U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission file number: 0-29624
SCNV ACQUISITION CORP.
(Name of small business issuer in its charter)
Delaware 13-3952659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 7-690-0950
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
None Not Applicable
Securities registered under Section 12 (g) of the Act:
Units, each consisting of one share of Common Stock and one Class A Redeemable
Warrant
(Title of class)
Common Stock
(Title of class)
Class A Redeemable Warrants
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ].
The Issuer did not have revenues for the fiscal year ended June 30, 1998.
The aggregate market value of the voting and non-voting Common Stock held by
non-affiliates was approximately $6,311,329.25 as at the close of business on
September 24, 1998.
The number of shares of Common Stock outstanding as at September 24, 1998, was
2,082,088.
Documents incorporated by reference: None
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SCNV Acquisition Corp.
Form 10-KSB
Table of Contents
Page
----
Part I
ITEM 1 Description of Business........................................... 3
ITEM 2 Description of Property........................................... 9
ITEM 3 Legal Proceedings................................................. 9
ITEM 4 Submission of Matters to a Vote of
Security Holders.................................................. 9
Part II
ITEM 5 Market for Common Equity and Related Stockholder Matters.......... 9
ITEM 6 Management's Discussion and Analysis or Plan of Operation......... 10
ITEM 7 Financial Statements.............................................. 13
ITEM 8 Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure........................................................ 13
Part III
ITEM 9 Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16 (a) of the Exchange Act........................................ 14
ITEM 10 Executive Compensation............................................ 15
ITEM 11 Security Ownership of Certain Beneficial Owners and Management.... 17
ITEM 12 Certain Relationships and Related Transactions.................... 18
ITEM 13 Exhibits and Reports on Form 8-K.................................. 19
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Part I.
ITEM 1. Description of the Business
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Report
contains statements that are forward-looking, such as statements relating to
plans for future activities. Such forward-looking information involves known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements made by or on the behalf of the Company. These
risks, uncertainties and factors include, but are not limited to, those relating
to the Company's growth strategy, the ability to hire and retain key personnel,
uncertainty of feasibility of the Company's technologies and product
development, uncertainty of market acceptance of the Company's technologies, the
acquisition of Solmecs Corporation N.V. and its subsidiary, relationships with
and dependence on third-party equipment manufacturers and suppliers,
uncertainties relating to business and economic conditions in markets in which
the Company operates, uncertainties relating to government and regulatory
policies and other political risks, expansion and other activities of
competitors, protection of patents and other proprietary rights and the general
condition of the economy and its effect on the securities markets. The words
"believe", "expect", "anticipate", "intend" and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward- looking statements, which speak only as of the date
the statement was made.
General
SCNV Acquisition Corp., a Delaware corporation (the "Company") incorporated on
May 19, 1997, was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutions in, Russia and other countries that formerly comprised the Soviet
Union. Since its inception the Company has been engaged principally in
organizational activities, including developing a business plan, matters
directly related to the initial public offering of its securities and the
acquisition of an Israel based company (as described below), in furtherance of
its business objectives. To a lesser extent, the Company may seek to develop
technologies invented by scientists from other countries.
Initial Public Offering and Acquisition of Solmecs Corporation N.V.
On July 8, 1998, the Company consummated an initial public offering (the "Public
Offering") of 1,041,044 units (the "Units") each Unit consisting of one share of
common stock, $.01 par value per share, of the Company (the "Common Stock") and
one Class A redeemable Common Stock purchase warrant (the "Warrants") for net
proceeds to the Company of approximately $4,600,000. Contemporaneous with the
consummation of the Public Offering, the Company acquired, in a tax free
stock-for-stock transaction (the "Acquisition"), all of the issued and
outstanding capital stock of Solmecs Corporation, N.V. ("Solmecs"), a
Netherlands Antilles company and its wholly-owned subsidiary Solmecs (Israel)
Ltd. ("SIL"), the operations of which are located in Israel. (Unless the context
otherwise requires, Solmecs and SIL shall be referred to herein as the "Company"
or "SCNV".)
Solmecs was organized in 1980 to engage in the research, development and
commercialization of high energy, low pollution products in the energy
conversion and conservation fields. From 1980 until the mid- 1990's Solmecs was
primarily engaged in the development of Liquid Metal Magnetohydrodynamics
("LMMHD") energy conversion technology, a process developed approximately 20
years ago by Professor Herman Branover, a Soviet emigre to Israel who is the
President and a director of the Company.
Strategy
The Company's strategy is to identify and exploit innovative technologies which
represent advances over existing products and technologies.
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The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if required) and seek to obtain intellectual property
rights in viable technologies. Upon the establishment of the commercial
viability of certain technologies, the Company will develop a business plan
detailing the exploitation of such technologies from the research and
development phase through product commercialization, develop and, in some
instances, implement financing strategies to further such business plan, and
suggest and, in some cases, assemble a team of scientists and engineers most
suitable for implementation of such business plan. Upon completion of the
business development plan for each project, the Company may seek to manufacture
(directly or through contractors) and market (directly or through distributors)
the project itself, enter into strategic alliances for such commercialization,
or sell or license the proprietary information and know-how to a third party in
consideration of technology transfer or license fees.
Technologies Currently Developed by Solmecs
The Company intends to concentrate on the further development and/or
commercialization of a number of technologies identified by Solmecs for
exploitation, including technologies that have begun to be commercialized as
well as technologies that the Company believes are ready for commercialization
in the near future. Initially, the Company intends to pursue the commercial
development of: (i) monocrystals and (ii) photo-voltaic cells for use in the
conversion of solar energy.
o Monocrystals. Solmecs, in cooperation with a scientist in Russia, has
identified a potential use of MHD phenomena in the growth of monocrystals,
which are among the critical compnents of the electronic chip industry. The
Company believes that the application of MHD methods in the production of
these monocrystals will result in monocrystals of large size with fewer
imperfections and thus a greater yield of usable material than standard
methods of production. It is believed that this will substantially increase
the commercial value of such monocrystals. The Company intends to apply
this method initially to monocrystals of silicon and subsequently to
monocrystals of gallium-arsenide and cadmium-telluride, which the Company
believes may serve as alternatives to silicon chips (chips based on
monocrystals of silicon) in the computer and electronics industries. This
process is still in the development stage and it has not yet been the
subject of a patent application. The process is owned by the aforesaid
scientist who currently resides in Russia and certain executives of the
Company have a close relationship with him. The Company believes that this
process, with respect to monocrystals of silicon, will not be ready for
industrial application for at least one year, and, with respect to
monocrystals of gallium-arsenice and cadmium-telluride, will not be ready
for industrial application for at least two years.
The Company has identified equipment required for the commercialization of
monocrystals and has commenced negotiations with potential manufacturers.
Initally, the Company intends to purchase two systems for growing silicon
monocrystals and anticipates that it will modify the purchased equipment in
order to apply the MHD methods to the growth process.
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o Advanced Double-sided photo-voltaic cells. Solmecs has identified a
technology developed by Russian scientists working in the space and
military industries of the former Soviet Union that provides for reliable
solar panels that are more efficient than those currently available in the
market. These panels involve double-sided photovoltaic cells, allowing more
surface area to receive the reflection of solar energy, including solar
energy that is reflected back from the ground, and result in approximately
30% more power. The unit also involves less space and fewer panels than
currently available technology.
In February 1998, Solmecs, through its subsidiary SIL, entered into an
arrangement with a Russian manufacturer pursuant to which Solmecs acts as
the exclusive distributor of such manufacturer's photovoltaic cells in
Israel. This arrangement is scheduled to continue through the end of 1998
at which time the parties will renegotiate the terms of the arrangement.
Solmecs had limited sales of photovoltaic cells during the fiscal year
ended June 30, 1998.
The Company has commenced negotiations for the purchase of photo-voltaic
cell equipment and technology from a company in Russia, formerly a supplier
of Russian made space stations, including Mir, and intends to establish a
complete production line in Israel which may utilize silicon monocrystals.
The Company will be required to negotiate a license to allow it to produce
these photo-voltaic cells in Israel. No assurance can be given that the
Company will be able to enter into any such arrangement.
Another technology which is at or near the commercialization stage which the
Company may pursue for further development in the future is the solar/electric
hot water tank control/display system developed by Solmecs, the system is
comprised of a gauge and display to indicate the amount of hot water in a hot
water tank, which is especially useful for solar and electrical hot water tanks.
This new system provides the user with accurate information on the amount of hot
water left for use in the domestic hot water tank and allows the user to
remotely control the operation of the water heating system, whether it uses
electricity or solar power. The device displays the necessary information such
as the number of standard showers available in the tank and the user is able to
fix the desired number of showers he wants to keep in the system at time
intervals he chooses. Thus, the device will help to avoid unnecessary waste of
energy and will allow a comfortable use of the water heating system. The Company
estimates that the hot water tank display and control system will provide
approximately 40% savings of electrical energy. This technology is currently
ready for manufacture. Solmecs is currently in the process of selecting a
partner for a joint venture.
In a market survey performed on behalf of Solmecs by independent consultants in
France, manufacturers of hot water tanks (electrical and solar) that are
potential customers for the control and display system responded favorably. In a
market survey performed on behalf of Solmecs by independent consultants in
Israel, consumers that are potential end-user customers responded favorably.
Solmecs has manufactured two prototypes of the control/display system through a
subcontracting arrangement with an Israeli firm and has entered into discussions
with two European based hot water tank manufacturers for possible insertion of
the control/display system into next generation boiler and hot water tank
systems.
Solmecs has agreed to pay the inventor of technology incorporated in its hot
water tank control and display systems certain royalties with respect to sales
of products incorporating such technology and/or the sale or licensing of such
technology.
Neither Solmecs nor the Company has begun to commercially produce the hot water
tank control/display system. Consequently there have been no sales of the system
through June 30, 1998.
Furthermore, after testing market feasability, the Company has determined not to
pursue further development of the plasma-chemically treated rubber gasket
technology at this time.
LMMHD Energy Conversion Technology
Solmecs is currently involved in further advancement and perfection of LMMHD
energy conversion technology. This technology is distinctive from conventional
energy producing steam turbo-generator
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technology in which steam, produced in a boiler, propels a turbine which in turn
forces the rotation of an electrical generator. Although the LMMHD process also
employs the use of steam, in LMMHD power technology the steam is used to
accelerate a stream of molten metal across a magnetic field which leads to the
generation of electricity. This process does not require the use of moving or
rotating mechanical machinery but utilizes an assembly of hermetically sealed
pipes in which the energy conversion process occurs. The Company believes the
process and technology to be reliable and require only a marginal amount of
maintenance, and anticipates commercially developed systems to have a long life
span.
Solmecs has constructed and completed several pilot plants utilizing the LMMHD
energy conversion technology and has developed an engineering design and a
universal computer code for the calculation, design and optimization for each
specific application of the LMMHD energy conversion system. The Company intends
to further engage in the improvement of the LMMHD system.
Although the LMMHD power technology has been in development since the late
1970's it has not yet reached commercialization. In order to achieve
commercialization of such technology, the Company will be required to build a
commercial scale demonstration plant, which will involve a significant capital
expenditure. The Company intends to commence building such a plant within the
next few years, provided that it will be able to obtain the necessary funds for
such project.
Future Technologies
The Company has identified various Solmecs and non-Solmecs technologies, some of
which involve LMMHD technology, for potential acquisition and development in the
future. These technologies include, among others, new types of energy efficient
centrifugal pumps for chemical and other industries; new methods of prediction
of dispersion of contaminants in the atmosphere; extraction of carbon-dioxide
from combustion gases; enhancement of boiler efficiency and productivity and
treatment of fertilizer to remove infectious bacteria.
There can be no assurance that the Company will be able to obtain the necessary
rights to exploit the foregoing technologies or that any such technologies will
prove technologically or commercially viable.
Consulting Services
Solmecs recently developed a pumping system based on a conductive MHD pump for
use in magnesium handling for the Israeli Dead Sea Works Industry ("Dead Sea
Works"). The system is currently installed at Dead Sea Works as a demonstration
system and is operated and supported by Solmecs. The system is currently in
early stages of operation tests. In the event this system proves to be
effective, the Company expects to provide additional systems to Dead Sea Works
and to use the current system as a demonstration site for marketing the system
to other companies. In February 1998, Solmecs was approached by an entity
affiliated with the Nuclear Center of United Europe ("CERN") to provide its
expertise in molten lead energy conversion in connection with the development by
CERN of a safe nuclear power plant which will generate power from the burning of
nuclear waste. Thereafter, Solmecs and such affiliate entered into an agreement
whereby Solmecs provided CERN with data on LMMHD related technology for possible
use in connection with the proposed power plant. Disposal of nuclear waste
produced by nuclear power stations is regarded as one of the most acute concerns
of the energy industry. The method developed by CERN employs a process by which
nuclear waste is destroyed, thereby avoiding the necessity of disposal, and
electricity is generated. The CERN system entails a flux of accelerated protons
hitting a molten lead target and causing neutron emission directed on rods made
from highly radioactive nuclear waste. Ultimately, the generated thermal energy
is absorbed by the molten lead and converted to electricity. Solmecs has
suggested that the hot lead be directed into an LMMHD electricity generating
device of the type developed by Solmecs.
Intellectual Property
Solmecs currently owns five Israeli patents relating to the LMMHD technology.
All of such patents have corresponding patents registered in the United States
(one in the name of Ben-Gurion University of the
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Negev Research and Development Authority), and a number of such patents have
corresponding patents registered in one or more other countries, including
Australia, Canada, France, Germany, Great Britain, Italy and Japan. In addition,
Solmecs owns a United States patent, not registered elsewhere, relating to the
LMMHD technology, and an Israeli patent, not registered elsewhere, relating to a
device for voltage conversion which can be used in conjunction with the LMMHD
technology. Three of such patents expire during the next five years, beginning
in April 1999. The Company does not believe that the expiration of such patents
will have a material adverse effect on the Company's business; however, no
assurance can be given in that regard.
Pursuant to an agreement dated November 5, 1981, between Solmecs, Ben-Gurion
University and B.G. Negev Technology and Applications Ltd. ("BGU"), Solmecs is
conducting research and development projects on the campus of Ben-Gurion
University in consideration for a fee for the use of the facilities. Solmecs
owns the patents connected with these projects and agreed to pay royalties to
BGU at the rate of 1.725% on sales of products and at the rate of 11.5% on
income from licensing fees. Solmecs also agreed to assume the obligation of BGU
to pay royalties to the Ministry of National Infrastructure of the State of
Israel on products developed from these research and development projects for
its participation in the research and development costs of BGU. The royalties
are to be paid at the rate of 1% on sales of products and at the rate of 5% on
income from licensing fees. As of June 30, 1998, this liability amounted to
approximately $321,000 (including linkage to the Consumer Price Index and
interest at 4% per annum). Subsequent to the repayment of the liability, Solmecs
is required to pay royalties to the Ministry of National Infrastructure at a
reduced rate of .3% on sales of products and at the rate of 2% on income from
licensing fees. As of June 30, 1998, there were no sales or income on which
royalties were payable to BGU or the Ministry of National Infrastructure.
In March 1991, Solmecs entered into an agreement with International Lead Zinc
Research Organization, Inc. ("ILZRO") pursuant to which ILZRO funded certain
research of Solmecs and Solmecs agreed to pay a fee to ILZRO with respect to any
lead used in future production by Solmecs, up to a maximum of $1,864,000. As of
June 30, 1998, Solmecs has not used any lead with respect to which it is
required to pay such fee.
From 1981 to 1991, Solmecs received from the Office of the Chief Scientist of
the Ministry of Industry and Commerce of the Government of Israel (the "OCS"),
$2,274,420 in grants towards the cost of a research and development project
relating to LMMHD energy conversion technology. Under the terms of Israeli
Government participation, a royalty of 2% to 3% of the net sales of, or
licensing revenues from, products developed from a project funded by the OCS
must be paid, beginning with commencement of sales of products developed with
grant funds and ending when 100% to 150% of the grant is repaid. The terms of
Israeli Government participation also require that the manufacturing of products
developed with Government grants be performed in Israel, unless a special
approval has been granted. Such approval, if given, is generally made subject to
an increase in the maximum amount of royalties that must be repaid. Separate
Israeli Government consent is required to transfer to third parties technologies
developed through projects in which the Government participates. Such
restrictions do not apply to exports from Israel of products developed with such
technologies. Solmecs has not yet commenced marketing of products developed
through funds granted by the OCS. Accordingly, no royalties have been paid
through June 30, 1998.
Competition
The products that will be based on the Company's technologies will likely be
used in highly competitive industries. Numerous domestic and foreign companies
are seeking to research, develop and commercialize technologies similar to those
of the Company, many of which have greater name recognition and financial,
technical, marketing, personnel and research capabilities than the Company.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and applications that are more cost effective, or have
fewer limitations than, or have other advantages as compared to, the Company's
technologies. The markets for the technologies and products to be developed or
acquired by the Company are characterized by rapid changes and evolving industry
standards often resulting in product obsolescence or short product lifecycles.
Accordingly, the ability of the Company to compete will depend on its ability
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to complete development and introduce to the marketplace, directly or through
strategic partners, in a timely manner its proposed products and technologies,
to continually enhance and improve such products and technology, to adapt its
proposed products to be compatible with specific products manufactured by
others, and to successfully develop and market new products and technologies.
There can be no assurance that the Company will be able to compete successfully,
that its competitors or future competitors will not develop technologies or
products that render the Company's products and technologies obsolete or less
marketable or that the Company will be able to successfully enhance its proposed
products or technologies or adapt them satisfactorily.
The Company believes that Solmecs is the only commercial company engaged in the
development of LMMHD generator systems. However, the Company believes that the
competition in the worldwide market for energy conversion systems is intense and
the Company may encounter substantial competition from other companies engaged
in the development of competing energy conversion systems which companies may
have grater name recognition and financial, technical, marketing, personnel and
research capabilities than the Company.
There can be no assurance that other companies are not dedicated to identifying,
obtaining and developing technologies of Russian scientists and engineers
currently residing in Israel. Any such competitors may have greater financial,
technical, marketing, personnel and other resources than the Company.
Employees
As of June 30, 1998, Solmecs had eight full-time employees and five part-time
employees, including four administrative and executive personnel, two full-time
and one part-time senior scientists, two full-time and one part-time engineers
and technicians and three part-time support personnel. The Company anticipates
hiring one senior scientist, one engineer/technician and one marketing
specialist in each of the next two fiscal years. Solmecs believes that it has
satisfactory labor relations with its employees and has never experienced work
stoppage.
Certain provisions of the collective bargaining agreements between the Histadrut
(General Federation of Labor in Israel) and the Coordination Bureau of Economic
Organizations (including the Industrialists' Associations) are applicable to
Solmecs' employees by order of the Israeli Ministry of Labor. These provisions
concern principally the length of the work day, minimum daily wages for
professional workers, insurance for work-related accidents, procedures for
dismissing employees, determination of severance pay, and other conditions of
employment. Solmecs generally provides its employees with benefits and working
conditions beyond the required minimums.
Israeli law generally requires severance pay, which may be funded by Managers'
Insurance described below, upon the retirement or death of an employee or
termination of employment without cause (as defined in the law). The payments
pursuant thereto amount to approximately 8.33% of wages. Furthermore, Israeli
employees and employers are required to pay predetermined sums to the National
Insurance Institute, which is similar to the United states Social Security
Administration. Such amounts also include payments by the employee for national
health insurance. The total payments to the National Insurance Institute are
equal to approximately 14.6% of the wages (up to a specified amount), of which
the employee contributes approximately 66% and the employer contributes
approximately 34%.
A general practice followed by Solmecs and, subsequent to the Acquisition, to be
continued by the Company, although not legally required, is the contribution of
funds on behalf of most of its employees to a fund known as "Managers'
Insurance." This fund provides a combination of savings plan, insurance and
severance pay benefits to the employee, giving the employee payments upon
retirement or death and securing the severance pay, if legally entitled, upon
termination of employment. The employer decides whether each employee is
entitled to participate in the plan, and each employee who agrees to participate
contributes 5% of his salary and the employer contributes an amount equal to
between 13.3% and 15.8% of the employee's salary.
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The Company's success will be dependent to a large degree on its ability to
retain the services of key personnel and to attract additional qualified
personnel in the future. Competition for such personnel is intense. There can be
no assurance that the Company will be able to attract, assimilate or retain key
personnel in the future and the failure of the Company to do so would have a
material adverse affect on the Company's business, financial condition and
results of operations.
ITEM 2. Description of Property
Solmecs no longer maintains office space on the campus of Ben Gurion University.
Solmecs, however, has been permitted to utilize the laboratory facilities and to
access the LMMHD pilot plants, which are maintained on the campus of Ben Gurion
University, free of charge.
Solmecs occupies certain laboratory and office space in Omer Industrial Park,
Israel (near Beer-Sheva) pursuant to a two-year lease expiring in November 1999
with a renewal option for an additional three-year period, at an annual rent of
approximately $41,000.
ITEM 3. Legal Proceedings
No legal proceedings are currently pending against the Company.
ITEM 4. Submissions of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during the
year ended June 30, 1998.
Part II
ITEM 5. Market for Common Equity and Related Stockholder Matters
The Company's Units, Common Stock and Warrants, are traded on the OTC Electronic
Bulletin Board under the symbols SAQCU, SAQC and SAQCW, respectively. The
Company's Registration Statement (SEC File No. 333-43955) registering the Units,
Common Stock and Warrants was declared effective by the Securities and Exchange
Commission on June 29, 1998 and trading in the Units commenced on June 30, 1998,
the final day of the Company's fiscal year. The Common Stock and Warrants were
detached from the Units and became separately transferrable on September 29,
1998. The Units were offered and sold to the public at $5.75 per Unit. The high
and low quotations expressed below reflect the quotations for the one day (June
30, 1998) on which trading in the Units took place and constitute quotations
among dealers and do not reflect retail mark-ups, markdowns, or commissions, and
may not represent actual retail transactions:
Year Ended June 30, 1998 High Low
- ------------------------ ----- -----
Fourth Quarter $6.00 $6.00
As of September 24, 1998 there were 2,082,088 shares of Common Stock outstanding
and held of record by approximately 5 stockholders.
The payment of dividends on the Company's common stock is within the discretion
of the Company's Board of Directors. To date, the Company has not paid any
dividends on its common stock, and does not expect to pay any dividends in the
foreseeable future. The Company intends to retain all earnings for use in the
Company's operations.
The securities (1,041,044 Units, each Unit consisting of one share of Common
Stock and one Warrant exercisable to purchase one share of Common Stock)
registered in the Public Offering were offered and sold on behalf of the Company
by Patterson Travis, Inc., the underwriter ("Underwriter") of the Public
Offering, resulting in gross proceeds to the Company of approximately
$5,986,000. The Company incurred the following expenses in connection with the
Public Offering: (i) underwriting discounts and
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commissions of approximately $598,600; (ii) non-accountable expenses to the
Underwriter of approximately $179,600; and (iii) other expenses including, but
not limited to, legal, accounting and printing expenses of approximately
$640,000.
From the effective date of the Company's registration statement on June 29, 1998
until the end of the Company's fiscal year on June 30, 1998, the Company did not
use any of the net proceeds from the Public Offering. Thereafter, on July 8,
1998 (the closing date of the Public Offering) the Company applied approximately
$391,000 of net proceeds toward the repayment of indebtedness of Solmecs to a
stockholder of the Company. The Company also repaid approximately $110,000 owed
to such stockholder for monies advanced for pre-offering expenses. As of August
31, 1998 the Company has applied the balance of net proceeds from the Public
Offering as follows: (i) approximately $19,000 to market research and marketing
activities; (ii) approximately $80,500 to research and development; (iii)
approximately $60,000 to repayment of a short term, non interest-bearing loan
incurred after March 31, 1998; (iv) approximately $182,000 to repayment of an
existing credit line facility, approximately $90,000 of which was incurred after
March 31, 1998, and which allows for future borrowing by the Company; and (v)
approximately $90,200 to working capital and general corporation purposes.
The Company did not sell any unregistered securities during the fiscal year
ended June 30, 1998. On July 8, 1998, contemporaneous with the closing of the
Public Offering, the Company acquired in a tax free stock-for-stock transaction,
all of the issued and outstanding capital stock of Solmecs and its subsidiary
SIL from Bayou International Ltd. ("Bayou") and issued to Bayou 499,701 shares
of unregistered Common Stock of the Company.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
General
The Company was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutions in, Russia and other countries that formerly comprised the Soviet
Union. In furtherance of this goal, the Company acquired Solmecs N.V., a
Netherlands Antilles company, the operations of which are located in Israel,
which owns certain technologies developed by such scientists in the past and
actively seeks to identify such technologies for exploitation. The technologies
of Solmecs and technologies identified by Solmecs for exploitation are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes are ready for
commercialization in the near future. The Company itself was organized in May
1997 and, since its inception, the Company has been engaged principally in
organizational activities, including developing a business plan, matters related
to the Public Offering and negotiating an agreement relating to the Acquisition.
As of June 30, 1998, the Company did not have any operations.
The Company expects to manufacture and market certain technologies which have
been identified by Solmecs and shown to be commercially viable, such as hot
water tank display control systems, photovoltaic cells and plasma chemically
treated extra smooth rubber gaskets. The Company further intends to offer its
engineering services to industry and research institutions in the fields of
LMMHD power technology and liquid metal engineering. To date, Solmecs has not
generated significant revenues and the Company does not expect to generate any
meaningful revenues for the foreseeable future and until such time, if ever, as
it successfully commercializes one or more of Solmecs' existing or future
technologies or sells proprietary rights relating to one or more of Solmecs'
existing or future technologies. Although the LMMHD power technology has been in
development since the late 1970's, it has not yet reached commercialization. In
order to achieve commercialization of such technology, the Company will be
required to build a commercial scale demonstration plant, which will require a
significant capital expenditure. The Company intends to commence building such a
plant within the next few years, provided that it will be able to obtain the
necessary funds for such project. Solmecs has incurred significant losses since
its inception, resulting in an accumulated deficit of $14,222,626 at June 30,
1998. The rate of loss is expected to continue for the foreseeable future and
until such time, if ever, as the Company is able to achieve sufficient levels of
revenue from the commercial exploitation of its technologies to support its
operations.
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The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if indicated), seek to obtain intellectual property
rights in viable technologies, develop a business plan detailing the
exploitation of such technologies from the research and development phase
through product commercialization, develop and, in some instances, implement
financing strategies to further such business plan, and suggest and, in some
cases, assemble a team of scientists and engineers most suitable for
implementation of such business plan. Upon completion of the business
development plan for each project, the Company may seek to manufacture and
market the project itself, enter into strategic alliances for such
commercialization, or sell or license the proprietary information and know-how
to third parties in consideration of technology transfer or license fees.
Completion of the research, development and commercialization of the Company's
technologies or any potential application of such technologies will require
significant additional effort, resources and time, including funding
substantially greater than the proceeds otherwise currently available to the
Company. Such research and development efforts remain subject to all of the
risks associated with the development of new products based on emerging and
innovative technologies, including, without limitation, unanticipated technical
or other problems and the possible insufficiency of the funds allocated to
complete such development, which could result in delay of research or
development or substantial change or abandonment of research and development
activities.
Results of Operations of Solmecs
The consolidated statements of income and other financial and operating data
contained elsewhere herein and the consolidated balance sheet and financial
results have been reflected in U.S. dollars unless otherwise stated.
Fiscal Year Ended June 30, 1998 Compared with Fiscal Year Ended June 30, 1997
Total Revenues. Total revenues were essentially unchanged, at $57,910 for the
fiscal year ended June 30, 1998, compared to $57,276 for the fiscal year ended
June 30, 1997. The decrease in sales of photovoltaic cells and panels was offset
by the income generated by the Dead Sea Works and CERN projects.
Research and Development Costs and Cost of Contract Services Performed by
Subcontractors. Research, development and contract services costs increased by
$19,462 or 7% to $295,721 for the fiscal year ended June 30, 1998, compared to
$276,259 for the fiscal year ended June 30, 1997. The increase is due to (i) the
retention of subcontractors in connection with the "Dead Sea Works" Project,
(ii) the increase in consultants for new projects' feasibility testing and (iii)
the increase in fees associated with the leasing of new facilities in Omer
Industrial Park. Such increase was partially offset from reimbursement by a
Norwegian company of expenses incurred by the Company in connection with
preliminary research performed on carbon dioxide extraction processes pursuant
to a joint venture letter of intent.
Cost of Merchandise Purchased. Costs of merchandise purchased decreased by
$40,448 or 83% to $8,190 for the fiscal year ended June 30, 1998, from $48,638
for the fiscal year ended June 30, 1997. The decrease is attributable to the
decrease in sales of photovoltaic cells and panels.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses increased by $140,819 or 54% to $404,038 for the fiscal
year ended June 30, 1998, from $263,219 for the fiscal year ended June 30, 1997.
This increase was primarily attributable to (i) foreign travel related to
investigating market feasibility of new products and technologies; (ii) salaries
and related expenses resulting from an allocation of personnel to marketing
positions as a part of Solmecs' efforts to improve sales of commercially viable
technologies; (iii) professional fees associated with services rendered to
Solmecs; and (iv) fees associated with the leasing of new facilities in Omer
Industrial Park.
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<PAGE>
Operating Loss. Operating Loss increased by $119,199 or 22% to $650,039 for the
fiscal year ended June 30, 1998 from $530,840 for the fiscal year ended June 30,
1997. The increase in operating loss is attributable to an increase in expenses
as set forth above.
Financing Expenses, Net. Financing expenses of $419,711 for the fiscal year
ended June 30, 1998, and $390,484 for the fiscal year ended June 30, 1997
primarily related to the charge for the imputed interest, at a rate of 8%, in
connection with the loan from its parent company. The difference of $29,227 is
attributable to (i) an increase in interest resulting from an increase in
principal of the loan from the parent company, and (ii) the interest paid on
short term borrowing.
Net Loss. As a result of the foregoing, net loss increased by $148,426 or 16%,
to $1,069,750 for the fiscal year ended June 30, 1998 from $921,324 for the
fiscal year ended June 30, 1997.
Liquidity and Capital Resources
As of June 30, 1998, Solmecs had a working capital deficit of $738,370, a
stockholders' deficiency of $5,927,671 and an accumulated deficit of
$14,222,626. The aforesaid stockholders' deficiency was chiefly due to
indebtedness of Solmecs to its parent company, Bayou, in the amount of
$5,082,897, which indebtedness was forgiven prior to the consummation of the
Acquisition.
As of June 30, 1998 the Company had a pro forma, as adjusted, working capital of
$3,867,105 and stockholders' equity of $3,760,701. The foregoing pro forma, as
adjusted, information gives effect to the following: (i) the Acquisition; (ii)
the forgiveness by Bayou of a loan to Solmecs of $5,082,897; (iii) the one-time
write-off of acquired research and development in process of $3,718,054; (iv)
the return of Bayou's shares held by Solmecs, which amounted to $500,000; (v)
the payment of approximately $120,000 to officers in accordance with employment
agreements; (vi) the elimination of imputed interest on the forgiven Bayou loan;
(vii) the Public Offering resulting in net proceeds to the Company of
approximately $4,600,000; and (viii) the repayment of indebtedness in the amount
of $451,300.
During the period from inception through June 30, 1998, Batei Sefer Limlacha, a
principal stockholder of the Company, loaned to the Company $110,108 for working
capital purposes and agreed that such loans were to become due and payable on
the earlier of December 31, 1998 or the consummation of certain types of
transactions, including the Public Offering. Such loans were unsecured and were
interest free except in the event of default by Solmecs.
During the period from September 1997 through June 30, 1998, Batei Sefer
Limlacha loaned to Solmecs $375,000 for working capital purposes and agreed with
Solmecs that such loans were to become due and payable on earlier of June 30,
1998 or the consummation of certain types of transactions, including the
Acquisition. Such loans were unsecured and bore interest at the rate of 8% per
annum. On June 23, 1998 Batei Sefer Limlacha agreed to extend the term of the
loans through the earlier of July 31, 1998 or the consummation of certain types
of transactions, including the Public Offering.
The loans from Batei Sefer Limlacha were repaid in full by the Company on July
8, 1998.
In April, 1998, Solmecs (Israel) Ltd. obtained a line of credit facility of
approximately $270,000 from an Israeli bank allowing for overdraft for working
capital purposes. The line of credit facility is secured by a fixed charge on
Solmecs (Israel) Ltd.'s uncalled share capital and goodwill and a floating
charge on all of its present and future acquired property and rights. As of June
30, 1998, Solmecs (Israel) Ltd. had drawn approximately $182,000 under the line
of credit facility.
In April, 1998, Solmecs obtained a loan of $60,000 from an unrelated third
party. The loan did not bear interest and was repaid on the consummation of the
Public Offering.
On July 8, 1998 the Company consummated the Public Offering of 1,041,044 Units
consisting of Common Stock and Warrants for net proceeds to the Company of
approximately $4,600,000 after expenses of the offering.
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<PAGE>
The Company's capital requirements will be significant. The Company is dependent
upon the proceeds of the Public Offering to finance the operations of the
Company, including the costs of market research and marketing activities,
continued research and development efforts, establishing manufacturing
capabilities and the acquisition of intellectual property rights. The Company
anticipates, based on management's internal forecasts and assumptions relating
to its operations (including assumptions regarding the timing and progress of
the Company's technologies), that the net proceeds of the Public Offering will
be sufficient to satisfy the Company's contemplated cash requirements for at
least 12 months following the consummation of the Public Offering. In the event
that the Company's plans change, its assumptions change or prove inaccurate, or
if the proceeds of the Public Offering prove to be insufficient to fund
operations, the Company could be required to seek additional financing. Based on
the results of preliminary assessment activity to be performed on several
potential projects identified or to be identified by the Company, the Company
intends to engage in research and development of two such projects in the first
year and four projects in the second year (which may include an additional years
work on all or both of the projects from the first year) and believes that a
number of such projects will enter the commercialization stage during such
two-year period. Completion of the research, development and commercialization
of the Company's technologies or any potential application of such technologies
will require significant additional effort, resources and time including funding
substantially greater than the proceeds of the Public Offering and otherwise
currently available to the Company. Moreover, the proceeds received in the
Public Offering may be insufficient to satisfy the scheduled projects, requiring
the Company to seek additional financing. The Company has no current
arrangements with respect to, or sources of, additional financing, and it is not
anticipated that existing shareholders will provide any portion of the Company's
future financing requirements. There can be no assurance that additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all.
Inflation
In the 1990's the economy of Israel experienced significant expansion. During
calendar years 1992 through 1997, Israel's gross domestic product ("GDP")
increased by 6.2%, 6.7%, 3.4%, 6.5%, 6.8% and 2.1% (estimated), respectively.
The Israeli Government's monetary policy contributed to relative price and
exchange rate stability during most of these years despite fluctuating rates of
economic growth and a high rate of unemployment. The inflation rate for 1994,
1995, 1996 and 1997 was 14.5%, 8.1%, 10.6% and 7.0%, respectively. Although
during 1997 the rate of devaluation of the NIS against the dollar exceeded the
rate of inflation in Israel, for the several years preceding 1997 the rate of
inflation in Israel exceeded the rate of devaluation of the NIS against the
dollar.
Israel's economy has been subject to numerous destabilizing factors, including a
period of rampant inflation in the early to mid-1980's, low foreign exchange
reserves, fluctuations in world commodity prices, military conflicts and civil
unrest. In response to these problems, the Israeli Government has intervened in
various sectors of the economy, employing, among other means, fiscal and
monetary policies, import duties, foreign currency restrictions and controls of
wages, prices and foreign currency exchange rates. The Israeli Government
frequently has changed its policies in all these areas.
ITEM 7. Financial Statements
The Consolidated Financial Statements of the Company appear herein following
Item 13 below.
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes in and/or disagreements with accountants on accounting and
financial disclosure during the fiscal year ended June 30, 1998.
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<PAGE>
Part III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The table below sets forth the name, age and certain information as to the
Directors and executive officers of the Company.
Name Age Position
- ---- --- --------
Emmanuel Althaus 52 Chairman of the Board of Directors
Professor Herman Branover 66 President, Chief Executive Officer and Director
Dr. Shaul Lesin 44 Executive Vice President and Secretary
Jacline Bavli 44 Chief Financial Officer
Mr. Althaus has served as Chairman of the Board of Directors of the Company
since May 1997. He was Vice President and Director of Bayou from March 1990
through November 1996, and is a Director of Solmecs. Since 1986, Mr. Althaus has
been principally employed as Executive Director of National Diversified
Industries (Australia) Pty Ltd., a company that provides administrative services
to public companies. He serves on the board of directors of Golden Triangle
Resources N.L. (of which he is Chairman and Managing Director) and Allegiance
Mining N.L., each of which is a company engaged in mineral exploration the stock
of which is listed on the Australian Stock Exchange.
Professor Branover has served as President, Chief Executive and a director of
the Company since May 1997 and as Scientific Director of Solmecs (Israel) Ltd.
since 1980. He served as Executive Vice President and Director of Bayou from May
1989 until 1993. He has been principally employed as head of the Center for MHD
Studies of Ben Gurion University since 1981 and as the Lady Davis Professor of
Magnetohydrodynamics at Ben Gurion University since 1978. Professor Branover
received a Ph.D in Technical Sciences from Moscow Aviation Institute in 1962 and
a Doctor of Sciences Degree in Physics and Mathematics from Leningrad
Polytechnical Institute in 1969. He was also, for a number of years, an Adjunct
Professor of applied sciences at New York University and served as a visiting
researcher at Argonne National Laboratory in Chicago. Professor Branover has
also served as a director of the Joint Israeli Russian Laboratory for Energy
Research since 1991. He currently serves as an Advisor to Israel's Prime
Minister on immigrant employment and on the use of Russian technologies in
Israel. Professor Branover founded two Israeli high-tech companies, Ontec, Inc.,
in 1991, located in Beer Sheva, and Satec, Inc., in 1987, located in Jerusalem,
both of which have developed commercially viable products for sale in several
foreign countries. Professor Branover is no longer affiliated with either of
those companies.
Dr. Lesin has served as Executive Vice President of the Company since May 1997.
Dr. Lesin has held various positions with Solmecs (Israel) Ltd. since 1980, most
recently serving as Chief Executive Manager. Dr. Lesin also served as the Deputy
Director of the Joint Israeli Russian Laboratory for Energy Research since 1991,
and as a member of the Board of the Center for MHD Studies of Ben Gurion
University since 1986. He received his Ph.D in Mechanical Engineering from Ben
Gurion University in 1993.
Ms. Bavli has served as Chief Financial Officer of the Company since May 1997.
Prior thereto since 1996, she served as Financial and Marketing Manager of
Solmecs (Israel) Ltd. From 1995 to 1996, Ms. Bavli engaged in the private
practice of accounting. From 1990 until 1995, Ms. Bavli held various positions
with Kibbutz Magen, Israel, most recently serving as its Deputy Treasurer.
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The Company's directors are elected at the annual meeting of stockholders to
hold office until the annual meeting of stockholders for the ensuing year or
until their successors have been duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Patterson Travis, Inc., the Underwriter of the Company's securities in the
Public Offering has the right to designate one member to the Company's board of
directors for a period ending June 29, 2001. The Acquisition Agreement executed
in connection with the Acquisition provided that the initial directors of the
Company after the Acquisition would consist of five directors including
Professor Branover and Mr. Althaus as well as a designee of Batei Sefer
Limlacha, one of the Company's principal stockholders, and a designee of the
Underwriter as described immediately above. The fifth director would be
appointed by the Company's board of directors. Neither the Underwriter nor Batei
Sefer Limlacha has indicated a designee to date.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), requires the Company's officers and directors, and
persons who own more than 10 percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC"). Officers, directors, and greater
than 10 percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms received by the
Company, the Company believes that, during the year ended June 30, 1998, all
filing requirements applicable to its officers, directors, and greater than 10
percent beneficial owners were complied with except that Forms 3 for the
officers and directors of the Company were filed one day after the effective
date of the Company's registration under the Securities Exchange Act and a Form
3 for Batei Sefer Limlacha reporting its percentage ownership of the Company's
Common Stock was filed three days after the effective date of the Company's
registration under the Securities Exchange Act.
ITEM 10. Executive Compensation
Officers Salaries
The following table sets forth the cost of compensation paid to Professor Herman
Branover, the Company's Chief Executive Officer, by Solmecs, in his capacity as
Scientific Director of Solmecs, for the fiscal years ended June 30, 1996, 1997
and 1998. No executive officer of the Company received aggregate compensation
and bonuses which exceeded $100,000 during such years.
Cost of Compensation Summary Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards($)(1)
------------------------------------------ ---------------------------
Securities
Other Annual Restricted Underlying
Fiscal Salary Compensation Stock Options/
Name and Principal Position Year ($)(2) Bonus($) ($) Award SARs(#)
- --------------------------- ---- ------ -------- --- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Professor Herman Branover,
Chief Executive Officer.......... 1996 $40,835 $ -- $ -- -- --
1997 62,361
1998 57,780
</TABLE>
- ----------
(1) The Company did not have any long-term incentive or option plans during the
fiscal years ended June 30, 1996 or 1997. The Company adopted its 1997
Stock Option Plan in December 1997. To date no options have been granted
pursuant to such plan.
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<PAGE>
(2) During the fiscal years ended June 30, 1996, 1997 and 1998, the Company
paid an automobile allowance to Professor Branover in the amount of
approximately $5,500, $8,200 and $6,900, respectively.
Employment Agreements
On July 8, 1998 Solmecs entered into employment agreements with Professor Herman
Branover, Dr. Shaul Lesin and Jacline Bavli, the Company's President and Chief
Executive Officer, Executive Vice President and Chief Financial Officer, which
provide for annual base compensation of $98,400, $98,400 and $39,600,
respectively, payable in NIS in accordance with the rate of exchange into U.S.
dollars in effect on the date of payment. The base compensation may be increased
from time to time by the Board of Directors in its sole discretion. In addition,
Solmecs will contribute on behalf of each employee an amount equal to 15.8% of
such employee's salary to a fund known as "Manager's Insurance" and 7.5% of such
employee's salary to a fund known as "Education Fund." See "Business --
Employees."
Solmecs has agreed to provide Messrs. Branover and Lesin with an automobile and
a cellular phone during the term of their employment for which Solmecs shall pay
all expenses. Solmecs has also agreed to pay the costs associated with
maintaining a telephone line in their homes during the course of their
employment with the Company.
Each of the employment agreements contains a confidentiality provision
preventing the employees from disclosing, during the terms of their respective
employment agreements and at any time following the termination of their
employment, any proprietary information of the Company without the Company's
consent. Further, each of the employment agreements contains a provision that
such employee will not directly or indirectly compete or engage in a business
competitive with the Company or solicit the employees or consultants of the
Company for employment in a business in competition with the Company, during the
term of the employment agreement and for a period of one year thereafter.
Pursuant to the terms of the employment agreements the Company has agreed to
indemnify the employee for any claim or liability arising from such employee's
good faith fulfillment of his employment obligations provided that the employee:
(i) provides the Company with timely written notice of the claim or liability;
(ii) cooperates with the Company in the defense of the claim and (iii) allows
the Company to control defense of the claim.
The employment agreements for Messrs. Branover and Lesin provide that in the
event of termination other than "for cause" or as a result of a continuing
disability (as defined in the employment agreements) the employee shall be
entitled to: (i) an adjustment grant equal to three months base salary payable
in three equal monthly installments beginning on the first day of the month
following the date of termination; (ii) an additional payment of one month's
base salary for each year in which employee was employed; and (iii) the use of
an automobile and cellular phone for a period of three months following
termination. The Company may not terminate an employee "for cause" unless it has
given the employee (i) written notice of the basis for termination, and (ii) at
least 30 days to cure the basis for such cause.
Liability Insurance
The Company intends to procure and maintain a policy of insurance under which
the directors and officers of the Company will be insured, subject to the limits
of the policy, against certain losses arising from claims made against such
directors and officers by reason of any acts or omissions covered under such
policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
1997 Stock Option Plan
In December 1997, the Board of Directors and stockholders of the Company adopted
the 1997 Stock Option Plan (the "Plan"), pursuant to which 200,000 shares of
Common Stock are reserved for issuance upon
16
<PAGE>
exercise of options. The Plan is designed to serve as an incentive for retaining
qualified and competent employees, directors and consultants.
The Company's Board of Directors, or a committee thereof, administers the Plan
and is authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of, and consultants to, the Company. The Plan provides for the
granting of both "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Options can be granted under the Plan on such terms and at such prices as
determined by the Board of Directors, or a committee thereof, except that the
per share exercise price of options will not be less than the fair market value
of the Common Stock on the date of grant. In the case of an incentive stock
option granted to a stockholder who owns stock of the Company possessing more
than 10% of the total combined voting power of all classes of stock ("10%
stockholder"), the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value (determined on the date of
grant) of the shares covered by incentive stock options granted under the Plan
that become exercisable by a grantee for the first time in any calendar year is
subject to a $100,000 limit.
Options granted under the Plan will be exercisable during the period or periods
specified in each option agreement. Options granted under the Plan are not
exercisable after the expiration of ten years from the date of grant (five years
in the case of incentive stock options granted to a 10% stockholder) and are not
transferable other than by will or by the laws of descent and distribution.
As of June 30, 1998, the Company had not granted any options under the Plan.
ITEM 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 24, 1998, the number of shares
of the Company's outstanding Common Stock beneficially owned by (i) each
director of the Company; (ii) each person who is known by the Company to
beneficially own 5% or more of the outstanding Common Stock; (iii) each of the
persons named in the Summary Compensation Table (the "Named Executives"); and
(iv) all of the Company's directors and executive officers as a group (based on
information furnished by such persons). Unless otherwise indicated, the
beneficial owners exercise sole voting and/or investment power over their
shares.
Amount and Nature
of Percentage of
Beneficial Outstanding
Name and Address of Beneficial Owner(1) Ownership(2 ) Shares
- --------------------------------------- ------------- ------
Bayou International, Ltd. 499,701 24%
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia
Batei Sefer Limlacha(3) 312,313 15%
766 Montgomery Street
Brooklyn, New York 11213
H.B. Capital Ltd.(4) 145,746 7%
Emmanuel Althaus(5) 83,284 4%
All executive officers and directors as a
group (four persons) 229,030 11%
- ----------
(1) The address of HB Research Corp. and Mr. Althaus is c/o SCNV Acquisition
Corp.,
17
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Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Report upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that options that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Report have been exercised. Except as otherwise indicated, the Company
believes that each of the persons named has sole voting and investment
power with respect to the shares shown as beneficially owned by him.
(3) Batei Sefer Limlacha is a religious corporation organized under the New
York Religious Corporation Law. David Laine is President and trustee and
Joseph Kazin and Benzion Raskin are the remaining trustees. Batei Sefer
Limlacha may be deemed to be a "promoter" of the Company as such term is
defined under the Federal Securities Laws.
(4) Professor Herman Branover is the sole shareholder of H.B. Capital Ltd., an
Irish corporation. Professor Branover and Shmuel Gurfinkel are the
directors. H.B. Capital Ltd. may be deemed to be a "promoter" of the
Company, as such term is defined under the federal securities laws.
(5) Mr. Althaus may be deemed to be a "promoter" of the Company, as such term
is defined under the federal securities laws.
ITEM 12. Certain Relationships and Related Transactions
In May 1997, the Company issued 145,746 shares of Common Stock, 83,284 shares of
Common Stock and 312,313 shares of Common Stock to H.B. Capital Ltd., Emmanuel
Althaus and Batei Sefer Limlacha, respectively, for nominal consideration.
Emmanuel Althaus, the Chairman of the Board of Directors of the Company, is a
Director of Solmecs and was the Vice President and Director of Bayou from March
1990 through November 1996.
Simultaneously with the consummation of the Public Offering, the Company
acquired all of the issued and outstanding capital stock of Solmecs. Bayou, the
current parent of Solmecs, received 499,701 shares of the Company's Common Stock
in connection with the Acquisition. In connection with the Acquisition, Bayou
forgave indebtedness of Solmecs in the amount, as of June 30, 1998, of
$5,082,897 as a capital contribution. The 499,701 shares issued to Bayou were
not registered in the Offering but are subject to certain registration rights to
be granted by the Company.
During the period from inception through June 30, 1998, Batei Sefer Limlacha, a
principal stockholder of the Company, loaned to the Company $110,108 for working
capital purposes and agreed that such loans were to become due and payable on
the earlier of December 31, 1998 or the consummation of certain types of
transactions, including the Public Offering. Such loans were unsecured and were
interest free except in an event of default.
During the period from September 1997 through June 30, 1998, Batei Sefer
Limlacha loaned to Solmecs $375,000 for working capital purposes and agreed with
Solmecs that such loans were to become due and payable on the earlier of June
30, 1998 or the consummation of certain types of transactions, including the
Acquisition. Such loans were unsecured and bore interest at the rate of 8% per
annum. On June 23, 1998, Batei Sefer Limlacha agreed to extend the term of the
loans through the earlier of July 31, 1998 or the consummation of certain types
of transactions, including the Public Offering.
The loans from Batei Sefer Limlacha were repaid in full by the Company on July
8, 1998.
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ITEM 13. Exhibits, Lists and Reports on Form 8-K
(a) Financial Statements
See list of Financial Statements on F-1.
(b) Reports on Forms 8-K and 8-K/A
The Company did not file any reports with the Securities and Exchange
Commission on Form 8-K for the year ended June 30, 1998.
(c) Exhibits
3.1 Certificate of Incorporation of the Registrant.(1)
3.3 Bylaws of the Registrant.(1)
4.1 Form of Registrant's Common Stock Certificate.(1)
4.3 Form of Registrant's Public Warrant Certificate.(1)
4.4 Form of Registrants Unit Certificate.(1)
10.1 Form of Stock Purchase Agreement between SCNV Acquisition Corp.,
Solmecs Corporation, N.V. and Bayou International Ltd.(1)
10.2 Agreement, dated as of June 4, 1980 by and between Advanced
Products Beer Sheva Ltd. (AP) and the Ben Gurion University of
the Negar (The Research and Development Authority) and Solmecs
Corporation N.V.(1)
10.3 Agreement, dated as of March 31, 1981, by and between the
Government of Israel Ministry of Energy and Infrastructure, the
Ben Gurion University of the Negev (The Research and Development
Authority - RDA) and Advanced Products Beer Sheva Ltd. and
Solmecs (Israel) Ltd. and Solmecs Corporation N.V.(1)
10.4 Agreement, dated as of November 5, 1981 by and between Advanced
Products Beer Sheva Ltd. (AP) and the Ben Gurion University of
the Negev (The Research and Development Authority) (RDA), Solmecs
Corporation N.V. and Solmecs Corporation (U.K) Limited.(1)
10.5 Agreement, dated as of January 25, 1990 by and between
International Lead Zinc Research Organization, Inc. and Solmecs
(Israel) Ltd.(1)
10.6 Agreement, dated as of March 7, 1991 by and between International
Lead Zinc Research Organization, Inc. and Solmecs (Israel)
Ltd.(1)
10.7 Agreement, dated as of June 9, 1997 by and between the Institute
of Physics in Riga, Latvia and Solmecs (Israel) Ltd.(1)
10.8 Agreement, effective as of September 30, 1997, by and between
Solmecs Corporation N.V. and Batei Sefer Limlacha.(1)
10.9 Agreement, effective as of September 30, 1997, by and between
Registrant and Batei Sefer Limlacha.(1)
10.10 Agreement, dated as of January 1, 1998 by and between Solmecs
(Israel) Ltd. and Leon Aprimov.(1)
10.11 Lease by and between Tefen Entrepreneurship Ltd. and Solmecs
(Israel) Ltd. dated October 14, 1997.(1)
10.12 Form of Employment Agreement between Registrant and Professor
Herman Branover.(1)
10.13 Form of Employment Agreement between Registrant and Dr. Shaul
Lesin.(1)
10.14 Form of Employment Agreement between Registrant and Jacline
Bavli.(1)
19
<PAGE>
10.15 1997 Stock Option Plan.(1)
27 Financial Data Schedule (for SEC use only).
- ----------
(1) Incorporated by reference to the comparable exhibit filed with the
Company's Registration Statement on Form SB-2, File No. 333-43955.
20
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SCNV ACQUISITION CORP.
By: /s/ Herman Branover
----------------------------------
Herman Branover
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
In accordance with the requirements of the Securities Exchange Act of 1934,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title(s) Date
---------- -------- ----
<S> <C> <C>
/s/ Emmanuel Althaus Chairman of the Board of Directors September 28, 1998
- -------------------------------------
Emmanuel Althaus
/s/ Herman Branover President, Chief Executive Officer September 28, 1998
- ------------------------------------- and Director
Herman Branover
/s/ Shaul Lesin Executive Vice President September 28, 1998
- -------------------------------------
Shaul Lesin
/s/ Jacline Bavli Chief Financial Officer September 28, 1998
- -------------------------------------
Jacline Bavli
</TABLE>
21
<PAGE>
SCNV ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
SCNV Acquisition Corp.
Report of Independent Public Accountants F-2
Balance Sheet as of June 30, 1998 F-3
Notes to the Financial Statements F-4
Solmecs Corporation N.V.
Report of Independent Public Accountants F-8
Consolidated Balance Sheet as of June 30, 1998 F-9
Consolidated Statements of Operations for the years ended
June 30, 1997 and 1998 F-10
Consolidated Statements of Changes in Shareholders' Deficiency for
the years ended June 30, 1997 and 1998 F-11
Consolidated Statements of Cash Flows for the years ended
June 30, 1997 and 1998 F-12
Notes to the Consolidated Financial Statements F-13
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SCNV Acquisition Corp.:
We have audited the accompanying balance sheet of SCNV Acquisition Corp. (a
Delaware Corporation) as of June 30, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of SCNV Acquisition Corp. as of June
30, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
September 17, 1998
F-2
<PAGE>
SCNV ACQUISITION CORP.
BALANCE SHEET
June 30,
1998
--------
ASSETS
CURRENT ASSETS
Deferred public offering costs $609,940
--------
Total assets $609,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $444,755
Sundry payables 47,485
Stockholder loan 110,108
--------
Total current liabilities 602,348
STOCKHOLDERS' EQUITY
Preferred stock $.01 par
value, 1,000,000 shares
authorized; none issued and
outstanding --
Common stock $.01 par value,
10,000,000 shares authorized;
541,343 shares issued and
outstanding 5,413
Additional paid-in-capital 2,179
--------
Total stockholders'
equity 7,592
--------
Total liabilities and
stockholders' equity $609,940
========
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - GENERAL
SCNV Acquisition Corp. (the "Company") was organized under the
laws of the State of Delaware on May 19, 1997, to acquire Solmecs
Corporation N.V. and its wholly owned subsidiary Solmecs (Israel)
Ltd. ("Solmecs") and to select, develop and commercially exploit
proprietary technologies, in various stages of development,
invented primarily by scientists who have recently immigrated to
Israel from, and by scientists and institutions in, Russia and
other countries that formerly comprised the Soviet Union. To
date, the Company has not had any operations.
Note 2 - SUBSEQUENT EVENTS
a. Initial Public Offering
Subsequent to year end, on July 8, 1998 the Company
consummated an Initial Public Offering (the "IPO") in which
1,041,044 Units, composed of 1,041,044 shares of Common
Stock and 1,041,044 redeemable Common Stock purchase
warrants ("Warrants"), were sold to the public at $5.75 per
Unit. Each Warrant entitles the holder to purchase one share
of Common Stock at a price of $7.50, subject to adjustment
in certain circumstances, at any time during the four-year
period commencing June 29, 1999. The net proceeds from the
IPO were approximately $4,600,000.
In addition, the Company sold to the underwriter for an
aggregate of $104, warrants to purchase an additional
104,104 Units at an exercise price of 120% of the IPO price
per unit ($6.90) ("Underwriter's Warrants"). The
Underwriter's Warrants are exercisable at any time during
the four-year period commencing June 29, 1999.
b. Acquisition of Solmecs
Simultaneously with the consummation of the IPO, the Company
acquired all of the issued and outstanding capital stock of
Solmecs in consideration for 499,701 shares of the Company's
Common Stock issued to Bayou International, Ltd. ("Bayou"),
the parent of Solmecs. The acquisition has been accounted
for as a purchase. The excess of purchase price over fair
value of assets acquired of $3,718,054 will be reflected as
acquired research and development in process and fully
expensed at the date of the acquisition. Solmecs, the
operations of which are located in Israel, owns certain
technologies developed by it in the past. The technologies
of Solmecs and certain offshoots of such technologies are in
various stages of development and include technologies that
have begun to be commercialized as well as technologies that
the Company believes will be ready for commercialization in
the near future.
F-4
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 3 - PRO FORMA FINANCIAL STATEMENTS (Unaudited)
The following Unaudited Pro Forma Consolidated Balance Sheet as
of June 30, 1998 and Pro Forma Consolidated Statements of
Operations for the years ended June 30, 1998 and 1997 have been
prepared to reflect the combined financial position and the
results of the Company and Solmecs as if the Combination,
described in Note 2b, had been effective as of June 30, 1998,
July 1, 1997, and July 1, 1996, respectively. The Unaudited Pro
Forma As Adjusted Consolidated Balance Sheet as of June 30, 1998
has been prepared to reflect both the Combination and the IPO as
if they had been effective as of June 30, 1998. Such pro forma
information gives effect to:
(a) The acquisition of Solmecs in consideration for 499,701
shares of the Company's common stock issued to Bayou for a
purchase price of $2,873,280.
(b) The forgiveness by Bayou of a loan to Solmecs of $5,082,897.
(c) The return of Bayou's shares held by Solmecs, which amounted
to $500,000.
(d) The payment of approximately $120,000 to officers in
accordance with employment agreements.
(e) The elimination of imputed interest on the forgiven Bayou
loan.
(f) The sale of 1,041,044 Units to the public for a net
consideration of approximately $4,600,000.
(g) The repayment of indebtedness in the amount of $451,300.
This pro forma financial statement should be read in conjunction
with the historical financial statements and notes thereto of the
Company and Solmecs as of June 30, 1998. In management's opinion,
all material adjustments necessary to reflect the effects of the
Combination and the IPO have been made. The pro forma financial
information is unaudited and not necessarily indicative of the
consolidated results which actually would have occurred if the
Combination had been consummated at the beginning of the periods
presented, nor does it purport to represent the future financial
position and results of operations for future periods.
Pro Forma Consolidated Balance Sheet (Unaudited)
June 30, 1998
-----------------------------
Pro Forma As Adjusted
----------- -----------
Current Assets $ 670,012 $ 4,261,732
Equipment, net of accumulated depreciation 115,038 115,038
----------- -----------
Total Assets 785,050 4,376,770
=========== ===========
Current Liabilities 1,400,790 394,627
Long-term liabilities 221,442 221,442
----------- -----------
Total Liabilities 1,622,232 616,069
Stockholders' Equity (Deficiency) (837,182)(1) 3,760,701(1)
----------- -----------
Total liabilities and stockholders'
equity (deficiency) $ 785,050 $ 4,376,770
=========== ===========
F-5
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 3 - PRO FORMA FINANCIAL STATEMENTS (Unaudited) (continued)
Pro Forma Consolidated Statements of Operations (Unaudited)
For the year ended
June 30,
-----------------------------
1998 1997
----------- -----------
REVENUES
Sales $ 6,571 $ 51,841
Contract services 51,339 5,435
----------- -----------
Total revenues 57,910 57,276
----------- -----------
COSTS AND EXPENSES (1)
Research and development costs 268,924 276,259
Cost of merchandise purchased 8,190 48,638
Cost of services provided by
subcontractors 26,797 --
Marketing expenses 86,258 42,906
General and administrative expenses 437,780 340,313
----------- -----------
Total costs and expenses 827,949 708,116
----------- -----------
Operating loss (770,039) (650,840)
FINANCING EXPENSES, NET (15,093) (10,484)
----------- -----------
Net loss $ (785,132) $ (661,324)
=========== ===========
Pro Forma Net loss per share $ (0.75) $ (0.64)
=========== ===========
Weighted average number of shares
outstanding 1,041,044 1,041,044
=========== ===========
(1) The Pro Forma Condensed Consolidated Statements of Operations does not
include the one-time charge of $3,718,054, of excess purchase price over
fair value of the assets acquired. This charge will be reflected in future
periods as "Acquired Research and Development In-Process Expense." The
Stockholders' Equity (Deficiency) balance at June 30, 1998 has reflected
this one-time write off.
Note 4 - STOCKHOLDER LOAN
The loan does not bear interest. The maturity is the earlier of
December 31, 1998 or the consummation of certain types of
transactions that will provide proceeds of at least $3 million to
the Company.
F-6
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Notee 5 - STOCK CAPITAL
a. Preferred Stock
The Board of Directors has the authority, without further
action by the stockholders, to issue up to one million
shares of preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights,
voting rights, terms of redemption, liquidation preferences,
and the number of shares constituting any series or the
designation of such series.
b. 1997 Stock Option Plan
In December 1997 the Board of Directors and stockholders of
the Company adopted the 1997 Stock Option Plan (the "Plan"),
pursuant to which 200,000 shares of Common Stock are
reserved for issuance upon exercise of options. The Plan is
designed to serve as an incentive for retaining qualified
and competent employees, directors and consultants. Options
granted under the Plan will be exercisable during the period
or periods specified in each option agreement. Options
granted under the Plan are not exercisable after the
expiration of ten years from the date of grant (five years
in the case of incentive stock options granted to a 10%
stockholder) and are not transferable other than by will or
by the laws of descent and distribution.
As of the date of these financial statements, the Company
has not granted any options under the Plan.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of:
Solmecs Corporation N.V.
We have audited the accompanying consolidated balance sheet of Solmecs
Corporation N.V. (a Netherlands Corporation) and subsidiary as of June 30, 1998,
and the related consolidated statements of operations, changes in shareholders'
deficiency and cash flows for the years ended June 30, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiary as of June 30, 1998, and the results of their operations and their
cash flows for the years ended June 30, 1998 and 1997, in conformity with
accounting principles generally accepted in the United States.
LUBOSHITZ, KASIERER & CO.
Member Firm of Arthur Andersen
Beer-Sheva, September 17, 1998
F-8
<PAGE>
SOLMECS CORPORATION N.V
CONSOLIDATED BALANCE SHEET
(In U.S. dollars)
June 30,
1998
-------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,301
Trade receivables 39,455
SCNV Acquisition Corp (Note 3) 47,485
Other receivables and prepaid expenses (Note 4) 16,316
-------------
Total current assets 107,557
-------------
FIXED ASSETS (Note 5)
Cost 247,415
Less - accumulated depreciation (132,377)
-------------
115,038
-------------
Total assets $ 222,595
=============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term borrowings (Note 6) $ 633,024
Sundry payables and accrued expenses (Note 7) 212,903
-------------
Total current liabilities 845,927
-------------
LONG-TERM LIABILITIES
Parent company (Note 8) 5,082,897
Long-term loan (Note 9) 200,000
Accrued severance pay (Note 10) 21,442
-------------
Total long-term liabilities 5,304,339
-------------
Total liabilities 6,150,266
-------------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' DEFICIENCY (Note 12)
Share capital
Preferred "A" shares of DFL 10 par value;
authorized 1,200 shares; issued and outstanding
1,200 shares as of June 30, 1998 6,154
Common "B" shares of DFL 10 par value;
authorized 23,800 shares; issued and outstanding
7,286 shares as of June 30, 1998 48,028
Share premium 8,740,773
Accumulated deficit (14,222,626)
-------------
Total (5,427,671)
Less - Cost of shares of parent company (Note 13) (500,000)
-------------
Total shareholders' deficiency (5,927,671)
-------------
Total liabilities and shareholders' deficiency $ 222,595
=============
The notes to the consolidated financial statements form an integral part
thereof.
F-9
<PAGE>
SOLMECS CORPORATION N.V
CONSOLIDATED STATEMENTS OF OPERATIONS
(In U.S. dollars)
For the year ended June 30,
---------------------------
1997 1998
----------- -----------
REVENUES (Note 14)
Sales $51,841 $6,571
Contract services 5,435 51,339
----------- -----------
Total revenues 57,276 57,910
----------- -----------
COSTS AND EXPENSES
Research and development costs (Note 15) 276,259 268,924
Cost of merchandise purchased 48,638 8,190
Cost of contract services performed by
subcontractors -- 26,797
Marketing expenses (Note 16) 42,906 86,258
General and administrative expenses (Note 17) 220,313 317,780
----------- -----------
Total costs and expenses 588,116 707,949
----------- -----------
Operating loss (530,840) (650,039)
FINANCING EXPENSES, NET (390,484) (419,711)
----------- -----------
Net loss $(921,324) $(1,069,750)
=========== ===========
Net loss per common share $(126.45) $(146.82)
=========== ===========
Weighted average number of common
shares outstanding 7,286 7,286
=========== ===========
The notes to the consolidated financial statements form an integral part
thereof.
F-10
<PAGE>
SOLMECS CORPORATION N.V
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' DEFICIENCY
(In U.S. dollars)
<TABLE>
<CAPTION>
Preferred Common Share Accumulated Cost of shares
shares shares premium deficit of parent Total
--------- ----------- ----------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance as of July 1, 1996 $ 6,154 $ 48,028 $ 7,956,155 $ (12,231,552) $ (500,000) $(4,721,215)
Imputed interest on long-term
loan from the parent
company -- -- 380,000 -- -- 380,000
Net loss for the year ended
June 30, 1997 -- -- -- -- (921,324) (921,324)
--------- ----------- ----------- ------------- ---------- -----------
Balance as of June 30, 1997 6,154 48,028 8,336,155 (13,152,876) (500,000) (5,262,539)
Imputed interest on long-term
loan from the parent
company -- -- 404,618 -- -- 404,618
Net loss for the year ended
June 30, 1998 -- -- -- (1,069,750) -- (1,069,750)
--------- ----------- ----------- ------------- ---------- -----------
Balance as of June 30, 1998 $ 6,154 $ 48,028 $ 8,740,773 $ (14,222,626) $ (500,000) $(5,927,671)
========= =========== =========== ============= ========== ===========
</TABLE>
The notes to the consolidated financial statements form an integral part
thereof.
F-11
<PAGE>
SOLMECS CORPORATION N.V
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
For the year ended June 30,
-----------------------------
1997 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (921,324) $(1,069,750)
Adjustments to reconcile net loss to net cash used in
operating activities (see below) 380,534 398,147
----------- -----------
Net cash used in operating activities (540,790) (671,603)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equipment (3,853) (98,235)
Proceeds from sale of fixed assets -- 6,972
----------- -----------
Net cash used in investing activities (3,853) (91,263)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net -- 633,024
Increase in liability to parent company 526,946 94,604
----------- -----------
Net cash provided by financing activities 526,946 727,628
----------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS (17,697) (35,238)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 57,236 39,539
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 39,539 $ 4,301
=========== ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Items not involving cash flows:
Imputed interest on long-term loan from the
parent company $ 380,000 $ 404,618
Depreciation 9,364 14,016
Severance pay (10,779) 5,811
Loss on sale of equipment -- 42
Changes in operating assets and liabilities:
Increase in receivables
and prepaid expenses (4,697) (9,460)
SCNV Acquisition Corp., net -- (47,485)
Increase in sundry payables and
accrued expenses 6,646 30,605
----------- -----------
$ 380,534 $ 398,147
=========== ===========
</TABLE>
The notes to the consolidated financial statements form an integral part
thereof.
F-12
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 1 - GENERAL
A. The Company is engaged, through its subsidiary, Solmecs (Israel) Ltd.,
in the research and development of energy conversion systems, the
provision of contract services, and the sale of advanced photo-voltaic
cells.
As of June 30, 1998, the Company, a registered company in the Dutch
Antilles, was a wholly owned subsidiary of Bayou International Ltd.,
("Bayou" or the "parent company") a publicly traded corporation in the
United States.
In July 1998, SCNV Acquisition Corp. ("SAQC"), a company organized in
the United States, completed an initial public offering (IPO) of its
shares in the United States. The net proceeds received by SAQC from
the IPO amounted to approximately $4.6 million.
Concurrently with the consummation of the IPO, SAQC acquired from
Bayou all of the issued and outstanding capital stock of the Company
in consideration for 24% of the common stock of SAQC. In addition,
Bayou forgave indebtedness of the Company in the amount, as of June
30, 1998, of $5,082,897 as a capital contribution, and the Company
returned for cancellation shares of Bayou held by it. In addition,
short-term, unsecured loans in the aggregate amount of approximately
$451,000 as of June 30, 1998, were repaid from the proceeds of the
IPO.
B. The financial statements of the Company have been prepared in U.S.
dollars, as the Company's revenues are determined principally in U.S.
dollars and its primary source of financing is received in U.S.
dollars. Thus, the functional currency of the Company is the U.S.
dollar.
Transactions and balances denominated in U.S. dollars are presented at
their original amounts. Transactions and balances in other currencies
are remeasured into U.S. dollars in accordance with principles
identical to those set forth in Statement No. 52 of the Financial
Accounting Standards Board of the United States.
Exchange gains and losses from the aforementioned remeasurement are
reflected in the statement of operations. The representative rate of
exchange at June 30, 1998, was U.S.$ 1.00 = 3.667 New Israeli Shekel
("NIS") (1997 - NIS 3.587).
F-13
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 1 - GENERAL (Cont.)
C. The Company has incurred substantial operating losses and at June 30,
1998, has an accumulated deficit of approximately $14,223,000. At June
30, 1998, the Company's working capital deficiency and shareholders'
deficiency amounted to approximately $738,000 and $5,928,000,
respectively. In July 1998, upon the repayment of the short-term loan
and the forgiveness of Bayou indebtedness (see A above) the working
capital deficiency and shareholders' deficiency amounted to
approximately $287,000 and $845,000 respectively. The Company is not
generating sufficient revenues from its operations to fund its
activities and anticipates that it will continue to incur losses for
some time. The Company is continuing its efforts in development and
commercialization of products and technologies which will require
substantial additional expenditures. The Company believes that the
portion of the proceeds of the IPO referred to in A above that is to
be allocated to projects of the Company will be sufficient to fund the
Company's operations at least through June 30, 1999.
D. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in conformity with
generally accepted accounting principles in the United States. The
significant accounting policies followed in the preparation of the
financial statements, applied on a consistent basis, are:
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Material intercompany
balances and transactions have been eliminated in consolidation.
F-14
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
B. CASH EQUIVALENTS
Cash equivalents include deposits, the maturity of which, as of the
date of deposit, does not exceed three months.
C. FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the
estimated useful lives of the assets, ranging from five to fifteen
years. Leasehold improvements are amortized over the period of the
lease.
D. REVENUE RECOGNITION
Revenues from sales of merchandise are recognized upon shipment.
Revenues from contract services are recognized as the work is
performed, according to contract benchmarks.
The balance of trade receivables is comprised mainly of a few
customers, and accordingly no allowance for doubtful accounts is
considered necessary.
E. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
F. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based on the weighted average
number of ordinary shares outstanding during each period. Earnings are
adjusted for noncumulative dividends on preferred shares only if such
dividends have been declared.
F-15
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
G. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the
income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15,
1999. Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997.
The Company believes that the adoption of Statement 133 will have an
immaterial effect on its financial statements.
Note 3 - SCNV ACQUISITION CORP.
The current account with SCNV Acquisition Corp. is in U.S. dollars and
does not bear interest.
F-16
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 4 - OTHER RECEIVABLES AND PREPAID EXPENSES June 30,
1998
-----------
Value Added Tax refundable 2,732
Grants receivable from the State of Israel 7,736
Prepaid expenses 4,368
Other 1,480
-----------
$ 16,316
===========
Note 5 - FIXED ASSETS
June 30,
1998
-----------
Cost
Computers and office equipment 162,930
Motor vehicles 40,489
Leasehold improvements 43,996
-----------
247,415
Accumulated depreciation -----------
Computers and office equipment 119,692
Motor vehicles 9,423
Leasehold improvements 3,262
-----------
132,377
-----------
Net book value 115,038
===========
Principal annual depreciation rates:
Computers and office equipment 7-20%
Motor vehicles 15%
Leasehold improvements 20%
Note 6 - SHORT-TERM BORROWINGS
Interest June 30,
rate 1998
---------- -----------
Banks in shekels unlinked (1) 14.7% $ 181,724
Unsecured loans from private
institution in U.S. dollars (2) 8% 451,300
-----------
$ 633,024
===========
(1) Collateral - see Note 11(H).
(2) Subsequent to balance sheet date, the unsecured loans were
repaid from the proceeds of the IPO - see Note 1A.
F-17
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 7 - SUNDRY PAYABLES AND ACCRUED EXPENSES
June 30,
1998
--------
Ben-Gurion University for services
rendered $ 83,501
Payroll and related expenses 30,506
Accrued expenses 76,877
Suppliers 18,472
Other 3,547
--------
$212,903
========
Note 8 - PARENT COMPANY
The loan from the parent company does not bear interest. Imputed
interest at a rate of 8% per annum was charged and reflected in the
statement of operations, and is presented as additional share premium.
Subsequent to balance sheet date, the parent company forgave the loan
(see Note 1A).
Note 9 - LONG-TERM LOAN
The long-term loan is interest free. The date of repayment has not yet
been determined.
Note 10 - SEVERANCE PAY
The subsidiary's obligation in Israel in respect of severance pay to
employees is covered by insurance policies. The amounts on deposit
with the insurance companies are not under the control or management
of the subsidiary, and therefore, such amounts and the related
liability are not reflected in the balance sheet.
The accrual in the balance sheet represents the unfunded portion of
the severance obligation.
F-18
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 11 - COMMITMENTS AND CONTINGENCIES
A. Royalties - BGU
In accordance with an agreement dated November 5, 1981, between the
Company, Ben-Gurion University and B.G. Negev Technology and
Applications Ltd. (BGU), the subsidiary in Israel is conducting
research and development projects on the campus of Ben-Gurion
University in consideration for a fee for the use of the facilities.
The Company owns the patents connected with these projects (related to
L.M.M.H.D. power generation) and agreed to pay royalties to BGU at the
rate of 1.725% on sales of products and at the rate of 11.5% on income
from licensing fees.
The Company also agreed to assume the obligation of BGU to pay
royalties to the Ministry of National Infrastructure on products
developed from these R&D projects for its participation in the
research and development costs of BGU. The royalties are to be paid at
the rate of 1% on sales of products and at the rate of 5% on income
from licensing fees. As of June 30, 1998, this liability amounted to
approximately $321,000 (including linkage to the Consumer Price Index
and interest at 4% per annum). Subsequent to the repayment of the
liability, the Company is to pay royalties to the Ministry of National
Infrastructure at a reduced rate of 0.3% on sales of products and at
the rate of 2% on income from licensing fees.
Through June 30, 1998, there were no sales or income on which
royalties were payable to BGU and the Ministry of National
Infrastructure.
B. International Lead Zinc Research Organization (ILZRO)
In connection with a research contract with ILZRO, the subsidiary
agreed to pay ILZRO a fee for any lead used in future production by
the subsidiary. The total fee commitment is limited to $ 1,864,000.
Through June 30, 1998, the subsidiary has not used any lead for which
it is required to pay fees.
C. Chief Scientist of the Government of Israel
For the period from 1981 to 1991, the subsidiary received
participations from the Chief Scientist of $ 2,274,420 towards the
cost of a research and development project. In return, the subsidiary
is required to pay royalties at the rate of 2% of sales of know-how or
products derived from the project. Through June 30, 1998, there were
no sales on which royalties were payable.
F-19
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 11 - COMMITMENTS AND CONTINGENCIES (Cont.)
D. Royalties and Licensing Fees
In January 1998, an agreement was signed between the subsidiary and a
party which had participated in the development of a certain product.
In this agreement, the subsidiary undertook to pay royalties as a
certain percentage of sales and a certain percentage of revenues from
licensing fees. As of June 30, 1998, no sales had been made for which
royalties would be payable.
E. Lease Agreement
On October 28, 1997, the subsidiary entered into a lease agreement of
premises for a period of two years ending November 1999 for an annual
rent of $41,000. The Company has a renewal option for an additional
three years.
F. Letter of Intent
In September 1997 the subsidiary signed a letter of intent in which it
agreed to cooperate with another party in establishing a jointly owned
entity for the development of certain technology. The other party will
be responsible for providing financing of the jointly owned entity. As
of June 30, 1998, the subsidiary had received $15,505 from the other
party as participation in the costs of technology development.
G. Performance Guarantee
The subsidiary is contingently liable for a contract performance
guarantee issued by a bank in favor of a customer in the amount of
$20,000.
H. Lien
Short-term borrowings from a bank of approximately $182,000 are
collateralized by a fixed charge on the subsidiary's uncalled share
capital and its goodwill and floating charge on all its present and
future acquired property and rights.
F-20
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 12 - SHARE CAPITAL
The preferred "A" shares are entitled to a 5% non-cumulative dividend.
All other rights of the preferred shares are identical to those of the
common "B" shares.
Note 13 - INVESTMENT IN SHARES OF PARENT COMPANY
The Company owns 50,000 shares of its parent company, the investment
in which is stated at cost. The fair market value of the shares as of
June 30, 1998, is approximately $18,750. Subsequent to balance sheet
date, the shares were returned to the parent company for cancellation
(see Note 1A).
Note 14 - REVENUES
For the year ended June 30,
---------------------------
1997 1998
% %
---------- -----------
Revenues by geographic areas
are as follows:
Italy -- 17
Israel 100 83
---------- -----------
100 100
========== ===========
Sales to single customers
exceeding 10%:
Customer A 60 --
Customer B 31 --
Customer C -- 64
Customer D -- 17
F-21
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 15 - RESEARCH AND DEVELOPMENT COSTS
For the year ended June 30,
---------------------------
1997 1998
------- --------
Salaries and related expenses
(after deduction of
immigrant absorption grant
as follows:
June 30, 1998 - $7,334;
June 30, 1997 - $17,854) $ 219,642 $ 195,786
Materials 6,187 5,204
Subcontractors 18,285 13,971
Consultants 9,074 26,538
Rental fee 13,711 23,594
Depreciation -- 3,709
Other 9,360 15,627
--------- ----------
276,259 284,429
Less - participation in
technology development (*) -- (15,505)
--------- ----------
$ 276,259 $ 268,924
========= ==========
(*) See Note 11F.
Note 16 - MARKETING EXPENSES
For the year ended June 30,
---------------------------
1997 1998
--------- ----------
Salaries and related expenses $ -- $ 38,559
Market research 22,514 13,389
Foreign travel 17,614 43,255
Publications 2,778 618
Other -- 4,895
--------- ----------
42,906 100,716
Less - government grants -- (14,458)
--------- ----------
$ 42,906 $ 86,258
========= ==========
F-22
<PAGE>
SOLMECS CORPORATION N.V
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In U.S. dollars)
Note 17 - GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended June 30,
-----------------------------
1997 1998
---------- ----------
Salaries and related expenses $ 88,133 $ 131,715
Professional fees 44,642 87,500
Rental fee 3,614 21,015
Vehicles maintenance 11,686 21,391
Communications 23,032 23,815
Foreign travel 9,143 4,054
Depreciation 9,364 10,307
Other 30,699 17,983
---------- ----------
$ 220,313 $ 317,780
========== ==========
Note 18 - TAXES ON INCOME
A. The Company has carryforward losses of approximately $2.4 million as
of June 30, 1998, which expire in the years 1999-2003. Due to the
uncertainty as to realization of these losses, a valuation allowance
for the entire amount of the tax benefit has been recorded.
B. The subsidiary in Israel is subject to the Income Tax Law
(Inflationary Adjustments), 1985, which measures income on the basis
of changes in the Israeli Consumer Price Index. For tax purposes, the
subsidiary reports on a December 31 year-end.
The carryforward losses of the subsidiary for tax purposes as of
December 31, 1997, are approximately $309,000. In addition, research
and development expenses in the approximate amount of $699,000 will be
deductible for tax purposes upon recognition of income derived from
the R&D project. Due to the uncertainty as to realization, a valuation
allowance of approximately $363,000 has been recorded.
The subsidiary has received final income tax assessments through
December 31, 1995.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENT IN THIS ANNUAL REPORT ON FORM 10-KSB, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 609,940
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 609,940
<CURRENT-LIABILITIES> 602,348
<BONDS> 0
0
0
<COMMON> 5,413
<OTHER-SE> 2,179
<TOTAL-LIABILITY-AND-EQUITY> 609,940
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
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</TABLE>
