended December 31, 2000, October 31, 1999 and 1998, the two months ended December 31, 1999 and the balance sheet data as of December 31, 2000 and 1999 are derived from our financial statements which have been audited by KPMG LLP, independent accountants, and are included elsewhere in this report. Historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.

     (a) Due to losses we have incurred, dilutive instruments, consisting of shares of Series A Preferred Stock, options and warrants, have been excluded from diluted shares. At December 31, 2000 and 1999, there were 196,500 and 264,000, respectively, shares of Series A Preferred Stock convertible into 714,523 and 960,000, respectively, shares of common stock, related warrants exercisable for 555,200 and 595,268, respectively, shares of common stock and options exercisable for 676,499 and 627,098, respectively, shares of common stock.

     (b) Represents the pro forma loss per share and shares assumed to be outstanding.

     We changed our fiscal year from October 31 to December 31 effective December 31, 1999. As a result, portions of the following discussion cover the two month period from November 1, 1999 to December 31, 1999.

     We develop, design and have begun to manufacture high-performance rechargeable nickel-zinc batteries. Much of the following discussion relates to our operations prior to manufacturing when we were primarily engaged in research and development activities. We recognize revenue on the date our products are shipped. To date, revenues have primarily resulted from shipment of products to our joint venture in the PRC and sample products to potential customers.

     We licensed the rights to manufacture nickel-zinc batteries for miners' lamps, two- and three-wheel vehicles, industrial traction equipment, off-road golf carts, boats and all terrain vehicles to our joint venture in the PRC, of which we own a 50.5% interest. Prior to December 1, 2000, we accounted for our involvement in that joint venture using the equity method of accounting, in which we recorded our share of earnings or losses from that joint venture in our income statement. Subsequent to December 1, 2000, as a result of the joint venture agreement being formally transferred to us, we are consolidating that joint venture in our financial statements.

     Additionally, FuelCell also transferred to us a 42.17% interest ($253,000 value) in Xiamen Three Circles ERC Technology Co., Ltd, (the Tech JV), on December 1, 2000. The purpose of the Tech JV is to enhance cooperation between China and the United States in the field of energy and other new advanced technology fields. Subsequent to December 1, 2000, as a result of this transfer, we are consolidating this joint venture in our financial statements.

     On February 16, 1999, FuelCell transferred to us the principal assets, intellectual property and liabilities related to its battery business group. On February 22, 1999, FuelCell distributed to its stockholders 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. Results shown before the period of the spin-off reflect our activity as the battery business group of FuelCell.

     To continue to meet our operating and capital requirements, we completed a private placement of our equity in December 1999, raising $6.1 million, net of expenses. We also completed a public offering of our common stock in May 2000. The public offering raised net proceeds of $15.9 million through the sale of 1,391,080 shares of our common stock at $12.50 per share Additionally, we completed another public offering in February 2001. This offering raised net proceeds of $25.4 million through the sale of 3,000,000 shares of our common stock at $9.00 per share. We believe the net proceeds from these sales will be sufficient to support our planned operations through 2001.

     In December 2000, we borrowed approximately $1.3 million from the State of Virginia and the City of Newport News, Virginia. We are currently negotiating with private financial institutions in order to secure up to approximately $9.0 million in borrowings in order to provide adequate financing and capital for opportunities or contingencies.

     We had revenues of $200,000 for the year ended December 31, 2000. These revenues resulted from product samples sold in our efforts to commercialize our nickel-zinc batteries. Cost of revenues of $627,000 for the year ending December 31, 2000 were due to the cost of the samples shipped and the revaluation of inventory items at December 31, 2000. The revaluation reflects the value of materials and their components at their market value in accordance with the lower of cost or market valuation method.

     Administrative and selling expenses were $7,361,000 for the year ended December 31, 2000. These costs are primarily salaries, wages and benefits, the costs of our new manufacturing facility in Newport News, Virginia, including the relocation of personnel, professional services and selling and marketing activities to position us for consumer acceptance and demand.

     Research and development expenses were $4,623,000 for year ended December 31, 2000 due to product development activities relating to the commercialization of our product and the increased research activity after the start up of our manufacturing facility.

     Net interest income of $609,000 for year ended December 31, 2000 was due to interest income on funds received from our 1999 and 2000 stock sales. License fee income of $572,000 was received during the year ended December 31, 2000 related to the Nan Ya license agreement. Our share of joint venture losses through November 30, 2000 was $165,000. Beginning in December 2000, as a result of obtaining formal approval from the Chinese government of the transfer of the Joint Venture from FuelCell to us, we began consolidating the Joint Venture in our financial statements. We recognized a tax expense of $88,000 on the license fee payment.

     We had revenues of $13,000 for the two months ended December 31, 1999. The revenues in 1999 were due to consumer samples sold in our efforts to commercialize our nickel-zinc batteries. Cost of revenues of $220,000 for the two months ending December 31, 1999 were due to the cost of the samples shipped and the revaluation of inventory items at December 31, 1999. The revaluation reflects the value of materials and their components at what we believe to be their market value in accordance with the lower of cost or market valuation method.

     Administrative and selling expenses were $636,000 for the two months ended December 31, 1999. These costs are the full staffing of administrative functions during 1999, including the addition of a Chief Executive Officer, Controller 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. Depreciation was $54,000 for the two months ended December 31, 1999 due to capital purchases in 1999 to outfit our Danbury, Connecticut manufacturing facility.

     Research and development expenses were $451,000 for the two months ended December 31, 1999 due to product development activity relating to the commercialization of our battery technology.

     Interest income of $28,000 for the two months ended December 31, 1999 was due to interest income on funds received from the 1999 offerings.

     We had $196,000 in revenues for the year ended October 31, 1999, as compared to $438,000 for the same period in 1998. Lower revenues resulting from the termination of a license fee arrangement with Corning, Inc. in May 1998 were partially offset by sales of materials of $195,000 to the Joint Venture during the year ended October 31, 1999. We had cost of revenues of $694,000 for the year ended October 31, 1999 as compared to $87,000 for the prior year. Higher costs were due to the cost of the materials shipped and the revaluation of inventory items at December 31, 1999 to adjust their costs to market value. The revaluation reserve reflects the value of materials and their components to reflect what we believe will be their market value when we are in high volume production and are able to negotiate more favorable pricing. Administrative and selling expenses increased 24% to $2.2 million for the year ended October 31, 1999 from $1.8 million in 1998. The increase was the result of increased staffing to support the commercialization, production and distribution of sample batteries and costs associated with the Joint Venture and Three Circles License Agreement. Depreciation increased to $181,000 from $45,000 from the year ended October 31, 1998 reflecting increased capital purchases to outfit our Danbury, Connecticut manufacturing facility.

     Research and development expense increased 34% to $2.4 million for the year ended October 31, 1999 from $1.8 million in the prior year. The increase reflects product development activity relating to the commercialization of our battery technology.

     Net interest income of $90,000 in 1999 reflects interest of $108,000 earned on funds raised from 1999 offerings offset by $18,000 of interest expense due to borrowings from banks and FuelCell to finance operations prior to our 1999 offerings. Our share of the Joint Venture's losses amounted to $36,000 for the year ended October 31, 1999. We recognized a tax benefit of $360,000 in the quarter ended January 31, 1999 due to our inclusion in the consolidated tax return of FuelCell. We have recorded no benefit for the losses incurred in the second, third and fourth quarters of the year ended October 31, 1999, pursuant to Financial Accounting Standard No. 109, "Accounting for Income Taxes."

     Working capital at December 31, 2000 was $10.9 million compared to $5.8 million at December 31, 1999 including cash of $12.2 million, compared to cash of $6.1 million at December 31, 1999.

     Prior to being spun off from FuelCell, we obtained all of our funding from FuelCell. On February 5, 1999, we entered into a loan agreement pursuant to which we borrowed $1.6 million from a bank and $300,000 from FuelCell for working capital and proposed capital expenditures secured by all of our tangible and intangible personal property. Repayment of the bank loan was guaranteed by FuelCell. In April 1999, we received $7.8 million of net proceeds from a rights offering, including funds received from the sale of unsubscribed shares pursuant to an agreement with standby underwriters. We used a portion of these net proceeds to repay in full the bank loan and the line of credit from FuelCell, and those agreements were terminated.

     To continue to meet our operating and capital requirements, we completed a private placement of our preferred equity in December 1999, raising $6.1 million, net of expenses. We also completed a public offering of our common stock in May 2000. This public offering raised net proceeds of $15.9 million through the sale of 1,391,080 shares of our common stock at $12.50 per share. Additionally, we completed another public offering in February 2001. This offering raised net proceeds of $25.4 million through the sale of 3,000,000 shares of our common stock at $9.00 per share. We believe the net proceeds from these sales will be sufficient to support our planned operations through 2001.

     In December 2000, we borrowed approximately $1.0 million from the Virginia Small Business Financing Authority and $250,000 from the City of Newport News, Virginia, Redevelopment and Housing Authority.

     Our cash requirements will vary depending upon a number of factors, many of which are beyond our control. These factors include the demand for our products, the efforts and success of our licensees and joint venture partners in developing and marketing products incorporating our battery technology, the development of battery markets, the level of competition that we face, our ability to develop, market and license new products and our ability to effectively manage operating expenses. Over time, we expect to continue to enter into license agreements and to participate in joint manufacturing ventures.

     We have entered into a services agreement with FuelCell to provide us with certain management and administrative services and office, research and development and manufacturing support facilities and services. The net fees which we paid to FuelCell pursuant to our services agreement were $167,500 for the year ended December 31, 2000, $67,000 for the two months ended December 31, 1999 and $378,000 for the year ended October 31, 1999. These amounts exclude certain services billed on the basis of usage, such as purchasing, analytical lab, microscope analysis, machine shop and drafting. These amounts reflect FuelCell's additional costs related to providing these services. These services were provided by FuelCell through December 31, 2000 and are now substantially provided by our employees.

     In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS 138. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement became effective for us on January 1, 2001. The adoption of this statement did not have a material effect on our results of operations, cash flows, or financial position. The adoption of SFAS 133 may cause increased volatility in the Company's results of operations in the future if we change our policies or enter into new derivative instruments, which do not meet the requirements for hedge accounting under SFAS 133.

     We held no derivative instruments as of December 31, 2000. We are exposed to market fluctuations in foreign currency exchange and repatriation, interest rates and commodity pricing. The nature of each is as follows:

     We currently have international operations in the PRC through our joint venture. The currency of exchange is U.S. dollars for all current international transactions, except for our joint venture in the PRC. Although the PRC controls the rate of exchange for the Renminbi, a devaluation or free market valuation could impair our joint venture's ability to make payments for products sold or services rendered. In the PRC, we expect to continue to reinvest all monies earned as net income of the joint venture for the foreseeable future. The PRC may restrict the payments under our joint venture. As a result, we might not be able to receive distributions from our joint venture in the future even if they are needed to meet obligations of our business or would be better employed in uses of our business outside of the PRC.

     We have invested and expect to invest excess funds in money market accounts in U.S. financial institutions. Currently, our only indebtedness is $1.0 million borrowed from the Virginia Small Business Financing Authority at an interest rate of 8.75% for 5 years and $250,000 borrowed from the Newport News Redevelopment and Housing Authority at an interest rate of 4.5% for 6½ years. The loans are secured by substantially all of our assets. Based upon the level of cash and cash equivalents balance at December 31, 2000 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 $122,000.

     We do not hedge against price fluctuation in the commodities used in the manufacturing of our product. We will reevaluate this policy as needed commensurate with the risk inherent in the business.

     The Financial Statements and Supplementary Data of the Company are listed under Part IV, Item 14, in this report.

None.

     The following table sets forth information with respect to our executive officers, directors and certain key employees:

     Robert L. Kanode has been our President, Chief Executive Officer and a director since April 1999. Prior to joining us, Mr. Kanode served as President of Varta Batteries North America, a battery manufacturer, from 1995 to 1999. Mr. Kanode also held numerous positions with IBM, including the IBM ThinkPad team and other permanent and consulting positions focused on electronic manufacturing and operations.

     Allen Charkey has been a director since our formation and Executive Vice President and Chief Technology Officer since October 1998. He joined FuelCell in 1970 and held various positions at FuelCell and was Vice President of the FuelCell Battery Group from January 1997 until October 1998. Prior to joining FuelCell, Mr. Charkey was employed by Yardney Electric Corporation, a battery manufacturer, from 1963 to 1970 as a battery scientist.

     Daniel J. Samela has been our Chief Financial Officer, Treasurer and Secretary since August 2000. Mr. Samela, a certified public accountant, was previously Controller of Trigen Energy Corporation since 1995. Prior to joining Trigen, Mr. Samela was Controller and Chief Financial Officer of the dealer division of Savin Corporation from 1990 to 1995.

     Jerry D. Leitman has been our Chairman since our formation. He has been President, Chief Executive Officer and a Director of FuelCell since August 1997. Mr. Leitman was previously President of Asea Brown Boveri's global air pollution control businesses from 1992 to 1995. Prior to joining ABB, Mr. Leitman was Group Executive Vice President of FLAKT AB, a Swedish multinational, responsible for FLAKT's worldwide industrial businesses from 1989 to 1992. Mr. Leitman is also a director and a member of the Audit Committee of Esterline Technologies Inc., a manufacturer serving the aerospace and defense markets.

     Warren D. Bagatelle has been a director since September 1998. He has been a Managing Director of Loeb Partners Corporation, a financial services company, and a general partner of Loeb Investors Co LXXV, an affiliate of Loeb Partners Corporation, an investment company, since 1988. Mr. Bagatelle is a director of FuelCell.

     Robert Gable has been a director of Evercel since November 1999. He was chairman of the board and chief executive officer of Unitrode Corporation, a manufacturer of power source and battery control technology, between 1990 and 1998.

     James D. Gerson has been a director of Evercel since September 1998. He has been a Vice President of Fahnestock & Co., Inc., a financial services company, since March 1993. Mr. Gerson also serves as a director of FuelCell, Ag Services of America, Inc., a company financing farm inputs, and American Power Conversion Corp., a company producing uninterruptible power supplies.

     John H. Gutfreund has been a director since January 2000. He is the former Chairman and Chief Executive Officer of Salomon Brothers Inc. and former Vice Chairman of the New York Stock Exchange. He is President of Gutfreund & Company, Inc., an investment banking and consulting firm. He is also a director of AMBI, Inc., a manufacturer of nutrition products; Ascent Assurance, Inc., an insurance holding company; Baldwin Piano & Organ Company, Inc., a musical instruments company; Maxicare Health Plans, Inc., a managed health care company; Arch Wireless, Inc., an Internet messaging and wireless information company; LCA-Vision, Inc., a provider of services to outpatient eye surgery facilities; and Universal Bond Fund.

     Thomas L. Kempner has been a director since September 1998. He has been Chairman and Chief Executive Officer of Loeb Partners Corporation since 1979 and a general partner of Loeb Investors Co. LXXV, an affiliate of Loeb Partners Corporation, an investment company. Mr. Kempner is a director of Alcide Corporation, an agricultural products company, IGENE Biotechnology, Inc., a microbiology products company, Intermagnetics General Corporation, CCC Information Services Group, Inc., a claims management company, Insight Communications Company, Inc., a cable television systems operation, and Roper Starch Worldwide, Inc. and director emeritus of Northwest Airlines, Inc. Mr. Kempner is a director of FuelCell and was the Chairman of the board of directors of FuelCell from March 1992 to August 1997.

     William A. Lawson has been a director since September 1998. He has been President of W.A. Lawson Associates, an industrial and financial consulting firm, since 1987. Mr. Lawson is Chairman of the board of directors of Newcor, Inc., a manufacturer of motor vehicle parts, and Mr. Lawson was the Chairman and Chief Executive Officer of Bernal International Inc. (formerly, Atlantic Eagle Inc.) a manufacturer of industrial marketing and equipment, from 1997 to 1999. Mr. Lawson is a director of FuelCell.

     Glen V. Bowling has been our Vice President of Marketing and Sales since 1999 and our Director of Marketing and Sales since 1998. Prior to joining us, he was Vice President of Sales for the Saft Lithium and Military Battery Division of the Saft Group from 1997 to 1998, responsible for worldwide sales. From 1991 to 1997, he was Director of Sales and Marketing for the Lithium Battery Division in Valdese, NC, where he was responsible for all commercial activities for the facility.

     Dr. Chao Ming Huang has been our Vice President of Far East Operations since July 1999 and has served as a director of Xiamen Three Circles ERC Battery Corporation since its formation in August 1998 and General Manager since January 1999. He joined FuelCell in 1994 where he held various positions, including Director for Advanced Materials Research.

     Dr. Christine Frysz has been our Director of Product Engineering since September 1999. Dr. Frysz was previously Director, Engineering & Operations, Electrochem Battery Division of Wilson Greatbatch, Limited, a leading manufacturer of lithium batteries for specialty and medical applications.

     Jason Heron has been our Director of Manufacturing Operations since May 2000 and the General Manager of our Virginia facility since August 2000. Mr. Heron was previously Development Engineering Manager at Thomas and Betts, Inc. a leading manufacturer of batteries for the electronics industry.

     Messrs. Kempner and Lawson were re-elected at the annual meeting of shareholders on July 19, 2001 for terms expiring in 2003. The terms of Messrs. Bagatelle, Gerson and Gable will expire in 2001 and the terms of Messrs. Leitman, Charkey, Kanode and Gutfreund will expire in 2002.

     Our Board has established an executive committee, an audit committee and a compensation committee. Our executive committee consists of three independent Directors. Currently, our executive committee consists of Messrs. Gutfreund (Chairman), Gable and Kempner. The executive committee assists management with certain projects such as raising capital and providing expertise towards commencing high volume manufacturing.

     Our audit committee consists of three independent Directors. Currently, our audit committee consists of Messrs. Bagatelle (Chairman), Lawson and Gerson. The audit committee selects the firm of independent accountants that will audit our financial statements, reviews the scope and result of the audit and other services provided by our independent auditors and reviews and evaluates our internal control functions.

     Our compensation committee consists of at least three disinterested Directors who are non-employee directors. Currently, our compensation committee consists of Messrs. Lawson (Chairman), Gutfreund and Gerson. The compensation committee reviews, approves and recommends to the Board of Directors the terms and conditions of incentive bonus plans applicable to corporate officers and key management personnel, reviews and approves the annual salary of our chief executive officer, and administers our 1998 Equity Incentive Plan.

     Prior to April 1, 2000, we paid an annual retainer of $12,000 to each director who was not an employee of the Company. Effective April 1, 2000 we paid each non-employee director an annual retainer of $10,000 and an option to buy 4,000 shares of our common stock at the fair market value on the day the option is granted. The options vest over four years. The Chairman and each committee chair are paid an extra $4,000 and $2,000, respectively. We reimburse each non-employee director for out-of-pocket expenses incurred in connection with attending board meetings.

     Pursuant to an Option Agreement entered into by FuelCell and Mr. Leitman in 1997, FuelCell granted to Mr. Leitman options to acquire 375,000 shares of FuelCell common stock. In connection with our spin-off from FuelCell, we have agreed to issue to Mr. Leitman one share of our common stock for every 2.25 shares of FuelCell common stock which he purchases pursuant to his exercise of the FuelCell options. The FuelCell options began to vest in August 1998 in an initial installment of 150,000 shares and annual installments of 75,000 shares thereafter and will become fully vested in August 2001. FuelCell and we have agreed to allocate the exercise price of the FuelCell options between us based upon the relative fair market values of the FuelCell common stock and our common stock at the time of exercise.

     We have also granted Mr. Leitman in January 1999 an option to acquire 166,666 shares of our common stock exercisable at $3.00 per share. This option is exercisable to acquire 66,666 vested shares of our common stock and 100,000 restricted shares. Of the restricted shares, 66,666 shares have vested as of the date of this report, and the balance will vest in August 2001. Mr. Leitman exercised this option in March 1999 by issuing to us a nonrecourse note in the amount of $300,000, the total exercise price of the shares. The note is payable in equal installments on the remaining vesting dates. Until the applicable installment of the note is paid, the shares will remain restricted. In the event the note is not fully paid by August 4, 2001, the shares for which payment has not been made will be forfeited to us for no consideration.

     We have also agreed to register, under the Securities Act, the shares of common stock to be issued to Mr. Leitman pursuant to the exercise of these options.

     Messrs. Gable and Gutfreund were each granted options to buy 20,000 shares at the time they joined the Board of Directors. It is the Company's intention to grant future Board Members options to buy 20,000 shares when they join the Board.

     The table below sets forth information concerning the compensation we paid to our chief executive officer and the other executive officer whose salary and bonus exceeded $100,000 in 2000.

      The following table contains information about the aggregate value of the unexercised options for our common stock that were held at the end of 2000 by the executive officers named in the Summary Compensation Table above. No options were exercised by these officers in 2000 and 1999.

      We have entered into an employment agreement with Robert L. Kanode, our President and Chief Executive Officer. Pursuant to the agreement, Mr. Kanode receives a minimum annual salary of $250,000 and a bonus of up to 40% of his annual salary based on performance objectives established by the Compensation Committee of the Board of Directors. Mr. Kanode will receive continued salary and benefits for a period of one year if we terminate his employment without cause. Mr. Kanode also holds options to purchase 200,000 shares of common stock at $3.00 per share, of which 25% vest each year in four annual installments. If we experience a change of control, all of the options will automatically vest.

      We have also entered into an employment agreement with Allen Charkey, our Executive Vice President and Chief Technology Officer. Pursuant to the agreement, Mr. Charkey receives an annual salary of $150,000. Mr. Charkey will receive continued salary and benefits for a period of one year if we terminate his employment without cause. Mr. Charkey also holds options to purchase 66,666 shares of common stock at $3.00 per share. Of these options, 49,999 have vested as of December 31, 2000 and the balance vests in 2001. If we experience a change of control, all of the options will automatically vest.

      Our Board of Directors has adopted the 1998 Stock Option Plan. The Plan provides for the issuance of options to purchase up to 1,300,000 shares of common stock, of which 650,000 were added to the plan by the Board of Directors in July 2000. Grants of 942,764 options have been to our officers, key employees and Directors, of which options to purchase 192,000 shares have been exercised, and 74,266 were added back to the plan as a result of grantee termination. Under the terms of the Plan, the Board of Directors is authorized to grant incentive stock options and nonqualified options and stock appreciation rights to our officers and key employees and may grant nonqualified options and stock appreciation rights to members of the Board of Directors and consultants.

      The transferability of stock options granted under the Plan is restricted. The Plan states that the option exercise price shall be fixed by the Board of Directors but, in the case of incentive stock options, shall not be granted at an exercise price less than 100% of the fair market value of the shares subject to the option on the date the option is granted. The Board determines the vesting restrictions applicable to each grant under the Plan. Except for Mr. Charkey, all stock options that have been granted under the Plan to date are exercisable commencing one year after grant at the rate of 25% each year.

      The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2000, and as adjusted by:

• each stockholder known by us to beneficially own more than 5% of our outstanding common stock; 
   
• each of our executive officers; 
   
• each of our directors; and 
   
• all directors and executive officers as a group.

      A person has beneficial ownership of shares if the individual has the power to vote or dispose of shares. This power can be exclusive or shared, direct or indirect. In addition, a person beneficially owns shares underlying options or warrants that are presently exercisable or will become exercisable within 60 days of December 31, 2000, and shares to be acquired upon conversion of our preferred stock. These shares are considered to be outstanding for the purpose of calculating the percentage of outstanding shares of our common stock owned by a particular stockholder but are not considered to be outstanding for the purpose of calculating the ownership percentage of any other person. Applicable percentage ownership in the following table is based on 7,431,952 shares of common stock outstanding as of December 31, 2000. Except as otherwise noted, to our knowledge, the stockholders named in the table have sole voting and investment power for all shares shown as beneficially owned by them.

* Less than one percent.

_____________________________

* Less than one percent.

      Messrs. Warren Bagatelle, James Gerson, Thomas Kempner, Jerry Leitman and William Lawson are also directors of, and have a significant investment in, FuelCell. Accordingly, these directors may be deemed to have an indirect interest in certain transactions with us because of their relationship with FuelCell.

      We entered into certain agreements with FuelCell, including a distribution agreement, a tax sharing agreement, a services agreement and the License Assistance Agreement for the purpose of defining our ongoing relationship with FuelCell and to provide certain services during the transition. The distribution agreement provides for the transfer of the business and principal assets of the battery business group to us and the assumption by us of certain liabilities and obligations relating to that business.

      The tax sharing agreement defines the rights and obligations of FuelCell and us with respect to filing of returns, payments, deficiencies and refunds of federal, state and other income, franchise or certain other taxes relating to our operations before the spin-off. The tax sharing agreement is intended to allocate the tax liability of FuelCell between FuelCell and us as if we were separate taxable companies.

      The services agreement sets forth the terms under which FuelCell provides to us certain management and administrative services, as well as the use of certain office, research and development and manufacturing and support facilities and services. We paid FuelCell $167,500 for the year ended December 31, 2000, $67,000 for the two months ended December 31, 1999 and $378,000 for the year ended October 31, 1999. We now have the ability to perform substantially all of these services.

      In February 1999, we borrowed $300,000 from FuelCell for working capital and capital expenditures. This loan was secured by all of our assets. We borrowed an additional $1.6 million from a bank, which was guaranteed by FuelCell. These loans were repaid in April 1999.

      In March 1999, Jerry D. Leitman, our Chairman, exercised options for 100,000 shares of our common stock at $3.00 per share by issuing to us a nonrecourse, non-interest-bearing note in the original principal amount of $300,000 payable in equal installments through 2001. No principal payments have yet been made on this note. If this note is not paid by August 4, 2001, Mr. Leitman's shares will be forfeited.

      In December 1999, James Gerson and John Gutfreund, each a director, and a retirement plan for Robert Kanode, our Chief Executive Officer, President and a director, bought 20,000, 2,000 and 1,200 shares of Series A preferred stock, respectively, and accompanying warrants at $25.00 per share.

      Loeb Partners Corporation, an affiliate of Thomas Kempner and Warren Bagatelle, each a director, received $174,000 as standby underwriter in connection with our 1999 rights offering.

      In December 2000, we entered into an agreement with Oxygen, S.p.A. Oxygen has agreed to promote and incorporate into its manufacturing process our rechargeable nickel-zinc batteries destined for the European market for use in light-weight electric vehicles. These batteries will be manufactured by our joint venture in the PRC. We have invested $154,000 in the equity of Oxygen and we hold 18% of its issued capital. It is expected that James Gerson, one of our directors, will be a director of Oxygen. In addition, Glen Bowling, our Vice President of Marketing and Sales, is a director and officer of Oxygen. Oxygen has placed an initial order with us for 3,250 rechargeable nickel-zinc batteries to be manufactured over year 2001 by our joint venture in the PRC.

Supplemental Disclosure of Cash Flow Information (in thousands)