U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ______________to _____________.
Commission file number 0-29624
SCNV ACQUISITION CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 90-0194786
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Omer Industrial Park, P.O. Box 3026, Omer, Israel 84965
(Address of Principal Executive Offices)
(011) 972-7-690-0950
(Issuer's Telephone Number including area code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
As of November 30, 2000 there were 2,082,088 shares of the issuer's
Common Stock outstanding
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 2000
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 2000
(Unaudited)...........................................................3
Consolidated Statements of Operations
For the three months ended September 30, 2000 and,
1999 (Unaudited)......................................................4
Consolidated Statement of Changes
in Stockholders' Equity (Deficit) for the three months
ended September 30, 2000 (Unaudited)..................................5
Consolidated Statements of Cash Flows For the three months
ended September 30, 2000 and 1999
(Unaudited)................................................... .....6
Notes to Unaudited Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations ...........................................11
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............................19
Item 6. Exhibits and Reports on Form 8-K......................................20
2
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30,
2000
-----------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 186,027
Trade receivables 12,145
Inventory 46,878
Other receivables and prepaid expenses 46,864
-----------
Total current assets 291,914
-----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $229,559 1,267,172
OTHER ASSETS, net of amortization of $12,500 17,500
-----------
Total assets $ 1,576,586
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term borrowings $ 700,780
Trade payables 167,375
Sundry payables and accrued expenses 1,068,933
-----------
Total current liabilities 1,937,088
-----------
LONG TERM LIABILITIES
Long term loan 200,000
Accrued severance pay 156,099
-----------
Total long term liabilities 356,099
-----------
Total liabilities 2,293,187
-----------
SHAREHOLDERS' EQUITY (DEFICIT)
Share capital
Preferred stock $.01 par value, 1,000,000 shares authorized;
none issued and outstanding --
Common stock $.01 par value, 10,000,000 shares authorized;
2,082,088 shares issued and outstanding 20,821
Additional paid-in-capital 7,517,333
Accumulated deficit (8,254,755)
-----------
Total shareholders' equity (deficit) (716,601)
-----------
Total liabilities and shareholders' equity (deficit) $ 1,576,586
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
3
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three moths ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Sales $ 31,820 $ 49,191
----------- -----------
Total revenues 31,820 49,191
----------- -----------
COSTS AND EXPENSES
Research and development costs $ 59,370 $ 203,393
Cost of merchandise purchased 25,189 46,301
Marketing expenses 83,112 90,698
General and administrative expenses 157,082 273,122
----------- -----------
Total costs and expenses 324,753 613,514
----------- -----------
Operating Loss (292,933) (564,323)
FINANCING INCOME (EXPENSES) NET (45,510) 10,896
----------- -----------
Net loss $ (338,443) $ (553,427)
=========== ===========
Net loss per common share, basic and diluted $ (0.16) $ (0.27)
=========== ===========
Weighted average number of common
shares outstanding, basic and diluted 2,082,088 2,082,088
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
4
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHARES HOLDER'S EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Number of Share Paid-In- Accumulated
Shares Capital Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of July 1, 2000 2,082,088 $ 20,821 $ 7,517,333 (7,916,312) $ (378,158)
Net Loss -- -- -- (338,443) (338,443)
----------- ----------- ----------- ----------- -----------
Balance as of September 30, 2000 2,082,088 $ 20,821 $ 7,517,333 $(8,254,755) $ (716,601)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
5
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (338,443) $ (553,427)
Adjustments to reconcile net loss to net cash used in operating activities 160,656 (248,572)
----------- -----------
Net cash used in operating activities (177,787) (801,999)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in fixed assets (439) (93,249)
Short-term investments, net -- 1,127,166
----------- -----------
Net cash provided by (used in) investing activities (439) 1,033,917
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Short term borrowings, net 350,484 (49,352)
----------- -----------
Net cash provided by (used in) financing activities 350,484 (49,352)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 172,198 182,566
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 13,829 525,162
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 186,027 $ 707,728
=========== ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES
Items not involving cash flows:
Depreciation $ 15,202 $ 16,149
Severance pay 11,655 8,261
Changes in operating assets and liabilities:
Decrease (increase) in trade receivable 7,495 (35,790)
Decrease in Inventory -- 1,308
Decrease in other receivable and prepaid expenses 18,209 18,189
Increase (decrease) in trade payables 36,462 (262,065)
Increase (decrease) in sundry payables and accrued expenses 71,633 5,376
----------- -----------
$ 160,656 $ (248,572)
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
6
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General
The financial statements as of and for the three months ended September 30, 2000
and 1999 are unaudited; however in the opinion of management all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been made.
The financial statements have been prepared in a manner consistent with the
10-KSB filed for the fiscal years ended June 30, 2000 and 1999 and should be
read in connection with those financial statements. The unaudited consolidated
statement of operations is not necessarily indicative of the results of
operations for future periods.
Business
SCNV Acquisition Corp. (the "Company") was organized under the laws of the State
of Delaware on May 19, 1997 to acquire Solmecs Corporation N.V. and its wholly
owned subsidiary Solmecs (Israel) Ltd. ("Solmecs") and to select, develop and
commercially exploit proprietary technologies, in various stages of development,
invented primarily by scientists who have recently immigrated to Israel from,
and by scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union.
Initial Public Offering
On July 8, 1998 the Company consummated an Initial Public Offering (the "Public
Offering") in which 1,041,044 Units, comprised of 1,041,044 shares of Common
Stock and 1,041,044 redeemable Common Stock purchase warrants ("Warrants"), were
sold to the public at $5.75 per Unit. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of $7.50, subject to adjustment in
certain circumstances, at any time until June 28, 2003. The net proceeds from
the Public Offering were approximately $4,600,000.
In addition, the Company sold to the Underwriter for an aggregate of $104,
warrants to purchase an additional 104,104 Units at an exercise price of 120% of
the IPO price per Unit ($6.90) ("Underwriter's Warrants"). The Underwriter's
Warrants are exercisable at any time until June 28, 2003.
7
<PAGE>
Acquisition of Solmecs
Simultaneously with the consummation of the Public Offering the Company acquired
all of the issued and outstanding capital stock of Solmecs (the "Acquisition")
in consideration for 499,701 shares of the Company's common stock issued to
Bayou International Ltd. ("Bayou"), the parent of Solmecs. The Acquisition has
been accounted for as a purchase. The excess of purchase price over fair value
of assets acquired of $3,772,054 was reflected as acquired research and
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 was reflected as
acquired research and development in process and fully expensed at the date of
the acquisition.
Going Concern
The Company has incurred substantial operating losses and at September 30, 2000,
has an accumulated deficit of approximately $8,254,755. The Company is not
generating sufficient revenues from its operations to fund its activities and
anticipates that it will continue to incur losses for some time. The Company is
continuing its efforts in research and development which will require
substantial additional expenditures. As such, the Company's ability to continue
as a going concern is dependent upon its ability to raise resources to finance
its operations. This fact raises substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments relative to the recoverability and classification of
recorded assets accounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company plans to finance its operations and capital expenditure by receiving
additional financing from potential investors/partners. However, there is no
assurance that the Company will be able to obtain such additional financing.
8
<PAGE>
Recent Developments
In September 1998, Solmecs acquired from the Association for the
Development of International Energy Projects (the "Association") located in Beer
Sheva, Israel the rights to certain technologies for the capture and removal of
environmentally hazardous carbon dioxide emissions primarily from fuel burning
power stations (the "CO2 Technology"). Pursuant to such acquisition, Solmecs has
agreed to pay royalties to the Association from revenues generated from sales of
the product or licensing of the technology. In October 2000, Solmecs granted to
ACP SA NV ("ACP") an option (the "CO2 Option") to acquire the CO2 Technology for
an option payment of US $150,000. The CO2 Option must be exercised within four
weeks of completion of laboratory testing (which is expected to take
approximately 10 weeks) in accordance with the Agreement. In the event the CO2
Option is exercised by ACP, Solmecs will receive (i) an additional US $150,000
(plus value added taxes), (ii) a 10% common stock interest in a subsidiary of
ACP which will be formed to develop and market the CO2 Technology and (iii) an
eight year royalty after commercialization between 1% and 5% of net sales.
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 bridge financing of up to
$600,000 ("Bridge Financing"), of which $382,000 was received through September
30, 2000 and the remaining amount was received during October, November and
December, 2000. In connection with such services, Crestwood's President and
Chief Executive Officer has agreed to serve as President of the Company and
active Chief Executive Officer until Crestwood succeeds in assisting the Company
in finding a long term Chief Executive Officer and two of Crestwood's officers,
including its President, will serve on the Board of Directors of the Company
without compensation. Crestwood will be entitled to a consulting fee in the form
of convertible preferred stock (the "Preferred Shares") equal to 25% of the
issued and outstanding capital stock of the Company on a fully diluted basis.
Each Preferred Share will be convertible into two shares of the Company's common
stock. For a period of 120 days from their issuance, Crestwood's percentage
ownership interest in the Company, as reflected by the Preferred Shares, will
not be further diluted pursuant to any issuances of securities by the Company.
Under the terms of the Bridge Financing, the Company is offering 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.
9
<PAGE>
The Notes are due to mature on the first anniversary of their issuance and
all principal and accrued profit 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. As of the balance sheet date no
warrants or convertible notes were issued.
On November 2000 the Company was served a claim for the payment of $500,000
as restitution pursuant to the preliminary investment agreement with Ana
Portfolio Inc. ("Ana Portfolio") from March 2000. Ana Portfolio Inc is also
claiming damages in the amount of $176,600. Pursuant to this agreement, Ana
Portfolio provided the Company with short-term funding of approximately $500,000
in connection with potential investment in its subsidiaries. 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.
Pending further resolution of this matter the Company's has determined to
include this short-term funding as a sundry payable.
The Company denies any and all liability with respect to the claim filed.
In the Company's opinion Ana Portfolio is in breach of the contract therefore
the Company is contemplating filing a counter claim. At this point the Company
is unable to determine the prospects of neither the lawsuit against the Company
nor the prospects of the counter claim.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements made by or on behalf of the Company. These
risks, uncertainties and factors include, but are not limited to, those relating
to the Company's ability to continue as a going concern, uncertainties regarding
the Company's growth strategy, uncertainty of the availability of additional
financing, uncertainties regarding the Company's ability to fulfill its
commitments under the acquisition agreement relating to a subsidiary and to
commercialize the technology of such subsidiary, the ability to hire and retain
key personnel, uncertainty of feasibility of the Company's technologies and
product development, uncertainty of market acceptance of the Company's
technologies, relationships with and dependence on third-party equipment
manufacturers and suppliers, uncertainties relating to government and regulatory
policies and other political risks and other risks detailed in the Company's
filings with the Securities and Exchange Commission. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
General
The Company was organized in May 1997 to select, develop and commercially
exploit proprietary technologies, in various stages of development, invented
primarily by scientists who have recently immigrated to Israel from, and by
scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union. Since its inception, the Company has been engaged
principally in organizational activities, including developing a business plan,
matters directly related to the Public Offering and the acquisition of Solmecs
and the acquisition of identified technologies or manufacturing facilities for
certain technologies for further development, production and commercialization.
The Company is engaged in the commercial development of two technologies
previously identified by Solmecs, namely (i) advanced bi-facial photovoltaic
panels and (ii) monocrystals of silicon. In November 1998, Solmecs acquired
certain materials, equipment and engineering services in order to establish a
manufacturing facility in Israel for both one-sided and advanced
11
<PAGE>
bi-facial photovoltaic panels. The Company, however, will require additional
funds, not currently available to the Company, to commence and maintain
production The Company, however, expects to continue to act, on a limited basis,
as distributor of the Russian entity's photovoltaic panels.
Also in November 1998, Solmecs acquired equipment to be used in three production
facilities currently being set up for growing silicon monocrystals. Two of the
facilities are in operational conditions and are dedicated to tests production
of standard size silicon monocrystals with the qualities necessary for use in
both sophisticated electronics and photovoltaics. The third facility will be
modified for experimental production of silicon monocrystals utilizing LMMHD
technology. The Company did not produce any commercial silicon monocrystals
during the 1999 fiscal year. The Company, however, will require additional
funds, not currently available to the Company, to operate the production
facilities and acquire the raw materials necessary to produce commercial
quantities. If the Company is able to obtain additional funds, on a timely
basis, it anticipates commercial production of standard size silicon
monocrystals 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 world-wide 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 September 30, 2000, had an
accumulated deficit of approximately $8,254,755. 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
12
<PAGE>
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. 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. Other than the Bridge Financing noted above, 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, it may be required to further curtail its
operations or to cease operations altogether.
Moreover, to the extent that the Company is able to obtain the funds
necessary to continue 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.
Recent Developments
Option for Sale of Carbon Dioxide Absorption Technology.
In September 1998, Solmecs acquired from the Association for the
Development of International Energy Projects (the "Association") located in Beer
Sheva, Israel the rights to certain technologies for the capture and removal of
environmentally hazardous carbon dioxide emissions primarily from fuel burning
power stations (the "CO2 Technology"). Pursuant to such acquisition, Solmecs has
agreed to pay royalties to the Association from revenues generated from sales of
the product or licensing of the technology. In October 2000, Solmecs granted to
ACP SA NV ("ACP") an option (the "CO2 Option") to acquire the CO2 Technology for
a payment of US $150,000. The CO2 Option must be exercised within four (4) weeks
of completion of laboratory testing (which is expected to take approximately 10
weeks) in accordance with the Agreement. In the event the CO2 Option is
exercised by ACP, Solmecs will receive (i) an additional US $150,000 (plus value
added taxes), (ii) a 10% common stock interest in a subsidiary of ACP which will
be formed to develop and market the CO2 Technology and (iii) an eight year
royalty after commercialization range between 1% to 5% of net sales.
Arrangements with Crestwood.
On August 30, 2000, the Company entered into a Memorandum of Understanding
with Crestwood Capital Group Corp. ("Crestwood"), whereby Crestwood agreed to
provide management and restructuring services to the Company, assist in the
search for qualified
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<PAGE>
executive management, to act as financial advisor to the Company for its short
term and long term needs and assisted the Company in securing short term bridge
financing of $600,000 ("Bridge Financing"). In connection with such services,
Crestwood's President and Chief Executive Officer has agreed to serve as
President of the Company and acting Chief Executive Officer until Crestwood
succeeds in assisting the Company in finding a long term chief executive officer
and two of Crestwood's officers, including its President will serve on the Board
of Directors of the Company without compensation. As compensation for its
services, Crestwood will be entitled to a consulting fee in the form of
convertible preferred stock (the "Preferred Shares") equal to 25% of the issued
and outstanding capital stock of the Company on a fully diluted basis. Each
Preferred Share will be convertible into two shares of the Company's common
stock. Crestwood will also receive registration rights with respect to the
Common Stock issuable upon conversion of the Preferred Shares. For a period of
120 days from their issuance, Crestwood's percentage ownership interest in the
Company, as reflected by the Preferred Shares, will not be further diluted
pursuant to any issuances of securities by the Company.
Dispute with Ana Portfolio
In November 2000 the Company was served a claim for the payment of $500,000 as
restitution pursuant to the preliminary investment agreement with Ana Portfolio
Inc. ("Ana Portfolio") from March 2000. Ana Portfolio Inc is also claiming
damages in the amount of $176,600. Pursuant to this agreement, Ana Portfolio
provided the Company with short-term funding of approximately $500,000 in
connection with potential investment in its subsidiaries. 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.
Pending further resolution of this matter the Company has determined to include
this short-term funding as a sundry payable.
The Company denies any and all liability with respect to the claim filed. In the
Company's opinion Ana Portfolio is in breach of the contract therefore the
Company is contemplating filing a counter claim. At this point the Company is
unable to determine the prospects of neither the lawsuit against the Company nor
the prospects of the counter claim.
14
<PAGE>
Results of Operations
The consolidated statement of operations and other financial and operating data
for the three month periods ended September 30, 1999 and 2000 are derived from
the unaudited financial statements of the Company included elsewhere herein.
Three Months Ended September 30, 2000 Compared with Three Months Ended September
30, 1999
Sales. Sales decreased to $31,820 for the three months ended September 30,
2000 as compared to $49,191 for the three months ended September 30, 1999. The
decrease was attributable to the company's strategic decision to nearly stop the
production of photovoltaic panels and electronic dictionaries.
Total Revenues. Total revenues decreased by $17,371 to $31,820 for the
three months ended September 30, 2000 compared to $49,191 for the three months
ended September 30, 1999. The decrease is attributable to the decrease in sales
of products stated herein.
Research and Development Costs. Research and development costs decreased by
$144,023 or 70.81% to $59,370 for the three months ended September 30, 2000, as
compared to $203,393 for the three months ended September 30, 1999. The decrease
is mainly due to postponement of most of the Company's research and development
programs pending consummation of additional financing.
Cost of Merchandise Purchased. Costs of merchandise purchased decreased by
$21,112 to $25,189 for the three months ended September 30, 2000, as compared to
$46,301 for the three months ended September 30, 1999. The decrease is
attributable to the decrease in sales.
Marketing Expenses. Marketing expenses decreased by $7,586 or 8.36%, to
$83,112 for the three months ended September 30, 2000, as compared to $90,698
for the three months ended September 30, 1999. This decrease is due to the
decrease in personnel and lack of liquidity.
General and Administrative Expenses. General and administrative expenses
decreased by $116,040 or 42.49%, to $157,082 for the three months ended
September 30, 2000, as compared to $273,122 for the three months ended September
30, 1999. This decrease is attributable to the company restricting its expenses.
Operating Loss. Operating loss decreased by $271,390 to $292,933 for the
three months ended September 30, 2000, as compared to $564,323 for the three
months ended September 30, 1999. The decrease in operating loss is primarily
attributable to the aforementioned
Financing Income(Expenses),Net. Financing expenses were $45,510 for the
three months ended September 30, 2000, as compared to financing income of
$10,896 for the three months
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<PAGE>
ended September 30, 1999, primarily as a result of interest paid by the Company
on borrowings in 2000 as compared to interest earned by the Company on deposits
in 1999.
Net Loss and Net Loss Per Share. As a result of the foregoing, net loss was
$338,443 ($0.16 per share) for the three months ended September 30, 2000 as
compared to $553,427 ($0.27 per share) for the three months ended September 30,
1999.
Liquidity and Capital Resources
As of September 30, 2000, the Company had a deficiency of working capital of
$1,645,174 and an accumulated deficit of $8,254,755.
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% which is repayable on March
2001 (the "Ana Portfolio Debt").
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 bridge financing of up to
$600,000 ("Bridge Financing"), of which $382,000 was received through September
30, 2000 and the remaining amount was received during October, November and
December, 2000. In connection with such services, Crestwood's President and
Chief Executive Officer has agreed to serve as President of the Company and
acting Chief Executive Officer until Crestwood succeeds in assisting the Company
in finding a long term chief executive officer and two of Crestwood's officers,
including its President will serve on the Board of Directors of the Company
without compensation. Crestwood will be entitled to a consulting fee in the form
of convertible preferred stock (the "Preferred Shares") equal to 25% of the
issued and outstanding capital stock of the Company on a fully diluted basis.
Each Preferred Share will be convertible into two shares of the Company's common
stock. Crestwood will also receive registration rights with respect to the
Preferred Shares and, for a period of 120 days from their issuance, Crestwood's
percentage ownership interest in the Company, as reflected by the Preferred
Shares, will not be further diluted pursuant to any issuances of securities by
the Company.
Under the terms of the Bridge Financing, the Company is offering 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
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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 profit 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. As of the balance sheet date, no
warrants or convertible notes were issued.
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 September 30, 2000 the Company had
accrued and unpaid salaries and related expenses of approximately $260,000.
The Company's capital requirements will continue to be significant.
Completion of the commercialization of the Company's technologies or any
potential application of such technologies will require significant additional
effort, resources and time including funding substantially greater than that
which is otherwise currently available to the Company. Other than the Bridge
Financing the Company has no current arrangements with respect to, or sources
of, additional financing, and it is not anticipated that existing shareholders
will provide any portion of the Company's future financing requirements. There
can be no assurance that additional financing will be available to the Company
when needed, on commercially reasonable terms, or at all.
Inflation
In 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 1999, Israel experienced inflation at the
rate of 1.3% as well as an almost unchanged rate of the dollar against the NIS.
In 2000, as of December 13, 2000, the rate of inflation in Israel is
approximately 1.5% and the rate of devaluation of the dollar against the NIS is
approximately 1.2%.
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,
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fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The Israeli
Government frequently has changed its policies in all these areas.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) On July 8, 1998 the Company consummated its initial public offering (the
"Public Offering") contemplated by its Registration Statement on Form SB-2
(file no. 333-43955) which was declared effective by the Securities and
Exchange Commission on June 29, 1998. A total of 1,197,200 Units were
registered for sale by the Company to the public and 1,041,444 Units were
sold to the public for gross proceeds of $5,986,003. Each Unit consisted of
one share of common stock, $.01 par value per share, of the Company (the
"Common Stock") and one Class A redeemable Common Stock purchase warrant
(the "Warrants"). The Common Stock and Warrants included in the Units were
registered in the Public Offering and became detachable and separately
transferable from the Units on September 29, 1998. In addition, 1,041,044
shares of Common Stock issuable upon exercise of the Warrants were
registered. The Warrants are exercisable between June 29, 1999 and June 28,
2003. In addition, 104,104 Units were registered pursuant to an option
granted to the Underwriter of the Public Offering.
Net proceeds from the Offering were approximately $4,600,000. On July 8,
1998 (the closing date of the Offering) the Company applied approximately
$391,000 of net proceeds toward the repayment of indebtedness of Solmecs to
a stockholder of the Company. The Company also repaid approximately
$110,000 owed to such stockholder for monies advanced for pre-offering
expenses. As of September 30, 2000 the Company has applied the balance of
net proceeds from the Offering as follows: (i) approximately $558,000 to
market research and marketing activities; (ii) approximately $1,347,000 to
research and development; (iii) approximately $60,000 to the repayment of a
short term, non interest bearing loan incurred after March 31, 1998; (iv)
approximately $182,000 to repayment of an existing credit line facility,
approximately $90,000 of which was incurred after March 31, 1998, and which
allows for future borrowing by the Company; (v) approximately $1,496,000
for the purchase of equipment and machinery; and (vi) approximately
$1,358,000 to working capital and general corporate purposes.
On July 8, 1998, contemporaneous with the consummation of the Public
Offering, the Company acquired, in a tax free stock-for-stock transaction,
all of the issued and outstanding capital stock of Solmecs Corporation
N.V., a Netherlands Antilles company and its wholly-owned subsidiary
Solmecs (Israel) Ltd. from Bayou International Ltd. ("Bayou") and issued to
Bayou 499,701 shares of unregistered Common Stock of the Company.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the nine month
period ended September 30, 2000.
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SCNV ACQUISITION CORP. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 6th day of December` 2000.
SCNV ACQUISITION CORP.
(Registrant)
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Professor Herman Branover
President and Chief Executive Officer
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Dr. Shaul Lesin
EVP & CFO
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