U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the quarterly period ended DECEMBER 31, 1999
__ Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the transition period from ______________to _____________.
Commission file number 0-29624
SCNV ACQUISITION CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 90-0194786
(State or other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Omer Industrial Park, P.O. Box 3026, Omer, Israel 84965
(Address of Principal Executive Offices)
(011) 972-7-690-0950
(Issuer's Telephone Number including area code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No ___
As of February 14, 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 DECEMBER 31, 1999
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1999
(Unaudited) ...................................................... 1
Consolidated Statements of Operations
For the three and six months ended December 31, 1999 and,
1998 (Unaudited) ................................................. 2
Consolidated Statement of Changes
in Stockholders' Equity for the six months
ended December 31, 1999 (Unaudited)............................... 3
Consolidated Statements of Cash Flows For the six months
ended December 31, 1999 and, 1998
(Unaudited) ...................................................... 4
Notes to Unaudited Consolidated Financial Statements ............. 5
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations ........................................ 7
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ........................ 14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December, 31
1999
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 106,323
Trade receivables 10,476
Inventory 48,472
Other receivables and prepaid expenses 147,855
-----------
Total current assets 313,126
-----------
FIXED ASSETS
Cost 1,480,827
Less - accumulated depreciation 188,798
-----------
Total fixed assets 1,292,029
OTHER ASSETS 22,000
-----------
Total assets $ 1,627,155
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 291,570
Trade payables 58,375
Sundry payables and accrued expenses 296,384
-----------
Total current liabilities 646,329
-----------
LONG TERM LIABILITIES
Long term loan 200,000
Accrued severance pay 122,866
-----------
Total long term liabilities 322,866
-----------
Total liabilities 969,195
-----------
SHAREHOLDERS' EQUITY
Share capital
Preferred stock $.01 par value, 1,000,000 shares authorized;
none issued and outstanding --
Common stock $.01 par value, 10,000,000 shares authorized;
2,082,088 shares issued and outstanding 20,821
Additional paid-in-capital 7,517,333
Accumulated deficit (6,880,194)
-----------
Total shareholders' equity 657,960
-----------
Total liabilities and shareholders' equity $ 1,627,155
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance
sheet.
1
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales $ 32,400 $ 6,976 $ 81,591 $ 7,165
Contract services -- 9,607 -- 10,291
----------- ----------- ----------- -----------
Total revenues 32,400 16,583 81,591 17,456
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Research and development costs $ 239,339 $ 165,965 $ 442,732 $ 310,490
Cost of merchandise purchased 6,586 6,975 52,887 7,143
Cost of contract services performed
by subcontractors -- 9,188 -- 9,868
Marketing expenses 149,838 59,490 240,536 127,163
General and administrative expenses 200,912 144,426 474,034 272,169
----------- ----------- ----------- -----------
Total costs and expenses 596,675 386,044 1,210,189 726,833
----------- ----------- ----------- -----------
Loss before one-time charge -- (369,461) -- (709,377)
One-time charge of acquired research
and development in process -- -- -- (3,772,054)
----------- ----------- ----------- -----------
Operating Loss (564,275) (369,461) (1,128,598) (4,481,431)
FINANCING INCOME (EXPENSES), NET (22,230) 36,775 (11,334) 59,383
LOSS ON SALE OF FIXED ASSETS -- (836) -- (836)
----------- ----------- ----------- -----------
Net loss $ (586,505) $ (333,522) $(1,139,932) $(4,422,884)
=========== =========== =========== ===========
Net loss per common share, basic and diluted $ (0.28) $ (0.16) $ (0.55) $ (2.12)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding, basic and diluted 2,082,088 2,082,088 2,082,088 2,082,088
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Number of Share Additional Accumulated
Shares Capital Paid-In-Capital Deficit Total
------ ------- --------------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance as of July 1, 1999 2,082,088 20,821 7,517,333 (5,740,262) $ 1,797,892
Net Loss -- -- -- (1,139,932) (1,139,932)
----------- ----------- ----------- ----------- -----------
Balance as of December 31, 1999 2,082,088 $ 20,821 $ 7,517,333 $(6,880,194) $ 657,960
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
3
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
December 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(1,139,932) $(4,422,884)
Adjustments to reconcile net loss to net cash used in operating activities (278,430) 3,918,230
----------- -----------
Net cash used in operating activities (1,418,362) (504,654)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired -- (49,699)
Investment in fixed assets (267,315) (150,292)
Short-term investments, net 1,127,166 (513,157)
Proceeds from sale of fixed assets -- 12,680
----------- -----------
Net cash provided by (used in) investing activities 859,851 (700,468)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Share capital issuance -- 4,657,282
Short term borowings, net 139,672 (743,132)
----------- -----------
Net cash provided by financing activities 139,672 3,914,150
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (418,839) 2,709,028
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 525,162 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 106,323 $ 2,709,028
=========== ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES
Items not involving cash flows:
Depreciation $ 31,189 $ 15,817
Severance pay 8,537 74,836
Loss on sale of fixed assets -- 836
Acquired research and development in process -- 3,772,054
Changes in operating assets and liabilities:
Decrease (increase) in receivable and prepaid expenses (34,112) 529,888
Increase in Inventory (17,877) (20,090)
Increase (decrease) in payables and accrued expenses (266,167) (455,111)
----------- -----------
$ (278,430) $ 3,918,230
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of acquired assets and research and development in process $ -- $ 3,994,649
Less - liabilities assumed -- (1,067,369)
Less - shares issued as consideration for acquisition of subsidiary -- (2,873,280)
----------- -----------
Cash paid -- 54,000
Less cash acquired -- (4,301)
----------- -----------
$ -- $ 49,699
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
4
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General
The financial statements as of and for the three and six months ended December
31, 1999 and 1998 are unaudited; however in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim periods have been
made. The financial statements have been prepared in a manner consistent with
the 10-KSB filed for the fiscal years ended June 30, 1999 and 1998 and should be
read in connection with those financial statements. The unaudited consolidated
statement of operations is not necessarily indicative of the results of
operations for future periods.
Business
SCNV Acquisition Corp. (the "Company") was organized under the laws of the State
of Delaware on May 19, 1997 to acquire Solmecs Corporation N.V. and its wholly
owned subsidiary Solmecs (Israel) Ltd. ("Solmecs") and to select, develop and
commercially exploit proprietary technologies, in various stages of development,
invented primarily by scientists who have recently immigrated to Israel from,
and by scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union.
Initial Public Offering
On July 8, 1998 the Company consummated an Initial Public Offering (the "Public
Offering") in which 1,041,044 Units, comprised of 1,041,044 shares of Common
Stock and 1,041,044 redeemable Common Stock purchase warrants ("Warrants"), were
sold to the public at $5.75 per Unit. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of $7.50, subject to adjustment in
certain circumstances, at any time until June 28, 2003. The net proceeds from
the Public Offering were approximately $4,600,000.
In addition, the Company sold to the Underwriter for an aggregate of $104,
warrants to purchase an additional 104,104 Units at an exercise price of 120% of
the IPO price per Unit ($6.90) ("Underwriter's Warrants"). The Underwriter's
Warrants are exercisable at any time until June 28, 2003.
Acquisition of Solmecs
Simultaneously with the consummation of the Public Offering the Company acquired
all of the issued and outstanding capital stock of Solmecs (the "Acquisition")
in consideration for 499,701 shares of the Company's common stock issued to
Bayou International Ltd. ("Bayou"), the parent
5
<PAGE>
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 $288,000 was reflected as
acquired research and development in process and fully expensed at the date of
the acquisition.
Going Concern
The Company has incurred substantial operating losses and at December 31, 1999,
has an accumulated deficit of approximately $6,880,000. The Company is not
generating sufficient revenues from its operations to fund its activities and
anticipates that it will continue to incur losses for some time. The Company is
continuing its efforts in research and development which will require
substantial additional expenditures. As such, the Company's ability to continue
as a going concern is dependent upon its ability to raise resources to finance
its operations. This fact raises substantial doubt about the Company's ability
to continue as a going concern. The 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 credit lines and bank loans. The Company is also negotiating with
potential investors/partners who would provide bridge financing until the
Company will begin to produce and sell its products.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for 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 actively engaged in the commercial development of two
technologies previously identified by Solmecs, namely (i) advanced bi-facial
photovoltaic panels and (ii) monocrystals of silicon. In November 1998, Solmecs
acquired materials, equipment and engineering services in order to establish a
manufacturing facility in Israel for both one-sided and advanced bi-facial
photovoltaic panels. The Company anticipates that a commercial production
facility will be completed by early 2000. The Company, however, will require
additional funds, not currently available to the Company, to operate the
production facility and acquire raw
7
<PAGE>
materials for the production of commercial quantities. If the Company is able to
obtain such additional funds, on a timely basis, it anticipates commercial
production of photovoltaic panels during the 2000 fiscal year. During the 1999
fiscal year, the Company received limited purchase orders for photovoltaic
panels, which were filled by the Company through its distribution arrangement
with a Russian manufacturer.
Also in November 1998, Solmecs acquired equipment to be used in three production
facilities currently being set up for growing silicon monocrystals. Two of the
facilities are nearing completion and will be dedicated to production of
standard size silicon monocrystals with the qualities necessary for use in both
sophisticated electronics and photovoltaics. The third facility will be modified
for experimental production of silicon monocrystals utilizing LMMHD technology.
The Company did not produce any commercial silicon monocrystals during the 1999
fiscal year. The Company expects to have the two production facilities completed
by early 2000. The Company, however, will require additional funds, not
currently available to the Company, to operate the production facilities and
acquire the raw materials necessary to produce commercial quantities. If the
Company is able to obtain additional funds, on a timely basis, it anticipates
commercial production of standard size silicon monocrystals by mid-2000.
Development of LMMHD enhanced silicon monocrystals, however, is still in the
preliminary testing stage and the Company does not anticipate that this
technology will be ready for production of prototypes for at least one year, and
for production of commercial monocrystals for at least two years. Further
development of this technology will also require additional funds not currently
available to the Company.
In February 1999, the Company acquired world-wide rights (except for Israel) to
develop, produce, market and distribute advanced electronic pocket dictionaries
manufactured by an Israeli company. During fiscal 1999, the Company had limited
sales of the Hebrew/English and Russian/English dictionaries in the United
States. The Company is now focusing on the development of a Spanish/English
dictionary which is expected to be ready for commercial production in early
2000. The Company is negotiating promotional and marketing arrangements with two
marketing and distribution companies for promotion and distribution of the
dictionaries.
In May 1999, the Company acquired a 90.4% interest in Elecmatec, which employs
"micro-gravity" conditions to the production of alloys for use in production of
metal based products such as engine bearings for the automotive industry.
Elecmatec has completed the development and preliminary testing of its
manufacturing process. A third party has commenced construction of a facility in
Kiryat Gat, Israel, which it will lease to Elecmatec for the production of metal
alloys. Construction of such facility is dependent upon Elecmatec meeting its
obligation to provide certain financing which, in turn, is dependent on the
Company providing certain financing to Elecmatec. If such financing is obtained
on a timely basis, it is anticipated that the production facility will be
completed and operational for production of commercial quantities of alloy by
the end of 2000.
The Company further intends to offer its engineering services to industry and
research institutions in the fields of LMMHD power technology and liquid metal
engineering. Although
8
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the LMMHD power technology has been in development since 1980's, it has not yet
reached commercialization. In order to achieve commercialization of such
technology, the Company will be required to build a commercial scale
demonstration plant, which will require a significant capital expenditure. The
Company is not currently engaged in further development of the LMMHD power
technology.
Completion of the research, development and commercialization of the Company's
technologies or any potential application of such technologies will require
significant additional effort, resources and time, including funding
substantially greater than the proceeds otherwise currently available to the
Company. Such research and development efforts remain subject to all of the
risks associated with the development of new products based on emerging and
innovative technologies, including, without limitation, unanticipated technical
or other problems and the possible insufficiency of the funds allocated to
complete such development, which could result in delay of research or
development or substantial change or abandonment of research and development
activities.
To date, the Company has not generated significant revenues from its marketable
products. The Company does not expect to generate any meaningful revenues until
such time, if ever, as it successfully produces, markets and distributes its
commercial products on a broad scale or until it successfully commercializes or
sells proprietary rights relating to one or more of Solmecs' technologies
currently in development.
The Company has incurred substantial operating losses and at December 31, 1999,
has an accumulated deficit of approximately $6,880,000. The Company 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 operations. This fact raises substantial doubt that
the Company's ability to continue as a going concern.
The Company plans to finance its operations and capital expenditures by
receiving additional credit lines and bank loans. The Company is also
negotiating with potential investors/partners who would provide bridge financing
until the Company will begin to produce and sell its products. There is no
assurance that additional financing will be available to the Company when
needed, on commercially reasonable terms or at all.
Results of Operations
The consolidated statement of operations and other financial and operating data
for the three and six month periods ended December 31, 1998 and 1999 are derived
from the unaudited financial statements of the Company included elsewhere
herein.
9
<PAGE>
Three Months Ended December 31, 1999 Compared with Three Months Ended December
31, 1998
Sales. Sales increased to $32,400 for the three months ended December 31,
1999 as compared to $6,976 for the three months ended December 31, 1998. The
increase was attributable to sales of photovoltaic panels, silicon ingots
(silicon cylinders, 150mm diameter, 700mm long from which are sliced waffers
(disks)) and sales of electronic pocket dictionaries in the United States.
Contract Services. There were no contract services performed by the Company
for the three months ended December 31, 1999.
Total Revenues. Total revenues increased by $15,817 to $32,400 for the
three months ended December 31, 1999 compared to $16,583 for the three months
ended December 31, 1998. The increase is attributable to the increase in sales
of products stated herein.
Research and Development Costs. Research and development costs increased by
$73,374 or 44% to $239,339 for the three months ended December 31, 1999, as
compared to $165,965 for the three months ended December31, 1998. The increase
is mainly due to the development of the new English-Spanish electronic pocket
dictionary and to the addition of qualified personal for the silicon's plant.
Cost of Merchandise Purchased. Costs of merchandise purchased decreased by
$389 to $6,586 for the three months ended December 31, 1999, as compared to
$6,975 for the three months ended December 31, 1998. The decrease is
attributable to merchandise purchased during the first quarter of the year.
Marketing Expenses. Marketing expenses increased by $90,348 or 152%, to
$149,838 for the three months ended December 31, 1999, as compared to $59,490
for the three months ended December 31, 1998. This increase is primarily
attributable to the marketing trips to promote Solmec's and Elecmatec's products
abroad.
General and Administrative Expenses. General and administrative expenses
increased by $56,486 or 39%, to $200,912 for the three months ended December 31,
1999, as compared to $144,426 for the three months ended December 31, 1998. This
increase is primarily attributable to the costs and expenses due to the addition
of a new subsidiary-Elecmatec.
Operating Loss. Operating loss increased by $194,814 to $564,275 for the
three months ended December 31, 1999, as compared to $369,461 for the three
months ended December 31, 1998. The increase in operating loss is primarily
attributable to the aforementioned
Financing Income(Expenses),Net. Financing expenses were $22,230 for the
three months ended December 31, 1999, as compared to financing income of $36,775
for the three months
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ended December 31, 1998, primarily as a result of interest paid by the Company
on borowings in 1999 as compared to interest earned by the Company on deposits
in 1998.
Net Loss and Net Loss Per Share. As a result of the foregoing, net loss was
$586,505 ($0.28 per share) for the three months ended December 1999 as compared
to $333,522 ($0.16 per share) for the three months ended December 31, 1998.
Six Months Ended December 31, 1999 Compared with Six Months Ended December 31,
1998
Sales. Sales increased to $81,591 for the six months ended December 31,
1999 as compared to $7,165 for the six months ended December 31, 1998. The
increase was attributable to sales of photovoltaic panels, silicon ingots
(silicon cylinders, 150mm diameter, 700mm long from which are sliced waffers
(disks) and sales of electronic pocket dictionaries in the United States.
Contract Services. There were no contract services performed by the Company
for the six months ended December 31, 1999.
Total Revenues. Total revenues increased by $64,135 to $81,591 for the six
months ended December 31, 1999 compared to $17,456 for the six months ended
December 31, 1998. The increase is attributable to the increase in sales of
products stated herein.
Research and Development Costs. Research and development and costs
increased by $132,242 or 43% to $442,732 for the six months ended December 31,
1999, as compared to $310,490 for the six months ended December 31, 1998. The
increase is mainly due to the development of the new English-Spanish electronic
pocket dictionary and to the addition of qualified personal for the silicon
plant.
Cost of Merchandise Purchased. Costs of merchandise purchased increased by
$45,744 to $52,887 for the six months ended December 31, 1999, as compared to
$7,143 for the six months ended December 31, 1998. The increase is attributable
to the increase in sales of photovoltaic panels, silicon ingots and electronic
pocket dictionaries.
Marketing Expenses. Marketing expenses increased by $113,373 or 89%, to
$240,536 for the six months ended December 31, 1999, as compared to $127,163 for
the six months ended December 31, 1998. This increase is primarily attributable
to the marketing trips to promote Solmec's and Elecmatec's products abroad.
General and Administrative Expenses. General and administrative expenses
increased by $201,865 or 74%, to $474,034 for the six months ended December 31,
1999, as compared to $272,169 for the six months ended December 31, 1998. This
increase is primarily attributable to the costs and expenses due to the addition
of a new subsidiary-Elecmatec.
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<PAGE>
One-Time Charge of Acquired Research and Development In-Process . The
acquisition of Solmecs by the Company has been accounted for as a purchase and
the excess purchase price over fair value of assets acquired of $3,772,054 has
been reflected in the Company's consolidated statement of operations for the six
month period ended December 31, 1998 as acquired research and development in
process. The Company has recorded a one-time charge for the write-off in full of
such research and development in process as of the date of the Acquisition.
Operating Loss. Operating Loss decreased by $3,352,833 to $1,128,598 for
the six months ended December 31, 1999, as compared to $4,481,431 for the six
months ended December 31, 1998. The decrease in operating loss is solely
attributable to the aforementioned.
Financing Income(Expenses), Net. Financing expenses were $11,334 for the
six months ended December 31, 1999, as compared to financing income of $59,383
for the six months ended December 31, 1998, primarily as a result of interest
paid by the Company on bank loans in 1999 as compared to interest earned by the
Company on deposits in 1998.
Net Loss and Net Loss Per Share. As a result of the foregoing, net loss was
$1,139,932 ($0.55 per share) for the six months ended December 1999 as compared
to $4,422,884 ($2.12 per share) for the six months ended December 31, 1998.
Liquidity and Capital Resources
As of December 31, 1999, the Company had a deficiency of working capital of
$333,203, a shareholders' equity of $657,960 and an accumulated deficit of
$6,880,194.
In May 1999, the Company acquired a 90.4% interest in Elecmatec for an
acquisition price of $150,000 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.
The Company's capital requirements will be significant. The Company is dependent
upon the remaining proceeds of the Public Offering to finance the operations of
the Company, including the costs of market research and marketing activities,
continued research and development efforts, establishing manufacturing
capabilities and the acquisition of intellectual property rights. Completion of
the commercialization of the Company's technologies or any potential application
of such technologies including, without limitation, the technology of Elecmatec,
will require significant additional effort, resources and time including funding
substantially greater than the remaining proceeds of the Public Offering or
otherwise currently available to the Company. Moreover, the remaining proceeds
of the Public Offering will be insufficient to satisfy the
12
<PAGE>
scheduled projects, requiring the Company to seek additional financing. The
Company has no current arrangements with respect to, or sources of, additional
financing, and it is not anticipated that existing shareholders will provide any
portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company when
needed, on commercially reasonable terms, or at all.
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.
Year 2000
The Company has evaluated and updated its Information Technology ("IT") systems
to ensure that it will have the capability to manage and manipulate data in the
year 2000 and beyond. The Company's IT systems are substantially compliant with
Year 2000 requirements and no problems have been recorded up to date. Costs
incurred by the Company to date to implement its plans have not been material
and are not expected to have a material effect on the Company's financial
condition or results of operations.
13
<PAGE>
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 December 31, 1999 the Company has applied the balance of
net proceeds from the Offering as follows: (i) approximately $430,000 to
market research and marketing activities; (ii) approximately $1,160,000 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 $1,480,000
for the purchase of equipment and machinery; and (vi) approximately
$1,165,000 to working capital and general corporate purposes.
On July 8, 1998, contemporaneous with the consummation of the Public
Offering, the Company acquired, in a tax free stock-for-stock transaction,
all of the issued and outstanding capital stock of Solmecs Corporation
N.V., a Netherlands Antilles company and its wholly-owned subsidiary
Solmecs (Israel) Ltd. from Bayou International Ltd. ("Bayou") and issued to
Bayou 499,701 shares of unregistered Common Stock of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
14
<PAGE>
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the six month
period ended December 31, 1999.
15
<PAGE>
SCNV ACQUISITION CORP. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 22nd day of
February 2000.
SCNV ACQUISITION CORP.
(Registrant)
/s/ Herman Branover
--------------------
Professor Herman Branover
President and Chief Executive Officer
/s/ Jacline Bavli
------------------
Jacline Bavli
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 106,323
<SECURITIES> 0
<RECEIVABLES> 147,855
<ALLOWANCES> 0
<INVENTORY> 48,472
<CURRENT-ASSETS> 313,126
<PP&E> 1,480,827
<DEPRECIATION> 188,798
<TOTAL-ASSETS> 1,627,155
<CURRENT-LIABILITIES> 646,329
<BONDS> 0
0
0
<COMMON> 20,821
<OTHER-SE> 657,960
<TOTAL-LIABILITY-AND-EQUITY> 1,627,155
<SALES> 32,400
<TOTAL-REVENUES> 32,400
<CGS> 6,586
<TOTAL-COSTS> 590,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,230)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,505)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
