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 DECEMBER 31, 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.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 90-0194786
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 February 19, 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 DECEMBER 31, 1998
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1998
(Unaudited) ........................................................ 1
Consolidated Statements of Operations
For the three and six and months ended December 31, 1998 and 1997
(Unaudited) ......................................................... 2
Consolidated Statement of Changes
in Shareholders' Equity for the six months
ended December 31, 1998 (Unaudited) ................................ 3
Consolidated Statement of Cash Flows
For the six months ended December 31, 1998
(Unaudited) ........................................................ 4
Notes to 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
Signatures ................................................................. 16
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<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,709,028
Short-term investments 513,157
Trade receivables 25,334
Inventory 20,090
Due from Elecmatec 76,796
Other receivables and prepaid expenses 81,178
-----------
Total current assets 3,425,583
-----------
FIXED ASSETS
Cost 376,274
Less - accumulated depreciation 140,277
-----------
Total fixed assets 235,997
-----------
Total assets $ 3,661,580
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Sundry payables and accrued expenses $ 250,032
-----------
Total current liabilities 250,032
LONG TERM LIABILITIES
Long term loan 200,000
Accrued severance pay 96,278
-----------
Total long term liabilities 296,278
-----------
Total liabilities 546,310
-----------
SHAREHOLDERS' EQUITY
Share capital
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 (4,422,884)
-----------
Total shareholders' equity 3,115,270
-----------
Total liabilities and shareholders' equity $ 3,661,580
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance
sheet.
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<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(pro forma) (pro forma)
<S> <C> <C> <C> <C>
REVENUES
Sales $ 6,976 $ 23 $ 7,165 $ 3,350
Contract services 9,607 28,349 10,291 32,365
----------- ----------- ----------- -----------
Total revenues 16,583 28,372 17,456 35,715
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Research and development costs 165,965 62,492 310,490 123,641
Cost of merchandise purchased 6,975 972 7,143 3,585
Cost of contract services performed
by subcontractors 9,188 20,027 9,868 26,056
Marketing expenses 59,490 21,962 127,163 29,926
General and administrative expenses 144,426 93,133 272,169 177,714
----------- ----------- ----------- -----------
Total costs and expenses 386,044 198,586 726,833 360,922
----------- ----------- ----------- -----------
Loss before one-time charge (369,461) (170,214) (709,377) (325,207)
One-time charge of acquired research
and development in process -- -- (3,772,054) --
----------- ----------- ----------- -----------
Operating Loss (369,461) (170,214) (4,481,431) (325,207)
FINANCING INCOME NET 36,775 6,732 59,383 9,706
LOSS ON SALE OF FIXED ASSETS (836) -- (836) --
----------- ----------- ----------- -----------
Net loss $ (333,522) $ (163,482) $(4,422,884) $ (315,501)
=========== =========== =========== ===========
Net loss per common share $ (0.16) $ (0.16) $ (2.12) $ (0.30)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding, basic and diluted 2,082,088 1,041,044 2,082,088 1,041,044
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Number of Share Additional Accumulated
Shares Capital Paid-In-Capital Deficit Total
----------- ----------- --------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance as of July 1, 1998 541,343 $ 5,413 $ 2,179 -- $ 7,592
Shares issued in connection with
initial public offering,
net of offering costs of $1,328,721 1,041,044 10,411 4,646,871 -- 4,657,282
Shares issued to Bayou in
connection with the acquisition
of subsidiary 499,701 4,997 2,868,283 -- 2,873,280
Net Loss -- -- -- (4,422,884) (4,422,884)
----------- ----------- ----------- ----------- -----------
Balance as of December 31, 1998 2,082,088 $ 20,821 $ 7,517,333 $(4,422,884) $ 3,115,270
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
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<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six
months ended
December 31,
1998
------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(4,422,884)
Adjustments to reconcile net loss to net cash used in operating activities 3,918,230
-----------
Net cash used in operating activities (504,654)
-----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired (49,699)
Investment in fixed assets (150,292)
Short-term investments (513,157)
Proceeds from sale of fixed assets 12,680
-----------
Net cash used in investing activities (700,468)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Share capital issuance 4,657,282
Short term borowings, net (743,132)
-----------
Net cash provided by financing activities 3,914,150
-----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,709,028
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD --
-----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 2,709,028
===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES
Items not involving cash flows:
Depreciation $ 15,817
Severance pay 74,836
Loss on sale of fixed assets 836
Acquired research and development in process 3,772,054
Changes in operating assets and liabilities:
Decrease in receivable and prepaid expenses 529,888
Increase in Inventory (20,090)
Decrease in sundry payables and accrued expenses (455,111)
-----------
$ 3,918,230
===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of acquired assets and research and development in process $ 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 this consolidated financial
statement.
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<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The financial statements as of and for the three and six months ended December
31, 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 year ended June 30, 1998 and should be read in
connection with those financial statements. The comparative pro forma financial
information for the three and six months ended December 31, 1997 pertain to the
pro forma results of operations of SCNV Acquisition Corp. (the "Company") and
Solmecs Corporation N.V. ("Solmecs") and its wholly-owned subsidiary Solmecs
(Israel) Ltd. as if the combination described below had been effective as of
July 1, 1997. The unaudited pro forma consolidated statement of operations is
not necessarily indicative of what the actual results of operations of the
Company would have been assuming the combination had been completed as of July
1, 1997, nor is it necessarily indicative of the results of operations for
future periods.
Initial Public Offering
The Company was organized under the laws of the State of Delaware on May 19,
1997 to acquire Solmecs and 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. 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 during the four-year period commencing June
29, 1999. The net proceeds from the Public Offering were approximately
$4,700,000.
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
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<PAGE>
$3,772,054 has been reflected as acquired research and development in process
and fully expensed at the date of the Acquisition.
Subsequent event
The Company has entered into a letter of intent with Elecmatec Electro-Magnetic
Technologies Ltd. ("Elecmatec") and the current stockholders of Elecmatec for
the purchase of 90.4% of the outstanding shares of Elecmatec. The purchase price
for the acquisition is the cash payment of $150,000 at closing (subsequent to
December 31, 1998), and an additional payment of $150,000 to be invested in
Elecmatec, on a sliding scale basis, upon successful completion by Elecmatec of
certain third party debt or equity financing. In addition SCNV will loan to
Elecmatec up to $1,000,000 to finance Elecmatec's activities until such
financing is raised. In connection with this transaction, options to purchase
30,000 shares of Common Stock of SCNV will be issued. The exercise price of each
option shall be the higher of (i) $1.00 and (ii) the per share market price of
SCNV's shares of Common Stock on the date of grant. As of December 31, 1998 the
Company advanced $76,796 to Elecmatec.
Elecmatec is the owner of a patented micro-gravity casting technology which
enables the continuous casting of metallic composite materials under
gravity-free conditions. Elecmatec intends to establish a production plant at
"Kiryat-Gat" a southern town of Israel to produce alloy and bi-metal strips for
sale initially to engine bearing and other original equipment manufacturers in
the automotive industry.
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<PAGE>
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 further 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 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,
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 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, 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 expects to manufacture and market certain technologies which have
been identified by Solmecs and shown to be commercially viable. The Company is
currently concentrating on the further development and commercialization of
advanced double-sided photo-voltaic cells and silicon monocrystals, both of
which are technologies
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<PAGE>
developed by Russian scientists associated with the space and military
industries of the former Soviet Union, and identified by the Company for
commercial exploitation. Pursuant to an arrangement with a Russian company, the
Company has begun to develop double-sided photo-voltaic cells for commercial
distribution. Additionally, the Company has commenced the acquisition of
materials and facilities from such Russian entities for the purpose of
developing its own manufacturing capabilities for both photo-voltaic cells and
silicon monocrystals. Management anticipates establishing production facilities
in Israel for both of such technologies by late 1999.
In January 1999, the Company entered into a letter of intent with Elecmatec
Electro-Magnetic Technologies, Inc. ("Elecmatec") and its stockholders for the
acquisition of 90.4% of the outstanding capital stock of Elecmatec. Elecmatec is
the owner of patented micro-gravity casting technology which enables the
continuous casting of metallic composite materials under "gravity-free"
conditions. Elecmatec intends to establish a manufacturing facility in Israel in
1999 to produce alloy and bi-metal strips for sale initially to engine bearing
and other original equipment manufacturers in the automotive industry.
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
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
The Company is continuing in its process of identifying proprietary technologies
with potential for commercial viability. The Company intends to implement a
four-step process with respect to the development of such proprietary
technologies which it identifies for exploitation. Initially the Company,
through its scientific, engineering and administrative personnel, will identify
and analyze a number of such proposed advanced technologies. 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
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<PAGE>
additional effort, resources and time, including funding substantially greater
than is 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
The consolidated statements of operations and other financial and operating data
for the three and six month periods ended December 31, 1998 are derived from the
unaudited financial statements of the Company included elsewhere herein. The
unaudited pro forma consolidated statements of operations for the three and six
month periods ended December 31, 1997 represents the adjustments made to present
the combined financial position of the Company and Solmecs as if the Acquisition
had been effective as of July 1, 1997. Such pro forma information gives effect
to payment to officers in connection with employment agreements in the amount of
$30,000 and $60,000 for the three and six months periods ended December 31,
1997, respectively.
Three Months Ended December 31, 1998 Compared with Pro Forma Three Months Ended
December 31, 1997
Sales. Sales increased to $6,976 for the three months ended December 31, 1998
from $23 for the three months ended December 31, 1997. The increase in sales was
primarily attributable to the increase in sales of photo-voltaic panels.
Contract Services. Contract services decreased to $9,607 for the three months
ended December 31, 1998 from $28,349 for the three months ended December 31,
1997. The decrease is attributable to the reduction in contract services related
to the completion of the "Dead Sea" project.
Total Revenues. Total revenues decreased by $11,789 or 42% to $16,583 for the
three months ended December 31, 1998 compared to $28,372 for the three months
ended December 31, 1997. The decrease is attributable to the decrease in
contract services.
Research and Development Costs. Research and development costs increased by
$103,473 or 166% to $165,965 for the three months ended December 31, 1998,
compared to $62,492 for the three months ended December 31, 1997. The increase
is primarily due to (i) the increase in salaries resulting from the employment
of additional scientific personnel, (ii) the hiring of additional consultants
for new projects feasibility testing and (iii) the increase in rent fees
associated with the leasing of new facilities in Omer Industrial Park.
Costs of Merchandise Purchased. Due to the increase of sales of photo-voltaic
cells and panels, costs of merchandise purchased increased by $6,003 or 618%, to
$6,975 for the three months ended December 31, 1998, from $972 for the three
months ended December 31, 1997.
Costs of Contract Services Performed by Subcontractors. Costs of contract
services performed by subcontractors decreased by $10,839 or 54% to $9,188 for
the three months
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<PAGE>
ended December 31, 1998, as compared to $20,027 for the three months ended
December 31, 1997. This decrease is mainly due to the reduction in services
related to the completion of the "Dead Sea" project.
Marketing Expenses. Marketing expenses increased by $37,528 or 171% to $59,490
for the three months ended December 31, 1998, as compared to $21,962 for the
three months ended December 31, 1997. This increase is primarily attributable to
(i) salaries and related expenses resulting from the hiring of additional
marketing personnel and (ii) foreign travel related to the marketing and
implementation of new technologies.
General and Administrative Expenses. General and administrative expenses
increased by $51,293 or 55% to $144,426 for the three months ended December 31,
1998, as compared to $93,133 for the three months ended December 31, 1997. This
increase is primarily attributable to (i) the increase in rent fees associated
with the leasing of new facilities in Omer Industrial Park and (ii) salaries and
related expenses resulting from the hiring of additional personnel.
Operating Loss. Operating loss increased to $369,461 for the three months ended
December 31, 1998, from $170,214 for the three months ended December 31, 1997.
This increase is primarily attributable to an increase in expenses as set forth
above.
Financing Income, Net. Financing income was $36,775 for the three months ended
December 31, 1998, as compared to financing income of $6,732 for the three
months ended December 31, 1997. The increase is attributable to interest earned
on deposits.
Net Loss. As a result of the foregoing, net loss increased to $333,522 for the
three months ended December 31, 1998 from $163,482 for the three months ended
December 31, 1997.
Six Months Ended December 31, 1998 Compared with Pro Forma Six Months Ended
December 31, 1997
Sales. Sales increased to $7,165 for the six months ended December 31, 1998 from
$3,350 for the six months ended December 31, 1997. The increase in sales was
primarily attributable to the increase in sales of photo-voltaic panels.
Contract Services. Contract services decreased to $10,291 for the six months
ended December 31, 1998 from $32,365 for the six months ended December 31, 1997.
The decrease is attributable to the decrease in contract sales related to the
completion of the "Dead Sea" project.
Total Revenues. Total revenues decreased by $18,259 or 51% to $17,456 for the
six months ended December 31, 1998 compared to $35,715 for the six months ended
December 31, 1997. The decrease is attributable to the decrease in contract
services.
Research and Development Costs. Research and development costs increased by
$186,849 or 151% to $310,490 for the six months ended December 31, 1998,
compared to $123,641 for the six months ended December 31, 1997. The increase is
primarily due to (i) the increase in salaries due to the employment of
additional scientific personnel, (ii) the hiring of additional consultants for
new projects feasibility testing and (iii) the increase in rent fees associated
with the leasing of new facilities in Omer Industrial Park.
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<PAGE>
Costs of Merchandise Purchased. Due to the increase of sales of photo-voltaic
cells and panels, costs of merchandise purchased increased by $3,558 or 99%, to
$7,143 for the six months ended December 31, 1998, from $3,585 for the six
months ended December 31, 1997.
Costs of Contract Services Performed by Subcontractors. Costs of contract
services performed by subcontractors decreased by $16,188 or 62% to $9,868 for
the six months ended December 31, 1998, as compared to $26,056 for the six
months ended December 31, 1997. This decrease is mainly due to the reduction in
services related to the completion of the "Dead Sea" project.
Marketing Expenses. Marketing expenses increased by $97,237 or 325% to $127,163
for the six months ended December 31, 1998, as compared to $ 29,926 for the six
months ended December 31, 1997. This increase is primarily attributable to (i)
salaries and related expenses resulting from the hiring of additional marketing
personnel and (ii) foreign travel related to the marketing and implementation of
new technologies.
General and Administrative Expenses. General and administrative expenses
increased by $94,455 or 53% to $272,169 for the six months ended December 31,
1998, as compared to $ 177,714 for the six months ended December 31, 1997. This
increase is primarily attributable to (i) salaries and related expenses
resulting from the hiring of additional personnel, (ii) professional fees
associated with services rendered to the Company and Solmecs, and (iii) the
increase in rent fees associated with the leasing of new facilities in Omer
Industrial Park.
One-Time Charge of Acquired Research and Development In-Process. The acquisition
of Solmecs by the Company in July 1998 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 statement of operations as acquired research and
development in process. The Company 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.
Operating Loss After One-Time Charge. Primarily due to the one-time charge of
$3,772,054 reflecting the write-off of acquired research and development in
process, operating loss increased to $4,481,431 for the six months ended
December 31, 1998, from $325,207 for the six months ended December 31, 1997.
This increase is also attributable to an increase in expenses as set forth
above.
Financing Income, Net. Financing income was $59,383 for the six months ended
December 31, 1998, as compared to financing income of $9,706 for the six months
ended December 31, 1997. The increase is attributable to interest earned on
deposits.
Net Loss. As a result of the foregoing, net loss increased to $4,422,884 for the
six months ended December 31, 1998 from $315,501 for the six months ended
December 31, 1997.
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<PAGE>
Liquidity and Capital Resources
The Company 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. The Company has incurred
significant losses since inception, resulting in an accumulated deficit of
$4,422,884 at December 31, 1998. The Company's cash requirements have been
exceeding its cash flow from operations and its continuing cash requirements are
expected to be significant due to, among other things, costs associated with the
development of manufacturing facilities for advanced technologies such as
double-sided photo-voltaic cells and silicon monocrystals, as well as the
research and development of additional technologies identified or to be
identified by the Company.
At December 31, 1998, the Company had working capital of $3,175,551 and
shareholders' equity of $3,115,270. The improvement in shareholders' equity and
working capital was due to proceeds received by the Company upon the
consummation of the Public Offering 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 was 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. The
Company repaid the line of credit facility in full on July 9, 1998 resulting in
the cancellation of the fixed and floating charges securing such obligation.
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 $4,700,000 after expenses of the offering.
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 until December 31, 1999. 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. 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
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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.
Year 2000
In connection with the implementation of its business plan, the Company has
evaluated and is in the process of updating its Information Technology ("IT")
systems to ensure that it will have the capability to manage and manipulate data
in the year 2000 and beyond. As the Company takes measures to be in compliance,
new programs are currently being tested. It is anticipated that the Company's IT
systems will be substantially compliant by the end of the Company's first
quarter of fiscal 2000 (September 30, 1999). 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.
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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 transferrable 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 $4,700,000. 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 December 31,
1998 the Company has applied the balance of net proceeds from the Offering as
follows: (i) approximately $130,000 to market research and marketing activities;
(ii) approximately $311,000 to research and development; (iii) 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; (iv) approximately $98,000 for the purchase of
equipment and machinery, and (v) approximately $272,000 to working capital and
general corporate purposes.
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
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-14-
<PAGE>
No reports on Form 8-K were filed by the Company during the six month
period ended December 31, 1998.
-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 19th day of February 1999.
SCNV ACQUISITION CORP.
(Registrant)
February 19, 1999 /s/ Herman Branover
--------------------------------------
Professor Herman Branover
President and Chief Executive Officer
February 19, 1999 /s/ Jacline Bavli
--------------------------------------
Jacline Bavli
Chief Financial Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,709,028
<SECURITIES> 0
<RECEIVABLES> 81,178
<ALLOWANCES> 0
<INVENTORY> 20,090
<CURRENT-ASSETS> 3,425,583
<PP&E> 376,274
<DEPRECIATION> 140,277
<TOTAL-ASSETS> 3,661,580
<CURRENT-LIABILITIES> 250,032
<BONDS> 0
0
0
<COMMON> 20,821
<OTHER-SE> 3,115,270
<TOTAL-LIABILITY-AND-EQUITY> 3,661,580
<SALES> 7,165
<TOTAL-REVENUES> 17,456
<CGS> 7,143
<TOTAL-COSTS> 726,833
<OTHER-EXPENSES> 3,772,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,422,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,422,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,422,884)
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
