U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission file number: 0-29624
SCNV ACQUISITION CORP.
(Name of small business issuer in its charter)
Delaware 90-0194786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 7-690-0950
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
None Not Applicable
Securities registered under Section 12 (g) of the Act:
Common Stock
(Title of class)
Class A Redeemable Warrants
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X].
The Issuer's revenues for the fiscal year ended June 30, 2000 were $171,678.
The aggregate market value of the voting and non-voting Common Stock held by
non-affiliates was approximately $910,914 as at the close of business on October
31, 2000.
The number of shares of Common Stock outstanding as at October 31, 2000, was
2,082,088.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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SCNV Acquisition Corp.
Form 10-KSB
Table of Contents
Page
Part I.........................................................................3
ITEM 1. Description of the Business........................................3
ITEM 2. Description of Property...........................................11
ITEM 3. Legal Proceedings.................................................11
ITEM 4. Submissions of Matters to a Vote of Security Holders..............11
Part II.......................................................................11
ITEM 5. Market for Common Equity and Related Stockholder Matters..........11
ITEM 6. Management's Discussion and Analysis or Plan of Operation.........12
ITEM 7. Financial Statements..............................................16
ITEM 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..........................................16
Part III......................................................................16
ITEM 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act........16
ITEM 10. Executive Compensation............................................18
ITEM 11. Security Ownership of Certain Beneficial Owners and Management....20
ITEM 12. Certain Relationships and Related Transactions....................21
ITEM 13. Exhibits, Lists and Reports on Form 8-K...........................22
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Part I.
ITEM 1. Description of the Business
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements made by or on the behalf of the Company. These
risks, uncertainties and factors include, but are not limited to, those relating
to the uncertainty regarding the Company's ability to continue as a going
concern and the qualification of the auditor's report on the Company's financial
statements to that effect, 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
agreements 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, outstanding
warrants and convertible securities that could cause substantial dilution to the
interests of the Company's stockholders and if exercised have a negative effect
on the market price for the Company's Common Stock uncertainties relating to
government and regulatory policies, recent civil unrest in Israel, 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
SCNV Acquisition Corp., a Delaware corporation (the "Company") incorporated
on May 19, 1997, was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutions in, Russia and other countries that formerly comprised the Soviet
Union. The Company is engaged principally in the acquisition of identified
technologies or manufacturing facilities for certain technologies for further
development, production and commercialization.
Initial Public Offering and Acquisition of Solmecs Corporation N.V.
On July 8, 1998, the Company consummated an initial public offering (the
"Public Offering") of 1,041,044 units (the "Units") each Unit consisting of one
share of common stock, $.01 par value per share, of the Company (the "Common
Stock") and one Class A redeemable Common Stock purchase warrant (the
"Warrants") for net proceeds to the Company of approximately $4,600,000.
Contemporaneous with the consummation of the Public Offering, the Company
acquired, in a tax free stock-for-stock transaction (the "Acquisition"), all of
the issued and outstanding capital stock of Solmecs Corporation, N.V.
("Solmecs"), a Netherlands Antilles company, and its wholly-owned subsidiary
Solmecs (Israel) Ltd. ("SIL"), the operations of which are located in Israel.
(Unless the context otherwise requires, Solmecs and SIL shall be referred to
herein as the "Company" or "SCNV").
Solmecs was organized in 1980 to engage in the research, development and
commercialization of high energy, low pollution products in the energy
conversion and conservation fields. From 1980 until the mid-1990's Solmecs was
primarily engaged in the development of Liquid Metal Magnetohydrodynamics
("LMMHD") energy conversion technology, a process developed approximately 20
years ago by Professor Herman Branover, a Soviet emigre to Israel who is the
President and a director of the Company.
Solmecs owns certain technologies identified for future commercial
exploitation which have been developed by scientists in and scientists that have
emigrated from the former Soviet Union. The 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 may be ready for commercialization in the near future.
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Recent Developments
On August 30, 2000, the Company entered into a Memorandum of Understanding
with Crestwood Capital Group Corp. ("Crestwood"), whereby Crestwood has agreed
to (i) provide management and restructuring services to the Company, (ii) assist
the Company in the search for qualified executive management positions, (iii)
act as financial advisor to the Company for its short term and long term needs,
and (iv) assist the Company in securing short term financing of up to $500,000
("Short Term Financing").
Under the terms of the Short Term Financing, the Company offered Units,
each consisting of (i) a convertible promissory note (the "Notes") in principal
amount of $100,000 and (ii) a warrant to purchase 50,000 shares of the Company's
common stock at an exercise price per share equal to 80% of the average closing
bid price of the common stock for the five days preceding the date of exercise.
The Notes are convertible at the option of the holder thereof into shares of
common stock at the conversion price of $1.00 per share, and the shares issued
upon conversion are entitled to piggyback registration rights for a period of
two years from issuance.
The Notes are due to mature on the first anniversary of their issuance and
all principal and accrued interest on such Notes will become due and payable at
such time. The Company and its subsidiaries have further agreed to grant the
holders of the Notes a security interest in the Company's and subsidiaries'
tangible personal property and trade secrets to secure repayment of the
principal and accrued profit under the Notes.
The Short Term Financing was completed on November 1, 2000. As
consideration for its services Crestwood is entitled to appoint a representative
as Chief Executive Officer of the Company and two representatives to the
Company's Board of Directors. Crestwood is also entitled to a consulting fee
equal to 25% of the issued and outstanding capital stock of the Company (the
"Percentage Interest") on a fully diluted basis, which Percentage Interest is
non-dilutible for a period of 120 days from the completion of the Short Term
Financing. The shares to be issued to Crestwood reflecting its Percentage
Interest are convertible preferred shares, each of which is convertible into two
shares of the Company's common stock and is entitled to registration rights.
Strategy
The Company's strategy is to commercially exploit those technologies
identified by Solmecs to be viable for development and to identify and develop
innovative technologies which represent advances over existing products and
technologies with potential commercial viability.
The strategy employed by the Company in commercially developing proprietary
technologies will vary depending on the state of the identified technology.
Certain technologies previously identified by the Company have reached an
advanced stage, including the manufacture of prototypes or production of test
samples. The Company, however, does not have the funds and is not generating
sufficient revenues from its operations to continue further development or
initiate commercialization and marketing of such technologies.
As a result of its inability to generate sufficient revenues from its
commercialized technologies, the Company, in an effort to reduce operating
expenses, has suspended its research and development activities in certain
identified technologies and has reduced its staffing by more than half of its
employees. Further, as a result of its current financial position, the Company
intends to limit any further commercial development efforts to micro-gravity
produced metal alloys and monocrystals of silicon. Any further development of
these technologies, will require significant additional effort, resources and
time, including funding substantially greater than what is currently available
to the Company.
In addition, the Company's capital requirements continue to be significant.
The Company has incurred substantial operating losses and at June 30, 2000, had
an accumulated deficit of approximately $7,916,312. The Company continued to
incur substantial losses since June 30, 2000. 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. Consequently, the Company
is dependent upon additional financing from third parties to continue its
operations. Funds received by the Company upon the completion of the Short Term
Financing were used primarily to pay a portion of outstanding debt and
contractual obligations and for working capital purposes. The Company will
require substantial additional funds to maintain operations and to continue
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development of its identified technologies. 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. If the Company is unable to obtain the necessary
additional financing in the immediate future the Company will likely be required
to suspend operations. The Company's independent public accountants have
included an explanatory paragraph in their report on the Company's financial
statements stating that certan factors create a substantial doubt about the
Company's ability to continue as a going concern.
Product and technologies being developed by the Company for commercial
production
The Company intends to continue further development of: (i) micro-gravity
production of metal alloys for the manufacture of bearings and other metal-based
parts for use by the automotive industry, and (ii) enhanced silicon monocrystals
for use in the electronic chip and photovoltaics industries. The Company has
also engaged in advanced negotiations for the sale of its rights to carbon
dioxide absorption technology for use by industrial energy generation
facilities. The Company, however, will require significant additional funds, not
currently available to the Company, to facilitate completion and maintenance of
production facilities for the "micro-gravity" alloy and silicon monocrystal
technologies. There is no assurance that such funds will be available to the
Company when needed, on commercially reasonable terms or at all.
o Micro Gravity Produced Metal Alloys. In May, 1999, the Company
acquired a 90.4% interest in Elecmatec Electro-Magnetic Technologies,
Ltd. ("Elecmatec"), an Israeli company engaged in advanced
engineering, testing and production of metal alloys under conditions
that simulate zero gravity. "Micro-gravity" production of alloys
provides for better control of the amount, combination and
distribution of various metal and non-metal components in the alloy,
which might not be possible through standard means of production.
These combinations have been shown to produce more durable alloys for
production of engine bearings for use by the automotive industry.
The Company has completed the development of a pilot production
facility at Ben Gurion University with respect to the "micro-gravity"
manufacturing process and has produced limited quantities of test
alloys from the pilot facility which have been used in preliminary
tests performed by a major automobile manufacturer in the United
States. More recently, several European and Asian automobile
manufacturers have contacted the Company regarding an interest in the
test alloys. Additionally, the Company has had preliminary discussions
with a German engine bearings manufacturer regarding a potential joint
venture for further development of "micro-gravity" produced alloys. A
manufacturing facility in Kiryat Gat, Israel, which had been
designated for production of engine bearing with "micro-gravity"
produced alloys, is currently being used for production of
conventional engine bearings. Consequently, the Company may be
required to lease or acquire new premises at such time as it is
prepared to develop a commercial production facility.
o Monocrystals. Solmecs, in cooperation with a scientist in Russia, has
identified a potential use of LMMHD phenomena in the growth of
monocrystals, which are among the critical components of the
electronic chip and photovoltaic industries. The Company believes that
the application of LMMHD methods in the production of these
monocrystals will result in monocrystals of larger size with fewer
imperfections, and thus a greater yield of usable material than
standard monocrystals. It is believed that this will substantially
increase the commercial value of such monocrystals. The Company's
development strategy is to apply this method initially to monocrystals
of silicon and subsequently to monocrystals of gallium-arsenide and
cadmium-telluride, which the Company believes may serve as
alternatives to silicon chips (chips based on monocrystals of silicon)
in the computer and electronics industries.
In November, 1998, the Company acquired equipment to be used in three
production facilities currently being set up for growing silicon
monocrystals. Two of these production facilities, which were completed
in February 2000, are dedicated to the production of
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standard-size silicon monocrystals with the quality necessary for use
in both sophisticated electronics and photovoltaics. The Company,
however, does not have the funds necessary to acquire raw materials or
maintain or operate the production facilities. Provided that the
Company is able to obtain, on a timely basis, the additional funds
necessary to commence production, the Company anticipates commercial
production of silicon monocrystals by the first half of 2001. The
Company further anticipates that when these facilities are fully
operational, they will have a production capacity of approximately
6,000 kilograms of silicon monocrystals per year.
The Company intends to utilize the third facility for experimental
application of its proprietary LMMHD technology in the growth of
larger silicon monocrystals. The Company has completed the design for
modifying such production facility for LMMHD applications as well as a
computer simulation of the development process for such larger
monocrystals. The Company, in coordination with the Russian scientist
noted above developed a patent for the application of LMMHD technology
in monocrystal growth which was filed in Israel, earlier this year.
The patent names Solmecs as the owner of the technology covered
thereby. The application of LMMHD technology to the growth of
monocrystals is still in the early experimental stage and will not be
ready for production of prototypes for at least one year and for
production of commercial silicon monocrystals utilizing LMMHD
technology for at least two years. With respect to monocrystals of
gallium-arsenide and cadmium-telluride, the Company does not
anticipate that a development process utilizing LMMHD will be ready
for industrial application, if at all, for at least three years.
The Company acts as a distributor of standard-size silicon
monocrystals for the Russian entity from which it purchased the
production equipment in November 1998. The Company had modest sales
pursuant to such distribution arrangement during the second half of
fiscal 2000.
o Carbon Dioxide Absorption. The Company has engaged in the preliminary
development of technologies for the capture and removal of
environmentally hazardous carbon dioxide emissions primarily from fuel
burning power stations. Currently existing technologies for such
emission removal are costly and consume a large percentage of energy
produced by the power station. These technologies, which involve a
patent-pending material with certain absorption properties, have been
shown through preliminary tests performed by the Company on behalf of
a Norwegian oil production entity, to be more cost efficient and
consume substantially smaller percentages of a power station's energy
production. Solmecs acquired the rights to these technologies from the
Association for the Development of International Energy Projects (the
"Association") located in Beer Sheva, Israel in September 1998, and,
pursuant to the acquisition, has agreed to pay royalties to the
Association from revenues generated from sales of the product or
licensing of the technology.
The Company has engaged in extensive negotiations to sell all of its
rights in such technologies to the subsidiary of a Belgian company in
return for which the Company will receive a 10% interest in such
subsidiary together with the rights to certain royalty payments based
upon sales or licensing of such technologies.
Products and technologies for which the Company has suspended further
development
The Company does not currently have the funds available to pursue further
marketing and development of the technologies described below which are at or
near the commercial development stage, and, therefore, has suspended further
development activities with respect to such technologies until such time as the
requisite financing becomes available, if at all. There can be no assurance that
the Company will be able to obtain the funds necessary to continue the
development of the foregoing technologies or that such technologies, in the
event their development is completed, will achieve commercial success.
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o Advanced Bi-Facial Photovoltaic Panels. Advanced bi-facial
photovoltaic panels, which are made of bi-facial cells that provide
more surface area to absorb solar energy, including solar energy
reflected back from the ground, were developed by Solmecs in
conjunction with Russian scientists working in the space and military
industries of the former Soviet Union. These panels are considered by
the Company to be more reliable and approximately 30% more efficient
than one-sided photovoltaic panels currently available in the market.
Pursuant to an arrangement with a Russian manufacturer, the Company,
through Solmecs, has acted and continues to act, on a very limited
basis, as the distributor of such manufacturer's one-sided and
advanced bi-facial photovoltaic panels. Solmecs had limited sales of
photovoltaic panels, based solely on its distribution arrangement with
the Russian entity, during the fiscal year ended June 30, 2000.
In September 1998, Solmecs acquired the rights to photovoltaic
technology developed by the Association. Pursuant to the acquisition,
Solmecs agreed to pay certain royalties to the Association from
revenues generated by Solmecs from sales of photovoltaic panels
manufactured by Solmecs or from licensing of the photovoltaic
technology. In November, 1998, Solmecs acquired certain materials,
equipment and engineering services from the Russian entity in order to
establish its own manufacturing facilities for the production of both
one-sided and advanced bi-facial photovoltaic panels. The Company
established a portion of the manufacturing infrastructure for
photovoltaic panels prior to the depletion of available funds. The
Company will require substantial additional funds, not currently
available to the Company, to continue development of its manufacturing
process and to commence and maintain production of photovoltaic
panels. The Company however, expects to continue to act, on a limited
basis, as distributor of the Russian entity's photovoltaic panels. The
Company, through a joint effort with the Russian entity, has developed
a patent for the bi-facial panel technology and, provided additional
financing is available to the Company, intends to file the patent
initially in Israel during the first quarter of 2001. The patent will
name Solmecs as the sole owner of the technology addressed therein.
o Electronic Pocket Dictionaries. Pursuant to an agreement dated
February 4, 1999, Solmecs acquired the worldwide rights (exclusive of
Israel) to develop, produce, market and distribute an advanced
electronic pocket dictionary developed by Text-On Ltd., an Israeli
company. In accordance with the terms of the acquisition agreement,
Solmecs has agreed to pay royalties from sales of the electronic
dictionaries to Text-On Ltd., for a period of fifteen years from the
date of the agreement. See "Royalties and Licensing Fee Obligations."
The electronic dictionary is a hand-held battery-powered device
roughly the size of a calculator, that enables the user to quickly and
accurately obtain translations of words from one language into another
language and vice versa as well as obtain definitions, synonyms and
related information for each word. The Company has ceased all further
marketing and distribution activities with respect to the
Hebrew/English and Russian/English pocket dictionaries in the United
States. Furthermore, the Company has ceased further development of a
Spanish/English pocket dictionary which incorporates the
electronically formatted data of a recognized Spanish/English
Dictionary, until such time as the Company is able to obtain the funds
necessary to pursue such development.
During the fiscal year ended June 30, 2000, the Company had limited
sales of Hebrew/English and Russian/English electronic dictionaries in
the United States.
LMMHD Energy Conversion Technology
Since the early 1980's, Solmecs has been involved in further advancement
and perfection of LMMHD energy conversion technology. This technology is
distinctive from conventional energy producing steam turbo-generator technology
in which steam, produced in a boiler, propels a turbine which in turn forces the
rotation of an electrical generator. Although the LMMHD process also employs the
use of steam, in LMMHD power technology
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the steam is used to accelerate a stream of molten metal across a magnetic field
which leads to the generation of electricity. This process does not require the
use of moving or rotating mechanical machinery but utilizes an assembly of
hermetically sealed pipes in which the energy conversion process occurs. The
Company believes the process and technology to be reliable and require only a
marginal amount of maintenance, and anticipates commercially developed systems
to have a long life span.
Solmecs has constructed and completed several pilot plants utilizing the
LMMHD energy conversion technology and has developed an engineering design and a
universal computer code for the calculation, design and optimization for each
specific application of the LMMHD energy conversion system.
Although the LMMHD power technology has been in development since the early
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 involve a significant capital
expenditure. The Company will only be able to commence building such a plant if
it is able to obtain the necessary funds for such project. There is no assurance
that such funds will be available to the Company when needed, on commercially
reasonable terms or at all. The Company is not currently engaged in further
development of the LMMHD power technology.
Proprietary information and processes developed from LMMHD technology,
however, are currently being applied to evolving technologies such as metal
alloy production to be commercialized by Elecmatec and novel methods of silicon
monocrystal growth.
Future Technologies
The Company has identified various Solmecs and non-Solmecs technologies,
some of which involve LMMHD technology, for potential acquisition and
development in the future. These technologies include, among others, new types
of energy efficient centrifugal pumps for chemical and other industries; new
methods of prediction of dispersion of contaminants in the atmosphere; and
treatment of fertilizer to remove infectious bacteria.
The Company does not have the funds available to pursue further
identification, analysis or development of such technologies and there is no
assurance that the Company will be able to obtain the financing necessary to
engage in such activities. Moreover, to the extent that the Company is able to
obtain the financing necessary to pursue such activities, there can be no
assurance that the Company will be able to obtain the necessary rights to
exploit the foregoing technologies or that any such technologies will prove
technologically or commercially viable.
Intellectual Property
Solmecs currently owns four Israeli patents relating to the LMMHD
technology. All of such patents have corresponding patents registered in the
United States (one in the name of Ben-Gurion University of the Negev Research
and Development Authority), and a number of such patents have corresponding
patents registered in one or more other countries, including Australia, Canada,
France, Germany, Great Britain, Italy and Japan. In addition, Solmecs owns a
United States patent, not registered elsewhere, relating to the LMMHD
technology, and an Israeli patent, not registered elsewhere, relating to a
device for voltage conversion which can be used in conjunction with the LMMHD
technology. Two of Solmecs' existing patents will expire over the next three
years. The Company does not believe that the expiration of such patents will
have a material adverse effect on the Company's business; however, no assurance
can be given in that regard.
Solmecs currently has two patent applications pending in Israel for (i) the
application of LMMHD phenomena in the growth of larger and cleaner silicon
monocrystals and (ii) utilizing absorption phenomena for the removal of carbon
dioxide from combustion gases.
Solmecs, in conjunction with certain Russian scientists, has developed a
patent with respect to advanced bi-facial photovoltaics panels. Provided that
the necessary financing is available to the Company, the Company intends to file
the patent, initially in Israel, during the first quarter of 2001. Thereafter,
the Company may file for patent protection in other countries.
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Elecmatec currently owns two patents registered in Israel, the United
States and a number of other countries. Both of the patents were assigned to
Elecmatec in connection with the Company's acquisition of Elecmatec and relate
to micro-gravity alloy production.
Royalties and Licensing Fee Obligations
Pursuant to an agreement dated November 5, 1981, between Solmecs,
Ben-Gurion University and B.G. Negev Technology and Applications Ltd. ("BGU"),
Solmecs conducted research and development projects related to LMMHD power
generation on the campus of Ben-Gurion University in consideration for a fee for
the use of the facilities. Solmecs owns the patents connected with these
projects and agreed to pay royalties to BGU at the rate of 1.725% on sales of
products and at the rate of 11.5% on income from licensing fees. Solmecs also
agreed to assume the obligation of BGU to pay royalties to the Ministry of
National Infrastructure of the State of Israel on products developed from these
research and development projects for its participation in the research and
development costs of BGU. The royalties are to be paid at the rate of 1% on
sales of products and at the rate of 5% on income from licensing fees. As of
June 30, 2000, this liability amounted to approximately $343,000 (including
linkage to the Consumer Price Index and interest at 4% per annum). Subsequent to
the repayment of the liability, Solmecs is required to pay royalties to the
Ministry of National Infrastructure at a reduced rate of .3% on sales of
products and at the rate of 2% on income from licensing fees. As of June 30,
2000, there were no sales or income on which royalties were payable to BGU or
the Ministry of National Infrastructure.
From 1981 to 1991, Solmecs received from the Office of the Chief Scientist
of the Ministry of Industry and Commerce of the Government of Israel (the
"OCS"), $2,274,420 in grants towards the cost of a research and development
project relating to LMMHD energy conversion technology. Under the terms of
Israeli Government participation, a royalty of 2% to 3% of the net sales of, or
licensing revenues from, products developed from a project funded by the OCS
must be paid, beginning with commencement of sales of products developed with
grant funds and ending when 100% to 150% of the grant is repaid. The terms of
Israeli Government participation also require that the manufacturing of products
developed with Government grants be performed in Israel, unless a special
approval has been granted. Such approval, if given, is generally made subject to
an increase in the maximum amount of royalties that must be repaid. Separate
Israeli Government consent is required to transfer to third parties technologies
developed through projects in which the Government participates. Such
restrictions do not apply to exports from Israel of products developed with such
technologies. Solmecs has not yet commenced marketing of products developed
through funds granted by the OCS. Accordingly, no royalties have been paid
through June 30, 2000.
In March 1991, Solmecs entered into an agreement with International Lead
Zinc Research Organization, Inc. ("ILZRO") pursuant to which ILZRO funded
certain research of Solmecs and Solmecs agreed to pay a fee to ILZRO with
respect to any lead used in future production by Solmecs, up to a maximum of
$1,864,000. As of June 30, 2000, Solmecs has not used any lead with respect to
which it is required to pay such fee.
In connection with the acquisition of the rights to the advanced electronic
pocket dictionary in February 1999, Solmecs has agreed to pay royalties to
Text-On Ltd., as follows: (i) 10% of sales of electronic dictionaries produced
and developed by Solmecs after February 1999, up to aggregate sales of $2.5
million, (ii) thereafter, 3% of sales by Solmecs up to aggregate sales of $3
million, and (iii) 1% of sales thereafter. The royalty payment period expires in
February 2014 regardless of the amount of royalties paid by Solmecs. To date the
Company has paid royalties to Text-On Ltd. from the limited sales of the
Hebrew/English and Russian/English dictionaries in the United States.
In connection with the acquisition by Solmecs from the Association in
September 1998 of the rights to the photovoltaic panel and carbon dioxide
absorption technologies, Solmecs has agreed to pay to the Association royalties
of .25% of revenues generated from the sales of products or licensing of the
technologies. The maximum amount of royalties to be paid by the Company under
the Agreement is $35,000 per technology. The Company has not yet begun
commercial distribution of products manufactured based upon either of these
technologies. Consequently, no royalties have been paid by the Company to the
Association. In the event that the Company completes the sale of the rights in
the carbon dioxide technology to the Belgian subsidiary it will be required to
pay
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the royalties set forth above from any royalty fees received from sales or
licensing of such technology by the Belgian subsidiary.
Elecmatec obtained the approval from the office of the Chief Scientist to
purchase from a third party all rights and interest in the metal alloy research
and development project. Elecmatec has undertaken to pay royalties, at the rate
of 3% of sales derived from the project, up to the amount of the participations
($459,000) received by the third party.
Competition
The products that are and will be based on the Company's technologies
including, but not limited to, photovoltaic cells, metal alloys for engine
bearings, silicon monocrystals and carbon dioxide absorption, as well as , if
development is reinstituted, photovoltaic cells and the Company's electronic
dictionaries, will likely be used in highly competitive industries. Numerous
domestic and foreign companies are seeking to research, develop and
commercialize technologies similar to those of the Company, many of which have
greater name recognition and financial, technical, marketing, personnel and
research capabilities than the Company. There can be no assurance that the
Company's competitors will not succeed in developing technologies and
applications that are more cost effective, or have fewer limitations than, or
have other advantages as compared to, the Company's technologies. The markets
for the technologies and products to be developed or acquired by the Company are
characterized by rapid changes and evolving industry standards often resulting
in product obsolescence or short product lifecycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete development and
introduce to the marketplace, directly or through strategic partners, in a
timely manner its proposed products and technologies, to continually enhance and
improve such products and technology, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technologies. There can be no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technologies obsolete or less marketable or that the Company will
be able to successfully enhance its proposed products or technologies or adapt
them satisfactorily.
There can be no assurance that other companies are not dedicated to
identifying, obtaining and developing technologies of Russian scientists and
engineers currently residing in Israel. Any such competitors may have greater
financial, technical, marketing, personnel and other resources than the Company.
Employees
As of June 30, 2000, Solmecs has reduced its staffing to seven full-time
employees and no part-time employees, including three administrative and
executive personnel and four senior scientists and engineers. Elecmatec
currently has two full-time employees, one in administration and one senior
scientist. The Company believes that it has satisfactory labor relations with
its remaining employees and has never experienced work stoppages.
Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists' Associations) are
applicable to Solmecs' employees by order of the Israeli Ministry of Labor.
These provisions concern principally the length of the work day, minimum daily
wages for professional workers, insurance for work-related accidents, procedures
for dismissing employees, determination of severance pay, and other conditions
of employment. Solmecs has provided and continues to provide its employees with
benefits and working conditions beyond the required minimums. The Company is not
aware of any claims or disputes arising from its reduction of personnel.
Israeli law generally requires severance pay, which may be funded by
Managers' Insurance described below, upon the retirement or death of an employee
or termination of employment without cause (as defined in the law). The payments
of the Company pursuant thereto amount to monthly payments of approximately
8.33% of an employees annual wages. Furthermore, Israeli employees and employers
are required to pay predetermined sums to the National Insurance Institute,
which is similar to the United states Social Security Administration. Such
amounts
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<PAGE>
also include payments by the employee for national health insurance. The total
payments to the National Insurance Institute are equal to approximately 14.6% of
the wages (up to a specified amount), of which the employee contributes
approximately 66% and the employer contributes approximately 34%.
A general practice followed by the Company, although not legally required,
is the contribution of funds on behalf of most of its employees to a fund known
as "Managers' Insurance." This fund provides a combination of savings plan,
insurance and severance pay benefits to the employee, giving the employee
payments upon retirement or death and securing the severance pay, if legally
entitled, upon termination of employment. The employer decides whether each
employee is entitled to participate in the plan, and each employee who agrees to
participate contributes 5% of his salary and the employer contributes an amount
equal to between 13.3% and 15.8% of the employee's salary. Due to its financial
situation, the Company has failed to make payments to the Managers' Insurance
fund since May 2000. The Company, however, believes that such unpaid amounts are
not material with respect to the employees terminated in mid-June of 2000.
Moreover, several of such terminated employees, who are otherwise entitled to
submit claims for reimbursement from the Managers' Insurance fund, have
refrained from doing so on account of restrictions limiting their ability to
return to the Company subsequent to receiving a payment from the fund.
The Company's future success will be dependent to a large degree on its
ability to secure the financing necessary to re-hire key scientific and research
personnel and to attract and retain qualified marketing personnel. Competition
for such personnel is intense. There can be no assurance, provided it is able to
secure the appropriate financing or generate sufficient funds, that the Company
will be able to attract, assimilate or retain key personnel in the future and
the failure of the Company to do so would have a material adverse affect on the
Company's business, financial condition and results of operations.
ITEM 2. Description of Property
Solmecs no longer maintains office space on the campus of Ben Gurion
University. Solmecs, however, has been permitted to utilize the laboratory
facilities and to access the LMMHD pilot plants, which are maintained on the
campus of Ben Gurion University, for a marginal charge.
Solmecs occupies approximately 1,000 square meters of laboratory and office
space in Omer Industrial Park, Israel (near Beer-Sheva) pursuant to two leases.
Solmecs has exercised an option to extend the term of its lease for
approximately 500 square meters of laboratory and office space through November
2002. This extended lease provides for a renewal option of three years upon
expiration of the extended lease period. In April, 1999, Solmecs entered into
the second lease for an additional 500 square meters of space adjacent to its
then existing premises. The lease term is through April 2001 with a renewal
option for an additional four years. The annual rent for the premises currently
occupied by Solmecs is approximately $80,000.
ITEM 3. Legal Proceedings
No legal proceedings are currently pending against the Company.
ITEM 4. Submissions of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the quarter ended June 30, 2000.
Part II
ITEM 5. Market for Common Equity and Related Stockholder Matters
The Company's Units, Common Stock and Warrants are traded on the OTC
Electronic Bulletin Board under the symbols SAQCU, SAQC and SAQCW, respectively.
Trading in the Units commenced on June 30, 1998, the final day of the Company's
1998 fiscal year. The Common Stock and Warrants were detached from the Units
11
<PAGE>
and became separately transferrable on September 29, 1998. The Units were
offered and sold to the public in the Public Offering at $5.75 per Unit. The
following table sets forth the high and low bid prices for the Company's Units
for the period during which trading in the Units took place during the Company's
1999 fiscal year. As noted above, trading in the Common Stock as a separate
security was not possible until the Common Stock was detached from the Units on
September 29, 1998. Therefore, the following table presents the high and low bid
prices for the Units comprised of the Common Stock and Warrants during the
periods in the 1999 fiscal year and thereafter, the high and low bid prices for
the Common Stock for the periods in which the Common Stock was separately
tradeable and for which information is available. The following constitutes
quotations among dealers and does not reflect retail mark-ups, markdowns, or
commissions, and may not represent actual retail transactions:
Units
Fiscal Year Ended June 30, 1999 High Low
----- ---
First Quarter $6.50 $5.75
Second Quarter $6.50 $ .63
Common Stock
------------
Third Quarter $ .31 $ .06
Fourth Quarter $ .63 $ .19
Fiscal Year Ended June 30, 2000
First Quarter $ .94 $ .50
Second Quarter $ .75 $ .22
Third Quarter $5.69 $ .22
Fourth Quarter $4.00 $1.25
Fiscal Year Ended June 30, 2001
First Quarter $2.63 $ .88
Second Quarter (through October 31, 2000) $1.25 $ .81
As of October 31, 2000 there were 2,082,088 shares of Common Stock
outstanding and held of record by approximately 10 stockholders. The Company
believes that there are many beneficial owners of its Common Stock whose shares
are held in "street name."
The payment of dividends on the Company's common stock is within the
discretion of the Company's Board of Directors. To date, the Company has not
paid any dividends on its common stock, and does not expect to pay any dividends
in the foreseeable future. The Company intends to retain all earnings for use in
the Company's operations.
The Company did not issue or sell any unregistered shares of Common Stock
during the fiscal year ended June 30, 2000.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
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.
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 established a
portion of the manufacturing infrastructure for photovoltaic panels prior to the
depletion of available funds. The Company will require additional funds, to
complete, operate and maintain any production facility and to acquire raw
materials for the production of commercial quantities. During the 2000 fiscal
year, the Company
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<PAGE>
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 producing silicon monocrystals.
Two of the facilities have been completed 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 larger size silicon monocrystals utilizing LMMHD
technology. The Company did not produce any commercial silicon monocrystals
during the 2000 fiscal year and will require substantial additional funds to
operate the production facilities and acquire the raw materials necessary to
produce commercial quantities of standard-size silicon monocrystals. If the
Company is able to obtain the additional funds necessary to commence production,
on a timely basis, it anticipates commercial production of standard-size silicon
monocrystals during the first half of 2001. 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 worldwide rights (except for
Israel) to develop, produce, market and distribute advanced electronic pocket
dictionaries manufactured by an Israeli company. During fiscal 2000, the Company
had limited sales of the Hebrew/English and Russian/English dictionaries in the
United States. As a result of its current financial position, however, the
Company has ceased all further marketing and distribution activities with
respect to the Hebrew/English and Russian/English pocket dictionaries as well as
further development of a Spanish/English dictionary until such time, if at all,
as the Company is able to secure the funds necessary to pursue such activities.
In May 1999, the Company acquired a 90.4% interest in Elecmatec, which
employs "micro-gravity" conditions to the production of alloys used in the
manufacturing of metal based products such as engine bearings for the automotive
industry.
The Company's capital requirements continue to be significant. The Company
has incurred substantial operating losses and at June 30, 2000, had an
accumulated deficit of approximately $7,916,312. The Company continued to incur
substantial losses since June 30, 2000. Furthermore, 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. Consequently,
the Company is dependent upon additional financing from third parties to
continue its operations.
As a result of its inability to generate significant revenues from its
marketable products, the Company, in an effort to reduce operating expenses, has
suspended its research and development activities in certain identified
technologies and lowered overhead costs by reducing its personnel. Further, as a
result of its current financial position, the Company intends to limit its
commercial development efforts to micro-gravity produced metal alloys and
monocrystals of silicon. Any further development of these technologies, however
will require significant additional effort, resources and time, including
funding substantially greater than what is currently available to the Company.
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. If the Company is unable to
obtain the necessary additional financing in the immediate future the Company
will most likely be required to suspend operations.
Moreover, to the extent that the Company is able to obtain the funds
necessary to continue its operations and the development of its identified
technologies, completion of such research, development and commercialization
remains 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, any of which
could result in delay of development or commercialization or a substantial
change or abandonment of research and development activities.
13
<PAGE>
Results of Operations of the Company
The consolidated statements of income and other financial and operating
data contained elsewhere herein and the consolidated balance sheet and financial
results have been reflected in U.S. dollars unless otherwise stated.
Fiscal Year Ended June 30, 2000 Compared with Fiscal Year Ended June 30, 1999
Sales. Sales increased by $122,396, to $171,678 for the fiscal year ended
June 30, 2000 ("fiscal 2000"), as compared to $49,282 for the fiscal year ended
June 30, 1999 ("fiscal 1999"). The increase was attributable to sales of
photovoltaic panels pursuant to the Company's distribution arrangement with a
Russian manufacturer as well as sales of silicon ingots and sales of electronic
pocket dictionaries in the United States.
Contract Services. Contract services were $18,411 for fiscal 1999. There
was no such service performed by the Company in Fiscal 2000. Revenues from
contract services were generated from work related to the Dead Sea Works project
which was completed in the first quarter of fiscal 1999.
Research and Development Costs. Research and development and costs
increased by $45,839, or 6.1%, to $802,472 for fiscal 2000, as compared to
$756,633 for fiscal 1999. The increase was primarily due to (i) development
efforts in connection with the Spanish/English pocket dictionary and (ii) the
hiring of additional personnel in the first half of fiscal 2000 to operate the
silicon monocrystal production facilities.
Cost of Merchandise Purchased. Costs of merchandise purchased increased by
$84,983 , or 174.2%, to $133,757 for fiscal 2000, as compared to $48,774 for
fiscal 1999. The increase was attributable to the increase in sales of
photovoltaic panels, silicon ingots and electronic pocket dictionaries.
Cost of Services Provided by Subcontractors. Cost of services provided by
subcontractors was $19,172 for fiscal 1999. There were no such costs to the
Company in fiscal 2000. The cessation of such costs is attributable to the
completion of the Dead Sea Works project in the first quarter of fiscal 1999.
Marketing Expenses. Marketing expenses increased by $254,274, or 133.9%, to
$444,102 for fiscal 2000, as compared to $189,828 for fiscal 1999. This increase
was primarily attributable to (i) salaries and related expenses resulting from
the hiring of additional marketing personnel in the first half of fiscal 2000
and (ii) foreign travel related to the marketing, promotion and implementation
of new technologies.
General and Administrative Expenses. General and administrative expenses
increased by $77,245, or 9.3%, to $907,945 for fiscal 2000, as compared to
$830,700 for fiscal 1999. This increase was primarily attributable to salaries
and related expenses resulting from the hiring of additional personnel in the
first half of fiscal 2000
One-Time Charge of Acquired Research and Development In-Process. The
acquisition of Solmecs by the Company in July 1998 and the acquisition of
Elecmatec by the Company in May 1999, have each been accounted for as a purchase
and the excess purchase price over fair value of assets acquired of each of the
acquired companies, an aggregate of $4,060,111, has been reflected in the
Company's consolidated statement of operations for fiscal 1999 as acquired
research and development in process. The Company recorded, as of the date of
each acquisition, a one-time charge for the write-off in full of such research
and development in process of $3,772,054 for the acquisition of Solmecs and
$288,057 for the acquisition of Elecmatec.
Operating Loss. Operating Loss, reflecting the one-time charge for
acquired research and development in-process of $4,060,111, decreased by
$3,720,927 to $2,116,598 for fiscal 2000, as compared to $5,837,525 for fiscal
1999. Without giving effect to such one-time charge, operating loss increased by
$339,184, or 19.1% to $2,116,598 for fiscal 2000 as compared to $1,777,414 for
fiscal 1999.
14
<PAGE>
Financing Income, (Expenses) Net. Financing income was $97,263 for fiscal
1999 primarily as a result of interest on deposits of proceeds from the Public
Offering not immediately used in operations, as compared to financing expenses
of $59,452 for fiscal 2000, primarily as a result of interest paid by the
Company on bank loans during such period.
Net Loss and Net Loss Per Share. As a result of the foregoing, net loss was
$5,740,262 ($2.76 per share) for fiscal 1999 as compared to $2,176,050 ($1.05
per share) for fiscal 2000 .
Liquidity and Capital Resources
As of June 30, 2000, the Company had a working capital deficit of
$1,333,149, stockholders' deficit of $378,158 and an accumulated deficit of
$7,916,312.
In May 1999, 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, Elecmatec, of up to $1,000,000, of which
approximately $322,000 has been loaned by the Company to Elecmatec as of June
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.
In March 2000, the Company entered into a preliminary investment agreement
with Ana Portfolio Inc. ("Ana Portfolio") pursuant to which Ana Portfolio agreed
to make an equity investment in the Company's subsidiaries. Pursuant to the
agreement, Ana Portfolio provided the Company with short-term funding of
approximately $500,000. Subsequent to such funding, however, Ana Portfolio
notified the Company that it was not pursuing its investment in the
subsidiaries. The preliminary investment agreement provided for the short term
funding to bear interest at an annual rate of 6%. The Company has provided
notice to Ana Portfolio that the cancellation of their investment qualified as a
breach of the preliminary investment agreement thereby forfeiting Ana
Portfolio's right to repayment of any principal or interest on the short-term
funding. Pending resolution of this matter the Company has determined to treat
this amount as a sundry payable.
As a result of its inability to generate sufficient revenues from
operations, the Company has been unable to pay salaries to certain of its
officers and remaining employees. As of June 30, 2000 the Company had accrued
and unpaid salaries and related expenses of approximately $296,000.
The Company's capital requirements will continue to be significant. Any
further development of the Company's technologies or any potential application
of such technologies will require significant additional effort, resources and
time including funding substantially greater than that which is otherwise
currently available to the Company. 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. The Company's independent public accountants have included an explanatory
paragraph in their report on the Company's financial statements stating that
certan factors create a substantial doubt about the Company's ability to
continue as a going concern.
15
<PAGE>
Inflation
In recent years, until 1997, inflation in Israel has exceeded 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.
ITEM 7. Financial Statements
The Consolidated Financial Statements of the Company appear herein
following Item 13 below.
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes in and/or disagreements with accountants on
accounting and financial disclosure during the fiscal year ended June 30, 2000.
Part III.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The table below sets forth the name, age and certain information as to the
Directors and executive officers of the Company.
Name Age Position
---- --- --------
Emmanuel Althaus 54 Chairman of the Board of Directors
Professor Herman Branover 68 President, Chief Executive Officer and Director
Dr. Shaul Lesin 46 Executive Vice President, Chief Financial
Officer and Secretary
Joshua Levine 36 Director
Mr. Althaus has served as Chairman of the Board of Directors of the Company
since May 1997. He was Vice President and Director of Bayou from March 1990
through November 1996, and is a Director of Solmecs. Since 1986, Mr. Althaus has
been principally employed as Executive Director of National Diversified
Industries (Australia) Pty Ltd., a company that provides administrative services
to public companies. He serves on the board of directors of Golden Triangle
Resources N.L. (of which he is Chairman and Managing Director) and Allegiance
Mining N.L., each of which is a company engaged in mineral exploration the stock
of which is listed on the Australian Stock Exchange.
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<PAGE>
Professor Branover has served as President, Chief Executive and a director
of the Company since May 1997 and as Scientific Director of Solmecs (Israel)
Ltd. since 1980. He served as Executive Vice President and Director of Bayou
from May 1989 until 1993. He has been principally employed as head of the Center
for MHD Studies of Ben Gurion University since 1981 and as the Lady Davis
Professor of Magnetohydrodynamics at Ben Gurion University since 1978. Professor
Branover received a Ph.D in Technical Sciences from Moscow Aviation Institute in
1962 and a Doctor of Sciences Degree in Physics and Mathematics from Leningrad
Polytechnical Institute in 1969. He was also, for a number of years, an Adjunct
Professor of applied sciences at New York University and served as a visiting
researcher at Argonne National Laboratory in Chicago. Professor Branover has
also served as a director of the Joint Israeli Russian Laboratory for Energy
Research since 1991. He currently serves as an Advisor to Israel's Prime
Minister on immigrant employment and on the use of Russian technologies in
Israel. Professor Branover founded two Israeli high-tech companies, Ontec, Inc.,
in 1991, located in Beer Sheva, and Satec, Inc., in 1987, located in Jerusalem,
both of which have developed commercially viable products for sale in several
foreign countries. Professor Branover is no longer affiliated with either of
those companies. Professor Branover is an officer, director and shareholder of
Elecmatec, which was acquired by the Company in May 1999.
Dr. Lesin has served as Executive Vice President of the Company since May
1997 and was appointed as the Chief Financial Officer of the Company effective
August, 2000. Dr. Lesin has held various positions with Solmecs (Israel) Ltd.
since 1980, most recently serving as Chief Executive Manager. Dr. Lesin also
served as the Deputy Director of the Joint Israeli Russian Laboratory for Energy
Research since 1991, and as a member of the Board of the Center for MHD Studies
of Ben Gurion University since 1986. He received his Ph.D in Mechanical
Engineering from Ben Gurion University in 1993.
Mr. Levine has served as a director of the Company since November 1998.
Since June 2000, Mr. Levine has been the Chief Financial Officer and an
Investment Advisor at Neurone Venture Capital Find. From November 1995 through
November 1999, Mr. Levine was the head of corporate finance at Patterson Travis
Operating Account which makes proprietary investments and which is an affiliate
of Patterson Travis, Inc., the underwriter of the Company's Public Offering.
Prior thereto, from October 1988 through November 1995, Mr. Levine was an
associate at the law firm of Willkie Farr & Gallagher in New York.
The Company's directors are elected by the stockholders to hold office
until the next meeting of stockholders at which directors are presented for
election and until their successors have been duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Pursuant to the Underwriting Agreement between the Company and Patterson
Travis, Inc., as the underwriter of the Company's securities (the "Underwriter")
in the Public Offering, the Underwriter was granted the right to designate one
member to the Company's board of directors for a period ending June 29, 2001. In
November 1998, the Underwriter designated Joshua Levine to the Company's board
of directors. Mr. Levine was elected to the Company's board, by the board of
directors, in November 1998. The acquisition agreement executed in connection
with the acquisition of Solmecs (the "Acquisition") provided that the initial
directors of the Company after the Acquisition would consist of five directors
including Professor Branover and Mr. Althaus as well as a designee of Batei
Sefer Limlacha, one of the Company's principal stockholders, and a designee of
the Underwriter as described immediately above. The fifth director would be
appointed by the Company's board of directors. Batei Sefer Limlacha did not
indicate a designee.
Pursuant to the Memorandum of Understanding between the Company and
Crestwood, upon the closing of the Short Term Financing, Crestwood received the
right to appoint two representatives to the Company's Board of Directors. To
date Crestwood has not designated such representatives.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), requires the Company's officers and directors, and
persons who own more than 10 percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and
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<PAGE>
Exchange Commission ("SEC"). Officers, directors, and greater than 10 percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms received
by the Company, the Company believes that, during the year ended June 30, 2000,
all filing requirements applicable to its officers, directors, and greater than
10 percent beneficial owners were complied with.
ITEM 10. Executive Compensation
Officers Salaries
The following table sets forth the cost of compensation paid to Professor
Herman Branover, the Company's President, Chief Executive Officer, by Solmecs,
in his capacity as Scientific Director of Solmecs, and the compensation paid to
Dr. Shaul Lesin, the Company's Executive Vice President, by Solmecs, in his
capacity as Chief Executive Officer of Solmecs, for the fiscal years ended June
30, 1998, 1999 and 2000. No other executive officer of the Company received
aggregate compensation and bonuses which exceeded $100,000 during such years.
Cost of Compensation Summary Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards($)
----------------------------------------- ----------------------------
Restricted Securities
Name and Principal Fiscal Salary Other Annual Stock Underlying
Position Year ($)(1) Bonus($) Compensation($) Award Options/SARs(#)
------------------ ------ ------ ------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Professor Herman
Branover, 1998 $ 57,780 $ -- $ -- -- --
Chief Executive Officer 1999 $130,000(2)
2000 $155,000(3)(4)
Dr. Shaul Lesin
Executive Vice 1998 $ 92,998 --
President 1999 $125,000 $30,000 --
2000 $125,000(4) 60,000
</TABLE>
---------------------
(1) Includes (i) an automobile allowance paid by the Company during the fiscal
years ended June 30, 1998, 1999 and 2000 to Professor Branover in the
amount of approximately $6,900, $6,000 and $6,050, respectively and to Dr.
Lesin in the amount of approximately $2,800, $6,000 and $6,050,
respectively, and (ii) payments by the Company during each of the fiscal
years ended June 30, 1998, 1999 and 2000, to employee disability, severance
and social security funds for the benefit of the employees in amounts equal
to approximately 28% of the employees salary.
(2) Includes approximately $5,000 of salary paid by Elecmatec pursuant to an
employment agreement.
(3) Includes approximately $30,000 of salary paid by Elecmatec.
(4) Includes an aggregate of $70,000 representing accrued and unpaid salary due
and owing from the Company to Professor Branover and Dr. Lesin.
Employment Agreements
On July 8, 1998 Solmecs entered into employment agreements with Professor
Herman Branover, Dr. Shaul Lesin and Jacline Bavli, the Company's President and
Chief Executive Officer, Executive Vice President and Chief Financial Officer,
which provide for annual base compensation of $98,400, $98,400 and $39,600,
respectively, payable in NIS in accordance with the rate of exchange into U.S.
dollars in effect on the date of payment. The base compensation may be increased
from time to time by the Board of Directors in its sole discretion. In addition,
Solmecs agreed to contribute on behalf of each employee an amount equal to 15.8%
of such employee's salary to a fund known as "Manager's Insurance" and 7.5% of
such employee's salary to a
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<PAGE>
fund known as "Education Fund." See "Item 1. - Description of Business."
Solmecs further agreed to provide each of Messrs. Branover and Lesin with
an automobile and a cellular phone during the term of their employment, for
which Solmecs agreed to pay all related expenses. Solmecs also agreed to pay the
costs associated with maintaining a telephone line in each of their respective
homes during the course of their employment with the Company.
Each of the employment agreements contains a confidentiality provision
preventing the employees from disclosing, during the terms of their respective
employment agreements and at any time following the termination of their
employment, any proprietary information of the Company without the Company's
consent. Further, each of the employment agreements contains a provision that
such employee will not directly or indirectly compete or engage in a business
competitive with the Company or solicit the employees or consultants of the
Company for employment in a business in competition with the Company, during the
term of the employment agreement and for a period of one year thereafter.
Pursuant to the terms of the employment agreements the Company has agreed
to indemnify the employee for any claim or liability arising from such
employee's good faith fulfillment of his employment obligations provided that
the employee: (i) provides the Company with timely written notice of the claim
or liability; (ii) cooperates with the Company in the defense of the claim and
(iii) allows the Company to control defense of the claim.
In connection with its effort to reduce operating expenses, the Company
terminated the employment of several employees including Jacline Bavli. Dr.
Shaul Lesin was subsequently appointed the Chief Financial Officer of the
Company until such time as the Company can secure funds to enable them to retain
a full-time employee to serve as Chief Financial Officer. Ms. Bavli continues to
provide services to the Company on a part-time basis as an independent
consultant.
The employment agreements for Messrs. Branover and Lesin provide that in
the event of termination other than "for cause" or as a result of a continuing
disability (as defined in the employment agreements) the employee shall be
entitled to: (i) an adjustment grant equal to three months base salary payable
in three equal monthly installments beginning on the first day of the month
following the date of termination; (ii) an additional payment of one month's
base salary for each year in which employee was employed; and (iii) the use of
an automobile and cellular phone for a period of three months following
termination. The Company may not terminate an employee "for cause" unless it has
given the employee (i) written notice of the basis for termination, and (ii) at
least 30 days to cure the basis for such cause.
1997 Stock Option Plan
In December 1997, the Board of Directors and stockholders of the Company
adopted the 1997 Stock Option Plan (the "Option Plan"), pursuant to which
200,000 shares of Common Stock are reserved for issuance upon exercise of
options. The Option Plan is designed to serve as an incentive for retaining
qualified and competent employees, directors and consultants.
19
<PAGE>
The Company's Board of Directors, or a committee thereof, administers the
Option Plan and is authorized, in its discretion, to grant options thereunder to
all eligible employees of the Company, including officers and directors (whether
or not employees) of, and consultants to, the Company. The Option Plan provides
for the granting of both "incentive stock options" (as defined in Section 422 of
the Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Options can be granted under the Option Plan on such terms and at such prices as
determined by the Board of Directors, or a committee thereof, except that the
per share exercise price of options will not be less than the fair market value
of the Common Stock on the date of grant. In the case of an incentive stock
option granted to a stockholder who owns stock of the Company possessing more
than 10% of the total combined voting power of all classes of stock ("10%
stockholder"), the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value (determined on the date of
grant) of the shares covered by incentive stock options granted under the Option
Plan that become exercisable by a grantee for the first time in any calendar
year is subject to a $100,000 limit.
Options granted under the Option Plan will be exercisable during the period
or periods specified in each option agreement. Options granted under the Option
Plan are not exercisable after the expiration of ten years from the date of
grant (five years in the case of incentive stock options granted to a 10%
stockholder) and are not transferable other than by will or by the laws of
descent and distribution.
As of June 30, 2000, the Company has granted an aggregate of 86,000
incentive and non-qualified options under its Option Plan, of which an aggregate
of 66,000 incentive options were granted to executive officers of the Company.
The options are exercisable at $1.00 per share and vest in increments of
one-third of the amount of the grant on each of the six-month, one year and
two-year anniversaries of the date of grant.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of October 31, 2000, the number of
shares of the Company's outstanding Common Stock beneficially owned by (i) each
director of the Company; (ii) each person who is known by the Company to
beneficially own 5% or more of the outstanding Common Stock; (iii) each of the
persons named in the Summary Compensation Table (the "Named Executives"); and
(iv) all of the Company's directors and executive officers as a group (based on
information furnished by such persons). The following table does not reflect the
shares of convertable preferred stock equaling 25% of the outstanding capital
stock of the Company, on a fully diluted basis, to which Crestwood Capital Group
Corp. became entitled pursuant to the closing of the Company's Short Term
Financing effective November 1, 2000. Unless otherwise indicated, the beneficial
owners exercise sole voting and/or investment power over their shares.
Amount and Nature
of Percentage of
Beneficial Outstanding
Name and Address of Beneficial Owner(1) Ownership(2) Shares
--------------------------------------- ----------------- -------------
Bayou International, Ltd. 499,701 24%
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia
Batei Sefer Limlacha(3) 312,313 15%
766 Montgomery Street
Brooklyn, New York 11213
H.B. Capital Ltd.(4) 145,746 7%
Emmanuel Althaus(5) 83,284 4%
Joshua Levine 70,000(6) 3%
All executive officers and directors
as a group (four persons) 339,030(7) 15%
-------------
(1) The address of HB Capital Ltd., Mr. Althaus and Mr. Levine is c/o SCNV
Acquisition Corp., Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965.
20
<PAGE>
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Report upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that options that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Report have been exercised. Except as otherwise indicated, the Company
believes that each of the persons named has sole voting and investment
power with respect to the shares shown as beneficially owned by him.
(3) Batei Sefer Limlacha is a religious corporation organized under the New
York Religious Corporation Law. David Laine is President and trustee and
Joseph Kazin and Benzion Raskin are the remaining trustees. Batei Sefer
Limlacha may be deemed to be a "promoter" of the Company as such term is
defined under the Federal Securities Laws.
(4) Professor Herman Branover is the sole shareholder of H.B. Capital Ltd., an
Irish corporation. Professor Branover and Shmuel Gurfinkel are the
directors. H.B. Capital Ltd. may be deemed to be a "promoter" of the
Company, as such term is defined under the federal securities laws.
(5) Mr. Althaus may be deemed to be a "promoter" of the Company, as such term
is defined under the federal securities laws.
(6) Represents shares underlying currently exercisable warrants.
(7) Includes (i) 40,000 shares of Common Stock issuable upon exercisable of
options granted to one executive officer, which are currently exercisable,
and (ii) 70,000 shares of Common Stock issuable upon exercise of warrants
held by a director. Does not include 20,000 shares of Common Stock
underlying options granted to an executive officer, which are not currently
exercisable.
ITEM 12. Certain Relationships and Related Transactions
In May 1997, the Company issued 145,746 shares of Common Stock, 83,284
shares of Common Stock and 312,313 shares of Common Stock to H.B. Capital Ltd.,
Emmanuel Althaus and Batei Sefer Limlacha, respectively, for nominal
consideration. Emmanuel Althaus, the Chairman of the Board of Directors of the
Company, is a Director of Solmecs and was the Vice President and Director of
Bayou from March 1990 through November 1996.
Simultaneously with the consummation of the Public Offering, the Company
acquired all of the issued and outstanding capital stock of Solmecs. Bayou, the
current parent of Solmecs, received 499,701 shares of the Company's Common Stock
in connection with the Acquisition. In connection with the Acquisition, Bayou
forgave indebtedness of Solmecs in the amount, as of June 30, 1998, of
$5,082,897 as a capital contribution. The 499,701 shares issued to Bayou were
not registered in the Offering but are subject to certain registration rights to
be granted by the Company.
During the period from inception through June 30, 1998, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $110,108
for working capital purposes and agreed that such loans were to become due and
payable on the earlier of December 31, 1998 or the consummation of certain types
of transactions, including the Public Offering. Such loans were unsecured and
were interest free except in an event of default.
During the period from September 1997 through June 30, 1998, Batei Sefer
Limlacha loaned to Solmecs $375,000 for working capital purposes and agreed with
Solmecs that such loans were to become due and payable on the earlier of June
30, 1998 or the consummation of certain types of transactions, including the
Acquisition. Such loans were unsecured and bore interest at the rate of 8% per
annum. On June 23, 1998, Batei Sefer Limlacha agreed to extend the term of the
loans through the earlier of July 31, 1998 or the consummation of certain types
of transactions, including the Public Offering.
21
<PAGE>
The loans from Batei Sefer Limlacha were repaid in full by the Company on
July 8, 1998.
In May 1999, the Company acquired Elecmatec. Professor Branover, the
President, Chief Executive Officer and a director of the Company is also an
officer, director and shareholder of Elecmatec. Pursuant to the terms of the
acquisition, the Company is required to pay shareholders of Elecmatec, including
Professor Branover, an aggregate of $150,000 upon the completion by Elecmatec of
third-party debt or equity financing of at least $500,000. In connection with
the acquisition, Professor Branover entered into an employment agreement with
Elecmatec with a base salary of approximately $30,000 per year and bonuses equal
to 5% of Elecmatec's net income up to an aggregate bonus amount of $180,000.
ITEM 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
See Exhibit List below.
(b) Reports on Forms 8-K and 8-K/A
The Company did not file any reports with the Securities and Exchange
Commission on Form 8-K for the quarter ended June 30, 2000.
(c) Exhibits
3.1 Certificate of Incorporation of the Registrant.(1)
3.3 Bylaws of the Registrant.(1)
4.1 Form of Registrant's Common Stock Certificate.(1)
4.3 Form of Registrant's Public Warrant Certificate.(1)
4.4 Form of Registrants Unit Certificate.(1)
10.1 Form of Stock Purchase Agreement between SCNV Acquisition Corp.,
Solmecs Corporation, N.V. and Bayou International Ltd.(1)
10.2 Agreement, dated as of June 4, 1980 by and between Advanced Products
Beer Sheva Ltd. (AP) and the Ben Gurion University of the Negar (The
Research and Development Authority) and Solmecs Corporation N.V.(1)
10.3 Agreement, dated as of March 31, 1981, by and between the Government
of Israel Ministry of Energy and Infrastructure, the Ben Gurion
University of the Negev (The Research and Development Authority -
RDA) and Advanced Products Beer Sheva Ltd. and Solmecs (Israel) Ltd.
and Solmecs Corporation N.V.(1)
10.4 Agreement, dated as of November 5, 1981 by and between Advanced
Products Beer Sheva Ltd. (AP) and the Ben Gurion University of the
Negev (The Research and Development Authority) (RDA), Solmecs
Corporation N.V. and Solmecs Corporation (U.K) Limited.(1)
10.5 Agreement, dated as of January 25, 1990 by and between International
Lead Zinc Research Organization, Inc. and Solmecs (Israel) Ltd.(1)
10.6 Agreement, dated as of March 7, 1991 by and between International
Lead Zinc Research Organization, Inc. and Solmecs (Israel) Ltd.(1)
10.7 Agreement, dated as of June 9, 1997 by and between the Institute of
Physics in Riga, Latvia and Solmecs (Israel) Ltd.(1)
10.8 Agreement, effective as of September 30, 1997, by and between
Solmecs Corporation N.V. and Batei Sefer Limlacha.(1)
10.9 Agreement, effective as of September 30, 1997, by and between
Registrant and Batei Sefer Limlacha.(1)
10.10 Agreement, dated as of January 1, 1998 by and between Solmecs
(Israel) Ltd. and Leon Aprimov.(1)
10.11 Lease by and between Tefen Entrepreneurship Ltd. and Solmecs
(Israel) Ltd. dated October 14, 1997.(1)
10.12 Form of Employment Agreement between Registrant and Professor Herman
Branover.(1)
10.13 Form of Employment Agreement between Registrant and Dr. Shaul
Lesin.(1)
10.14 Form of Employment Agreement between Registrant and Jacline
Bavli.(1)
22
<PAGE>
10.15 1997 Stock Option Plan.(1)
10.16 Agreement between Solmecs (Israel) Ltd., Text-On, Ltd. and Boris
Wettelmacher, dated February 4, 2000.(2)
10.17 Loan Agreement between the Company and Elecmatec Electro-Magnetic
Technologies Ltd. ("Elecmatec"), dated December 30, 1998.(2)
10.18 Pledge Agreement between the Company and Elecmatec, dated December
30, 1998.(2)
10.19 Share Purchase Agreement between the Company and Elecmatic, dated
May 18, 1999.(2)
10.20 Shareholders Agreement among the Company, Professor Herman Branover,
Dr. Arik El-Boher and Dr. Yuri Gelfgat, dated May 18, 1999.(2)
10.21 Share Purchase Agreement among the Company, Elecmatec, Ariel Shemer
and Dr. Israel Weinbom, dated May 18, 1999(2)
10.22 Amended Loan Agreement between the Company and Elecmatec, dated May
18, 1999.(2)
10.23 Amended Pledge Agreement between the Company and Elecmatec, dated
May 18, 1999.(2)
10.24 Agreement between Solmecs (Israel) Ltd. and the Association for the
Development of International Energy Projects, dated September 8,
1998.(2)
21. Subsidiaries of the Registrant
27. Financial Data Schedule.
---------------
(1) Incorporated by reference to the comparable exhibit filed with the
Company's Registration Statement on Form SB-2, File No. 333-43955.
(2) Incorporated by reference to the comparable exhibit filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1999.
23
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of June 30, 2000 F-2
Consolidated Statements of Operations for the Years
Ended June 30, 2000 and 1999 F-3
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years Ended June 30, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999 F-5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SCNV Acquisition Corp.:
We have audited the accompanying consolidated balance sheet of SCNV Acquisition
Corp. (a Delaware corporation) and subsidiaries as of June 30, 2000, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the years ended June 30, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCNV Acquisition Corp. and
subsidiaries as of June 30, 2000, and the results of its operations and its cash
flows for each of the two years ended June 30, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is dependent upon the ability to raise
resources to finance its operations. This fact raises substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to this matter are also discussed in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
New York, New York
November 15, 2000
F-1
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,829
Trade receivables 19,640
Inventory 46,878
Other receivables and prepaid expenses 65,073
-----------
Total current assets 145,420
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $215,857 1,280,435
OTHER ASSETS, net of amortization of $11,000 19,000
-----------
Total assets $ 1,444,855
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 350,356
Trade payables 130,913
Sundry payables and accrued expenses 997,300
-----------
Total current liabilities 1,478,569
-----------
NONCURRENT LIABILITIES:
Long-term loan 200,000
Accrued severance pay 144,444
-----------
Total noncurrent liabilities 344,444
-----------
Total liabilities 1,823,013
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
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 (7,916,312)
-----------
Total stockholders' equity (deficit) (378,158)
-----------
Total liabilities and stockholders' equity (deficit) $ 1,444,855
===========
The accompanying notes are an integral part of this consolidated balance sheet.
F-2
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
----------- -----------
REVENUES:
Sales $ 171,678 $ 49,282
Contract services -- 18,411
----------- -----------
Total revenues 171,678 67,693
----------- -----------
COSTS AND EXPENSES:
Research and development costs 802,472 756,633
Cost of merchandise purchased 133,757 48,774
Cost of contract services performed by
subcontractors -- 19,172
Marketing expenses 444,102 189,828
General and administrative expenses 907,945 830,700
----------- -----------
Total costs and expenses 2,288,276 1,845,107
----------- -----------
Loss before one-time charge (2,116,598) (1,777,414)
ONE-TIME CHARGE OF ACQUIRED RESEARCH AND
DEVELOPMENT IN PROCESS
-- (4,060,111)
----------- -----------
Operating loss (2,116,598) (5,837,525)
FINANCING INCOME (EXPENSE), net (59,452) 97,263
----------- -----------
Net loss $(2,176,050) $(5,740,262)
=========== ===========
NET LOSS PER COMMON SHARE, basic and diluted $ (1.05) $ (2.76)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, basic and diluted 2,082,088 2,082,088
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Additional
Number Share Paid-in Accumulated
of Shares Capital Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, 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 for the year ended
June 30, 1999 -- -- -- (5,740,262) (5,740,262)
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1999 2,082,088 20,821 7,517,333 (5,740,262) 1,797,892
Net loss for the year ended
June 30, 2000 -- -- -- (2,176,050) (2,176,050)
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 2000 2,082,088 $ 20,821 $ 7,517,333 $(7,916,312) $ (378,158)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,176,050) $(5,740,262)
Adjustments to reconcile net loss to net cash used in operating
activities 409,399 4,168,342
Net cash used in operating activities (1,766,651) (1,571,920)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired -- (102,824)
Purchase of fixed assets (570,306) (693,027)
Purchase of other assets -- (15,000)
Short-term investments, net 1,127,166 (1,127,166)
Proceeds from sale of fixed assets -- 5,708
----------- -----------
Net cash provided by (used in) investing activities 556,860 (1,932,309)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net 198,458 (627,891)
Proceeds from a short time loan
500,000 --
Proceeds from initial public offering, net -- 4,657,282
----------- -----------
Net cash provided by financing activities 698,458 4,029,391
----------- -----------
(Decrease) increase in cash and cash equivalents (511,333) 525,162
CASH AND CASH EQUIVALENTS, beginning of year 525,162 --
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 13,829 $ 525,162
=========== ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES:
Items not involving cash flows-
Depreciation and amortization $ 61,248 $ 41,149
Loss on sale of equipment -- 836
Severance pay 30,115 90,316
Acquired research and development in process -- 4,060,111
Changes in operating assets and liabilities-
Decrease (increase) in trade receivables (8,709) 28,599
Increase in inventory (16,283) (30,595)
Decrease in other receivables and prepaid expenses 48,215 574,105
Increase (decrease) in trade payables (201,116) 99,176
Increase (decrease) in sundry payables and accrued
expenses 495,929 (695,355)
----------- -----------
$ 409,399 $ 4,168,342
=========== ===========
</TABLE>
F-5
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of subsidiary-
Fair value of acquired assets and research and development
in process $ -- $ 4,311,437
Less-
Liabilities assumed -- (1,331,032)
Shares issued as consideration for acquisition of
subsidiary -- (2,873,280)
----------- -----------
Cash paid -- 107,125
Less- Cash acquired -- (4,301)
----------- -----------
$ -- $ 102,824
=========== ===========
Purchase of fixed and other assets on credit $ -- $ 287,526
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. 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 "IPO")
in which 1,041,044 units, composed of 1,041,044 shares of common stock and
1,041,044 redeemable common stock purchase warrants ("Warrants"), were sold to
the public at $5.75 per unit. Each Warrant entitles the holder to purchase one
share of common stock at a price of $7.50, subject to adjustment in certain
circumstances, at any time during the four-year period commencing June 29, 1999.
The net proceeds from the IPO were approximately $4,600,000.
In addition, the Company sold to the underwriter for an aggregate of $104,
Warrants to purchase an additional 104,104 units at an exercise price of 120% of
the IPO price per unit ($6.90) ("Underwriter's Warrants"). The Underwriter's
Warrants are exercisable at any time during the four-year period commencing June
29, 1999.
Acquisition of Solmecs
Simultaneously with the consummation of the IPO, the Company acquired all of the
issued and outstanding capital stock of Solmecs in consideration for 499,701
shares of the Company's common stock issued to Bayou International, Ltd.
("Bayou"), the parent of Solmecs. The acquisition has been accounted for as a
purchase. The excess of purchase price over fair value of assets acquired of
$3,772,054 was reflected as acquired research and development in process and
fully expensed at the date of the acquisition. Solmecs, the operations of which
are located in Israel, owns certain technologies developed by it in the past.
The technologies of Solmecs and certain offshoots of such technologies are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes will be ready
for commercialization in the near future.
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 $288,057 is reflected as
acquired research and development in process and fully expensed at the date of
the acquisition. The results of operations for fiscal 1999 are included for the
period from the date of acquisition until year-end. Elecmatec develops,
manufactures and markets metal alloys for the auto industry, mainly for export.
Going Concern
The Company has incurred substantial operating losses and at June 30, 2000, has
an accumulated deficit of approximately $7,916,312. The Company is not
generating sufficient revenues from its operations to fund its
F-7
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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 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.
Subsequent to balance sheet date, a memorandum of understanding was signed
between Crestwood Capital Group Corp. ("Crestwood") and the Company. Pursuant to
the memorandum Crestwood provided the Company with $500,000 of short-term bridge
financing. Crestwood and the Company are to negotiate the form and structure of
additional possible financing (see note 12). However, there is no assurance that
the Company will be able to obtain such additional financing.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Solmecs and Elecmatec. Material intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Investments with an original
maturity over three months are classified as short-term investments.
Inventory
Inventory is valued at lower cost or market, cost being determined on a specific
basis.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over the estimated useful lives ranging between three to fifteen years.
Leasehold improvements and equipment held under capital leases are amortized
utilizing the straight-line method over the lesser of the estimated useful lives
of the assets or the lease term.
F-8
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Other Assets
Other assets are stated at cost less accumulated amortization. Amortization is
computed using the straight-line method over five years, the estimated useful
lives of the assets.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
This statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. Management has performed a
review of all long-lived assets and has determined that no impairment of the
respective carrying value has occurred as of June 30, 2000.
Revenue Recognition
Revenues from sales of merchandise are recognized upon shipment.
Revenues from contract services are recognized as the work is performed,
according to contract benchmarks.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Stock-Based Compensation
The Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," and elected to continue the accounting set forth in Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," and
to provide the necessary pro forma disclosures as if the fair value method had
been applied.
Net Loss per Common Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, basic net income
(loss) per common share ("Basic EPS") is computed by dividing net income (loss)
by the weighted average number of common shares outstanding. Diluted net income
(loss) per common share ("Diluted EPS") is computed by dividing net income
(loss) by the weighted average number of common shares and dilutive common share
equivalents then outstanding.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
short-term borrowings and accounts payable approximate their fair value due to
the short-term maturity of these instruments.
F-9
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Foreign Currency Translation
Transactions and balances in other currencies are translated into U.S. dollars
in accordance with the principles set forth in SFAS No. 52, "Foreign Currency
Translation." all exchange gains and losses from such translation are reflected
in the statement of operations.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended in June 2000, effective for the
Company's fiscal year ending June 30, 2001. However, in June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 delays the effective date of SFAS No. 133, which will not be effective for
the Company's fiscal year ending June 30, 2002. SFAS No. 133 requires companies
to record derivative instruments as assets or liabilities, measured at fair
value. The recognition of gains or losses resulting from changes in the values
of those derivative instruments is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company does not
anticipate that the implementation of SFAS No. 133 will have a material impact
on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The effective date of SAB 101 was delayed and SAB 101 will be effective for the
Company in the fourth quarter of fiscal 2001. The Company currently believes
that its revenue recognition policy is consistent with the guidance of SAB 101.
In March 2000, Financial Accounting Standards Board ("FASB") Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN
44") was issued and is effective July 1, 2000. FIN 44 clarifies the application
of APB No. 25, "Accounting for Stock Issued to Employees," with respect to the
definition of an employee, the criteria for noncompensatory plans, the
consequences of modifying previous awards and the exchange of stock compensation
awards in business combinations. No impact to the Company is expected under this
interpretation.
F-10
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Year Ended Annual
June 30, Rates of
2000 Depreciation
---------- ------------
Plants under construction $ 890,337 --
Machinery and equipment 201,408 15%
Office furniture and equipment 197,327 6-33%
Motor vehicles 111,123 15%
Leasehold improvements 96,097 10-20%
----------
Total property and equipment 1,496,292
Less- Accumulated depreciation and
amortization 215,857
----------
Property and equipment, net $1,280,435
==========
4. SHORT-TERM BORROWINGS
The short-term loans are in new Israeli shekels and bear interest at an annual
rate of 13.3%.
5. SUNDRY PAYABLES AND ACCRUED EXPENSES
June 30,
2000
----------
Ana Portfolio Inc. (*) $ 507,500
Ben-Gurion University for services rendered 83,501
Payroll and related expenses 295,986
Other payables and accrued expenses 110,313
----------
$ 997,300
(*) Ana Portfolio Inc. ("Ana") provided short-term funding in connection with a
potential investment in Elecmatec and Solmecs. Ana cancelled its planned
investment in the subsidiaries. According to the terms of the preliminary
investment agreement, the short-term funding bears interest at an annual
rate of 6%. The Company has notified Ana that due to the cancellation of
the planned investment, it believes that it is not required to repay this
amount.
6. LONG-TERM LOAN
The long-term loan is interest free. The date of repayment has not yet been
determined.
F-11
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
7. SEVERANCE PAY
The Company's obligation in respect of severance pay to its Israeli subsidiaries
employees is covered by insurance policies. The amounts on deposit with the
insurance companies are not under the control or management of the subsidiaries
and, therefore, such amounts and the related liability are not reflected in the
balance sheet.
The accrual on the balance sheet represents the unfunded portion of the
severance obligation.
8. CAPITAL STOCK
Preferred Stock
The Board of Directors has the authority, without further action by the
stockholders, to issue up to one million shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series.
1997 Stock Option Plan
In December 1997, the Board of Directors and stockholders of the Company adopted
the 1997 Stock Option Plan (the "Plan"), pursuant to which 200,000 shares of
Common Stock are reserved for issuance upon exercise of options. The Plan is
designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants. Options granted under the Plan will be
exercisable during the period or periods specified in each option agreement.
Options granted under the Plan are not exercisable after the expiration of ten
years from the date of grant (five years in the case of incentive stock options
granted to a 10% stockholder) and are not transferable other than by will or by
the laws of descent and distribution.
The Company accounts for the Stock Option Plan under APB Opinion No. 25 and,
accordingly, compensation expense has not been recognized in the accompanying
consolidated financial statements as exercise price of the stock options granted
was not exceeding fair market value on the date of grant.
Had compensation cost for the 1997 Stock Option Plan been determined consistent
with the provisions of SFAS No. 123, the effect on the Company's net loss and
net loss per share would have been changed to the following pro forma amounts:
Year Ended June 30
---------------------------
2000 1999
------------ ------------
Net loss, as reported $ (2,176,050) $ (5,740,262)
Net loss, pro forma (2,198,088) (5,749,057)
Loss per share, as reported (1.05) (2.76)
Loss per share, pro forma (1.06) (2.76)
F-12
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
A summary of the stock options as of and for the years ended June 30, 2000 and
1999 is as follows:
Weighted
Average
Shares Exercise Price
------- --------------
Options outstanding, July 1, 1998 -- $ --
Options granted 101,000 1.00
Options exercised -- --
------- -------
Options outstanding, June 30, 1999 101,000 1.00
Options granted -- --
Options exercised -- --
------- -------
Options outstanding, June 30, 2000 101,000 $ 1.00
======= =======
Options exercisable at June 30, 2000 67,333 $ 1.00
======= =======
The weighted average fair value of options granted in fiscal year 1999 is $0.44
and the weighted average remaining contractual life is 8.3 years. No options
were granted in fiscal 2000.
The fair market value of each option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions for the year ended June 30, 1999:
Expected options lives 5 years
Risk-free interest rate 5.30%
Expected volatility 240%
Dividend yield --
9. COMMITMENTS AND CONTINGENCIES
Royalties - BGU
In accordance with an agreement dated November 5, 1981, between Solmecs,
Ben-Gurion University and B.G. Negev Technology and Applications Ltd. ("BGU"),
Solmecs is conducting research and development projects on the campus of
Ben-Gurion University in consideration for a fee for the use of the facilities.
The Company owns the patents connected with these projects (related to
L.M.M.H.D. power generation) and has agreed to pay royalties to BGU at the rate
of 1.725% on sales of products and at the rate of 11.5% on income from licensing
fees.
The Company also agreed to assume the obligation of BGU to pay royalties to the
Ministry of National Infrastructure on products developed from these R&D
projects for its participation in the research and development costs of BGU.
The royalties are to be paid at the rate of 1% on sales of products and at the
rate of 5% on income from licensing fees. As of June 30, 2000, this contingent
obligation amounted to approximately $343,000 (including linkage to the Israeli
Consumer Price Index and interest at 4% per annum). Subsequent to the repayment
of the liability, the Company is to pay royalties to the Ministry of National
Infrastructure at a reduced rate of 0.3% on future sales of products and at the
rate of 2% on all future income from licensing fees.
Through June 30, 2000, there were no sales or income on which royalties were
payable to BGU and the Ministry of National Infrastructure.
F-13
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Royalties - Text-On
Pursuant to an agreement dated February 4, 1999, Solmecs acquired the rights to
develop, produce, market and distribute an advanced electronic pocket dictionary
developed by Text-On Ltd., an Israeli company ("Text-On"). In connection with
the acquisition of this rights, Solmecs has agreed to pay royalties to Text-On,
as follows: (i) 10% of sales of electronic dictionaries produced and developed
by Solmecs after February 1999, up to aggregate sales of $2.5 million, (ii)
thereafter, 3% of sales by Solmecs up to aggregarte sales of $3 million, and
(iii) 1% of sales thereafter. The royalty payment period expires in February
2014 regardless of the amount of royalties paid by Solmecs. Through June 30,
2000 the Company has paid minimal royalties to Text-On.
International Lead Zinc Research Organization ("ILZRO")
In connection with a research contract with ILZRO, Solmecs agreed to pay ILZRO a
fee for any lead to be used in future production by the subsidiary. The total
fee commitment is limited to $1,864,000. Through June 30, 2000, the company has
not used any lead for which it is required to pay fees.
Chief Scientist of the Government of Israel
Elecmatec obtained the approval from the office of the Chief Scientist to
purchase from a third party all rights and interests in the metal alloy research
and development project. Elecmatec has undertaken to pay royalties, at the rate
of 3% of sales derived from the project, up to the amount of the participations
($459,000) received by the third party.
For the period from 1981 to 1991, Solmecs received participations from the Chief
Scientist of approximately $2.3 million toward the cost of a research and
development project. In return, Solmecs is required to pay royalties at the rate
of 2% of sales of know-how or products derived from the project. Through June
30, 2000, there were no sales on which royalties were payable.
Lease Agreement
The Company leases certain office spaces for its operations through the period
ending December 2001.
Future minimum payments for operating leases at June 30, 2000 are as follows:
Year ending June 30:
2001 $ 80,000
2002 80,000
F-14
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
King Metal Strips Ltd. Agreement
Elecmatec signed an agreement with King Metal Strips Ltd. ("King") to provide
metal alloy and rolling services. According to the above-mentioned agreement,
Elecmatec has committed to provide loans to or invest in equity of King in the
amount of $400,000 pursuant to conditions to be agreed upon between the parties.
10. REVENUES
For the Year Ended June 30,
---------------------------
2000 1999
----------- -------------
Revenues by geographic areas:
USA 43% 13%
Hong Kong 15% --
China 13% --
France 10% --
Greece -- 57%
Israel 3% 28%
Other 16% 2%
Sales to single customers exceeding 10%:
Customer A -- 57%
Customer B -- 19%
Customer C -- 12%
Customer D -- 12%
Customer E 30% --
Customer F 15% --
Customer G 13% --
Customer H 10% --
11. TAXES ON INCOME
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on (1) differences between the
financial accounting and income tax bases of assets and liabilities, and (2) net
operating loss carryforwards, using enacted tax rates in effect for the years in
which the differences and carryforwards are expected to reverse and be utilized,
respectively.
Tax loss carryforward at June 30, 2000 is approximately $4,040,000, as follows:
Expiration
Country Amount Year
---------- ---------- ----------
United States $ 260,000 2019-2020
Israel 2,430,000 Unlimited
Dutch Antilles 1,350,000 2000 - 2004
----------
$4,040,000
==========
F-15
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
In addition, research and development costs incurred by Solmecs in the
approximate amount of $830,000 will be deductible for tax purposes upon
recognition of income derived from R&D. Due to the uncertainty as to
realization, a valuation allowance for the full amount of deferred tax assets,
associated mainly with loss carryforwards, of approximately $1,000,000 has been
recorded.
12. SUBSEQUENT EVENTS
Agreement to sell certain technologies
Subsequent to balance sheet date, in August 2000, Solmecs agreed to sell certain
technologies, in consideration for $300,000. In addition Solmecs is to receive a
10% interest in a new company to be established by the purchaser in order to
commercialize the technologies and receive 1%-4% royalties on sales of products
developed using these technologies during the first eight years of
commercialization. To date, the Company has received $150,000.
A memorandum of understanding with Crestwood Capital Group Corp.
On August 30, 2000, the Company entered into a memorandum of understanding with
Crestwood Capital Group Corp.("Crestwood"), whereby Crestwood has agreed to
provide corporate services to the Company and assist the Company in securing
short term bridge financing of up to $500,000. As of November 1, 2000 the bridge
financing of $500,000 was completed. Following completion of this short term
financing, Crestwood and the company are to discuss the form and structure of
additional financing.
Under the terms of the Bridge Financing, the Company offered Units, each
consisting of (i) a convertible promissory note (the "Notes") in prinicpal
amount of $100,000 and (ii) a warrant to purchase 50,000 shares of the Company's
common stock at an exercise price per share equal to 80% of the average closing
bid price of the common stock for the five days preceding the date of exercise.
The Notes are convertible at the option of the holder thereof into shares of
common stock at the conversion price of $1.00 per share.
The Notes are due to mature on the first anniversary of their issuance and all
principal and accrued interest on such Notes will become due and payable at such
time. The Company and its subsidiaries have further agreed to grant the holders
of the Notes a security interest in the Company's and subsidiaries' tangible
property and trade secrets to secure repayment of the principal and accrued
profit under the Notes.
According to the memorandum a representative of Crestwood will be appointed CEO
of the Company and two representatives of Crestwood shall be appointed to serve
on the Board of Directors of the Company. In addition Crestwood shall be
entitled to a consulting fee equal to 25% of the issued and outstanding capital
stock of the Company on a fully diluted basis.
F-16
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SCNV ACQUISITION CORP.
By: /s/ Herman Branover
----------------------------------
Herman Branover
President, Chief Executive Officer
and Director
Dated: November 16, 2000
In accordance with the requirements of the Securities Exchange Act of 1934,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
/s/ Emmanuel Althaus Chairman of the Board of November 16, 2000
---------------------------- Directors
Emmanuel Althaus
/s/ Herman Branover President, Chief Executive November 16, 2000
---------------------------- Officer and Director
Herman Branover
/s/ Shaul Lesin Executive Vice President and November 16, 2000
---------------------------- Chief Financial Officer
Shaul Lesin
/s/ Joshua Levine Director November 16, 2000
----------------------------
Joshua Levine
24
