SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number:  001-14919

(Exact Name of Registrant as Specified in Its Charter)

5 POND PARK ROAD
HINGHAM, MASSACHUSETTS 02043
(781) 741-8800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

GARRY A. PRIME, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EVERCEL, INC.
5 POND PARK ROAD
HINGHAM, MASSACHUSETTS 02043
(781) 741-8800
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ    No o

The number of shares outstanding of the Registrant's Common Stock, par value $.01 as of October 25, 2002 was 10,404,041.

EVERCEL, INC.
FORM 10-Q
INDEX

EVERCEL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

See notes to condensed consolidated financial statements.

EVERCEL, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

See notes to condensed consolidated financial statements.

EVERCEL, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

See notes to condensed consolidated financial statements.

EVERCEL, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

See notes to condensed consolidated financial statements.

EVERCEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying financial statements represent our financial position as of September 30, 2002 and December 31, 2001 and results of operations for the three and nine months ended September 30, 2002 and 2001.

Comparative amounts for the three and nine months ended September 30 are unaudited. In the opinion of management, the information presented in the unaudited three and nine month statements reflect all adjustments necessary for a fair presentation of our results of operations for those periods.

We have made a number of estimates and assumptions relating to the assets and liabilities and the reporting of revenues and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. The Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations and financial position, including working capital, for interim periods are not necessarily indicative of those to be expected for a full year.

(2) Summary of Significant Accounting Policies

We are engaged in the design and manufacture of innovative, patented nickel-zinc rechargeable batteries. The nickel-zinc battery has commercial applications in markets requiring long cycle life, light weight and relative cost efficiency. We manufacture our batteries at our majority owned subsidiary, the Xiamen Three Circles-ERC Battery Corp., Ltd. in the People's Republic of China (PRC).

We believe our battery technology has applications in the small electric vehicle market such as scooters; neighborhood electric vehicles, golf carts; wheelchairs, electric bicycles and bass fishing boats. Additional potential applications are in medical devices and yard tools, including lawn mowers and trimmers.

          In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 142 effective January 1, 2002. In connection with the adoption of Statement 142, the Company evaluated the life of its intangible asset. As a result of this evaluation, the Company has determined that its intangible asset does not have an indefinite life and that the existing useful life is appropriate . This intangible asset, which is included in other assets, represents purchased technology rights with a net book value of $2,577,000 and $2,702,000 at September 30, 2002 and December 31, 2001, respectively. Amortization expense for the three-months and nine-months ended September 30, 2002 and 2001 was $42,000 and $125,000, respectively. This intangible asset continues to be subject to amortization, which is anticipated to be approximately $170,000 annually through December 31, 2017.

          In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. Statement 143 requires recording the fair market value of an asset retirement obligation as a liability in the period in which a legal obligation associated with the retirement of tangible long-lived assets is incurred. The Statement also requires recording the contra asset to the initial obligation as an increase to the carrying amount of the related long-lived asset and depreciation of that cost over the life of the asset. The liability is then increased at the end of each period to reflect the passage of time and changes in the initial fair value measurement. The Company is required to adopt the provisions of Statement 143 effective January 1, 2003 and has not yet determined the extent of its impact, if any.

          Also, in October 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Statement also extends the reporting requirements to report separately as discontinued operations, components of an entity that have either been disposed of or classified as held for sale. The Company adopted the provisions of Statement 144 effective January 1, 2002 and such adoption had no effect on its financial statements.

          In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of Statement No. 146 are effective for exit or disposal activities initiated after December 31, 2002 and thus will become effective for the Company on January 1, 2003. The Company will continue to apply the provisions of EITF Issue 94-3 to any exit activities that have been initiated under an exit plan that met the criteria of EITF Issue 94-3 before the adoption of Statement No. 146. The adoption of Statement 146 is not currently expected to have a material affect on the Company's financial position, results of operations or cash flows upon adoption.

          In December 2001, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others. The SOP applies to any entity that lends to or finances the activities of others, and specifies accounting and disclosure requirements for entities that extend trade credit to customers and also provides specific guidance for other types of transactions specific to certain financial institutions. The SOP is effective for the Company beginning January 1, 2003 and the Company does not believe the recognition and measurement provisions within this SOP will result in a change in practice for our trade receivables or any other activities of the Company. The SOP also provides certain presentation and disclosure changes for entities with trade receivables as part of the objective of requiring consistent accounting an d reporting for like transactions, which the Company intends to include in its disclosures upon adoption.

The accompanying consolidated financial statements include our accounts and the accounts of our majority owned joint venture -- the Xiamen Three Circles-ERC Battery Corp.

All intercompany account balances have been eliminated.

(3) Relocation of Corporate Offices

In January 2002 we entered into a lease for 4,000 square feet of office space in Hingham, MA to be used as our corporate headquarters. In April 2002 we negotiated the termination of the Connecticut lease at a cost of $175,000 for which we had previously recorded a reserve.

(4) Cash and Cash Equivalents

Included in cash and cash equivalents at September 30, 2002 and December 31, 2001 are $6,123,000 and $7,047,000 respectively, held by our joint venture subsidiary in Xiamen, in the Peoples Republic of China.

(5) Capitalization

On February 9, 2001 we completed a stock offering of 3,000,000 common shares at $9.00 per share, resulting in total net proceeds of $25,107,000 after commissions and other expenses.

Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          When used in this report, the words "expects", "anticipates", "believes", "estimates", "should", "will", "could", "would", "may", and similar expressions are intended to identify forward-looking statements. Such statements include statements relating to Evercel's continued development and commercialization schedule for its patented nickel-zinc ("Ni-Zn") rechargeable battery technology and its joint venture partner, expansion plans, licensing opportunities and the expected cost competitiveness of its technology. These and other forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results to differ materially from those forward-looking statements, including, without limitation, general risks associated with product development and introduction, changes in worldwide environmental laws and policies, potential volatility of material costs, government appropriations, 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.

Overview

          We have developed and, through our joint venture in the Peoples Republic of China (PRC), are manufacturing rechargeable nickel-zinc batteries. The nickel-zinc battery technology is suited for applications requiring long cycle life, light weight and relative cost efficiency. We believe that we will be able to develop markets that utilize nickel-zinc technology both in the U.S. and internationally. However, to date there has not been widespread acceptance of our technology.

          We are focusing our marketing efforts on specialty applications of our rechargeable nickel-zinc batteries where our technology has competitive advantages and where the channels of distribution are relatively narrow. At the present time, we are principally addressing applications in transportation, including:

• the small electric vehicle market, principally scooters, bicycles, wheelchairs and neighborhood electric vehicles; and
• the electric trolling motor market, primarily focused on bass fishing boats.

We believe our rechargeable nickel-zinc battery has a variety of other applications. We are continuing to look at additional applications such medical devices, portable power tools and lawn equipment.

          In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates and assumptions. We believe that the following discussion addresses the Company's most critical accounting policy, and is that which is most important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

          Long-lived assets, including fixed assets and intangibles other than goodwill, are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The estimate of undiscounted cash flow is based upon, among other things, certain assumptions about expected future operating performance. The Company's estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. In those cases where the Company determines that the useful life of other long-lived assets should be shortened, the C ompany would depreciate and/or amortize the net book value in excess of the salvage value (after testing for impairment as described above), over the revised remaining useful life of such asset thereby increasing depreciation and amortization expense.

          We had revenues of $81,000 for the three months ended September 30, 2002 compared to $29,000 for the three months ended September 30, 2001. The revenues in the 2002 and 2001 periods were from the sale of our scooter and marine batteries. The increase in revenue is due in large part to fulfillment of orders and backorders as a result of the availability of the trolling motor battery from our joint venture in China. Cost of revenues of $160,000 for the three months ended September 30, 2002 decreased as a percent of sales compared to the corresponding period in the prior year as a result of transferring our manufacturing to our joint venture in China and eliminating the costs associated with operating the Newport News, VA. facility.

          Administrative and selling expenses decreased 67 percent to $582,000 for the three months ended September 30, 2002 from $1,743,000 for the three months ended September 30, 2001. The decrease is the result of reductions of administrative, financial and sales and marketing staff and elimination of other employee and facility costs as a result of the closing of the manufacturing facility in Virginia and relocating the corporate offices from Danbury, CT. to Hingham, MA.

          Research and development expenses decreased 92 percent to $46,000 for the three months ended September 30, 2002 from $556,000 for the three months ended September 30, 2001. This reduction is a result of transferring our research and development activity to our joint venture in China and increased emphasis on manufacturing versus development.

          Net interest income of $42,000 for the three months ended September 30, 2002 decreased from $132,000 for three months ended September 30, 2001, as a result of lower interest rates combined with the reduced cash balance of the company.

          We had revenues of $252,000 for the nine months ended September 30, 2002 compared to $716,000 for the nine months ended September 30, 2001. The revenues in the 2002 and 2001 periods were from the sale of our scooter and marine batteries. The reduction in revenue is due in large part to the temporary unavailability of the trolling motor battery as we transitioned production from Newport News, VA to our joint venture in China. Cost of revenues was $409,000 for the nine months ended September 30, 2002 compared to $6,102,000 for the nine months ended September 30, 2001. Cost of sales, as a percent of sales, decreased by 78 percent compared to the corresponding period in the prior year as a result of transferring our manufacturing to our joint venture in China and eliminating the costs associated with operating the Newport News, VA facility.

          Administrative and selling expenses decreased 69 percent to $1,807,000 for the nine months ended September 30, 2002 from $5,924,000 for the nine months ended September 30, 2001. The decrease is the result of reductions of administrative, financial and sales and marketing staff and elimination of other employee and facility costs as a result of the closing of the manufacturing facility in Virginia and relocating the corporate offices from Danbury, CT. to Hingham, MA.

          Research and development expenses decreased 89 percent to $164,000 for the nine months ended September 30, 2002 from $1,546,000 for the nine months ended September 30, 2001. This reduction is a result of transferring our research and development activity to our joint venture in China and increased emphasis on manufacturing versus development.

          Net interest income of $153,000 for the nine months ended September 30, 2002 decreased from $580,000 for nine months ended September 30, 2001, as a result of lower interest rates combined with the reduced cash balance of the company.

          We have funded our operations primarily through cash generated from sales of equity. On February 9, 2001 we concluded a stock offering of 3 million shares of our common stock resulting in total net proceeds of $25.1 million.

          At September 30, 2002 we had working capital of $11.7 million, including cash and cash equivalents of $11.3 million, compared to working capital of $13.6 million, including cash and cash equivalents of $16.2 million at December 31, 2001. Included in cash and cash equivalents are $6.1 million and $7 million, as of September 30, 2002 and December 31, 2001 respectively, held by our joint venture in Xiamen, in the Peoples Republic of China.

          As part of a preferred stock offering in December 1999, investors and the underwriter, Burnham Securities Inc., were issued warrants to purchase our common stock. If our common stock trades at $16.50 per share for twenty consecutive days we can redeem the warrants. If all the warrants were exercised, we would receive approximately $4.3 million in gross proceeds.

          Our capital expenditures of $339,000 in the nine months ended September 30, 2002 was for production equipment at our joint venture facility in China.

          We anticipate that our existing capital resources will be adequate to satisfy current obligations arising from existing financial requirements and agreements, as we continue to manage our cost structure and evaluate strategic alternatives.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          We have invested and expect to invest excess funds in money market accounts in U.S. and PRC financial institutions. Based upon the cash and cash equivalents balance at September 30, 2002, an increase or decrease of interest rates of 100 basis points would have an effect on the Company's results of operations and cash flows of approximately $28,000 per quarter.

Item 4: CONTROLS AND PROCEDURES

          The Company's Chief Executive Officer and Chief Financial Officer (who are its principal executive officer and principal financial officer, respectively) have within 90 days prior to the filing date of this report (the "Evaluation Date"), evaluated the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c) and 15d-14(c)). Based upon such evaluation we have concluded that such disclosure controls and procedures are generally effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding disclosure.

          The Company's Chief Executive Officer and Chief Financial Officer have determined that there were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date.

 
PART II -- OTHER INFORMATION

None

None

I, Garry Prime, the principal executive officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Evercel, Inc. (the "Registrant");

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Garry Prime               
Garry Prime
Chief Executive Officer

I, Anthony Kiernan, the principal financial officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Evercel, Inc. (the Registrant");

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Anthony Kiernan            
Anthony Kiernan
Chief Financial Officer

          In accordance with the requirements of the Securities Exchange of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.