U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30, 1999.
__ 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.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 90-0194786
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Omer Industrial Park, P.O. Box 3026, Omer, Israel 84965
(Address of Principal Executive Offices)
(011) 972-7-690-0950
(Issuer's Telephone Number including area code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the 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 _____
As of November 22, 1998, there were 2,082,088 shares of the issuer's
Common Stock outstanding
Transitional Small Business Disclosure Format (check one):
Yes ____ No __X___
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 1999
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1999
(Unaudited)......................................................1
Consolidated Statements of Operations
For the Three Months ended September 30, 1999
and September 30, 1998 (Unaudited)...............................2
Consolidated Statement of Changes
in Stockholders' Equity For the Three Months
ended September 30, 1999 (Unaudited).............................3
Consolidated Statements of Cash Flows
For the Three Months ended September 30, 1999
and September 30, 1998 (Unaudited)...............................4
Notes to Unaudited Consolidated Financial Statements............ 5
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations .......................................7
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.......................14
Item 6. Exhibits and Reports on Form 8-K................................14
-ii-
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30,
ASSETS 1999
------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 707,728
Trade receivables 46,721
Inventory 29,287
Other receivables and prepaid expenses 95,099
-----------
Total current assets 878,835
-----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $175,258 1,131,503
OTHER ASSETS, net of amortization of $6,500 23,500
-----------
Total assets $ 2,033,838
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 102,546
Trade payables 69,965
Sundry payables and accrued expenses 294,272
-----------
Total current liabilities 466,783
-----------
NONCURRENT LIABILITIES:
Long-term loan 200,000
Accrued severance pay 122,590
-----------
Total noncurrent liabilities 322,590
-----------
Total liabilities 789,373
-----------
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;
2,082,088 shares issued and outstanding 20,821
Additional paid-in capital 7,517,333
Accumulated deficit (6,293,689)
-----------
Total stockholders' equity 1,244,465
-----------
Total liabilities and stockholders' equity $ 2,033,838
===========
The accompanying notes are an integral part of this consolidated balance sheet.
1
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SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Sales $ 49,191 $ 189
Contract services -- 684
----------- -----------
Total revenues 49,191 873
----------- -----------
COSTS AND EXPENSES:
Research and development costs 203,393 145,205
Cost of merchandise purchased 46,301 168
Marketing expenses 90,698 67,673
General and administrative expenses 273,122 127,743
----------- -----------
Total costs and expenses 613,514 340,789
----------- -----------
Loss before one-time charge (564,323) (339,916)
ONE-TIME CHARGE OF ACQUIRED RESEARCH AND DEVELOPMENT IN PROCESS
-- (3,772,054)
----------- -----------
Operating loss (564,323) (4,111,970)
FINANCING INCOME, net 10,896 22,608
MINORITY INTEREST -- --
----------- -----------
Net loss $ (553,427) $(4,089,362)
=========== ===========
NET LOSS PER COMMON SHARE, basic and diluted $ (0.27) $ (1.96)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, basic and diluted
2,082,088 2,082,088
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
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SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number Additional Accumulated
of Shares Share Capital Paid-in Capital Deficit Total
----------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1999 2,082,088 $ 20,821 $ 7,517,333 $(5,740,262) $ 1,797,892
Net loss for the three months
ended September 30, 1999 -- -- -- (553,427) (553,427)
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1999 2,082,088 $ 20,821 $ 7,517,333 $(6,293,689) $ 1,244,465
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
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SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (553,427) $(4,089,362)
Adjustments to reconcile net loss to net cash used in operating activities (248,572) 3,985,443
----------- -----------
Net cash used in operating activities (801,999) (103,919)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash required -- (49,699)
Purchase of fixed assets (93,249) (40,874)
Short-term investments, net 1,127,166 (685,648)
Proceeds from sale of fixed assets -- 5,708
----------- -----------
Net cash provided by (used in) investing activities 1,033,917 (770,513)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering -- 4,698,612
Short-term borrowings, net (49,352) (743,132)
----------- -----------
Net cash used in financing activities (49,352) 3,955,480
----------- -----------
Increase in cash and cash equivalents 182,566 3,081,048
CASH AND CASH EQUIVALENTS, beginning of period 525,162 --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 707,728 $ 3,081,048
=========== ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Items not involving cash flows-
Depreciation and amortization $ 16,149 $ 8,108
Severance pay 8,261 74,140
Loss on sale of equipment -- 836
Acquired research and development in progress -- 3,772,054
Changes in operating assets and liabilities-
Increase in trade receivables (35,790)
Decrease in inventory 1,308
Decrease in other receivables and prepaid expenses 18,189 625,115
Decrease in trade payables (262,065)
Increase (decrease) in sundry payables and accrued expenses 5,376 (494,810)
----------- -----------
$ (248,572) $ 3,985,443
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of acquired assets and research and development in progress $ 3,994,649
Less - liabilities assumed (1,067,369)
Less - shares issued as consideration for acquisition of subsidiary (2,873,280)
-----------
Cash paid 54,000
Less cash acquired 4,301
-----------
49,699
===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General
The financial statements as of and for the three months ended September 30, 1999
and 1998 are unaudited; however in the opinion of management all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been made.
The financial statements have been prepared in a manner consistent with the
10-KSB filed for the fiscal years ended June 30, 1999 and 1998 and should be
read in connection with those financial statements. The unaudited consolidated
statement of operations is not necessarily indicative of the results of
operations for future periods.
Business
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.
Initial Public Offering
On July 8, 1998 the Company consummated an Initial Public Offering (the "Public
Offering") in which 1,041,044 Units, comprised 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 until June 28, 2003. The net proceeds from
the Public Offering 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 until June 28, 2003.
Acquisition of Solmecs
Simultaneously with the consummation of the Public Offering the Company acquired
all of the issued and outstanding capital stock of Solmecs (the "Acquisition")
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 $3,772,054 was reflected as acquired research and
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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.
Acquisition of Elecmatec
On May 18, 1999, the Company acquired approximately 90%, of which 35% was
purchased from a related party, of Elecmatec Electro-Magnetic Technologies Ltd.
("Elecmatec"), an Israeli company, for approximately $150,000, of which $50,000
was paid to existing stockholders and $100,000 was invested in Elecmatec equity.
In addition, the Company may pay up to $150,000 under certain circumstances. The
acquisition has been accounted for as a purchase. The excess of purchase price
over fair value of assets acquired of approximately $288,000 was reflected as
acquired research and development in process and fully expensed at the date of
the acquisition.
Going Concern
The Company has incurred substantial operating losses and at September 30, 1999,
has an accumulated deficit of approximately $6,300,000. 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 research and development which will require
substantial additional expenditures. As such, the Company's ability to continue
as a going concern is dependent upon its ability to raise resources to finance
its operations. This fact raises substantial doubt about the Company's ability
to continue as a going concern.
The Company is also negotiating with potential investors/partners who would
provide debt and/or equity financing to the Company. There is no assurance that
additional financing will be available to the Company when needed, on
commercially reasonable terms or at all. Moreover, to the extent that there is
equity financing, there will be substantial dilution to existing stockholders of
the Company.
6
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: 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 behalf of the Company. These
risks, uncertainties and factors include, but are not limited to, those relating
to the Company's ability to continue as a going concern, uncertainties regarding
the Company's growth strategy, uncertainty of the availability of additional
financing, uncertainties regarding the Company's ability to fulfill its
commitments under the acquisition agreement relating to a subsidiary and to
commercialize the technology of such subsidiary, 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, relationships with and dependence on third-party equipment
manufacturers and suppliers, uncertainties relating to government and regulatory
policies and other political risks and other risks detailed in the Company's
filings with the Securities and Exchange Commission. 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
The Company was organized in May 1997 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 Public Offering and the acquisition of Solmecs
and its wholly owned subsidiary SIL, the acquisition of a majority interest in
Elecmatec and the acquisition of identified technologies or manufacturing
facilities for certain technologies for further development, production and
commercialization.
The Company is actively engaged in the commercial development of two
technologies previously identified by Solmecs, namely (i) advanced bi-facial
photovoltaic panels and (ii) monocrystals of silicon. In November 1998, Solmecs
acquired materials, equipment and engineering services in order to establish a
manufacturing facility in Israel for both one-sided and advanced bi-facial
photovoltaic panels. The Company anticipates that a commercial production
facility will be completed in early 2000, provided that the Company is able to
obtain additional financing. The Company will also require additional funds,
7
<PAGE>
not currently available to the Company, to operate the production facility and
acquire raw materials for the production of commercial quantities. If the
Company is able to obtain such additional funds, on a timely basis, it
anticipates commercial production of photovoltaic panels during the 2000 fiscal
year. During the 1999 fiscal year, the Company received limited purchase orders
for photovoltaic panels, which were filled by the Company through its
distribution arrangement with a Russian manufacturer.
Also in November, 1998, Solmecs acquired equipment to be used in three
production facilities currently being set up for growing silicon monocrystals.
Two of the facilities are nearing completion and will be dedicated to production
of standard size silicon monocrystals with the qualities necessary for use in
both sophisticated electronics and photovoltaics. The third facility will be
modified for experimental production of silicon monocrystals utilizing LMMHD
technology. The Company did not produce any commercial silicon monocrystals
during the 1999 fiscal year. The Company expects to have the two production
facilities completed by early 2000. The Company, however, will require
additional funds, not currently available to the Company, to operate the
production facilities and acquire the raw materials necessary to produce
commercial quantities. If the Company is able to obtain additional funds, on a
timely basis, it anticipates commercial production of standard size silicon
monocrystals by mid-2000. Development of LMMHD enhanced silicon monocrystals,
however, is still in the preliminary testing stage and the Company does not
anticipate that this technology will be ready for production of prototypes for
at least one year, and for production of commercial monocrystals for at least
two years. Further development of this technology will also require additional
funds not currently available to the Company.
In February, 1999, the Company acquired world-wide rights (except for Israel) to
develop, produce, market and distribute advanced electronic pocket dictionaries
manufactured by an Israeli company. During fiscal 1999, the Company had limited
sales of the Hebrew/English and Russian/English dictionaries in the United
States. The Company is now focusing on the development of a Spanish/English
dictionary which is expected to be ready for commercial production in November,
1999. The Company is negotiating promotional and marketing arrangements with two
marketing and distribution companies for promotion and distribution of the
dictionaries.
In May 1999, the Company acquired a 90.4% interest in Elecmatec, which employs
"micro-gravity" conditions to the production of alloys for use in production of
metal based products such as engine bearings for the automotive industry.
Elecmatec has completed the development and preliminary testing of its
manufacturing process. A third party has commenced construction of a facility in
Kiryat Gat, Israel, which it will lease to Elecmatec for the production of metal
alloys. Construction of such facility is dependent upon Elecmatec meeting its
obligation to provide certain financing which, in turn, is dependent on the
Company providing certain financing to Elecmatec. If such financing is obtained
on a timely basis, it is anticipated that the production facility will be
completed and operational for production of commercial quantities of alloy by
the end of 2000.
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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. Although the LMMHD power technology has been in development since
1980'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 is not currently engaged in further development of the
LMMHD power technology.
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. 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.
To date, the Company has not generated significant revenues from its marketable
products. The Company does not expect to generate any meaningful revenues until
such time, if ever, as it successfully produces, markets and distributes its
commercial products on a broad scale or until it successfully commercializes or
sells proprietary rights relating to one or more of Solmecs' or Elecmatec's
technologies currently in development.
The Company has incurred substantial operating losses and at September 30, 1999,
has an accumulated deficit of approximately $6,293,689. The Company is not
generating sufficient revenues from its operations to fund its activities and
anticipates continued losses. The Company is continuing its efforts in research
and development which will require substantial additional expenditures. As such,
the Company is dependent upon its ability to raise resources to finance
operations. This fact raises substantial doubt that the Company's ability to
continue as a going concern.
The Company's capital requirements will be significant. The Company is dependent
upon the remaining 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. Completion of
the commercialization of the Company's technologies or any potential application
of such technologies including, without limitation, the technology of Elecmatec,
in which the Company acquired a 90.4% interest in May 1999, will require
significant additional effort, resources and time including funding
substantially greater than the remaining proceeds of the Public Offering or
otherwise currently available to the Company. Moreover, the remaining proceeds
of the Public Offering will 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. The Company is negotiating with potential
investors/partners who would provide debt and/or equity financing to the
Company. There can be no assurance that additional financing will be available
to the Company when needed, on commercially reasonable terms, or at all.
Moreover, to the extent that there is equity financing, there will be
substantial dilution to existing stockholders of the Company.
Results of Operations
The consolidated statement of operations and other financial and operating data
for the three month periods ended September 30, 1998 and 1999 are derived from
the unaudited financial statements of the Company included elsewhere herein.
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Three Months Ended September 30, 1999 Compared with Three Months Ended September
30, 1998
Sales. Sales increased to $49,191 for the three months ended September 30,
1999 as compared to $189 for the three months ended September 30, 1998. The
increase was attributable to sales of photovoltaic panels, a form of silicon
monocrystals and sales of electronic pocket dictionaries in the United States.
Contract Services. There were no contract services performed by the Company
for the three months ended September 1999.
Total Revenues. Total revenues increased by $48,318 to $49,191 for the
three months ended September 30, 1999 compared to $873 for the three months
ended September 30, 1998. The increase is attributable to the increase in sales
of products stated herein.
Research and Development Costs. Research and development and costs
increased by $58,188 or 40% to $203,393 for the three months ended September
1999, as compared to $145,205 for the three months ended September 1998. The
increase is mainly due to the development of the new English-Spanish electronic
pocket dictionary and to the commencement of production and development tests of
the silicon monocrystal project.
Cost of Merchandise Purchased. Costs of merchandise purchased increased by
$46,133 to $46,301 for the three months ended September 1999, as compared to
$168 for the three months ended September 1998. The increase is attributable to
the increase in sales of photovoltaic panels, silicon ingots and electronic
pocket dictionaries.
Marketing Expenses. Marketing expenses increased by $23,025 or 34%, to
$90,698 for the three months ended September 1999, as compared to $67,673 for
the three months ended September 1998. This increase is primarily attributable
to the additional products in Solmecs and the addition of Elecmatec's products.
General and Administrative Expenses. General and administrative expenses
increased by $145,379 or 114%, to $273,122 for the three months ended September
1999, as compared to $127,743 for the three months ended September 1998. This
increase is primarily attributable to the costs and expenses due to the addition
of Elecmatec.
One-Time Charge of Acquired Research and Development In-Process. The
acquisition of Solmecs by the Company has been accounted for as a purchase and
the excess purchase price over fair value of assets acquired of $3,772,054 has
been reflected in the Company's consolidated statement of operations for the
three month period ended September 30, 1998 as acquired research and development
in process. The Company has recorded a one-time charge for the write-off in full
of such research and development in process as of the date of the Acquisition.
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Operating Loss. Operating Loss decreased by $3,547,647 to $564,323 for the
three months ended September 1999, as compared to $4,111,970 for the three
months ended September 1998. The decrease in operating loss is solely
attributable to the one-time charge of $3,772,054 reflecting the write-off of
acquired research and development in process in 1998.
Financing Income, Net. Financing income was $10,896 for the three months
ended September 1999, as compared to financing income of $22,608 for the three
months ended September 1998, primarily as a result of interest earned by the
Company on deposits of net proceeds of the Public Offering not immediately used
in the operation of the Company.
Net Loss and Net Loss Per Share. As a result of the foregoing, net loss was
$553,427 ($0.27 per share) for the three months ended September 1999 as compared
to $4,089,362 ($1.96 per share) for the three months ended September 1998.
Liquidity and Capital Resources
As of September 30, 1999, the Company had working capital of $412,051,
shareholders' equity of $1,244,465 and an accumulated deficit of $6,293,689.
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.
In May 1998, the Company acquired a 90.4% interest in Elecmatec. In addition to
the initial acquisition price of $150,000, the Company has agreed to loan to, or
guarantee loans taken by,
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Elecmatec, of up to $1,000,000, of which approximately $445,000 has been loaned
by the Company to Elecmatec as of September 30, 1999, and approximately $162,000
is available to Elecmatec by way of such guarantee. In addition, the Company has
agreed to pay $150,000 to current shareholders of Elecmatec, on a sliding-scale
basis, in the event Elecmatec obtains third-party debt or equity financing of at
least $500,000. The Company is also required, under certain circumstances, to
pay former shareholders of Elecmatec an amount equal to 10% of Elecmatec's net
income, up to an aggregate payment of $360,000.
Inflation
In recent years, until 1997, inflation in Israel has exceed the devaluation of
the NIS against the dollar. The rate of inflation in Israel for the years 1995
and 1996, was 8.1% and 10.6%, respectively, while the devaluation of the NIS
against the dollar was 3.9% and 3.7%, respectively. This trend was reversed
during the years 1997 and 1998, as the rate of inflation in Israel was 7.0% and
8.6%, respectively, while the rate of devaluation of the NIS against the dollar
was 8.8% and 17.6%, respectively. In the first six months of 1999, Israel
experienced deflation at the rate of .37% as well as a devaluation of the dollar
against the NIS at the rate of 2%.
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.
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Year 2000
The Company has evaluated and updated its Information Technology ("IT") systems
to ensure that it will have the capability to manage and manipulate data in the
year 2000 and beyond. The Company has performed "Year 2000" functionality tests
of its computer and IT systems and such tests have been successful. The Company
believes that its IT systems are substantially compliant with Year 2000
requirements. Costs incurred by the Company to date to implement its plans have
not been material and are not expected to have a material effect on the
Company's financial condition or results of operations.
As the Company enters into commercial relationships it addresses year 2000
compliance with key business partners and sub-contractors and anticipates that
such key business partners and sub-contractors who are not yet compliant will be
prior to year end.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) On July 8, 1998 the Company consummated its initial public offering (the
"Public Offering") contemplated by its Registration Statement on Form SB-2
(file no. 333-43955) which was declared effective by the Securities and
Exchange Commission on June 29, 1998. A total of 1,197,200 Units were
registered for sale by the Company to the public and 1,041,444 Units were
sold to the public for gross proceeds of $5,986,003. Each Unit consisted 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"). The Common Stock and Warrants included in the Units were
registered in the Public Offering and became detachable and separately
transferable from the Units on September 29, 1998. In addition, 1,041,044
shares of Common Stock issuable upon exercise of the Warrants were
registered. The Warrants are exercisable between June 29, 1999 and June 28,
2003. In addition, 104,104 Units were registered pursuant to an option
granted to the Underwriter of the Public Offering.
Net proceeds from the Offering were approximately $4,600,000. On July 8,
1998 (the closing date of the 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 September 30, 1999 the Company has applied the balance of
net proceeds from the Offering as follows: (i) approximately $280,500 to
market research and marketing activities; (ii) approximately $919,000 to
research and development; (iii) approximately $60,000 to the 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; (v) approximately $1,100,000
for the purchase of equipment and machinery; and (vi) approximately
$1,145,000 to working capital and general corporate purposes. As of
September 30, 1999, approximately $600,000 of the net proceeds from the
offering remained, a substantial portion of which has subsequently been
expended.
On July 8, 1998, contemporaneous with the consummation 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 Corporation
N.V., a Netherlands Antilles company and its wholly-owned subsidiary
Solmecs (Israel) Ltd. from Bayou International Ltd. ("Bayou") and issued to
Bayou 499,701 shares of unregistered Common Stock of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
14
<PAGE>
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended September 30, 1999.
15
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 22nd day of November 1999.
SCNV ACQUISITION CORP.
(Registrant)
/s/ Herman Branover
--------------------------------------
Professor Herman Branover
President and Chief Executive Officer
/s/ Jacline Bavli
--------------------------------------
Jacline Bavli
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 707,728
<SECURITIES> 0
<RECEIVABLES> 95,099
<ALLOWANCES> 0
<INVENTORY> 29,287
<CURRENT-ASSETS> 878,835
<PP&E> 1,306,761
<DEPRECIATION> 175,258
<TOTAL-ASSETS> 2,033,838
<CURRENT-LIABILITIES> 466,783
<BONDS> 0
0
0
<COMMON> 20,821
<OTHER-SE> 1,244,465
<TOTAL-LIABILITY-AND-EQUITY> 2,033,838
<SALES> 49,191
<TOTAL-REVENUES> 49,191
<CGS> 0
<TOTAL-COSTS> 613,514
<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> (553,427)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
