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


<PAGE>

                                  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


                                       1
<PAGE>


                                  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.


                                       2
<PAGE>


                                  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


                                       3
<PAGE>


                                  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




                                       4
<PAGE>


                                  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


                                       5
<PAGE>



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



                                       6
<PAGE>


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


                                       7
<PAGE>


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.


                                       8
<PAGE>


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


                                       9
<PAGE>


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.



                                       10
<PAGE>



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".



                                       11
<PAGE>


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.


                                       12
<PAGE>


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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<PAGE>


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



                                       14
<PAGE>


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



                                       15
<PAGE>



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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<PAGE>


                                   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