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 MARCH 31, 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 May 15, 1999, 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 MARCH 31, 1999
FORM 10-QSB
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999
(Unaudited) ....................................................... 1
Consolidated Statements of Operations
For the three and nine months ended March 31, 1999
and March 31, 1998
(unaudited) ....................................................... 2
Consolidated Statement of Changes
in Shareholders' Equity for the nine months
ended March 31, 1999
(Unaudited) ....................................................... 3
Consolidated Statement of Cash Flows
For the nine months ended March 31, 1999
(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
-i-
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,394,640
Short-term investments 1,120,123
Trade receivables 42,921
Inventory 20,090
Due from Elecmatec 201,917
Other receivables and prepaid expenses 93,145
-----------
Total current assets 2,872,836
FIXED ASSETS
Cost 611,735
Less - accumulated depreciation 149,099
-----------
Total fixed assets 462,636
-----------
OTHER ASSETS 30,000
-----------
Total assets $ 3,365,472
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Sundry payables and accrued expenses $ 348,003
-----------
Total current liabilities 348,003
-----------
LONG TERM LIABILITIES
Long term loan 200,000
Accrued severance pay 99,360
-----------
Total long term liabilities 299,360
-----------
Total liabilities 647,363
-----------
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 (4,820,045)
-----------
Total shareholders' equity 2,718,109
-----------
Total liabilities and shareholders' equity $ 3,365,472
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
1
<PAGE>
<TABLE>
<CAPTION>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(pro forma) (pro forma)
<S> <C> <C> <C> <C>
REVENUES
Sales $ 43,905 $ 3,161 $ 51,070 $ 6,511
Contract services -- -- 1,869 32,365
----------- ----------- ----------- -----------
Total revenues 43,905 3,161 52,939 38,876
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Research and development costs $ 215,587 63,502 517,655 187,143
Cost of merchandise purchased 37,930 1,672 45,073 5,257
Cost of contract services performed
by subcontractors -- -- 9,868 26,056
Marketing expenses 39,958 43,308 167,121 73,234
General and administrative expenses 167,206 102,875 439,375 280,589
----------- ----------- ----------- -----------
Total costs and expenses 460,681 211,357 1,179,092 572,279
----------- ----------- ----------- -----------
Loss before one-time charge (416,776) (208,196) (1,126,153) (533,403)
One-time charge of acquired research
and development in process -- -- (3,772,054) --
----------- ----------- ----------- -----------
Operating Loss (416,776) (208,196) (4,898,207) (533,403)
FINANCING INCOME (EXPENSES) NET 19,615 (10,945) 78,998 (1,239)
LOSS ON SALE OF FIXED ASSETS -- (1,055) (836) (1,055)
----------- ----------- ----------- -----------
Net loss $ (397,161) $ (220,196) $(4,820,045) $ (535,697)
=========== =========== =========== ===========
Net loss per common share $ (0.19) $ (0.21) $ (2.32) $ (0.51)
=========== =========== =========== ===========
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.
2
<PAGE>
<TABLE>
<CAPTION>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
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 -- -- -- (4,820,045) (4,820,045)
----------- ----------- ----------- ----------- -----------
Balance as of March 31, 1998 2,082,088 $ 20,821 $ 7,517,333 $(4,820,045) $ 2,718,109
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
3
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine
months ended
March 31,
1999
-----------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(4,820,045)
Adjustments to reconcile net loss to net cash used in operating activities 3,873,430
-----------
Net cash used in operating activities (946,615)
-----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired (49,699)
Investment in fixed assets (385,753)
Short-term investments (1,120,123)
Investment in other assets (30,000)
Proceeds from sale of fixed assets 12,680
-----------
Net cash used in investing activities (1,572,895)
-----------
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 1,394,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD --
-----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,394,640
===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES
Items not involving cash flows:
Depreciation $ 24,639
Severance pay 77,918
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 375,213
Increase in Inventory (20,090)
Decrease in sundry payables and accrued expenses (357,140)
-----------
$ 3,873,430
===========
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.
4
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The financial statements as of and for the three and nine months ended March 31,
1999 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
annual report on Form 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 nine months ended March 31,
1998 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 $3,772,054 has been reflected as acquired research and
development in process and fully
5
<PAGE>
expensed at the date of the Acquisition.
Subsequent event
Subsequent to March 31, 1999, the Company has acquired 90.4% of the outstanding
shares of Elecmatec Electro-Magnetic Technologies Ltd. ("Elecmatec"), an
affiliated company. The purchase price for the acquisition included the cash
payment of $150,000 at closing, and an additional payment of $150,000 paid to
selling shareholders, 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 or guarantee loans taken by Elecmatec or third parties, 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 the Company were issued. The exercise price of each option is $1.00 per
share. As of March 31, 1999, the Company had advanced $201,917 to Elecmatec and
provided a guarantee, for the benefit of Elecmatec, in the amount of $162,000,
in anticipation of the acquisition .
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.
Substantial additional capital will be required for the commercialization of
this technology.
6
<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, uncertainty of the availability of additional
financing, 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 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 commenced the
7
<PAGE>
commercial distribution of novel double-sided bi-facial photo-voltaic cells.
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 February 1999, the Company acquired from a third party certain rights to
produce, market and distribute an electronic pocket dictionary on a world wide
basis, except for Israel. The Company has begun to market and distribute the
Hebrew-English electronic pocket dictionary currently manufactured by such third
party.
In May 1999, the Company acquired 90.4% of the outstanding shares of Elecmatec
Electro-Magnetic Technologies, Inc. ("Elecmatec") an affiliated company.
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.
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 commercialization of the Company's technologies or any
potential application of such technologies will require significant
8
<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 nine month periods ended March 31, 1999 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 nine
month periods ended March 31, 1998 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 $90,000 for the three and nine months periods ended March 31, 1998,
respectively.
Three Months Ended March 31, 1999 Compared with Pro Forma Three Months Ended
March 31, 1998
Sales. Sales increased to $43,905 for the three months ended March 31, 1999 from
$3,161 for the three months ended March 31, 1998. The increase in sales is
primarily attributable to (i) the increase in sales of photo-voltaic panels, in
particular the new bi-facial panels and, (ii) the commencement of sales of
electronic pocket dictionaries pursuant to a distribution arrangement with
TextOn Ltd.
Total Revenues. Total revenues increased to $43,905 for the three months ended
March 31, 1999 compared to $3,161 for the three months ended March 31, 1998. The
increase is attributable to sales of photo-voltaic panels and electronic pocket
dictionaries as set forth above.
Research and Development Costs. Research and development costs increased by
$152,085 or 239% to $215,587 for the three months ended March 31, 1999, compared
to $63,502 for the three months ended March 31, 1998. The increase is primarily
due to (i) the increase in salaries resulting from the employment of additional
scientific personnel, (ii) the increase in rent fees associated with the leasing
of new facilities in Omer Industrial Park and (iii) the acquisition of
proprietary technologies from a third party.
Costs of Merchandise Purchased. Due to the increase of sales of photo-voltaic
panels, and to the electronic pocket dictionary sales, costs of merchandise
purchased increased to $37,930 for the three months ended March 31, 1999, from
$1,672 for the three months ended March 31, 1998.
9
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Marketing Expenses. Marketing expenses decreased by $3,350 or 8% to $39,958 for
the three months ended March 31, 1999, as compared to $43,308 for the three
months ended March 31, 1998.
General and Administrative Expenses. General and administrative expenses
increased by $64,331 or 63% to $167,206 for the three months ended March 31,
1999, as compared to $102,875 for the three months ended March 31, 1998. This
increase is primarily attributable to (i) the increase in rent fees associated
with the leasing of new facilities in Omer Industrial Park, (ii) salaries and
related expenses resulting from the hiring of additional personnel and, (iii) to
the expenses related to the proposed acquisition of Elecmatec by the Company.
Operating Loss. Operating loss increased to $416,776 for the three months ended
March 31, 1999, from $208,196 for the three months ended March 31, 1998. This
increase is primarily attributable to an increase in expenses as set forth
above.
Financing Income, Net. Financing income was $19,615 for the three months ended
March 31, 1999, as compared to financing expenses of $10,945 for the three
months ended March 31, 1998. The increase is attributable to interest earned on
deposits.
Net Loss. As a result of the foregoing, net loss increased to $397,161 for the
three months ended March 31, 1999 from $220,196 for the three months ended March
31, 1998.
Nine Months Ended March 31, 1999 Compared with Pro Forma Nine Months Ended March
31, 1998
Sales. Sales increased to $51,070 for the nine months ended March 31, 1999 from
$6,511 for the nine months ended March 31, 1998. The increase in sales is
primarily attributable to (i) the increase in sales of photo-voltaic panels and
cells, including the new bi-facial panels and (ii) the commencement of sales of
electronic pocket dictionaries.
Contract Services. Contract services decreased to $1,869 for the nine months
ended March 31, 1999 from $32,365 for the nine months ended March 31, 1998. The
decrease is attributable to the reduction in contract services related to the
completion of the "Dead Sea" project.
Total Revenues. Total revenues increased by $14,063 or 36% to $52,939 for the
nine months ended March 31, 1999 compared to $38,876 for the nine months ended
March 31, 1998. The increase is primarily attributable to the increase in sales
of photo-voltaic panels and cells and, to a lesser extent, on the sales of
electronic pocket dictionaries.
Research and Development Costs. Research and development costs increased by
$330,512 or 177% to $517,655 for the nine months ended March 31, 1999, compared
to $187,143 for the nine months ended March 31, 1998. The increase is primarily
due to (i)
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the increase in salaries due to the employment of additional scientific
personnel, (ii) the hiring of additional consultants for new projects
feasibility testing, (iii) the increase in rent fees associated with the leasing
of new facilities in Omer Industrial Park and (iv) the acquisition of certain
proprietary technologies from a third party.
Costs of Merchandise Purchased. Due primarily to the increase in sales of
photo-voltaic cells and panels and to a lesser extent to sales of electronic
pocket dictionaries, costs of merchandise purchased increased to $45,073 for the
nine months ended March 31, 1999, from $5,257 for the nine months ended March
31, 1998.
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 nine months ended March 31, 1999, as compared to $26,056 for the nine months
ended March 31, 1998. 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 $93,887 or 128% to $167,121
for the nine months ended March 31, 1999, as compared to $73,234 for the nine
months ended March 31, 1998. 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 $158,786 or 57% to $439,375 for the nine months ended March 31,
1999, as compared to $ 280,589 for the nine months ended March 31, 1998. 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, (iii) the increase
in rent fees associated with the Omer Industrial Park facilities and (iv) the
costs and expenses related to the proposed acquisition of Elecmatec by the
Company.
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. The increase in operating loss to
$4,898,207 for the nine months ended March 31, 1999, from $533,403 for the nine
months ended March 31, 1998 is primarily due to (i) the one-time charge of
$3,772,054 reflecting the write-off of acquired research and development in
process, and (ii) an increase in expenses as set forth above.
Financing Income, Net. Financing income was $78,998 for the nine months ended
March 31, 1999, as compared to financing expenses of $1,239 for the nine months
ended March
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31, 1998. The increase is attributable to interest earned on deposits.
Net Loss. As a result of the foregoing, net loss increased to $4,820,045 for the
nine months ended March 31, 1999 from $535,697 for the nine months ended March
31, 1998.
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
$4,820,045 at March 31, 1999. 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 the
micro-gravity casting technology of Elecmatec 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 March 31, 1999, the Company had working capital of $2,524,833 and
shareholders' equity of $2,718,109. 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.
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<PAGE>
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 proceeds of the Public Offering and
otherwise currently available to the Company. Moreover, the proceeds received in
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. 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 March 31, 1999
the Company has applied the balance of net proceeds from the Offering as
follows: (i) approximately $168,000 to market research and marketing activities;
(ii) approximately $518,000 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 $386,000 for the purchase of
equipment and machinery, and (v) approximately $439,000 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 nine month period
ended March 31, 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.
SCNV ACQUISITION CORP.
(Registrant)
May 19, 1999 /s/ Herman Branover
-------------------------------------.
Professor Herman Branover
President and Chief Executive Officer
May 19, 1999 /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 REPORT ON FORM 10-QSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,394,640
<SECURITIES> 0
<RECEIVABLES> 93,145
<ALLOWANCES> 0
<INVENTORY> 20,090
<CURRENT-ASSETS> 2,872,836
<PP&E> 611,735
<DEPRECIATION> 149,099
<TOTAL-ASSETS> 3,365,472
<CURRENT-LIABILITIES> 348,003
<BONDS> 0
0
0
<COMMON> 20,821
<OTHER-SE> 2,697,288
<TOTAL-LIABILITY-AND-EQUITY> 3,365,472
<SALES> 51,070
<TOTAL-REVENUES> 52,939
<CGS> 45,073
<TOTAL-COSTS> 1,179,092
<OTHER-EXPENSES> 3,772,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,820,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,820,065)
<EPS-BASIC> (2.32)
<EPS-DILUTED> (2.32)
</TABLE>
