DD Support Board and Research Team

[nodummy]

EVCA - the 8K filed on May 6, 2011

Am I interpreting this correctly?

Yesterday EVCA filed an 8K announcing that they entered into a Drawdown Equity Financing Agreement with Auctus Private Equity Fund, LLC for the purchase and sale of the Company’s common stock.

http://www.sec.gov/Archives/edgar/data/1459003/000119983511000309/evcarco_8k-05032011.htm

The purchase part is very misleading. Reading through the agreement Auctus is not actually purchasing any shares from EVCA. They are just advancing the money to EVCA then selling the shares to get their money back.

In fact EVCA is paying Auctus Private Equity Fund, LLC $12,500 for their services.

Reading through the terms this could be really really bad for the EVCA shareholders.


To put this as basically as possible it looks like EVCA hired Auctus Private Equity Fund, LLC to dilute stock for them.


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Here are some of the terms of this agreement from the term sheet:

http://www.sec.gov/Archives/edgar/data/1459003/000119983511000309/exhibit_10-1.htm

#1) Every 5 days (minimum) Auctus Private Equity Fund, LLC will be allowed to sell a chunk of shares equal to $250,000 worth of stock or 200% of the average trading volume over the previous 10 trading days.

#2) If the $250,000 option is used then the number of shares will be determined using a share price of 93% of the average closing price over the previous 5 trading days.

So based on Friday's closing price of $.0174, Auctus would get to sell around 14,400,000 shares in their first round of dilution.

#3) To help control (to some degree) how fast this dilution will kill the share price, EVCA has put a floor price on the shares being sold into the market by Auctus. Auctus will only be allowed to dilute as long as the share price doesn't drop below 75% of the average closing price over the previous 10 trading days. If that floor is reached then Auctus has to stop selling until the share price is no longer 75% below the average closing price from the previous 10 trading days then they can resume diluting again.

Just to give you an example of how much 75% is - Friday's closing price was $.0175/share. 75% of $.0175 is $.0131

#4) Auctus Private Equity Fund, LLC will be allowed to continue to dilute up to $10,000,000 worth of stock (based on 93% of the closing price of the stock over the 5 previous closing days).

At $.02/share $10,000,000 would equal 500,000,000 shares sold into the market. At $.01/share $10,000,000 would equal 1,000,000,000 shares sold into the market.

Based on the terms of the agreement I would guess that it won't take very long for the stock to drop below $.01/share. So if the full amount of dilution authorized is met this stock could see much more than 1,000,000,000 shares entering the float.


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At least EVCA was nice enough to bury the following in the fine print of the agreement:

The Company is aware and acknowledges that issuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock.