SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[Mark One]
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-25411
EVERCEL,INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1528142
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Lee Mac Avenue, Danbury, Connecticut 06810
Address of principal executive offices) (Zip code)
Issuer's telephone number including area code: (203) 825-3900
3 Great Pasture Road, Danbury, Connecticut 06813
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's common stock, par value $.01,
as of June 10, 1999, was 2,861,045.
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
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EVERCEL, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Condensed Financial Statements: 2
Condensed Balance Sheet as of April 30, 1999 3
Condensed Statements of Operations for the three months
ended April 30, 1999 and April 30, 1998 4
Condensed Statement of Operations for the six months
ended April 30, 1999 and April 30, 1998 5
Condensed Statements of Cash Flows for the six months
ended April 30, 1999 and April 30, 1998 Notes to
Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 11
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
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EVERCEL, INC.
CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
April 30,
1999
---------
ASSETS
CURRENT ASSETS:
Cash $ 5,021
Accounts receivable 23
Inventories 282
Other current assets 36
-----------
Total current assets 5,362
-----------
Property, plant and equipment:
Cost 2,599
Accumulated depreciation 890
-----------
Net 1,709
Other assets 53
-----------
TOTAL ASSETS $ 7,124
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued liabilities $ 489
Accounts payable 179
-----------
Total current liabilities 668
SHAREHOLDERS' EQUITY:
Common Stock ($.01 par value); 10,000,000
shares authorized: 2,861,045
issued and outstanding at April 30, 1999
29
Additional paid in capital 8,000
Note receivable from shareholder (300)
Accumulated deficit (1,273)
-----------
Total shareholders' equity 6,456
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,124
===========
See accompanying notes to unaudited condensed financial statements.
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EVERCEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended April 30,
----------------------------
1999 1998
----------- -----------
Revenues:
License fee income $ -- $ 93
----------- -----------
Total revenues -- 93
----------- -----------
Cost & expenses:
Depreciation & amortization 38 13
Administrative and selling expenses 660 373
Research & development 564 483
----------- -----------
1,262 869
----------- -----------
(Loss) from operations (1,262) (776)
Interest income 20 --
Interest expense (18) --
----------- -----------
(Loss) before income tax benefit (1,260) (776)
Income tax (benefit) -- (264)
----------- -----------
Net (loss) $ (1,260) $ (512)
=========== ===========
Basic and diluted (loss) per share $ (.70) $ (.70)(a)
=========== ===========
Basic and diluted shares outstanding 1,787,767 1,389,000(a)
=========== ===========
(a) Represents proforma shares outstanding to reflect shares issued in
conjunction with the spin-off from Energy Research Corporation on February
22, 1999 of 1,388,856 shares of common stock as if they were outstanding as
of the beginning of the periods presented.
See accompanying notes to unaudited condensed financial statements
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EVERCEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Six Months Ended April 30,
--------------------------
1999 1998
----------- -----------
Revenues:
Contracts $ -- $ 2
License fee income -- 218
----------- -----------
Total revenues -- 220
----------- -----------
Cost & expenses:
Cost of revenues -- 5
Depreciation & amortization 49 23
Administrative and selling expenses 960 622
Research & development 1,130 851
----------- -----------
2,139 1,501
----------- -----------
(Loss) from operations before income
tax (benefit) (2,139) (1,281)
Interest income 20 --
Interest expense (18) --
----------- -----------
(Loss) before income tax benefit (2,137) (1,281)
Income tax (benefit) (360) (436)
----------- -----------
Net (loss) $ (1,777) $ (845)
=========== ===========
Basic and diluted (loss) per share $ (1.12) $ (.61)(a)
=========== ===========
Basic and diluted shares outstanding 1,585,006 1,389,000(a)
=========== ===========
(a) Represents proforma shares outstanding to reflect shares issued in
conjunction with the spin-off from Energy Research Corporation on February 22,
1999 of 1,388,856 shares of common stock as if they were outstanding as of the
beginning of the periods presented.
See accompanying notes to unaudited condensed financial statements
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EVERCEL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended April 30,
1999 1998
------- -------
Cash flows from operating activities:
Net (loss) (1,777) (845)
Depreciation and amortization 49 23
Changes in operating assets and liabilities:
Accounts receivable (6) 12
Inventory (282) 42
Other current assets (36) --
Other assets -- --
Accounts payable 126 2
Accrued liabilities 409 31
------- -------
Net cash(used in)operating activities (1,517) (735)
------- -------
Cash flows from investing activities:
Capital expenditures (919) --
Changes in other assets 269 --
------- -------
Net cash (used in)investing activities (650) --
------- -------
Cash flows from financing activities:
Funding of operations provided by ERC -- 735
Repayment on short term borrowings (603) --
Common Stock issued 7,807 --
Change in deferred income taxes (17) --
------- -------
Net cash provided by financing activities 7,187 735
Net increase/(decrease) in cash 5,020 --
Cash, beginning of period 1 --
Cash, end of period $ 5,021 $ --
======= =======
Other non cash transactions:
Transfer of spin-off costs from ERC $ 501 $ --
See accompanying notes to unaudited condensed financial statements
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Part I - Financial Information
Item 1. Financial Statements
EVERCEL, INC.
NOTES TO UNAUDITED CONDENSED
FINANCIAL STATEMENTS
NOTE 1: GENERAL INFORMATION
In September 1998, the Board of Directors of Energy Research Corporation
("ERC"), the former parent of Evercel, Inc. (the "Company"), approved a
restructuring program which would effect the spin-off of the Company from ERC in
order for the Company to own and operate ERC's battery business group as a
separate, publicly held corporation.
OnFebruary 22, 1999, in order to effect the spin-off, the ERC Board of Directors
declared a special distribution (the "Distribution") to ERC stockholders of one
share of common stock of Evercel, Inc. for every three shares of ERC common
stock outstanding. The Distribution was treated as a tax-free dividend for tax
reporting purposes. Prior to the Distribution, effective February 16, 1999, ERC
transferred to the Company the principal assets related to its battery business
group and certain liabilities related to those assets.
Immediately after the Distribution, the Company granted at no cost to holders of
its common stock as of February 22, 1999, transferable subscription rights to
subscribe for and purchase additional shares of the Company common stock (a
"Right"). Each holder of common stock of the Company received one transferable
Right for each share of common stock held. Each Right was exercisable to
purchase one share of common stock of the Company at a purchase price of $6.00
per share (the "Rights Offering").
Inconnection with the Distribution 1,388,856 shares of Company common stock were
issued. In connection with the closing of the Rights offering on April 5, 1999,
921,915 shares of common stock were issued pursuant to the exercise of Rights.
Pursuant to the Standby Underwriting Agreement with Loeb Partners Corporation
and Burnham Securities Inc., an additional 466,941 shares were issued on April
12, 1999.
NOTE 2: BASIS OF PRESENTATION
The accompanying condensed financial statements for the Company, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)of
Regulation S-B. In the opinion of management, all adjustments (consisting only
of normal recurring
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adjustments) necessary to present fairly the financial position of the Company
as of April 30, 1999 and the results of operations for the three and six months
ended April 30, 1999 and 1998 and cash flows for such six month periods have
been included.
The Company operates as a separate, publicly held corporation. The accompanying
financial statements are presented as if the Company had existed as a
corporation separate from ERC for the periods presented and include the
historical assets, liabilities, revenues and expenses that are directly related
to the business that comprise the Company's operations. The "Company" refers to
Evercel, Inc. or the Battery Business Group of ERC, as appropriate.
For all of fiscal year 1998 and for the period November 1, 1998 through February
22, 1999, in fiscal year 1999, certain general and administrative expenses
reflected in the financial statements include allocations of certain corporate
expenses from ERC, which took into consideration personnel, space, estimates of
time spent to provide services, or other appropriate bases. Management believes
the foregoing allocations were made on a reasonable basis; however, they do not
necessarily equal the costs which would have been or will be incurred by the
Company on a stand-alone basis.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company for the periods presented.
The results of operations for the three and six months ended April 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the full
year.
The reader should supplement the information in this document with disclosures
in the Company's Registration Statement on Form SB-2 (File No. 333-64931)
declared effective on February 19, 1999 and the Company's previous 10-QSB.
NOTE 3: LICENSE AGREEMENTS AND SIGNIFICANT CONTRACTS
On May 29, 1998, ERC entered into a Technology Transfer and License Contract
(the "License Contract") with Xiamen Three Circles Co., Ltd. ("Xiamen"). In
connection with this transaction, ERC received $3,000 in payment for granting a
license of its nickel-zinc ("Ni-Zn") batteries to Xiamen. As required by the
License Contract, ERC entered into a Joint Venture Contract with Xiamen on July
24, 1998 for the construction of a manufacturing facility for the production of
Ni-Zn batteries. As a result, Xiamen Three Circles-ERC Battery Corp., Ltd. (the
"Joint Venture") was formed. The Joint Venture will manufacture
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batteries for electric bicycles, scooters, wheel chairs, miners cap lamps and
other applications for sale within the licensed territories. In accordance with
the License Contract requirements, ERC contributed the $3,000 license fee
received plus an additional $80 to the Joint Venture in exchange for a 50.5%
ownership interest.
In connection with the spin-off, ERC and the Company entered into a License
Assistance Agreement pursuant to which the Company will provide all services and
assistance necessary for the Company to effectively fulfill, on behalf of ERC,
all of ERC's obligations under the Joint Venture Contract and the License
Contract, until such time as ERC obtains the approval for the assignment of the
agreements to the Company. In return for such assistance, ERC will pay the
Company an amount equal to the sum of all money, dividends, profits,
reimbursements, distributions and payments actually paid to ERC in cash or in
kind or otherwise accruing to ERC pursuant to the Joint Venture Contract and the
License Contract. All expenses and costs incurred by the Company in meeting the
obligations under the License Assistance Agreement shall be solely those of the
Company, and ERC shall not be liable for their payment. The Company will account
for its involvement in the Joint Venture under the License Assistance Agreement
in a manner similar to the equity method of accounting.
In February 1998, ERC entered into a license agreement (the "NanYa License
Agreement") with a joint venture between NanYa Plastics Corporation of Taiwan
and Xiamen for the use of the Company's Ni-Zn batteries in electric vehicles 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.
Under the NanYa License Agreement, which was assigned by ERC to the Company
pursuant to the Distribution Agreement, the joint venture would be required to
pay $2,000 to the Company upon completion of certain conditions, and a final
payment of $1,500 upon completion of duplication of the battery at its
facilities in China. In addition, the NanYa License Agreement requires the
licensee to pay to the Company royalties on sales of batteries during the term
of the Agreement. The NanYa License Agreement provides that the licensor has the
right to invest the final payment in equity in the joint venture manufacturing
and sales organization formed between NanYa Plastics and Xiamen. ERC has agreed
to seek the consent of the other parties to the NanYa License Agreement to the
assignment of such agreement to the Company.
As part of the separation of the Company's business from ERC, the Company
entered into various agreements with ERC including a Distribution Agreement, Tax
Sharing Agreement, Service Agreement and License Assistance Agreement.
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Distribution Agreement - provides for, among other things, the principal
corporate transactions required to effect the Distribution, the transfer to the
Company of the assets of the battery business, the division between ERC and the
Company of certain liabilities and obligations, the distribution by ERC of all
outstanding shares of the Company common stock to ERC stockholders and certain
other agreements governing the relationship between ERC and the Company after
the Distribution. Subject to certain exceptions, the Distribution Agreement
provides for assumptions of obligations and liabilities and cross-indemnities
designed to allocate financial responsibility for the obligations and
liabilities arising out of or in connection with the battery business to the
Company and financial responsibility for the obligations and liabilities arising
out of or in connection with the fuel cell business to ERC.
Tax Sharing Agreement - defines the parties' rights and obligations with respect
to the filing of returns, payments, etc. relating to ERC's business for periods
prior to and including the Distribution and with respect to certain tax
attributes of ERC after the Distribution.
Services Agreement - provides that ERC will provide to the Company certain
management and administrative services, as well as the use of certain office,
research and development, manufacturing and support facilities and services of
ERC. The Services Agreement shall continue until terminated by either party upon
120 days' notice. In addition, the Company may terminate the Services Agreement
as to one or more of the Services upon 60 days' notice to ERC.
The Company estimates that the net fees to be paid to ERC for services performed
will be approximately $96 per quarter, excluding certain services billed on the
basis of usage, such as purchasing, analytical lab, microscope analysis, machine
shop and drafting, which amount takes into account ERC's additional costs
related to providing such services, and will decline as the services performed
decrease. The Company presently expects that most of such services will be
provided by ERC for approximately one year.
License Assistance Agreement - in order for ERC to transfer the Joint Venture
contract and the Three Circles License Agreement to the Company, ERC must obtain
the consent of Xiamen Three Circles Co., Ltd. and the Joint Venture and the
approval of the appropriate examination and approval authority of the People's
Republic of China. ERC has agreed to seek these consents and approvals, however,
there can be no assurance that these consents and approvals will be obtained on
a timely basis or at all. Pending receipt of these consents and approvals, ERC
and the Company have entered into a License Assistance Agreement pursuant to
which ERC has retained the Company to provide all services and assistance
necessary for the Company to effectively fulfill, on behalf of ERC, all of ERC's
obligations under the Joint Venture contract and Three Circles License Agreement
in exchange for
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payment to the Company by ERC of all remuneration paid and other benefits
accruing to ERC pursuant to such agreements.
As of February 17, 1999, the Company had commitments to borrow up to $1,647 from
First Union National Bank. In accordance with the terms of the commitment, the
notes of $1,647 were paid in full from the proceeds of the Rights Offering.
On January 15, 1999, the Company entered into a lease for five years with an
option to extend for an additional five years. The annual rent is $171 for the
first three years and increases to $178 in year four and $185 in year five. ERC
has guaranteed the performance of the lease (the "Lease Guaranty"). In the event
of a default by Evercel, ERC's liability is limited to $500 reduced each
anniversary date of the lease by $100. Notwithstanding the foregoing, the
guaranty terminates after the first anniversary of the lease upon Evercel's net
worth exceeding $3,000.
On February 5, 1999, the Company entered into a Loan Agreement and Line of
Credit Note (the "Line of Credit") to borrow up to $3,450 (including borrowings
noted above) from ERC for working capital and proposed capital expenditures to
be secured by all of the Company's tangible and intangible personal property. In
connection with the completion of the Rights Offering, the line of credit
terminated and all outstanding borrowings were paid in full pursuant to its
terms.
NOTE 3: PRO FORMA LOSS PER SHARE
Represents proforma shares outstanding to reflect shares issued in conjunction
with the spin-off from Energy Research Corporation on February 22, 1999 of
1,388,856 shares of common stock as if they were outstanding as of the beginning
of the periods presented.
The computation of diluted loss per share for all periods presented follows the
basic calculation since common stock equivalents were antidilutive. The weighted
average number of options outstanding for the period ended April 30, 1999 was
225,260.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Report contains forward looking statements, including statements regarding
the Company's plans and expectations regarding the development and
commercialization of its advanced battery technology. When used in this Report,
the words "expects", "anticipates", "estimates", "should", "will", "could",
"would", "may", and similar expressions are intended to identify forward-looking
statements. All forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected. Factors that could cause such a difference include,
without limitation, the risk that the completion of the Xiamen manufacturing
facility will be delayed, the risk that the Company will not initiate
manufacturing or commercial sales as currently anticipated, and general risks
associated with doing business in China and product development, manufacturing
and introduction, as well as other risks set forth in the Company's filings with
the Securities and Exchange Commission. The forward-looking statements contained
herein speak only as of the date of this Report. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any such statement to reflect any change in the Company's expectations or any
change in events, conditions or circumstances on which any such statement is
based.
Results of Operations Comparison Three Months Ended April 30, 1999 and April 30,
1998
The Company had no revenues in the current quarter of fiscal 1999 as compared to
$93,000 for the same period in the last fiscal year. Lower revenue in the
quarter resulted from the termination of the Company's license with Corning in
May 1998.
Administrative and selling expense increased 77% to $660,000 in the current
quarter of fiscal 1999 from $373,000 in the same period in the last fiscal year.
The increase is the result of increased staffing to support the
commercialization effort, production and distribution of sales samples and costs
associated with joint venture and license agreement activities. Depreciation
increased to $38,000 from $13,000 in the same quarter of the prior period
reflecting capital purchases to outfit the Danbury manufacturing facility.
Research and development expense increased 17% to $564,000 in the second quarter
of fiscal 1999 from $483,000 in the same period in the last fiscal year. This
was a result of increased costs incurred in developing and refining the
manufacturing process for the Company's nickel-zinc battery in preparation for
the commercialization of the Company's batteries, as compared to the same period
in the last fiscal year.
The Company has recorded no tax benefit for its losses in the current quarter
pursuant to the requirements of Financial Accounting Standard No. 109
"Accounting for Income Taxes".
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Results of Operations
Comparison Six Months Ended April 30, 1999 and April 30, 1998
The Company had no revenues in the first six months of fiscal 1999 as compared
to $220,000 for the same period in the last fiscal year. Lower revenue resulted
from the termination of the Company's license with Corning in May 1998.
Administrative and selling expense increased 54% to $960,000 in the first six
months of fiscal 1999 from $622,000 in the same period last fiscal year. The
increase is the result of increased staffing to support the commercialization
effort, production and distribution of sales samples and costs associated with
joint venture and license agreement activities. Depreciation increased to
$49,000 from $23,000 in the same period in the last fiscal year reflecting
capital purchases to outfit the Danbury manufacturing facility.
Research and development expense increased 33% to $1,130,000 in the first six
months of fiscal 1999 from $622,000 in the same period in the last fiscal year.
The increase reflects the increased activity relating to the commercialization
of the Company's battery technology.
The Company recognized a tax benefit of $360,000 in the first quarter of fiscal
1999 due to its inclusion in the consolidated tax return of ERC and has recorded
no benefit for the loss incurred in the second quarter pursuant to the
requirement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes".
Liquidity and Capital Resources
The Company received $7,873,000 of proceeds from the Rights Offering (after
deducting underwriting discounts and fees), including funds received from the
sale of unsubscribed shares to Loeb Partners Corporation and Burnham Securities
Inc. pursuant to a Standby Underwriting Agreement. Pursuant to its loan
agreements, the Company used a portion of the proceeds to pay in full the
outstanding principal and interest on the notes held by First Union National
Bank and ERC. The principal amounts paid were $1,647,000 and $300,000,
respectively.
Prior to having received the proceeds from the Rights Offering, the Company
obtained all of its financial needs from ERC. ERC provided funding for all
battery research activities under its research and development expense budget.
ERC has also historically provided all of the funding for capital expenditures
for the purchase of machinery and equipment for all battery activities.
Working capital at April 30, 1999 was $4,694,000 including $5,021,000 of cash as
compared to a negative working capital $718,000 at October 31, 1998 and zero
cash.
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The Company has entered into a Services Agreement with ERC to provide certain
management and administrative services and office, research and development and
manufacturing support facilities and services to the Company.
The Company believes that net proceeds received from the Rights Offering,
together with license payments anticipated to be received under the NanYa
License Agreement in fiscal 1999, will be sufficient to support its planned
operations for at least the next twelve months. The Company's cash requirements
will vary depending upon a number of factors, many of which are beyond the
control of the Company, including the demand for the Company's products, the
efforts and success of the Company's licensees and joint venture partners in
developing and marketing products incorporating the Company's technology, the
development of battery markets, the level of competition faced by the Company
and the ability of the Company to develop, market and license new products and
effectively manage operating expenses. If and when the Company is required to
raise additional funds, there can be no assurance that the Company will be able
to do so on favorable terms if at all. Failure of the Company to raise funds
required to support its operations would have a material adverse effect on the
Company's business, financial condition and results of operations.
Under the NanYa License Agreement, the Company expects to receive license fee
income upon the successful completion of two battery tests required by that
Agreement. The Company expects to receive a portion of this license fee income
during fiscal 1999, assuming the first test's successful completion, and the
remainder of the license fee income in fiscal year 2000 upon the duplication of
the battery and the first test's results. The amount of these payments is
expected to be $2,000,000 and $1,500,000 in fiscal years 1999 and 2000,
respectively.
The Company expects to continue to enter into license agreements, to participate
in joint manufacturing ventures and to expand its battery manufacturing
facilities. The Company may require additional capital.
Year 2000 Compliance
The Year 2000 issue is a computer programming concern that may adversely affect
the Company's information technology systems. The Company believes that it has
taken reasonable steps to implement a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company believes that adequate resources have been
allocated for this purpose. The Company does not expect to incur significant
expenditures to address this issue. However, there can be no assurance that the
Company will identify all Year 2000 problems in advance of their occurrence or
that the Company will be able to successfully remedy any problems that are
discovered. The expenses of the Company's efforts to address such
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problems, or the expenses or liabilities to which the Company may become subject
as a result of such problems, could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the revenue stream and financial stability of existing or future licensees,
joint venture partners or customers may be adversely impacted by Year 2000
problems, which could cause fluctuations in the Company's revenues and operating
profitability.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities
On March 19, 1999, Jerry D. Leitman, the Chairman of the Board of Directors of
the Company exercised options to acquire 83,333 shares (the "Shares") of Company
common stock, $.01 par value, at an exercise price of $6.00 per share. Mr.
Leitman paid $199,998 in cash to acquire 33,333 of the Shares. 50,000 of the
Shares are restricted Shares which will vest over a three-year period beginning
in August 1999; Mr. Leitman paid for the restricted shares by issuing to the
Company a nonrecourse note in the amount of $300,000. The note may be paid in
three installments corresponding to the vesting dates of the restricted Shares.
The note must be fully repaid by August 4, 2001 or the Shares will be forfeited
to the Company for no consideration. The Company claims exemption from
registration of the Shares pursuant to SEC Rule 701 since the options were
issued to Mr. Leitman pursuant to the Company's 1998 Equity Incentive Plan prior
to the Company becoming a 1934 Act reporting company.
Use of Proceeds
The Company's Registration Statement on Form SB-2 (File No. 333-64931) was
declared effective on February 19, 1999. The Company's rights offering of shares
of its Common Stock, $.01 par value, terminated on March 22, 1999 and closed on
April 5, 1999. The closing of the sale of unsubscribed shares to the standby
underwriters, Loeb Partners Corporation and Burnham Securities, Inc. occurred on
April 12, 1999. The offering terminated prior to the sale of all shares of
Common Stock registered. The Company had registered 1,489,000 Rights to be
granted to its shareholders for no consideration and 1,697,350 shares of Common
Stock to be offered for sale for an aggregate price of $10,184,100. The Company
sold 921,915 shares of Common Stock in the Rights Offering and 466,941 shares of
Common Stock to the standby underwriters, for an aggregate offering price of
$8,333,136 before deducting underwriting discounts and commissions and other
expenses.
From February 19, 1999 through April 30, 1999, the Company incurred
approximately $852,000 in expenses in connection with the issuance and
distribution of the shares of Common Stock, including $459,000 in
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underwriting discounts, commissions and fees paid to underwriters and $393,000
in other expenses. Loeb Partners Corporation, one of the underwriters, is
affiliated with Loeb Investors Co. LXXV, a principal stockholder of the Company.
In addition, Thomas Kempner, the Chairman and Chief Executive Officer of Loeb
Partners Corporation, and Warren Bagatelle, a Managing Director of Loeb Partners
Corporation, are directors of the Company.
The net offering proceeds to the Company after deducting the total expenses
itemized above were $7,481,136. Through April 30, 1999, the Company has used
$1,947,000 of the net offering proceeds for repayment of indebtedness,
approximately $432,000 for equipping its new limited production manufacturing
facility and approximately $81,000 for working capital purposes. The remaining
net proceeds are temporarily invested in the Evergreen Select Money Market Fund.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On February 15, 1999, by written consent of ERC, the sole shareholder of the
Company, all of the members of the Board of Directors of the Company were
reelected to hold office until the next annual meeting of shareholders and until
a successor is elected and qualified.
The Directors reelected are as follows:
Bernard S. Baker
Jerry D. Leitman
Thomas L. Kempner
William A. Lawson
Warren D. Bagatelle
James D. Gerson
Richard M.H. Thompson
Allen Charkey
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT DESCRIPTION
EXHIBIT NO.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EVERCEL, INC.
/s/ Joseph G. Mahler
---------------------------------
Joseph G. Mahler
Acting Chief Financial Officer,
Treasurer and Secretary
Dated: June 14, 1999
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<NAME> EVERCEL, INC.
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<S> <C>
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<FISCAL-YEAR-END> OCT-31-1999
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<PERIOD-END> APR-30-1999
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0
0
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<NET-INCOME> (1,260)
<EPS-BASIC> (0.70)
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