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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission File Number 0-16097
BAYOU INTERNATIONAL, LTD.
(Exact name of Registrant as specified in its charter)
Delaware 98-0079697
- ------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
incorporation or organisation) Identification No.)
Level 8, 580 St. Kilda Road, Melbourne, Victoria, 3004 Australia
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011 (613) 9276-7860
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
N/A N/A
--- ---
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.15 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to
this Form 10-K. [ ]
The aggregate market value based on the average bid and asked price on the
over-the-counter market of the Registrant's common stock, $.15 par value per
share ("Common Stock") held by non-affiliates or the Company was $16,164,051 as
of November 1, 1996.
There were 46,941,789 outstanding shares of Common Stock as of November 1, 1996.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
PART I
Item 1 Business 2
Item 2 Properties 8
Item 3 Not applicable 8
Item 4 Not applicable 8
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 9
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 8 Not applicable 16
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10 Directors and Executive Officers of the Registrant 17
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial
Owners and Management 20
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 22
Signatures 23
Exhibit Index 25
</TABLE>
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PART 1
ITEM 1. BUSINESS
GENERAL
Bayou International, Ltd. a Delaware corporation ("Bayou" or the "Company") is
primarily engaged in the research and development of high efficiency low
pollution or pollution-free products and technologies in the energy conversion
and conservation fields through its wholly owned subsidiary, Solmecs
Corporation N.V., a Netherlands Antilles corporation ("Solmecs").
Unless otherwise indicated, all amounts in this Report are presented in
Australian Dollars ("A$"). In addition, for the convenience of the reader, the
Australian Dollar figures for the year ended June 30 1996 have been translated
into United States Dollars ("$") using the rate of exchange at June 30 1996
(A$1.00 = US$0.7870).
The executive offices of the Company are located at Level 8, 580 St. Kilda Road
Melbourne Victoria 3004 Australia and its telephone number is 011 (613)
9276-7860. The executive offices of Solmecs are located at 7 Ben Zui Road
Beer-Sheva Israel.
Unless the context otherwise indicates, the term "Company" as used in this
Report refers to Bayou International, Ltd., its subsidiary, Solmecs and its
predecessor corporation, Bayou Oil and Gas, Inc. ("Bayou Oil") (defined below),
after giving effect to the Kingsway and Fehr Exchanges and the Reincorporation.
HISTORY
The Company's predecessor corporation, Bayou Oil was incorporated under the
laws of Minnesota in 1973. From 1973 through 1981 Bayou Oil was engaged in the
design and production of protective athletic equipment and owned rights to a
line of sportswear. These business lines were ultimately discontinued and in
March 1981 Bayou Oil entered into the oil and gas exploration business by
acquiring certain rights to oil and gas leases. These rights were not
profitable and as a result thereof from 1981 through May 1986 Bayou Oil did not
engage in any meaningful business activities or operations.
In May 1986, 5,771,482 shares or 85.1% of the common stock of Bayou Oil then
outstanding were acquired by Kingsway Group Limited a corporation incorporated
under the laws of New South Wales, Australia now known as Australia Wide
Industries Limited ("Australia Wide") in exchange (the "Kingsway Exchange") for
all of the issued and outstanding stock of its subsidiary Lake Macquarie
Diaries Pty Ltd ("Lake") which was engaged in the acquisition and development
of residential and commercial real estate in Australia. An additional 332,318
shares or 4.9% of the Bayou Oil common stock then outstanding were issued to
Mr. George D. Fehr in exchange for the transfer to the Company of certain oil
and gas and mineral leases and the rights to receive royalties from the leases
(the "Fehr Exchange"). Due to the relationship between Australia Wide
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and Lake and subsequently the Company, the Kingsway Exchange was accounted for
as a book value purchase.
On March 6 1987 Bayou Oil merged into the Company its wholly-owned Delaware
subsidiary for the purpose of effecting its incorporation in the State of
Delaware (the "Reincorporation"). Pursuant to the terms of the Reincorporation
holders of Bayou Oil common stock received one share of Common Stock for each
share of Bayou Oil held by them. The primary purpose of the Reincorporation was
to allow Bayou Oil and its officers and Directors to avail themselves of the
advantages of being incorporated under the Delaware General Corporation Law. In
addition as a result of the Reincorporation Bayou Oil's name was changed to
"Bayou International, Ltd." in order to more accurately reflect the changing
nature of the Company's business and the par value of the Common Stock was
increased from U.S. $.01 to U.S. $.15 per share in order to meet the listing
requirements of Australian Stock Exchange Limited ("ASX"). The Reincorporation
was approved by the stockholders of Bayou at Bayou Oil's Annual Meeting of
Stockholders held on March 6 1987. The Company did not complete the listing on
ASX due to a change in economic circumstances in Australia in October 1987.
In 1987 the Company acquired 54% of the issued and outstanding capital stock of
Solmecs and in April 1988 the Company was a founding shareholder of Advanced
Technology Engineering Limited ("Atel") which was formerly the parent company of
Satec Ltd an Israeli Corporation ("Satec"). In December 1989 the Company
purchased the remaining 8% of Atel not previously owned by it for an aggregate
purchase price of A$150,000. The Company subsequently transferred all of Atel's
assets directly to the Company (including Atel's investment in Satec) and
assumed all of Atel's liabilities in connection therewith. Atel was
subsequently liquidated and dissolved as the Company no longer required the
corporate shell of Atel. Satec was organised to engage in the design,
development, manufacture and marketing of proprietary high technology products
and technologies.
In April 1989 Solmecs transferred all of its right, title and interest in the
certain geothermal energy conversion technology to its wholly owned subsidiary
Solmecs Corporation UK Ltd in exchange for all of the issued and outstanding
shares of Solmecs Corporation UK Ltd. Solmecs Corporation UK Ltd then changed
its name to TFC Power. The shares of TFC Power were subsequently distributed to
the shareholders of Solmecs and as a result, TFC Power became a 54%-owned
subsidiary of the Company.
The Company has previously held a 54% interest (via Solmecs) in Solmecs Flo-Ice
Systems Ltd ("SFI") which is engaged in the design, development and marketing of
its "Flo-Ice" ice generator which is an innovative method of producing very fine
crystals of ice which are dispersed in water. Solmecs paid a dividend in June
1991 which was effected by distributing the shares it held in SFI to the
shareholders of Solmecs which were distributed on a pro-rata basis to the
shareholders of Solmecs. At the time the Company held 54% of Solmecs and as a
result of the dividend 54% of the shares of SFI were transferred to the Company.
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In October 1990 following a review of its operations the Company decided not to
renew the leases over a number of its mineral, oil and gas properties. The
Company is not currently engaged in any mineral, oil or gas exploration or
development activities.
In March 1991 the assets and liabilities of Lake were transferred to Bayou and
Lake was placed in members voluntary liquidation which was completed in March
1992 as Lake had ceased its business operations and the corporate entity of
Lake was no longer required.
During the year ended June 30 1991 the Company decided to concentrate its
effort on the Liquid Metal Magneto-Hydro-Dynamics ("LMMHD") technology
(discussed below) and as a result Solmecs reduced its holding in SFI from 54%
to 23% through the sale of a part of its holding and the issue of additional
shares by SFI.
In July 1991 the Company transferred all of the ordinary shares of Satec owned
by it and all of the inter-company loans owed by Satec to the Company to
Isratech Ltd., a Delaware corporation ("Isratech"), in consideration for the
assumption by Isratech of all of the Company's liabilities and obligations with
respect to Satec. Isratech was a private Delaware corporation the officers,
Directors and shareholders of which include members of the family of Mr Daniel
Branover who was the President of Satec at the time of the transaction and
formerly a Director of the Company.
In January 1992 the Company completed the acquisition of the remaining 46% of
the issued and outstanding shares of Solmecs. Solmecs minority shareholders
received shares in the Company in exchange for their Solmecs shares. The
Company now holds all of the issued and outstanding shares of Solmecs.
In July 1992 the Company agreed to dilute its interest in TFC Power from 54% to
36% in consideration for services rendered by key executives and as an
incentive for future services.
In December 1994 the Company entered into an agreement with TFC Power, SFI and
Peter Kalms ("Kalms") whereby the Company transferred shares in TFC Power and
SFI to Kalms in consideration for Kalms taking an assignment of debts of
Solmecs to TFC Power and SFI and foregiving a debt due from Solmecs to Kalms.
Kalms was the former Managing Director of Solmecs and was Managing Director of
TFC Power and SFI. As a result, the Company and Solmecs now hold interests of
8.4% in TFC Power and 8.6% in SFI.
In late 1995 Solmecs incorporated a subsidiary Heatex Ltd ("Heatex") in Israel
for the purpose of engaging in research, development and commercialisation of a
domestic hot water tank control and display system. Further details on Heatex
are contained within this section of the Report.
SOLMECS CORPORATION N.V.
Solmecs was established in 1980 to engage in the research, development and
commercialization of products and technologies in the energy conversion field.
Bayou owns all of the issued and outstanding shares of Solmecs, which fully
owns Solmecs Israel Ltd ("Solmecs Israel").
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LMMHD-ECT: A primary area of research and development for Solmecs involves the
innovative technology known as LMMHD Energy Conversion Technology (ECT).
A report prepared by an independent engineering consulting firm in Israel has
indicated that the installed capital cost of the ETGAR-7, Solmecs' mature LMMHD
power plant once its development has been completed will only be 76% of that of
a conventional steam turbo generator plant. In addition the estimated
efficiency of the ETGAR-7 will be higher than that of the steam turbo-generator
plant resulting in lower fuel costs and reduced pollution of the environment.
Scientific Background: The LMMHD-ECT differs from the conventional methods used
to generate electricity. In conventional methods a copper coil installed in the
rotating portion of a generator (the "rotor") is forced to turn in a
perpendicular magnetic field created in the stationary portion of a general
(the "stator"). The force to cause the rotation is typically provided by a
fossil fuel burning turbine or reciprocating engine, although hydro power is
also used.
In LMMHD-ECT the rotating copper coil in a magnetic field is replaced by
forcing a conducting fluid (such as lead) through a magnetic field. The
resulting MHD generator is a direct energy conversion device, as it converts
the thermal energy of the working fluid directly to electricity rather than
first converting the thermal energy to mechanical energy to cause the rotation
of the "rotor" in the conventional electric generator.
The unique concept of LMMHD-ECT features no moving machinery for the energy
conversion and as a result the complex, expensive and specialized turbine and
generator are not needed. LMMHD is therefore expected to require relatively low
maintenance and offer inherent high availability (on-time) and high reliability
energy generation.
Additionally the "no heat exchange" or adiabatic expansion process typical of
conventional turbo-machinery is inherently less cycle-efficient than the nearly
isothermal, continuous heating expansion process typical of the LMMHD-ECT. This
unique feature of LMMHD-ECT offers this nearly isothermal expansion process
without the need for extra reheaters. This feature characterized as "infinite
re-heater" can also be matched in some versions of LMMHD-ECT with a compressor
that also performs the function of an 'infinite intercooler' again without the
need for extra hardware.
Liquid metal, such as lead, has a low chemical reactivity with many materials
and exhibits a low vapor pressure even at the upper temperature range of
practical thermodynamic cycles. It is therefore practical, in certain
industrial applications to bring this lead into direct contact with the heat
source. Examples of these industrial applications include imperial smelting
technology for Zinc production, the patented process used for heat treatment of
steel wires and the conversion of organic furfural into furan. When the
LMMHD-ECT is combined with these processes a highly efficient conversion of the
otherwise "wasted" heat to DC electricity is achieved. This "free" electricity
can then be used in the industrial process to offset the cost of purchased
electricity.
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Finally the inherent high heat capacity of the liquid metal of LMMHD energy
conversion is orders of magnitude higher than the heat capacity of the working
thermo dynamic fluids found in conventional power plants of comparable
capacity. This makes the technology particularly attractive to many
applications needing nearly constant temperature heat sink-heat source as well
as applications requiring large heat storage capacity such as solar energy
utilization.
OMACON: The particular form of LMMHD-ECT which Solmecs is engaged in developing
is referred to as OMACON (which stands for Optimized Magnetohydrodynamic
Conversion). The patented technology for the OMACON generator was originally
developed by Professor Herman Branover an astrophysicist who is the head of
Ben-Gurion University's center for MHD studies in Israel and a former Professor
at the Academy of Science in Riga Lotvia. It is widely acknowledged in
international engineering and scientific circles that due to the work done by
Professor Branover and Solmecs, Israel is closer to practical application of
LMMHD than either the U.S.A. or the former U.S.S.R.
Ben-Gurion University through its commercial arm Advanced Products (Beer-Sheva)
Ltd. ("AP"), has assigned all of its right, title and interest in and to the
patents and technology which underlie the OMACON generator to Solmecs in
consideration of an initial payment of $100,000 and the payment of royalties
during a period which is equal to the greater of the life of any patent or
eight years from the commencement of commercial sales of the technology. In
addition Solmecs agreed to assume certain obligations of AP to the Government
of Israel to repay certain research grants which AP had received in connection
with the development of the OMACON generator.
The Agreement also provided that Solmecs would conduct certain of its LMMHD
research and development activities with respect of the initial stages of the
program through the center of MHD studies at Ben-Gurion University.
Solmecs currently has a team of experienced researchers and engineers in the
field of LMMHD technology under the supervision of Professor Branover. The team
is headquartered at Solmecs' facilities which are rented from Ben-Gurion
University.
The ETGAR Program: The presently ongoing LMMHD program of Solmecs commenced in
1981. It is carried out by the Center for MHD Studies of Ben-Gurion University
in Beer-Sheva. The program concentrates on the development of OMACON systems
and towards the commercialization of small-scale (1-10 MW with a possible
further upscaling to 25 MW) power plants being able to utilize a variety of
heat sources. This program is called the ETGAR Program.
In 1987 the program reached the beginning of its commercialization stage.
Solmecs decided to proceed with the development and building of a commercial
scale demonstration plant after it became evident that all of the previous
theoretical, experimental and engineering work and especially the two-year long
testing of the integrated pilot plant ETGAR-3 provided the necessary data base
for such development.
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All of the power generating systems which are planned to be built according to
ETGAR program implement the OMACON concept with either a single-phase generator
or a two-phase generator.
The Etgar commercialization program will be conducted in three stages. Firstly,
ETGAR 5 the industrial scale co-generation demonstration plant will be built at
an industrial site. Then Etgar 6, the first commercial full scale co-generation
plant will incorporate the know-how obtained from ETGAR 5 and inputs from the
supporting research and development program. This will be carried out in
parallel with the ETGAR 5 design and construction. The ETGAR 7 Co-generation
Plant will be designed as a generic concept applicable for utilization with
different heat sources and for operation over a wide range of applications in
the 1 - 20 MW size.
Solmecs has an agreement with the High Temperature Institute of the Academy of
Sciences of the USSR ("the Institute") pursuant to which the Institute will
manufacture certain of the components for the ETGAR-5 facility. The components
will be manufactured by the Institute based on Solmecs' specifications without
charge to Solmecs in return for preferential rights to act as a manufacturer
for these products once they have reached the commercialization stage.
New Directions
Recently Solmecs initiated an additional development program for further
advancement and refinement of its LMMHD technology as well as for increasing
the range of its potential applications. The following leading new directions
have been pursued.
a) Additional advancement of the performance of ETGAR-type LMMHD ECT
An ETGAR system with a "boiling mixer" has been invented and developed.
A large scale prototype called "Ofra" has been designed and constructed
at the MHD center of Ben-Gurion University in Israel. The prototype is
now in the last stages of commissioning and first tests will commence
by the end of 1996. Approximately US$1 million has been spent on this
project and it was elaborated jointly with the International Lead and
Zinc Research Organization ("ILZRO") in North Carolina USA. On the
basis of the positive results of previous smaller scale experiments it
is anticipated that introduction of a "boiling mixer" (i.e. injection
of volatile thermodynamic fluid directly into the molten metal which
causes boiling of the volatile fluid through direct contract heat
exchange) will lead to a further substantial increase of the efficiency
of an ETGAR system with simultaneous decrease in installation costs
(due to elimination of a boiler which constitutes up to 40% of the
capital investment in power stations).
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b) New applications for LMMHD ECT
A number of new applications for ETGAR-type LMMHD ECT have been
detected and explored. The following are just a few examples
. Using ETGAR systems on off-shore oil pumping platforms. In this
case the system will produce electricity utilizing heat and
pressure of gases mixed with the oil stream arriving from very deep
off-shore oil wells. This direction is explored with AMEC Process
and Energy Limited (London) who are a very large British
engineering company specializing in the off-shore oil industry.
. Matching ETGAR-technology to a novel energy system developed by
European Organisation for Nuclear Research CERN in Geneva (the
world's largest elementary particle accelerator build jointly by
the countries of the European Community). This system is using a
flux of accelerated protons which hit a molten lead target and
causes neutron emission directed on thorium rods. Ultimately the
generated thermal energy is absorbed by the molten lead. It is
suggested by Solmecs' team that the hot lead would be directed into
an ETGAR type LMMHD electricity generating device.
c) Electromagnetic Processing of Materials
The know-how in the field of Liquid Metals and of MHD phenomena
allowed Solmecs to enter into a number of studies related to
electromagnetic processing of materials. The preliminary data
obtained to date indicate that the following results can be
achieved
. Substantial improvement of the quality of complicated castings
. Creation of new alloys with "exotic" properties
. Advancement of monocrystal growths technology (larger crystals
with improved quality).
d) The know-how in the field of energy and heat transfer allowed
Solmecs through the subsidiary "Heatex" to enter into the
development of a domestic hot water tank control and display
system. The development stage is planned to be finished by October
1996 and the sales are expected to start by the end of 1996.
e) In addition the good connections developed between Solmecs and
institutions and companies in the former Soviet Union countries
have permitted Solmecs to commence commercial activities in the
following two areas:
(i) The marketing in Israel of photovoltaic (PV) modules manufactured
by the Russian firm "Musson".
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(ii) The supplying in Israel of services of Plasma-Chemical
modifications (PMC) of elastomer products using Russian
technology.
There is a vast worldwide market for each of the abovementioned new
technologies.
Status of Funding for LMMHD Project
In 1995, ILZRO and Solmecs (Israel) proposed to form a joint venture to further
develop technology relating to LMMHD. Research work would be carried out both
within the SOLMECS Laboratory at the Center for MHD Studies of Ben-Gurion
University in Beer-Sheva, Israel and at a USA site where a scaled-up LMMHD
facility would be constructed and used for research.
The demonstration plant would be built and scale-up technology further proven
during a four-year grant period with a total budget of approximately US$6
million. Grant co-sponsors would include four sources: being the U.S.
Department of Commerce, the Israel Ministry of Industry, SOLMECS, and a private
group of investors including a subsidiary of ILZRO.
Towards the end of the four year grant period, the two private groups of
investors will form a joint venture company to be called Pb-MHD to own and
operate the demonstration facility as a fee-based service for clients along
with private consulting services to these clients with substantial revenues to
Pb-MHD. It is anticipated that the above activity of Pb-MHD will substantially
enhance the amount of OMACON Power generating systems paying licences fees to
Solmecs and ordering key components from Solmecs.
Unique to these proposals which are intended for application in the near future
is the availability of matching funds from the US and Israeli governments which
will reduce capital requirements by one half.
Bayou is currently seeking other public and private sources of funding to
continue the development of its LMMHD technology, however, there can be no
assurances that such funding will be available to Bayou.
HEATEX LTD.
Heatex was established in 1995 to engage in research, development and
commercialization of a domestic hot water tank control and display system.
This new system provides the user with accurate information on the amount of
hot water left for use in the domestic hot water tank. The system allows a
user to remotely control the operation of the water heating system no matter
whether it is fueled by electricity or solar power. The controller displays
the necessary information such as the number of standard showers available in
the tank and the user is able to fix the desired number of showers he wants to
keep in the system at time intervals he chooses i.e. the device will help to
avoid unnecessary waste of energy and will allow a comfortable use of the water
heating system.
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Following the research and development stage, an Israeli electronic firm
(Aerobit Industries Ltd., - a wholly owned subsidiary of L S B Industries, Inc.
USA), was subcontracted for engineering and manufacturing the product. Heatex
is now in advanced negotiations with different marketing companies in Israel
which also include manufacturers of domestic hot water tanks.
The intention of Heatex is to receive royalties from the sales of the product
and not to operate as a manufacturer. Part of the money will be invested in
further improvements of the product and in marketing efforts which will be
performed by Heatex.
First sales in Israel are anticipated by the end of 1996 whilst marketing
efforts will begin also in other countries in the Mediterranean area like
Greece, Spain and Portugal during 1997.
EMPLOYEES
As of July 1, 1996, the Company (through Solmecs) had 12 employees, 6 of whom
are engaged on a full-time basis and 6 of whom are engaged on a part-time
basis.
The services of the Company's Chief Executive Officer and Chief Financial
Officer as well as clerical employees are provided to it on a part-time basis
pursuant to a Service Agreement dated November 25, 1988 (the "Service
Agreement") by and between the Company and AWI Administration Services Pty.
Ltd. ("AWI Admin"). AWI Admin also provides office facilities, equipment,
administrative and clerical services to the Company pursuant to the Service
Agreement. This Agreement may be terminated by written notice from the parties
thereto.
For a discussion of the additional terms of this agreements, see "Item 13 -
Certain Relationships and Related Transactions" and "Item 11 - Executive
Compensation."
COMPETITION
The Company believes that Solmecs is the only commercial company engaged in the
development of LMMHD generator systems and that the LMMHD system is the leading
future technology in the energy conversion field. However the Company believes
that the competition in the worldwide market for energy conversion systems is
intense and Solmecs may encounter substantial competition from other companies
engaged in the development of competing energy conversion systems.
PATENTS AND PROPRIETARY RIGHTS
As of June 30, 1996 Solmecs has filed applications for patents in the United
States, Israel and a number of other countries in connection with its
development of the LMMHD. Solmecs has been granted patents for its MHD
Applications (homogenous flow) in the United States, Israel, Italy, Great
Britain, Germany, France, Sweden, Canada, Japan and Australia and for its Solar
MHD in the United States.
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Even if Solmecs are successful in obtaining all of their applications for
patents there can be no assurance that the protection afforded by such patents
would be as broad as the claim made in the applications or that the patents as
granted would be found to be valid if the patents were contested in litigation.
In the event Solmecs is unable to secure any patents with respect to the LMMHD
Generator or in any foreign jurisdiction in which it is actually seeking to
market the LMMHD Generator it would be at a severe competitive disadvantage and
may not be able to market the LMMHD Generator in any jurisdictions where the
patents would be unavailable to it.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or which
any of its property is the subject that the Company considers material.
ITEM 2. PROPERTIES
The Company occupies certain executive and administrative office facilities in
Melbourne Victoria Australia which are provided to it pursuant to the Service
Agreement with AWI Admin. See "Item 1 - Business - Employees" and "Item 13 -
Certain Relationships and Related Transactions". The Company believes that its
administrative space is adequate for its current needs.
The executive offices of Solmecs previously located at 97 Jaffa Road, Clal
Center Suite 216 Jerusalem 94341 Israel were transferred to 7 Ben Zui Road,
Beer-Sheva, Israel (nearby the Company's Laboratories) and are leased pursuant
to a lease which expires in December 1996 at approximately US$200 per month.
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for the
Common Stock has been sporadic and the market for the Common Stock cannot be
classified as an established public trading market.
The following table sets forth the high and low bid information for the Common
Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated in U.S.$:
<TABLE>
<CAPTION>
Calendar Period High Bid(1) (2) Low Bid(l) (2)
- --------------- ---------------- ---------------
<S> <C> <C>
1 9 9 4
First Quarter . . . . . . . . . . . . . . . . . . 3/8 . . . . . . . . . . . . . . 1/8
Second Quarter . . . . . . . . . . . . . . . . . 1/2 . . . . . . . . . . . . . . 5/16
Third Quarter . . . . . . . . . . . . . . . . . . 3/4 . . . . . . . . . . . . . . 1/2
Fourth Quarter . . . . . . . . . . . . . . . . 9/16 . . . . . . . . . . . . . . 3/8
1 9 9 5
First Quarter . . . . . . . . . . . . . . . . . 7/16 . . . . . . . . . . . . . . 3/8
Second Quarter . . . . . . . . . . . . . . . . . 9/16 . . . . . . . . . . . . . . 3/8
Third Quarter . . . . . . . . . . . . . . . . . . 3/8 . . . . . . . . . . . . . . .3/8
Fourth Quarter . . . . . . . . . . . . . . . . . 3/8 . . . . . . . . . . . . . . 3/8
1 9 9 6
First Quarter . . . . . . . . . . . . . . . . . . 1/2 . . . . . . . . . . . . . . 1/4
Second Quarter . . . . . . . . . . . . . . . . . 5/8 . . . . . . . . . . . . . . 3/8
Third Quarter . . . . . . . . . . . . . . . . . . 5/8 . . . . . . . . . . . . . . 5/8
</TABLE>
(1) The quotations set forth herein reflect interdealer prices without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
(2) These prices reflect market adjustments made in connection with the
Company's one-for-five reverse stock split effective as of December
31, 1986.
On November 28, 1996 the closing bid for the Common Stock was 5/8.
12
<PAGE> 14
SHAREHOLDERS
As of November 1, 1996 the Company had approximately 287 holders of record.
DIVIDEND POLICY
It is the present policy of the Board of Directors to retain earnings for use
in the Company's business. The Company has not declared any cash dividends to
the holders of its Common Stock and does not intend to declare such dividends
in the foreseeable future.
TRANSFER AGENT, REGISTRAR AND ESCROW AGENT
The United States Transfer Agent and Registrar of the Company is Chase Mellon
Bank.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for each of the years
in the five-year period ended June 30 1996 and balance sheet data at June 30,
1992, 1993, 1994, 1995 and 1996 have been derived from the financial statements
of the Company which financial statements have been examined by Rodee and
Associates PC, independent accountants in respect of the years ended June 30,
1992, 1993 and 1994, and by David T Thomson PC, independent accountants in
respect of the year ended June 30, 1995 and 1996. The selected financial data
should be read in conjunction with the consolidated financial statements of the
Company for each of the years in the three-year period ended June 30, 1996 and
notes thereto which are included elsewhere in this Report and in "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
13
<PAGE> 15
(ln thousands, except per share data)
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year End June 30
1992 1993 1994 1995 1996 1996
A$ A$ A$ A$ A$ Conv.
Transl.
-------
US$
<S> <C> <C> <C> <C> <C> <C>
Revenue 286 305 114 82 124 98
Costs and expenses 1,602 1,530 1,402 1,229 1,142 899
--------- --------- --------- --------- --------- ---------
Loss from operations (1,316) (1,225) (1,288) (1,147) (1,018) (801)
--------- --------- --------- --------- --------- ---------
Other income (loss) (2,178) 247 686 220 (459) (362)
--------- --------- --------- --------- --------- ---------
Loss before income taxes
and amortisation of goodwill (3,494) (978) (602) (927) (1,477) (1,163)
--------- --------- --------- --------- --------- ---------
Provision for
income taxes - - - - - -
--------- --------- --------- --------- --------- ---------
Loss before amortisation
of goodwill (3,494) (978) (602) (927) (1,477) (1,163)
Amortization of goodwill (456) (533) (533) (532) (533) (419)
--------- --------- --------- --------- --------- ---------
Net loss (3,950) (1,511) (1,135) (1,459) (2,010) (1,582)
========= ========= ========= ========= ========= =========
Net loss per share (0.20) (.06) (.03) (.03) (.04) (.03)
========= ========= ========= ========= ========= =========
Weighted average number
of shares outstanding 19,643 26,426 34,501 46,942 46,942 46,942
========= ========= ========= ========= ========= =========
Total assets 3,714 2,487 2,060 1,357 717 564
Total liabilities 3,766 3,421 660 1,542 2,344 1,844
Stockholders' equity (54) (934) 1,400 (185) (1,627) (1,280)
========= ========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOREIGN CURRENCY TRANSLATION
The majority of the Company's administrative operations are in Australia and as
a result, its accounts are maintained in Australian dollars. The income and
expenses of its foreign operations are translated into Australian dollars at
the average exchange rate prevailing during the period. Assets and liabilities
of the foreign operations are translated into Australian dollars at the
period-end exchange rate. The following table shows the average rates of
exchange of the Australian dollar as compared to the U.S. dollar during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------
<S> <C> <C>
1991 - A$1.00 = US$ 0.766
1992 - A$1.00 = US$ 0.748
1993 - A$1.00 = US$ 0.665
1994 - A$1.00 = US$ 0.724
1995 - A$1.00 = US$ 0.711
1996 - A$1.00 = US$ 0.787
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 VS YEAR ENDED JUNE 30, 1995
Revenues increased approximately 51% from A$82,000 for the year ended June 30,
1995 to A$124,000 (US$98,000) for the year ended June 30, 1996. The decrease
is attributable to the reduced grant received by Solmecs in regards to its high
technology research activities.
Cost and expenses decreased approximately 8% from $1,229,000 for the year ended
June 30, 1995 to A$1,142,000 (US$899,000) for the year ended June 30, 1996.
The significant changes in cost and expenses were as follows
(i) Increase in the interest expense from A$67,000 for the year ended June
30, 1995 to A$185,000 (US$145,000) for the year ended June 30, 1996 as
a result in the increase in the level of debt of the Company as the
Company has been funded over the past year by loans.
(ii) Reduction in legal, accounting and professional expenses from A$141,000
for the year ended June 30, 1995 to A$95,000 (US$75,000) for the year
15
<PAGE> 17
ended June 30, 1996. During the year the Company moved its offices in
Israel from Jerusalem to Beer-Sheva where the Ben-Gurion University is
located and achieved a reduction in costs by utilising cheaper office
space.
(iii) Reduction in salaries and wages from A$700,000 for the year ended June
30, 1995 to A$544,000 (US$428,000) for the year ended June 30, 1996.
As discussed under point (ii) above the Company achieved savings as a
result of the move of its administrative offices from Jerusalem to
Beer-Sheva and at the same time were also able to reduce the number of
administration staff working for Solmecs.
(iv) Decrease in research and development costs from A$129,000 for the year
ended June 30, 1995 to A$94,000 (US$74,000) for the year ended June
30, 1996.
(v) Increase in travel and accommodation from A$21,000 for the year ended
June 30, 1995 to A$57,000 (US$45,000) for the year ended June 30,
1996.
As a result of the foregoing, the Company incurred a loss from operations of
A$1,018,000 (US$801,000) for the year ended June 30, 1996 compared to a loss of
A$1,147,000 for the year ended June 30, 1995.
An unrealised gain of A$2,000 (US$1,000) was recorded on the Company's
investments during the year compared to an unrealised loss on the same
investments of A$14,000 in the year to June 30, 1995. This is a result of the
Company's policy of valuing investments at market value.
In the prior year the Company recorded a gain of A$125,000 on the disposal of a
significant portion of its investment in Solmecs Flow Ice Limited ("SFI") and
TFC. During that period the Company entered into an agreement with the former
managing director of Solmecs whereby Solmecs was released from liabilities to
SFI, TFC and the former managing director of Solmecs and in exchange the
Company agreed to transfer 16.7% in SFI and 24% in TFC to the former managing
director of Solmecs. The Company made a decision to concentrate on the LMMHD
Project which is the property of Solmecs but did not wish to invest any funds
all the time of its executives on the activities on SFI and TFC. As a result
the Company was prepared to dispose of the above mentioned interests in SFI and
TFC. There is no such disposal in the year ended June 30, 1996.
The Company realised a foreign currency exchange loss of A$546,000 (US$430,000)
for the year ended June 30, 1996 compared to a foreign currency exchange gain
of A$109,000 for the year ended June 30, 1995. This was as a result of the
movements in the exchange rate between the Australian dollar and the US dollar.
The Company's loan accounts are denominated in US dollars.
A debt owed to a subsidiary company was repaid during the 12 months ended June
30, 1996. The subsidiary company had previously believed that it would not be
able to collect this receivable and provided for the amount as a doubtful debt.
As a
16
<PAGE> 18
result of the repayment, the subsidiary company recorded a gain of A$79,000
(US$62,000). There was no comparable amount in the year ended June 30, 1995.
As a result of the foregoing the Company recorded a loss before income tax and
amortisation of goodwill of A$1,477,000 (US$1,163,000) for the year ended June
30, 1996 compared to a loss of A$927,000 for the year ended June 30, 1995.
The Company was not required to provide for income tax during the year ended
June 30, 1996 or the year ended June 30, 1995. Amortisation of goodwill
amounted to A$533,000 (US$419,000) for the year ended June 30, 1996 compared to
A$532,000 for the year ended June 30, 1995.
As a result the Company recorded a net loss of A$2,010,000 (US$1,582,000) for
the year ended June 30, 1996 compared to a net loss of A$1,459,000 for the year
ended June 30, 1995.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1995 VS YEAR ENDED JUNE 30, 1994
Revenues decreased approximately 28% from A$114,000 for the year ended June 30,
1994 to A$82,000 for the year ended June 30, 1995. The decrease is
attributable to the reduced grants received by Solmecs in regard to its high
technology.
Costs and expenses decreased approximately 12% from A$1,402,000 for the year
ended June 30, 1994 to A$1,229,000 for the year ended June 30, 1995. The
significant changes in costs and expenses were as follows
(i) reduction in the management fee from A$23,000 for the year ended June
30, 1994 to A$nil for the year ended June 30, 1995 as a result of the
resignation of Solmecs' previous Managing Director whose services were
provided by SFI.
(ii) reduction in interest expense from A$240,000 for the year ended June
30, 1994 to A$67,000 for the year ended June 30, 1995 as a result of
the conversion of a large amount of debt of the Company to equity in
June 1994.
(iii) reduction in legal, accounting and professional fees from A$164,000
for the year ended June 30, 1994 to A$141,000 for the year ended June
30, 1995 as a result of the ongoing reduction in costs associated with
negotiation with John Hopkins University for the joint venture on
LMMHD.
(iv) increase in salaries and wages from A$643,000 for the year ended June
30, 1994 to A$700,000 for the year ended June 30, 1995 as a result of
further research on LMMHD as discussed in Item 1 - New Directions on
page 6.
(v) reduction in administrative expenses from A$178,000 for the year ended
June 30, 1994 to A$156,000 for the year ended June 30, 1995 due to a
management decision to reduce costs.
17
<PAGE> 19
As a result of the foregoing, the Company incurred a loss from operations of
A$1,147,000 for the year ended June 30, 1995 compared to a loss of A$1,288,000
for the year ended June 30, 1994.
Gains were recorded on the disposition of assets of A$125,000, unrealised
losses on investments of A$14,000 and a gain on foreign currency exchange of
A$109,000. In the prior year gains were recorded on the disposition of assets
of A$1,104,000 and bad debt recovery of A$1,392,000, losses on foreign currency
exchange of A$197,000 and unrealised loss on investments of A$1,613,000.
As a result, losses before income tax and amortisation of goodwill amounted to
A$927,000 for the year ended June 30, 1995 compared to a loss of A$602,000 for
the year ended June 30, 1994.
Amortisation of goodwill amounted to A$532,000 for the year ended June 30, 1995
compared to A$533,000 respectively for the year ended June 30, 1994.
The net loss for the year ended June 30, 1995 amounted to A$1,459,000 compared
to a loss of A$1,135,000 for the year ended June 30, 1994.
The Company was not required to pay any Australian income tax for the year
ended June 30, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996 the Company had short term obligations of A$346,000
(US$272,000) consisting of accounts payable and accrued expenses.
The Company also has long term obligations of A$1,998,000 (US$1,572,000) at
June 30, 1996 which are amounts owed to Chevas of which Mr J I Gutnick
President of Bayou is a Director.
The Company anticipates it will be able to defer repayment of certain of its
short term loan commitments until it has sufficient liquidity to unable these
loans to be repaid or other arrangements can be put in place for repayment of
these debts. In addition the Company has historically relied on loans and
advances from affiliates to meet insignificant portions of the Company's cash
flow requirements which based on discussions with the affiliates the Company
believes will continue to be available during fiscal 1997 and 1998.
The Company will still be required to supply subtantial funding to Solmecs in
order to complete the development of the next stage of the LMMHD Project.
Bayou is currently seeking public and private sources of funding to continue
the development of the LMMHD project, however, there can be no assureance that
the funds will be obtained.
18
<PAGE> 20
Other than the arrangements noted above the Company has not confirmed any other
arrangements for ongoing funding. As a result the Company may be required to
raise funds by additional debt or equity offerings and/or increased revenues
for operations in order to meet its cash flow requirements during the
forthcoming year.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain information contained in this Form 10-K are forward-looking statements
within the meaning of the Private Securities Litigation Act of 1995 (the
"Act"), which became law in December 1995. In order to obtain the benefits of
the "safe harbour" provisions of the Act for any such forward-looking
statements, the Company wishes to caution-investors and prospective investors
about significant factors, which among others, have in some cases affected the
Company's actual results and are in the future likely to affect the Company's
actual results and cause them to differ materially from those expressed in any
such forward-looking statements. This Form 10-K contains forward-looking
statements relating to future financial results. Actual results may differ as
a result of factors over which the Company has no control including the
strength of domestic and foreign economies, slower than anticipated, completion
of research and development projects and movements in foreign exchange rates.
INFLATION
To date the Company believes that inflation has not had a material adverse
impact on its operations in Australia. In the United States the Company's
activities to date have been principally related to the exploration preliminary
testing of certain mineral claims and although the Company has not operated in
the United States during a period of significant inflation management believes
that inflation would not have a material adverse effect on such operations in
this country.
SEASONALITY
Management believes that its operations are not subject to seasonal
fluctuation.
IMPACT OF AUSTRALIAN TAX LAW
Australian resident corporations are subject to Australian income tax on their
non-exempt worldwide assessable income which includes capital gains less
allowable deductions at the rate of 36%. Foreign tax credits are allowed where
tax has been paid on foreign source income provided the tax credit does not
exceed 36% of foreign source income.
19
<PAGE> 21
Under the U.S./Australia tax treaty a U.S. resident corporation such as the
Company is subject to Australian income tax on net profits attributable to the
carrying on of a business in Australia through a "permanent establishment" in
Australia. A "permanent establishment" is a fixed place of business through
which the business of an enterprise is carried on. The treaty limits the
Australian tax on interest and royalties paid by an Australian business to a
U.S. resident to 10% of the gross interest or royalty income unless it relates
to a permanent establishment. Although the Company considers that it does not
have a permanent establishment in Australia, it may be deemed to have such an
establishment due to the location of its administrative offices in Melbourne.
In addition the Company may receive interest or dividends from time to time.
IMPACT OF AUSTRALIAN GOVERNMENTAL, ECONOMIC, MONETARY OR FISCAL POLITICS
Although Australian taxpayers are subject to substantial regulation the Company
believes that its operations are not materially impacted by such regulations
nor is it subject to any broader regulations or governmental policies than most
taxpayers.
ITEM 8. NOT APPLICABLE
ITEM 9. NOT APPLICABLE
20
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position(s) Held
- ---- --- ----------------
<S> <C> <C>
Joseph I. Gutnick 44 Chairman of the Board,
President, Chief
Executive Officer and
Director
Henry Herzog 55 Vice President
and Director
Joseph Hayden Barry 55 Vice President and
Director
Eduard Eshuys 51 Vice President and
Director
David Tyrwhitt 58 Director
Peter Lee 39 Director,
Assistant Secretary,
Chief Financial Officer
and Chief Accounting
Officer.
</TABLE>
JOSEPH I. GUTNICK. Mr. Gutnick has been the Chairman of the Board, President
and Chief Executive Officer of the Company since March 1988. Mr. Gutnick has
been a Director of numerous public companies in Australia since 1980
specialising in the mining sector including Great Central Mines N.L. ("Great
Central") (whose American Depositary Shares are publicly traded in the United
States on NASDAQ pursuant to a sponsored ADR program), Centaur Mining &
Exploration Limited ("Centaur") and Johnson's Well Mining N.L. ("Johnson's
Well") (whose ordinary shares are publicly traded in the U.S. in the
over-the-counter market). Prior to May 1986, Mr. Gutnick was also a director of
Max New Australia Pty. Ltd. an Australian corporation involved in the textile
business.
21
<PAGE> 23
HENRY HERZOG. Mr. Herzog served as the President and Chief Executive Officer of
the Company from May 1986 to March 1988. In March 1988 Mr. Herzog became a
Vice President of the Company and Mr. Gutnick became President and Chief
Executive Officer of the Company. Mr. Herzog has served as a Director of the
Company since May 1986. Mr. Herzog was a Director of Australia Wide from 1982
to June 1988 and was a Director of numerous subsidiaries of Australia Wide from
1983 to June 1988 and since 1991 has been involved in hotel management,
consulting and investment.
JOSEPH HAYDEN BARRY. Mr. Barry was appointed a Director of the Company in
January 1992. Mr. Barry is a Fellow of the Chartered Institute of Company
Secretaries in Australia Ltd, a Fellow of the Institute of Company Directors in
Australia and an associate of the Chartered Institute of Management Accountants
in Australia. He holds a degree in Financial Control from the University of
Lancaster (UK) and is a Certified Practising Accountant. He has over 25 years
business experience. Mr. Barry is a Director and Company Secretary of several
publicly listed companies in Australia including Great Central (whose American
Depositary Shares are publicly traded in the United States on NASDAQ pursuant
to a sponsored ADR program), Centaur and Johnson's Well (whose ordinary shares
are publicly traded in the U.S. in the over-the-counter market).
EDUARD ESHUYS. Mr. Eshuys has been a Director of the Company since June 1991.
Mr. Eshuys is a Fellow of the Australian Institute of Mining and Metallurgy and
a Fellow of the Institute of Company Directors in Australia. He is a Geologist
holding a Bachelor of Science degree from the University of Tasmania. He has 20
years experience in mineral exploration and management, development and
operation of gold mines in Australia. Mr. Eshuys is a Director of several
publicly listed companies in Australia in the mining industry including Great
Central (whose American Depositary Shares are publicly traded in the United
States on NASDAQ pursuant to a sponsored ADR program), Centaur and Johnson's
Well (whose ordinary shares are publicly traded in the U.S. in the
over-the-counter market).
DAVID STUART TYRWHITT. Mr. Tyrwhitt was appointed a Director of the Company on
November 15, 1996. He is a Geologist holding a Bachelor of Science and he has
38 years experience in mineral exploration and management development and
operation of gold mines in Australia. Mr. Tyrwhitt is a Director of several
publicly listed companies in Australia in the mining industry including Great
Central (whose American Depositary Shares are publicly traded in the United
States on NASDAQ pursuant to a sponsored ADR program), Centaur and Johnson's
Well (whose ordinary shares are publicly traded in the U.S. in the
over-the-counter market).
22
<PAGE> 24
PETER LEE. Mr. Lee has been Chief Financial Officer and Chief Accounting
Officer since August 1989 and was appointed as a Director on February 9, 1996.
Mr. Lee is a Member of the Institute of Chartered Accountants in Australia and
the Chartered Institute of Company Secretaries in Australia Ltd and holds a
Bachelor of Business (Accounting) from Royal Melbourne Institute of Technology.
He has over 16 years commercial experience and is currently Assistant Company
Secretary of several publicly listed companies in Australia including Great
Central (whose American Depositary Shares are publicly traded in the United
States on NASDAQ pursuant to a sponsored ADR program), Centaur and Johnson's
Well (whose ordinary shares are publicly traded in the U.S. in the
over-the-counter market).
KEY PERSONNEL
The following person although not an executive officer of the Company makes a
significant contribution to the business of Solmecs.
Dr. Ian Smith is a member of the Scientific Advisory Panel of Solmecs and is a
Reader at the City University London and specialist in binary thermodynamic
cycles. Dr. Smith was the originator of the TFC technology.
HERMAN BRANOVER. Professor Branover is the Chief Scientist of Solmecs.
Professor Branover graduated from Leningrad Polytechnical Institute in 1953 and
earned a PhD and DSc in MHD from the Moscow Aviation Institute in 1962. In
1971 he earned the title of Full Professor from the Ministry of Higher
Education of the former U.S.S.R. and held various teaching and research
positions within the former U.S.S.R. in the field of MHD, fluid flow,
turbulence and energy conversion.
In 1972 he left the former U.S.S.R. and accepted a full professorship in the
Department of Mechanical Engineering of the Ben-Gurion University of the Negev,
Israel, and a part-time professorship in the Department of Fluid, Mechanics and
Heat Transfer in the Tel Aviv University. In 1978 Professor Branover was
appointed as the Lady Davis Professor of Magnetohydrodynamics at the Ben-Gurion
University. He initiated the construction of the Liquid Metal MHD Laboratories
at the Ben-Gurion University and has been the head of these laboratories since
1982.
In 1979 Professor Branover was invited to work as visiting scientist at the
Argaune National Laboratory in Chicago and since 1987 he has been an Adjunct
Professor of Applied Sciences Department at the New York University. Professor
Branover is a Delegate of the State of Israel to the UNESCO Liaison Group of
Magnetohydrodynamics.
Professor Branover has 14 patents registered to his name in the U.S.S.R.,
U.S.A. and Israel, has authored 17 books, and to date, he has authored or
co-authored more than 200 scientific journal publications.
23
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
No officer individually and no group of officers and Directors received any
compensation for their services on behalf of or rendered to the Company for the
fiscal year ended June 30,1996.
In accordance with the Service Agreement the Company paid AWI Admin A$40,681
for the fiscal year ended June 30, l996 for services rendered and facilities
provided by AWI Admin to the Company including providing the services of the
Company's chief executive officer and chief financial officer.
For additional information about the Service Agreement and the Consulting
Agreement see "Item l - Business-Employees" and "Item 13 - Certain
Relationships and Related Transactions".
The Board of Directors has established a policy that the Company will not
guarantee loans to or accept notes from officers, Directors, or employees of
the Company or any members of their families unless such loans or notes are
approved by a majority of the disinterested non-employee Directors of the
Company who shall determine that such loans may reasonably be expected to
benefit the Company.
COMPENSATION PURSUANT TO PLANS
The Company does not have any pension or profit sharing plans and no
contributions were made to any employee benefit or health plan during the year
ended June 30, l996.
COMPENSATION OF DIRECTORS
It is the policy of the Company to reimburse Directors for reasonable travel
and lodging expenses incurred in attending Board of Directors meetings. In
the year ended June 30, 1996 one of the non-executive Directors was paid
$29,342 for services as a Director.
24
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth to the best of the Company's knowledge the
number of shares beneficially owned as of November 1, l996, by (i) each of the
current Executive Officers and Directors of the Company; (ii) each person
(including any "group" as that term is defined in Section 13(d)(3) of the
Exchange Act) who beneficially owns more than 5% of the Common Stock, and (iii)
all current Directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Owned Percent of Shares (1)
- ---------------- ---------------------- ---------------------
<S> <C> <C>
Centaur 5,076,000 10.8%
Mamash Ltd 5,426,388 11.6%
A.W.I. Administration
Services Pty. Ltd. 4,589,795 9.8%
Edensor Nominees
Proprietary Limited 20,046,207 42.7%
Henry Herzog - (3) *
Joseph I. Gutnick 21,079,207 (2)(3) 44.9%
(4)(5)(6)
Stera M. Gutnick 20,566,207 (4)(6) 43.9%
Eduard Eshuys 100 (2) *
Hayden Barry - (2)
Peter Lee - (2)
David Tyrwhitt - (2)
All officers and
directors as a group
(7 persons) 21,079,307 44.9%
</TABLE>
*Represents less than 1% of the outstanding Common Stock.
(1) Based upon 46,941,789 shares outstanding.
25
<PAGE> 27
(2) Does not include (i) 941,651 shares of Common Stock beneficially owned
by Australia Wide or (ii) 5,076,000 shares of Common Stock beneficially
owned by Centaur or (iii) 178,985 shares of Common Stock beneficially
owned by Mt. Kersey Mining N.L. or (iv) 541,585 shares of Common Stock
beneficially owned by Australian Gold Resources Limited or (v) 38,376
shares of Common Stock beneficially owned by Quantum Resources Limited,
and (vi) 4,589,795 shares of Common Stock owned by AWI Admin of which
companies Messrs. Gutnick, Tyrwhitt, Eshuys, Barry and Lee are officers
and/or Directors as they disclaim beneficial ownership to those shares.
(3) Does not include 50,000 shares of Common Stock beneficially owned by
Solmecs as Messrs. Gutnick, Herzog, Althaus and Barry (who are officers
and/or Directors of Solmecs) disclaim beneficial ownership to those
shares.
(4) Includes 20,046,207 shares of Common Stock owned by Edensor Nominees
Proprietary Limited and 520,000 shares of Common Stock owned by
Pearlway Investments Pty. Ltd. of which Joseph I. Gutnick, Stera M.
Gutnick and members of their family are officers, Directors and
principal stockholders.
(5) Joseph I. Gutnick is the beneficial owner of 513,000 shares.
(6) Joseph I. Gutnick and Stera M. Gutnick are husband and wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with the Service Agreement AWI Admin provides the Company with
the services of the Company's Chief Executive Officer, Chief Financial Officer
and clerical employees as well as office facilities, equipment, administrative
and clerical services. As compensation therefor, the Company pays AWI Admin
for the actual cost of such facilities and services plus a maximum service fee
of 15%. The Company paid AWI Admin A$40,681 in respect of the Service Agreement
for fiscal 1996. The Service Agreement may be terminated by written notice from
either party.
At the Company's request effective December 7, 1993, Edensor Nominees
Proprietary Limited ("Edensor") converted a A$1 million in loans to the Company
into 5 million shares of Common Stock at a conversion rate of $A 0.20 per
share. Mr. Joseph Gutnick, the Chairman of the Board, President and Chief
Executive Officer of the Company and members of Mr. Gutnick's family are
officers, Directors and principal stockholders of Edensor.
26
<PAGE> 28
Transactions with Management. The Company has a policy that it will not enter
into any transaction with an officer, Director or affiliate of the Company or
any member of their families unless the transaction is approved by a majority
of the disinterested Directors of the Company and the disinterested majority
determines that the terms of the transaction are no less favourable to the
Company than the terms available from non-affiliated third parties or are
otherwise deemed to be fair to the Company at the time authorized.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The Financial Statements and schedules listed on the Index to
Financial Statements at page F-l of this Annual Report on Form 10-K
are filed as a part of this Annual Report.
The Financial Data schedule as required by Item 601(c) of Regulation
SK is filed as part of this Annual Report.
(a) (3) Exhibits
The Exhibits to this Annual Report on Form 10-K are listed in the
Exhibit Index at page 33 of this Annual Report.
27
<PAGE> 29
SIGNATURES
Pursuant to 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.
BAYOU INTERNATIONAL, LTD.
(Registrant)
By: /s/ JOSEPH GUTNICK
----------------------
Joseph Gutnick
President
Dated: December 17, 1996
28
<PAGE> 30
[FORM 10-K SIGNATURE PAGE]
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board,
President and Chief
Executive Officer
/s/ JOSEPH GUTNICK (Principal Executive
- ----------------------- Officer) and Director December 17, 1996
Joseph Gutnick
Director, Assistant Secretary,
Chief Financial Officer and
/s/ PETER LEE Principal Financial
- ----------------------- and Accounting Officer December 17, 1996
Peter Lee
/s/ HENRY HERZOG Vice President December 17, 1996
- ----------------------- and Director
Henry Herzog
/s/ DAVID TYRWHITT Vice President and December 17, 1996
- ----------------------- Director
David Tyrwhitt
/s/ HAYDEN BARRY Vice President and December 17,1996
- ----------------------- Director
Hayden Barry
/s/ EDUARD ESHUYS Vice President and December 17, 1996
- ----------------------- Director
Eduard Eshuys
29
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page No.
Incorporated by Exhibit Sequential
Reference to No. Exhibits No. System
- -------------- --- -------- ----------
<S> <C> <C>
(1) Exhibit 3.1 3.1 Certificate of Incorporation of
the Registrant.
(1) Exhibit 3.2 3.2 By-laws of the Registrant.
(2) Exhibit 10.5 10.4 Service Agreement dated November 25,
1988, by and between the Registrant
and AWI Administration Services Pty. Ltd.
*21 List of Subsidiaries
*99 Reports of other Accountants upon whom
the Principal Accountant is relying.
- ---------------
</TABLE>
*Filed herewith.
(1) Registrant's Registration Statement on Form S-l (File No. 33-14784).
(2) Registrant's Annual Report on Form 10-K for the fiscal year ended June
27, 1989.
30
<PAGE> 32
EXHIBIT 21
List of Subsidiaries
1. Solmecs Corporation N.V., a Netherlands Antilles Corporation
(100% - owned).
2. Solmecs (Israel) Ltd., an Israeli Corporation (100% - owned through
Solmecs Corporation N.V.).
3. Heatex Ltd, an Israeli Corporation (100% - owned through Solmecs
(Israel) Ltd.
31
<PAGE> 33
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Financial Statements
June 30, 1996 and 1995
(with Independent Auditor's Report)
<PAGE> 34
C O N T E N T S
Page
Report of Independent Auditor . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations . . . . . . . . . . . . . 3
Consolidated Statements of Stockholders' Equity . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6-12
<PAGE> 35
DAVID T.
THOMSON P.C. CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders of
Bayou International, Ltd.
I have audited the accompanying consolidated balance sheets of Bayou
International, Ltd. (a Delaware corporation) and Subsidiary at June 30, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. The consolidated financial
statements of Bayou International, Ltd. and Subsidiary for the year ended June
30, 1994 were audited by other auditors whose report dated August 24, 1994
expressed an unqualified opinion on those consolidated financial statements.
These consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits. I did not audit the financial
statements of Solmecs Corporation, N.V., a subsidiary of Bayou International,
Ltd., which statements reflect total assets of A$ 180,997, A$ 286,065 and
A$456,786 as of June 30, 1996, 1995 and 1994, respectively, and total revenues
of A$ 124,413, A$ 82,175 and A$ 113,755, respectively, for the years then ended.
Those statements were audited by other auditors whose reports have been
furnished to me, and my opinion, insofar as it relates to the amounts included
for Solmecs Corporation, N.V., is based solely on the reports of the other
auditors.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the 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. I believe that my audits and the reports of
other auditors provide a reasonable basis for my opinion.
In my opinion, based on my audits and the reports of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bayou International, Ltd. and
Subsidiary at June 30, 1996 and 1995 and the results of its operations and its
cash flows for each of three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company and its subsidiary will continue as going concerns.
As discussed in Note (8) to the consolidated financial statements, the Company
and its subsidiary have suffered recurring losses from operations, have no net
working capital and have stockholders' deficits. These factors raise
substantial doubt as to the consolidated entities, ability to continue as going
concerns. Management's plans in regard to these matters are discussed in Note
(8). The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Salt Lake City, Utah
November 7, 1996
180 South 300 West, Suite 329, Salt Lake City, Utah 84101 (801) 328-3900
1
<PAGE> 36
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1996 and 1995
(000's omitted)
<TABLE>
<CAPTION>
ASSETS
Convenience
Translation
Australian Dollars to $ US
------------------ -----------
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Current Assets:
Cash $ 71 $ 73 $ 57
Accounts Receivable, net 86 53 42
Investments 51 3 2
--------- --------- ---------
Total Current Assets 208 129 101
--------- --------- ---------
Other Assets:
Property and Equipment, net 83 55 43
Goodwill, net 1,066 533 420
--------- --------- ---------
Total Other Assets 1,149 588 463
--------- --------- ---------
Total Assets $ 1,357 $ 717 $ 564
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $ 73 $ - $ -
Accounts Payable and
Accrued Expenses 681 346 272
--------- --------- ---------
Total Current
Liabilities 754 346 272
Long-Term Debt 788 1,998 1,572
--------- --------- ---------
Total Liabilities 1,542 2,344 1,844
Stockholders' Equity (Deficit):
Common Stock: $0.20 par value
50,000,000 shares authorized,
46,941,789 shares issued
and outstanding 9,388 9,388 7,388
Additional Paid-in-Capital 11,592 11,592 9,122
Retained Deficits (21,165) (22,607) (17,790)
--------- --------- ---------
Total Stockholders'
Deficit (185) (1,627) (1,280)
--------- --------- ---------
Total Liabilities and
Stockholders' Equity $ 1,357 $ 717 $ 564
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 37
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended June 30, 1996, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
Convenience
Translation
Australian Dollars to $ US
------------------------- ----------
1994 1995 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Other Income $ 114 $ 82 $ 124 $ 98
---------- ---------- ---------- ----------
114 82 124 98
---------- ---------- ---------- ----------
Cost and Expenses
Management Fee 23 - - -
Interest Expense 240 67 185 145
Legal, Accounting & Professional 164 141 95 75
Depreciation & Amortization 15 15 14 11
Salaries & Wages 643 700 544 428
Administrative 178 156 153 121
Research and Development 125 129 94 74
Travel and Accommodation 14 21 57 45
---------- ---------- ---------- ----------
1,402 1,229 1,142 899
---------- ---------- ---------- ----------
Loss from Operations (1,288) (1,147) (1,018) (801)
Unrealized Gain (Loss)
on Investments (1,613) (14) 2 1
Gain (Loss) on Disposition
of Assets 1,104 125 6 5
Foreign Currency Exchange (197) 109 (546) (430)
Bad Debt (Expense) Recovery 1,392 - 79 62
---------- ---------- ---------- ----------
686 220 (459) (362)
---------- ---------- ---------- ----------
Loss before Income Tax and
Amortization of Goodwill (602) (927) (1,477) (1,163)
Provision for Income Tax - - - -
---------- ---------- ---------- ----------
Loss before Amortization of
Goodwill (602) (927) (1,477) (1,163)
Amortization of Goodwill (533) (532) (533) (419)
---------- ---------- ---------- ----------
Net Loss $ (1,135) $ (1,459) $ (2,010) $ (1,582)
========== ========== ========== ==========
Earnings (Loss) Per Common
Equivalent Share $ (.03) $ (.03) $ (.04) $ (.03)
========== ========== ========== ==========
Weighted Number of Common
Equivalent Shares
Outstanding 34,501 46,942 46,942 46,942
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 38
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
June 30, 1996 and 1995
(in Australian Dollars)
(000's omitted)
<TABLE>
<CAPTION>
Additional
Common Stock Retained
----------------- Paid-In- Earnings
Shares Amount Capital (Deficit)
------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance June 30, 1993 31,412 $ 6,282 $ 11,582 $ (18,798)
Conversion of Affiliate
borrowing to Equity at par,
9,589,795 shares at $.20 9,590 1,918 - -
Conversion of Long Term
borrowing to Equity,
5,940,016 shares at
approximately $.20 5,940 1,188 10 -
Net Loss, restated - - - (1,135)
Foreign Currency Translation - - - 353
------- -------- -------- --------
Balance June 30, 1994 46,942 9,388 11,592 (19,580)
Net Loss - - - (1,459)
Foreign Currency Translation - - - (126)
------- -------- -------- --------
Balance June 30, 1995 46,942 9,388 11,592 (21,165)
Net Loss - - - (2,010)
Foreign Currency Translation - - - 568
------- -------- -------- --------
Balance June 30, 1996 46,942 $ 9,388 $ 11,592 $(22,607)
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 39
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1996, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
Convenience Translation
Australian Dollars to $ US
------------------------- --------
1994 1995 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,135) $ (1,459) $ (2,010) $ (1,582)
Adjustments
Foreign Currency Translation 353 (126) 568 447
Depreciation & Amortization 548 547 547 430
(Gain) Loss on Disp of Assets (1,104) (9) (6) (5)
Unrealized Gain (Loss)
on Investments 1,613 - (2) (1)
Recovery (Provision) for
Bad Debt (1,392) - 79 62
Net Change In:
Accounts Receivable 22 60 33 26
A/P & Accrued Expenses (774) 62 (335) (263)
---------- ---------- ---------- ----------
Net Cash Provided by (Used in)
Operating Activities (1,869) (925) (1,126) (886)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (20) (22) (7) (6)
Net Proceeds from Investments 1,149 (35) (2) (1)
---------- ---------- ---------- ----------
Net Cash Provided by (Used in)
Investing Activities 1,129 (57) (9) (7)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of Long Term Debt (228) - - -
Net Borrowing under Credit
Line Arrangements (261) 32 (73) (57)
Net Borrowing From Affiliates (220) 788 1,210 952
New Borrowing 1,615 - - -
---------- ---------- ---------- ----------
Net Cash Provided by (Used in)
Financing Activities 906 820 1,137 895
---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash 166 (162) 2 2
Cash at Beginning of Year 67 233 71 55
---------- ---------- ---------- ----------
Cash at End of Year $ 233 $ 71 $ 73 $ 57
========== ========== ========== ==========
Supplemental Disclosures:
Common Stock Issued in Lieu of
Debt Repayment $ 3,106 $ - $ - $ -
Interest Paid (Net Capitalized) - - 15 12
Income Taxes Paid - - - -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 40
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) ORGANIZATION
Bayou International, Ltd. (Bayou) is incorporated in the
State of Delaware. The principal shareholder of Bayou is
Edensor Nominees Proprietary Limited (Edensor), an Australian
corporation. Edensor owned 42.7% of Bayou as of June 30,
1996.
Bayou's subsidiary is Solmecs Corporation N.V. (Solmecs),
which it acquired controlling interest of on September 3,
1987 and complete ownership of on January 2, 1992.
Bayou is primarily engaged in the research and development of
high efficiency, low pollution or pollution-free products and
technologies in the energy conversion and conservation fields
through its 100%-owned subsidiary, Solmecs. All revenue is
from contracted services provided by Solmecs. Almost all of
Bayou's operating expenses are for general and administrative
and research and development cost.
(2) ACCOUNTING POLICIES
The following is a summary of the significant accounting
policies followed in connection with the preparation of the
consolidated financial statements.
(a) Consolidation
The consolidated financial statements include the accounts of
Bayou and the 100% interest it holds in Solmecs Corporation
N.V.
All significant intercompany transactions and balances have
been eliminated in consolidation.
(b) Revenue Recognition
Research grants and contracts are recognized at the time
granted and commercial sales through Bayou's subsidiary are
recognized on an accrual basis.
(c) Foreign Currency Translation
The majority of Bayou's administrative operations are in
Australia and as a result its accounts are maintained in
Australian dollars. The income and expenses of its foreign
operations are translated into Australian dollars at the
average exchange rate prevailing during the period. Assets
and liabilities of the foreign operations are translated into
Australian dollars at the period-end exchange rate.
6
<PAGE> 41
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(2) ACCOUNTING POLICIES (CONTINUED)
(d) Financial Instruments
The following methods and assumptions were used by Bayou to
estimate the fair values of financial instruments as disclosed
herein:
Cash and Equivalents - The carrying amount approximates fair
value because of the short period to maturity of the
instruments.
Investment Securities - For both trading securities and
available-for-sale securities, the carrying amounts
approximate fair value, which is based on quoted market
prices.
Long-term Debt - The fair value of long-term debt is estimated
based on interest rates for the same or similar debt offered
to Bayou having the same or similar remaining maturities and
collateral requirements.
(e) Investment Securities
Management determines the appropriate classification of
investment securities at the time they are acquired and
evaluates the appropriateness of such classification at each
balance sheet date. The classification of these securities
and the related accounting policies are as follows:
Trading securities are held for resale in anticipation of
short-term fluctuations in market prices. Trading securities,
consisting primarily of actively traded marketable equity
securities, are stated at fair value. Realized and unrealized
gains and losses are included in income.
Available-for-sale securities consist of marketable equity
securities not classified as trading securities.
Available-for-sale are stated at fair value, and unrealized
holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders'
equity.
Dividends on marketable equity securities are recognized in
income when declared. Realized gains and losses are included
in income. Realized gains and losses are determined on the
actual cost of the securities sold.
(f) Cash and Cash Equivalents
Bayou considers all highly liquid investments with a maturity
of three months or less at the time of purchase to be cash
equivalents. For the periods presented there were no cash
equivalents. There were no non-cash investing or financing
activities.
(g) Property and Equipment
Property and equipment is stated at the lower of historical
cost or market, or in the case of acquisitions from related
parties, at the lower of historical cost to the related party
or market. Depreciation is computed over a period covering
the estimated useful life of the applicable property and
equipment.
7
<PAGE> 42
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(2) ACCOUNTING POLICIES (CONTINUED)
(h) Income Tax
Income taxes are provided on financial statement income. For
the periods presented there was no taxable income. There are
no deferred income taxes resulting from timing differences in
reporting certain income and expense items for income tax and
financial accounting purposes. Bayou, at this time, knows of
no net operating losses which are expected to be realized.
(i) Earnings (Loss) per Share
Primary (loss) per share is computed based on the weighted
average number of common shares and common share equivalents
outstanding during the period.
(j) Goodwill
Goodwill, principally from the acquisition of Solmecs in 1987
and 1992, represents the excess of cost over fair value of net
assets acquired and is being amortized over ten years using
the straight-line method.
(k) Convenience Translation to US$
The consolidated financial statements at June 30, 1996 have
been translated into United States dollars using the rate of
exchange of the United States dollar at June 30, 1996
(AUS $1.00 = US $.7870). The translation was made solely for
the convenience of readers in the United States.
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
8
<PAGE> 43
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(3) ACCOUNTS RECEIVABLE
Accounts Receivable at June 30, 1995 and 1996 includes:
<TABLE>
<CAPTION>
(in Australian Dollars)
(000's omitted)
-----------------
June 30 June 30
1995 1996
---------- ----------
<S> <C> <C>
Miscellaneous Receivables $ 170 $ 53
Less Allowance for Doubtful Account 84 -
---------- ----------
Net $ 86 $ 53
========== ==========
</TABLE>
(4) INVESTMENT SECURITIES
The following is a summary of Investment Securiies, 1995 and 1996:
<TABLE>
<CAPTION>
(in Australian Dollars)
(000's omitted)
-----------------
June 30 June 30
1995 1996
---------- ----------
<S> <C> <C>
Trading Securities:
Marketable Equity Securities,
at cost $ 51 $ 1
Gross Unrealized Gains - 2
Gross Unrealized Losses - -
---------- ----------
Marketable Equity Securities,
at fair value $ 51 $ 3
========== ==========
</TABLE>
(5) PROPERTY
Property at June 30, 1995 and 1996 includes:
<TABLE>
<CAPTION>
(in Australian Dollars)
-----------------------
(000's omitted)
-----------------------
June 30 June 30
1995 1996
--------- ---------
<S> <C> <C>
Office Furniture & Equipment $ 223 $ 170
Motor Vehicles 90 38
--------- ---------
313 208
Less Accumulated Depreciation (230) (153)
--------- ---------
$ 83 $ 55
========= =========
</TABLE>
9
<PAGE> 44
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(6) SHORT-TERM AND LONG-TERM DEBT
The following is a summary of Bayou's borrowing arrangements as of
June 30, 1995 and 1996.
<TABLE>
<CAPTION>
(in Australian Dollars)
-----------------------
(000's omitted)
-------------------
June 30 June 30
Long-Term 1995 1996
--------- ------- -------
<S> <C> <C>
Loan from corporations affiliated with the
President of Bayou. Interest accrues
at the ANZ Banking Group Limited rate + 1%
for overdrafts over $100,000. Repayment
of loan not required before
June 30, 1997 $ 788 $ 1,998
------- -------
Total Long-Term 788 1,998
------- -------
Short-Term
----------
Overdraft arrangement with balance
accruing interest 73 -
Notes Payable - Affiliates - -
------- -------
Total Short-Term 73 -
------- -------
Total $ 861 $ 1,998
======= =======
</TABLE>
(7) AFFILIATE TRANSACTIONS
Bayou advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on
consolidation. At June 30, 1996, Bayou had no outstanding advances to
or from unconsolidated affiliated companies.
During the year ending June 30, 1994, affiliated companies converted
$1,917,959 of its advances to Bayou to equity through the issuance of
9,589,795 shares of Common Stock at par, $.20 per share.
(8) GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of Bayou and Solmecs as going concerns.
However, both Bayou and Solmecs have sustained recurring losses. In
addition, neither Bayou or Solmecs have any net working capital and
both have retained stockholders' deficits, which raises substantial
doubts as to their ability to continue as going concerns.
10
<PAGE> 45
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(8) GOING CONCERN (CONTINUED)
Bayou anticipates that it will be able to defer repayment of certain
of its short term loan commitments until it has sufficient liquidity
to enable these loans to be repaid or other arrangements to be put in
place.
In addition Bayou has historically relied on loans and advances from
corporations affiliated with the President of Bayou. Based on
discussions with these affiliate companies, Bayou believes this source
of funding will continue to be available.
Other than the arrangements noted above, Bayou has not confirmed any
other arrangements for ongoing funding. As a result Bayou may be
required to raise funds by additional debt or equity offerings in
order to meet its cash flow requirements during the forthcoming year.
(9) COMMITMENTS
Solmecs has entered into the following commitments:
(a) B.G. Negev Technology and Application Ltd. (AP) and the Ben-
Gurion University of the Negev - The Research and Development
Authority (RDA), jointly and severally (APRDA):
In accordance with an agreement dated November 5, 1981,
between Solmecs, Ben-Gurion University and APRDA, Solmecs'
subsidiary is continuing research and development (R&D)
projects which were previously carried out by APRDA on the
campus of Ben-Gurion University. It was further agreed that
the University would enable the projects to continue on its
campus 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 APRDA on sales of
products and on income from licensing fees.
Solmecs also agreed to assume the obligations of APRDA to pay
royalties to the Ministry of Energy on products developed from
these R&D projects for its participation in the research and
development cost of APRDA. As of June 30, 1996, this
liability amounted to approximately $306,000 (including
linkage to the Consumer Price Index and interest at 4% per
annum). Subsequent to the repayment of the liability, Solmecs
is to pay royalties to the Ministry of Energy (ME) at a
reduced rate.
Through June 30, 1996, there were no sales or income on which
royalties were payable to APRDA or the ME.
11
<PAGE> 46
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(9) COMMITMENTS (CONTINUED)
(b) International Lead Zinc Research Organization (ILZRO)
In connection with a research contract with ILZRO, Solmecs'
subsidiary agreed to pay ILZRO a fee for any lead used in
future production by the subsidiary. The total fee commitment
is limited to $1,864,000. Through June 30, 1996, the
subsidiary has not used any lead for which it is required to
pay fees.
(c) Chief Scientist of the Government of Israel
For the period from 1981 to 1991, Solmecs' subsidiary received
participation from the Chief Scientist of $2,274,420 towards
the cost of a research and development project. In return,
the subsidiary is required to pay royalties at the rate of 2%
of sales of know-how or products derived from the project.
Through June 30, 1996, no royalties were payable.
12
<PAGE> 47
LUBOSHITZ,
KASIERER & CO.
ARTHUR ANDERSEN
AUDITORS' REPORT TO THE SHAREHOLDERS
OF
SOLMECS CORPORATION N.V.
We have audited the accompanying balance sheet of SOLMECS CORPORATION N.V. (the
"Company") and the consolidated balance sheet of the Company and its subsidiary
as of June 30, 1996, and the related statements of operations, changes in
shareholders' deficiency and cash flows for the year then ended. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of June 30, 1995
were audited by other auditors whose report dated September 14, 1995, included
an explanatory paragraph regarding the Company's ability to continue as a going
concern.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether caused by
an error in the financial statements or by an irregularity therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's
Board of Directors and management, as well as evaluating the overall financial
presentation. We believe that our audit provides a fair basis for our opinion.
As discussed in Note 11, a liability in the amount $200,000 was written off to
income in a prior year. We were unable to obtain any documentary evidence
supporting the writeoff or management's belief that the ability will not have
to be repaid.
As more fully discussed in Note 2, the Company prepares its financial
statements in U.S. dollars.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to obtain evidence
regarding the liability described above, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of June 30, 1996, and the results of its operations, changes in
shareholders' deficiency and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
We draw attention to the matter discussed in Note 1. The Company has incurred
substantial operating losses and has an accumulated deficient of approximately
$12,201,000. The Company's ability to continue as a going concern is dependent
on obtaining the financing necessary for its operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Certified Public Accountants (Isr.)
Beer-Sheva, September 27,1996
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
1. Solmecs Corporation N.V., a Netherlands Antilles Corporation
(100% - owned).
2. Solmecs (Israel) Ltd., an Israeli Corporation (100% - owned through
Solmecs Corporation N.V.).
3. Heatex Ltd, an Israeli Corporation (100% - owned through Solmecs
(Israel) Ltd.
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM 10-K OF BAYOU INTERNATIONAL, LTD. FOR THE YEAR ENDED JUNE 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCS TO SUCH REPORT.
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<PERIOD-END> JUN-30-1995
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0
0
<COMMON> 9,388
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<TOTAL-COSTS> 0
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<INCOME-PRETAX> (1,477)
<INCOME-TAX> 0
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<PAGE> 1
LUBOSHITZ,
KASIERER & CO.
ARTHUR ANDERSEN
AUDITORS' REPORT TO THE SHAREHOLDERS
OF
SOLMECS CORPORATION N.V.
We have audited the accompanying balance sheet of SOLMECS CORPORATION N.V. (the
"Company") and the consolidated balance sheet of the Company and its subsidiary
as of June 30, 1996, and the related statements of operations, changes in
shareholders' deficiency and cash flows for the year then ended. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of June 30, 1995
were audited by other auditors whose report dated September 14, 1995, included
an explanatory paragraph regarding the Company's ability to continue as a going
concern.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether caused by
an error in the financial statements or by an irregularity therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's
Board of Directors and management, as well as evaluating the overall financial
presentation. We believe that our audit provides a fair basis for our opinion.
As discussed in Note 11, a liability in the amount $200,000 was written off to
income in a prior year. We were unable to obtain any documentary evidence
supporting the writeoff or management's belief that the ability will not have
to be repaid.
As more fully discussed in Note 2, the Company prepares its financial
statements in U.S. dollars.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to obtain evidence
regarding the liability described above, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of June 30, 1996, and the results of its operations, changes in
shareholders' deficiency and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
We draw attention to the matter discussed in Note 1. The Company has incurred
substantial operating losses and has an accumulated deficient of approximately
$12,201,000. The Company's ability to continue as a going concern is dependent
on obtaining the financing necessary for its operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Certified Public Accountants (Isr.)
Beer-Sheva, September 27,1996
