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Securities and Exchange Commission
Washington, D.C. 2O549
FORM lO-K/A
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
For the fiscal year ended June 30 1997 or
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 0ll (613) 9276-7860
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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, $0.15 par value per
share ("Common Stock"), held by non-affiliates or the Company was A$11,314,835
(US$8,440,867) as of September 16, 1997.
There were 46,941,789 outstanding shares of Common Stock as of September 16,
1997.
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TABLE OF CONTENTS PAGE
PART I
Item 1 Business 2
Item 2 Properties 12
Item 3 Not applicable 12
Item 4 Not applicable 12
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 8 Not applicable 21
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III
Item 10 Directors and Executive Officers of the Registrant 22
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial
Owners and Management 26
Item 13 Certain Relationships and Related Transactions 27
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 28
Signatures 29
Exhibit Index 31
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PART 1
Item 1. BUSINESS
General
Bayou International, Ltd. a Delaware corporation (the "Company") is primarily
engaged in the research and development of high efficiency low pollution or
pollution-free products and technologies in the energy conversion and
conservation fields through its wholly owned subsidiary, Solmecs Corporation
N.V., a Netherlands Antilles corporation ("Solmecs").
Unless otherwise indicated, all amounts in this Report are presented in
Australian Dollars ("A$"). In addition, for the convenience of the reader, the
Australian Dollar figures for the year ended June 30, 1997 have been translated
into United States Dollars ("US$") using the rate of exchange at June 30, 1997
(A$1.00 = US$0.7459).
The executive offices of the Company are located at Level 8, 580 St. Kilda Road
Melbourne Victoria 3004 Australia and the 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 "Bayou Group" 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
(also defined below).
Recent Developments
In March 1997, Bayou commenced negotiations with SCNV Acquisition Corp ("SCNV")
for the sale of Bayou's subsidiary Solmecs to SCNV. A letter of intent was
signed on May 5, 1997 and agreements to effect the sale are in the process of
being negotiated. It is intended that, as part of the sale of Solmecs, Bayou
will acquire a 24% stake in SCNV.
The sale of Solmecs is subject to the approval of shareholders of the Company.
Following the completion of formal contracts for the sale of Solmecs, the
Company will prepare and distribute an Information Memorandum which sets forth
additional information concerning this transaction.
In the event that the sale of Solmecs is consummated, of which there can be no
assurance, the Company intends to seek other business activities for the Company
which may be in the fields of energy conversion and conservation and/or other
industries including the mineral exploration industry. There can be no assurance
that the Company will be able to locate or engage in an alternate business
activity or that the Company will have access to sufficient funds to develop
such businesses.
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BAYOU INTERNATIONAL, LTD
Company Structure
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Bayou International, Ltd
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|
| 100%
|
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Solmecs Corporation N.V.
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|
| 100%
|
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Solmecs (Israel) Ltd
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|
| 85%
|
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Heatex Ltd
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History
The Company's predecessor corporation, Bayou Oil, was incorporated under the
laws of Minnesota in 1973. From 1973 through to 1981 Bayou Oil was engaged in
the design and production of protective athletic equipment and it also 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, from 1981 through to 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 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 in the
Company 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 US$0.01 to US$0.15 per share in order to meet
the listing requirements of the Australian Stock Exchange Limited ("ASX"). The
Reincorporation was approved by the stockholders of Bayou Oil at its' Annual
Meeting of Stockholders held on March 6, 1987. The Company did not complete the
listing on the 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 Bayou Group 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 Bayou Group
purchased the remaining 8% of Atel not previously owned by it for an aggregate
purchase price of A$150,000. The Bayou Group subsequently transferred all of
Atel's assets directly to the Bayou Group (including Atel's investment in Satec)
and assumed all of Atel's liabilities in connection therewith. Atel was
subsequently liquidated and dissolved as the Bayou Group no longer required the
corporate shell of Atel. Satec was organised to engage in the design,
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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 on a pro-rata basis. 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.
In October 1990, following a review of its operations, the Bayou Group 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 the
Company 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 Bayou Group 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.
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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 forgiving 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
commercialisation of products and technologies in the energy conversion field.
The Company owns all of the issued and outstanding shares of Solmecs which in
turns owns all of the outstanding shares of Solmecs (Israel) Ltd ("Solmecs
Israel").
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 specialised 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
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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 characterised 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 vapour 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.
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 utilisation.
OMACON: The particular form of LMMHD-ECT which Solmecs is engaged in developing
is referred to as OMACON (which stands for Optimised 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 centre for Magneto-Hydro-Dynamics ("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 centre 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.
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The ETGAR Program: The presently ongoing LMMHD program of Solmecs commenced in
1981. It is carried out by the Centre for MHD Studies of Ben-Gurion University
in Beer-Sheva. The program concentrates on the development of OMACON systems and
towards the commercialisation of small-scale (1-10 MW with a possible further
upscaling to 25 MW) power plants being able to utilise a variety of heat
sources. This program is called the ETGAR Program.
In 1987 the program reached the beginning of its commercialisation 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.
All of the power generating systems which are planned to be built according to
the ETGAR program implement the OMACON concept with either a single-phase
generator or a two-phase generator.
The ETGAR commercialisation 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 utilisation 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 commercialisation stage.
New Directions
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 centre of Ben-Gurion University in Israel. The prototype is now in
the last stages of commissioning and first tests commenced in the
beginning of 1997. Approximately US$1 million has been spent on this
project and it was elaborated jointly with the International Lead and Zinc
Research Organisation ("ILZRO") in North Carolina USA. On the basis of the
positive results of previous smaller scale experiments, it is
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anticipated that the introduction of a "boiling mixer" (that is, 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).
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
o Using ETGAR systems on off-shore oil pumping platforms. In this case
the system will produce electricity utilising heat and pressure of
gases mixed with the oil stream arriving from very deep off-shore
oil wells. This direction is being explored with AMEC Process and
Energy Limited (London) who are a very large British engineering
company specialising in the off-shore oil industry.
o Matching ETGAR-technology to a novel energy system developed by the
European Organisation for Nuclear Research CERN in Geneva (the world
largest elementary particle accelerator built jointly by the
countries of the European Community). This system is using a flux of
accelerated protons which hit a molten lead target and cause 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
(i) 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 indicates that the following results can be
achieved
o Substantial improvement of the quality of complicated castings
o Creation of new alloys with "exotic" properties
o Advancement of monocrystal growths technology (larger crystals
with improved quality).
(ii) Solmecs currently sells its consulting and development services to
the Dead Sea Works Industry for handling Liquid Magnesium using
LMMHD technology.
d) The know-how in the field of energy and heat transfer allowed Solmecs to
enter into the development of a domestic hot water tank control and
display system. The development stage is now finished.
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e) In addition, the good connections developed between Solmecs, institutions
and companies in the former Soviet Union countries have permitted Solmecs
to commence commercial activities on a limited basis in the following two
areas:
(i) The marketing in Israel of photovoltaic ("PV") modules manufactured
by the Russian firm "Musson".
(ii) The supplying in Israel of services of Plasma-Chemical modifications
(PMC) of elastomer products using Russian technology.
The Company believes that there is a substantial 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 Centre 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 would be further
proven during a four-year grant period with a total budget of approximately US$6
million. Grant co-sponsors would include four sources: 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.
Heatex Ltd.
Heatex was established in 1995 to engage in research, development and
commercialisation 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 fuelled 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 or she wants to keep in the
system at time intervals he or she chooses, that is,
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the device will help to avoid unnecessary waste of energy and will allow a
comfortable use of the water heating system.
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 to engineer the product. Aerobit has now completed its
contract and provided Heatex with working prototypes of the product.
The commercialisation stage of the product began in the second quarter of 1997.
The Heatex control and display system is being adapted to a Dutch boiler sent to
Israel by the Inventum Dutch firm which is interested in adding the product to
its boilers. France's leading boiler's manufacturer and distributor is
interested in the product and its adaptation is planned for late 1997 and early
1998. The sales prospects for this product in other countries including the USA
are now being considered.
The production will be undertaken at first by subcontractors and later depending
on market demand a decision will be taken as to whether Heatex will manufacture
the control and display system.
Employees
As of July 1, 1997 the Bayou Group (through Solmecs) had 13 employees, 8 of whom
are engaged on a full-time basis and 5 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 that 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, 1997 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
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United States, Israel, Italy, Great Britain, Germany, France, Sweden, Canada,
Japan and Australia and for its Solar MHD in the United States.
Even if Solmecs is successful in obtaining all of its 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.
The Company also relies on trade secret protection for much of the proprietary
know how related to its LMMHD technology as well as the technology related to
the Heatex systems.
Legal Proceedings
There are no pending legal proceedings to which the Company is a party or to
which any of its property is the subject which 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 are located at 7 Ben Zui Road, Beer-Sheva,
Israel (nearby the Company's Laboratories) and are leased pursuant to a lease at
approximately US$250 per month.
Item 3. NOT APPLICABLE
Item 4. NOT APPLICABLE
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for the
Common Stock has been sporadic and the market for the Common Stock cannot be
classified as an established public trading market.
The following table sets forth the high and low bid information for the Common
Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated in US$:
<TABLE>
<CAPTION>
Calendar Period High Bid(1)(2) Low Bid(l)(2)
- --------------- ---------------- ---------------
<S> <C> <C>
1995
First Quarter..................... 7/16.....................3/8
Second Quarter ....................9/16.................... 3/8
Third Quarter.......................3/8.....................3/8
Fourth Quarter......................3/8.....................3/8
1996
First Quarter.......................1/2.....................1/4
Second Quarter .....................5/8.....................3/8
Third Quarter.......................5/8.....................5/8
Fourth Quarter......................1/2.....................1/2
1997
First Quarter.......................3/8.....................3/8
Second Quarter......................1/4.....................1/4
</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 September 16, 1997 the closing bid for the Common Stock was 5/8.
13
<PAGE> 15
Shareholders
As of August 28, 1997 the Company had approximately 291 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, 1997, and balance sheet data at June 30,
1993, 1994, 1995, 1996 and 1997 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,
1993, and 1994, and by David T Thomson PC, independent accountants, in respect
of the years ended June 30, 1995, 1996 and 1997. 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, 1997, 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."
14
<PAGE> 16
Consolidated Statement of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year End June 30
Conv.
Transl
------
1993 1994 1995 1996 1997 1997
A$ A$ A$ A$ A$ US$
<S> <C> <C> <C> <C> <C> <C>
Sales Revenue -- -- -- 30 66 49
Other Income 305 114 82 117 11 8
--------------------------------------------------------------
Total Revenue 305 114 82 147 77 57
Costs and expenses (2,063) (1,935) (1,761) (1,698) (1,667) (1,244)
--------------------------------------------------------------
Loss from operations (1,758) (1,821) (1,679) (1,551) (1,590) (1,187)
Other income (loss) 247 686 233 (459) 330 247
--------------------------------------------------------------
Loss before income taxes (1,511) (1,135) (1,446) (2,010) (1,260) (940)
Provision for income tax -- -- -- -- -- --
--------------------------------------------------------------
Net loss (1,511) (1,135) (1,446) (2,010) (1,260) (940)
==============================================================
cents cents cents cents cents cents
Net loss per share (0.06) (0.03) (0.03) (0.04) (0.03) (0.02)
==============================================================
Number Number Number Number Number Number
Weighted average number
of shares outstanding 26,426 34,501 46,942 46,942 46,942 46,942
==============================================================
A$ A$ A$ A$ A$ US$
Total assets 2,487 2,060 1,357 717 167 125
Total liabilities 3,421 660 1,542 2,598 3,673 2,740
--------------------------------------------------------------
Stockholders' equity (deficiency) (934) 1,400 (185) (1,881) (3,506) (2,615)
==============================================================
</TABLE>
15
<PAGE> 17
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 US dollar during the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
<S> <C> <C>
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
1997 - A$1.00 = US$0.7459
</TABLE>
Results of Operations
Year ended June 30, 1997 versus Year ended June 30, 1996
Sales revenue increased from A$30,000 for the year ended June 30, 1996 to
A$66,000 (US$49,000) for the year ended June 30, 1997 as a result of the
increase in commercial activities of Solmecs. Other income reduced from
A$117,000 for the year ended June 30, 1996 to A$11,000 (US$8,000) for the year
ended June 30, 1997. A$7,000 (US$5,000) was received during the year from
external consulting services compared to A$76,000 for the year ended June 30,
1996. In addition, during the year ended June 30, 1996 interest income on a debt
was received amounting to A$48,000 compared with A$4,000 (US$3,000) for the year
ended June 30, 1997.
Costs and expenses decreased from A$1,698,000 for the year ended June 30, 1996
to A$1,667,000 (US$1,244,000) for the year ended June 30, 1997. The decrease is
a net result of
(i) an increase in the cost of sales from A$23,000 for the year ended June 30,
1996 to A$63,000 (US$47,000) for the year ended June 30, 1997 which is
directly comparable to the increase in sales in revenue.
(ii) an increase in interest expense from A$185,000 for the year ended June 30,
1996 to A$259,000 (US$193,000) for the year ended June 30, 1997 which is a
result of the increase in the level of borrowings of the Company.
16
<PAGE> 18
(iii) a decrease in salaries and wages from A$544,000 for the year ended June
30, 1996 to A$393,000 (US$293,000) for the year ended June 30, 1997. In
early 1996 the Company made a decision to close its administration offices
in Jerusalem and shift the administration function of Solmecs to
Beer-Sheva which is close to the Ben- Gurion University where the
Company's research and development program is conducted. This decision
resulted in the decrease in salaries and wages.
(iv) an increase in administrative expenses from A$153,000 for the year ended
June 30, 1996 to A$212,000 (US$158,000) as a result of the costs involved
in the negotiation for the sale of Solmecs details of which are set out in
the section, "Item 1 - Business - General" and as a result of an increase
in marketing expenses incurred by Solmecs due to the beginning of
commercialisation of the Heatex shower programmer and control "thermo
Fix".
(v) a decrease in research and development from A$94,000 for the year ended
June 30, 1996 to A$72,000 (US$55,000) for the year ended June 30, 1997 due
to a cost control program within Solmecs.
(vi) a decrease in travel and accommodation from A$57,000 for the year ended
June 30, 1996 to A$34,000 (US$25,000) for the year ended June 30, 1997 due
to a decrease in the foreign travel necessary as there was no income from
the Ilzro Project and a general control of costs.
As a result of the foregoing, the Company incurred a loss from operations of
A$1,590,000 (US$1,187,000) for the year ended June 30,1997 compared with a loss
of $A1,551,000 for the year ended June 30, 1996.
The Company recorded an unrealised foreign exchange gain of A$332,000
(US$248,000) for the year ended June 30,1997 compared with an unrealised foreign
exchange loss for the year ended June 30, 1996 of A$546,000. This was 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.
As a result of the foregoing, the Company recorded a loss before income tax of
A$1,260,000 (US$940,000) for the year to June 30,1997 compared with a loss of
A$2,010,000 the year ended June 30, 1996.
The Company was not required to provide for income tax during the year ended
June 30, 1997 or 1996.
As a result, the Company recorded a net loss of A$1,260,000 (US$940,000) for the
year ended June 30,1997 compared with a net loss of A$2,010,000 for the year
ended June 30, 1996. This reduced the loss per Common Equivalent Share to A$0.03
(US$0.02) from A$0.04. The weighted number of Common Equivalent Shares
Outstanding was unchanged.
17
<PAGE> 19
Year ended June 30, 1996 versus Year ended June 30, 1995
Revenues increased from A$82,000 for the year ended June 30, 1995 to A$147,000
for the year ended June 30, 1996. Sales revenue increased from A$nil for the
year ended June 30, 1995 to A$30,000 for the year ended June 30, 1996 as a
result of the commencement of commercial activities of Solmecs. The other income
during the year ended June 30, 1996 comprised A$76,000 for contracting services
received from external parties and interest income amounting to A$48,000 on a
debt outstanding. There were no comparable amounts in the prior year. In the
year ended June 30, 1995 the other income represented grants from the Israeli
government for which there were no comparable amounts in the year ended June 30,
1996.
Cost and expenses decreased from $1,761,000 for the year ended June 30, 1995 to
A$1,698,000 for the year ended June 30, 1996. The significant changes in cost
and expenses were as follows
(i) an increase in the cost of sales from A$nil for the year ended June 30,
1995 to A$23,000 for the year ended June 30, 1996 which is directly
comparable to the increase in sales revenue as a result of the
commencement of commercial activities of Solmecs.
(ii) increase in the interest expense from A$67,000 for the year ended June 30,
1995 to A$185,000 for the year ended June 30, 1996 as a result of the
increase in the level of debt of the Company as the Company was funded by
loans.
(iii) reduction in legal, accounting and professional expenses from A$141,000
for the year ended June 30, 1995, to A$95,000 for the year ended June 30,
1996. During the year the Company moved its offices in Israel from
Jerusalem to Beer-Sheva where the Ben-Gurion University was located and
achieved a reduction in costs by utilising cheaper office space.
(iv) reduction in salaries and wages from A$700,000 for the year ended June 30,
1995 to A$544,000 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, was able to reduce the number of administration staff working for
Solmecs.
(v) decrease in research and development costs from A$129,000 for the year
ended June 30, 1995, to A$94,000 for the year ended June 30, 1996.
(vi) increase in travel and accommodation from A$21,000 for the year ended June
30, 1995, to A$57,000 for the year ended June 30, 1996.
As a result of the foregoing, the Company incurred a reduced loss from
operations of A$1,551,000 for the year ended June 30, 1996 compared to a loss of
A$1,679,000 for the year ended June 30, 1995.
In 1995, 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
18
<PAGE> 20
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 a 16.7% interest in SFI and a 24% interest 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 and did not wish to invest any
funds or 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 was no such disposal in the year ended June 30, 1996.
The Company realised a foreign currency exchange loss of A$546,000 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 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 result of the repayment, the subsidiary company recorded a gain of
A$79,000. 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 of
A$2,010,000 for the year ended June 30, 1996 compared to a loss of A$1,446,000
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.
As a result the Company recorded a net loss of A$2,010,000 for the year ended
June 30, 1996 compared to a net loss of A$1,446,000 for the year ended June 30,
1995.
Certain amounts and details in this section headed "Year ended June 30, 1996
versus Year ended June 30, 1995" have been amended as a result of the
reclassification of financial information.
19
<PAGE> 21
Liquidity and Capital Resources
As of June 30, 1997 the Company had short term obligations of A$406,000
(US$303,000) consisting of accounts payable and accrued expenses.
The Company also has long term obligations of A$3,267,000 (US$2,437,000) at June
30, 1997 primarily 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 the Company's cash flow requirements which
based on discussions with the affiliates the Company believes will continue to
be available during fiscal 1998 and 1999.
As set out in "Item 1- Business - Recent Developments" the Company is
negotiating the sale of Solmecs which will relieve the Company of its
requirements to fund the LMMHD project.
In the event that the sale of Solmecs does not proceed the Company will be
required to consider the ongoing operations of Solmecs.
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 of which there can be no assurance.
The Independent Auditors' Report on the Company's audited financial statements
contains an explanatory paragraph with respect to the ability of the Company to
continue as a going concern.
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.
20
<PAGE> 22
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 affect 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.
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
Australian taxpayers.
Item 8. NOT APPLICABLE
Item 9. NOT APPLICABLE
21
<PAGE> 23
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 45 Chairman of the Board,
President, Chief
Executive Officer and
Director
Henry Herzog 56 Vice President
and Director
Joseph Hayden Barry 56 Vice President and
Director
Eduard Eshuys 52 Vice President and
Director
David Tyrwhitt 59 Director
Peter Lee 40 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 Limited ("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).
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. Since 1991, he has been involved in hotel management,
consulting and investment.
22
<PAGE> 24
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 and in the 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).
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, a Fellow of 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 General Manager
Corporate 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 persons, although not executive officers of the Company, make
significant contributions to the business of Solmecs.
23
<PAGE> 25
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. He
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, has authored or co-authored more
than 200 scientific journal publications.
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 30,1997 other than is noted below.
In accordance with the Service Agreement, the Company paid AWI Admin A$16,500
for the fiscal year ended June 30, l997, 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.
24
<PAGE> 26
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, l997.
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, 1997, one of the non-executive Directors was paid A$16,000 for
services as a Director and a further Director was paid a retirement benefit of
A$38,978 upon his retirement as a Director.
25
<PAGE> 27
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 September 16, l997, 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) 43.8%
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.
(l) Based upon 46,941,789 shares outstanding.
26
<PAGE> 28
(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 of which Mr. Gutnick who is an officer and Director of Solmecs
disclaims 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 therefore, 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$16,500 in respect of the Service Agreement for
fiscal 1997. The Service Agreement may be terminated by written notice by either
party.
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 authorised.
27
<PAGE> 29
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.
28
<PAGE> 30
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 authorised.
BAYOU INTERNATIONAL, LTD.
(Registrant)
By: /s/ JOSEPH GUTNICK
-------------------------------
Joseph Gutnick
President
Dated: May 7, 1998
29
<PAGE> 31
[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
/s/ JOSEPH GUTNICK Executive Officer
- ----------------------- (Principal Executive
Joseph Gutnick Officer) and Director May 7, 1998
Director, Assistant Secretary,
/s/ PETER LEE Chief Financial Officer and
- ----------------------- Principal Financial
Peter Lee and Accounting Officer May 7, 1998
/s/ HENRY HERZOG
- ----------------------- Vice President and May 7, 1998
Henry Herzog and Director
/s/ DAVID TYRWHITT
- ----------------------- Vice President and May 7, 1998
David Tyrwhitt Director
/s/ DAVID H. SIMCOX
- ----------------------- Director May 7, 1998
David H. Simcox
/s/ EDUARD ESHUYS
- ----------------------- Vice President and May 7, 1998
Eduard Eshuys Director
30
<PAGE> 32
EXHIBIT INDEX
Page No.
Incorporated by Exhibit Sequential
Reference to No. Exhibits No. System
- ------------ --- -------- ----------
(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 B 3.3 Amendment to Certificate of Incorporation
(3) 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.
- ----------
*Filed herewith.
(1) Registrant's Registration Statement on Form S-l (File No. 33-14784).
(2) Registrant's Definitive Information Statement dated April 10, 1997.
(3) Registrant's Annual Report on Form 10-K for the fiscal year ended June 27,
1989.
31
<PAGE> 33
BAYOU INTERNATIONAL, LTD AND SUBSIDIARY
Consolidated Financial Statements
June 30, 1997 and 1996
(with Independent Auditor's Report)
<PAGE> 34
CONTENTS
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, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. 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$166,151, A$180,997 and A$286,065 as of June 30, 1997, 1996 and 1995,
respectively and total revenues of A$76,744, A$147,367 and A$82,175,
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 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, 1997 and 1996 and the results of its operations and its
cash flows for each of three years in the period ended June 30, 1997, 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
September 12, 1997
180 South 300 West, Suite 329, Salt Lake City, Utah 84101 (801) 328-3900
<PAGE> 36
BAYOU INTERNATIONAL, LTD. AND SUBSIDARY
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
Australian Dollars Convenience
------------------ Translation
A$000's A$000's US$000's
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash 73 53 40
Accounts Receivable, net 53 63 47
Investments 3 -- --
-----------------------------------
Total Current Assets 129 116 87
-----------------------------------
Other Assets:
Property and Equipment,
net 55 51 38
Goodwill, net 533 -- --
-----------------------------------
Total Other Assets 588 51 38
-----------------------------------
Total Assets 717 167 125
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses 346 406 303
-----------------------------------
Total Current Liabilities 346 406 303
Long-Term Debt 2,252 3,267 2,437
-----------------------------------
Total Liabilities 2,598 3,673 2,740
-----------------------------------
Stockholders' Equity (Deficit):
Common stock: $0.20 par value
100,000,000 shares authorised,
46,941,789 shares issued and
outstanding 9,388 9,388 7,003
Additional Paid-in-Capital 11,592 11,592 8,646
Cumulative Translation Adjustments (70) (435) (324)
Retained Deficits (22,791) (24,051) (17,940)
-----------------------------------
Total Stockholders' Deficit (1,881) (3,506) (2,615)
-----------------------------------
Total Liabilities and Stockholder's
Equity 717 167 125
===================================
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Convenience
Translation
A$000's A$000's A$000's US$000's
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sales -- 30 66 49
Other Income 82 117 11 8
------------------------------------------
82 147 77 57
------------------------------------------
Cost and expenses
Cost of sales -- 23 63 47
Interest Expense 67 185 259 193
Legal, Accounting
Professional 141 95 89 66
Depreciation & Amortisation 15 14 12 9
Amortisation of Goodwill 532 533 533 398
Salaries & Wages 700 544 393 293
Administrative 156 153 212 158
Research and Development 129 94 72 55
Travel and Accommodation 21 57 34 25
------------------------------------------
1,761 1,698 1,667 1,244
------------------------------------------
Loss from Operations (1,679) (1,551) (1,590) (1,187)
------------------------------------------
Unrealised Gain (Loss) on Investments (1) 2 -- --
Gain (Loss) on Disposition of Assets 125 6 (2) (1)
Foreign Currency Exchange Gain 109 (546) 332 248
Bad Debt (Expense) Recovery -- 79 -- --
------------------------------------------
233 (459) 330 247
------------------------------------------
Loss before Income Tax (1,446) (2,010) (1,260) (940)
Provision for Income Tax -- -- -- --
------------------------------------------
Net Loss (1,446) (2,010) (1,260) (940)
==========================================
Earnings (Loss) per Common
Equivalent Share (0.3) (0.4) (.03) (.02)
==========================================
Weighted Number of Common Equivalent
Shares Outstanding 46,942 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, 1997 and 1996
<TABLE>
<CAPTION>
Common Retained Cumulative
Additional Stock Paid-in Translation Earnings
Shares Amount Capital Adjustments (Deficit)
------ ------ ------- ----------- ---------
A$000's A$000's A$000's A$000's A$000's
<S> <C> <C> <C> <C> <C>
Balance June 30, 1994 46,942 9,388 11,592 (534) (19,335)
Net Loss -- -- -- -- (1,446)
Foreign Currency Translation -- -- -- (131) --
------------------------------------------------------
Balance June 30, 1995 46,942 9,388 11,592 (665) (20,781)
Net Loss -- -- -- -- (2,010)
Foreign Currency Translation -- -- -- 595 --
------------------------------------------------------
Balance June 30, June 1996 46,942 9,388 11,592 (70) (22,791)
Net Loss -- -- -- -- (1,260)
Foreign Currency Translation -- -- -- (365) --
======================================================
Balance June 30, 1997 46,942 9,388 11,592 (435) (24,051)
======================================================
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Convenience
Translation
A$000's A$000's A$000's US$000's
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (1,446) (2,010) (1,260) (940)
Adjustments
Foreign Currency Translation (131) 595 (365) (272)
Depreciation & Amortisation 547 547 545 407
(Gain) Loss on Disposal of Assets (9) (6) 2 1
Unrealised Gain (Loss) on Investments
On Investments -- (2) -- --
Recovery (Provision) for Bad debt -- 79 -- --
Net Change In:
Accounts Receivable 60 33 (10) (7)
A/P & Accrued Expenses 62 (335) 60 45
---------------------------------------
Net Cash Provided by (Used in) Operating
Activities (917) (1,099) (1,028) (766)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (22) (7) (8) (6)
Net Proceeds from Investments (35) (2) 1 1
---------------------------------------
Net Cash Provided by (Used in) Investing
Activities (57) (9) (7) (5)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of Long Term Debt -- --
Net Borrowing under Credit Line Arrangements 32 (73) -- --
Borrowing From Affiliates 780 1,183 1015 757
New Borrowing -- -- -- --
---------------------------------------
Net Cash Provided by (Used in) Financing
Activities 812 1,110 1015 757
---------------------------------------
Net Increase (Decrease) in Cash (162) 2 (20) (14)
Cash at Beginning of Year 233 71 73 54
---------------------------------------
Cash at End of Year 71 73 53 40
=======================================
Supplemental Disclosures
Common Stock Issued in Lieu of Debt Repayment -- -- -- --
Interest Paid (Net Capitalised) -- 15 256 191
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, 1997 and 1996
(1) ORGANIZATION
Bayou International, Ltd. ("Bayou") is incorporated in the State of
Delware. The principal shareholder of Bayou is Edensor Nominees
Proprietary Limited ("Edensor"), an Australian corporation. Edensor owned
42.7% of Bayou as of June 30, 1997.
Bayou's subsidiary is Solmecs Corporation N.V. ("Solmecs"), which it
acquired a controlling interest of on September 3, 1987 and 100% ownership
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 conversation fields through its 100%-owned
subsidiary Solmecs. All revenue is from contracted services provided by
Solmecs. Almost all of Bayou's operating expenses are of a general and
administrative and research and development nature.
(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 recognised at the time granted and
commercial sales through Bayou's subsidiary are recognised 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, 1997 and 1996
(2) ACCOUNTING POLICIES (Contd)
(d) Financial Instruments
The following methods and assumptions were used by Bayou to estimate
the fair values of financial instruments as disclosed herein:
(i) Cash and Equivalents - The carrying amount approximates fair
value because of the short period to maturity of the
instruments.
(ii) Investment Securities - For both trading securities and
available-for-sale securities, the carrying amounts
approximate fair value which is based on quoted market prices.
(iii) 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:
(i) 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. Realised and unrealised
gains and losses are included in income.
(ii) Available-for-sale securities consist of marketable equity
securities not classified as trading securities.
Available-for-sale are stated at fair value and unrealised
holding gains and losses net of the related deferred tax
effect, are reported as a separate component of stockholders'
equity.
(iii) Dividends on marketable equity securities are recognised in
income when declared. Realised gains and losses are included
in income. Realised 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.
7
<PAGE> 42
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(2) ACCOUNTING POLICIES (Contd)
(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.
(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 is not aware of any net operating
losses which are expected to be realised.
(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 amortised over ten years using the
straight-line method.
(k) Convenience Translation to US$
The consolidated financial statements at June 30, 1997 have been
translated into United States dollars using the rate of exchange of
the United States dollar at June 30, 1997 (AUS $1.00=US $.7459). 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.
(m) Research and Development
Research and development costs are charged to operations as
incurred.
8
<PAGE> 43
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
<TABLE>
<CAPTION>
A$000's A$000's
1996 1997
---- ----
<S> <C> <C>
(3) ACCOUNTS RECEIVABLE
Accounts Receivable at June 30, 1996 and
1997 includes:
Miscellaneous Receivables 53 63
Less Allowance for Doubtful Account -- --
-------------------
Net 53 63
===================
(4) INVESTMENT SECURITIES
The following is a summary of Investment
Securities, 1996 and 1997:
Trading Securities:
Marketable Equity Securities, at cost 1 --
Gross Unrealised Gains 2 --
Gross Unrealised Losses -- --
-------------------
Marketable Equity Securities, --
at fair value 3 --
===================
(5) PROPERTY
Property at June 30, 1996 and 1997
includes:
Office Furniture & Equipment 170 185
Motor Vehicles 38 40
-------------------
208 225
Less Accumulated Depreciation (153) (174)
-------------------
55 51
===================
</TABLE>
9
<PAGE> 44
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
<TABLE>
<CAPTION>
A$000's A$000's
1996 1997
--- ---
<S> <C> <C>
(6) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bayou's borrowing
arrangements as of June 30, 1996 and 1997
Long Term
Loan from Affiliate of Solmecs. Loan is interest
free and date of repayment not determined 254 268
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, 1998 1,998 2,999
Short-Term
Overdraft arrangement with balance
Accruing interest -- --
Notes Payable - Affiliates -- --
------------------
Total 2,252 3,267
==================
</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, 1997 Bayou had no outstanding advances to or from
unconsolidated affiliated companies. $125,000, $68,000 and $14,000 of
accounts payable for the years shown is due to an affiliated management
company.
(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, 1997 and 1996
(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
arrangement 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 at the rate
of 1.75% on sales of products and at the rate of 11.5% 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, 1997, this liability amounted to
approximately US$308,000 (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.
11
<PAGE> 46
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(9) COMMITMENTS (Continued)
Through June 30, 1997, there were no sales or income on which royalties
were payable to APRDA or the ME.
(b) International Lead Zinc Research Organisation (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
US$1,864,000. Through June 30, 1997, 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,
1997, no royalties were payable.
(10) SUBSEQUENT EVENT
In March 1997, Bayou commenced negotiations with SCNV Acquisition Corp
("SCNV") for the sale of Bayou's subsidiary Solmecs to SCNV. A letter of
intent was signed on May 5, 1997 and agreements to effect the sale are in
the process of being negotiated. It is intended that, as part of the sale
of Solmecs, Bayou will acquire a 24% interest in SCNV.
The sale of Solmecs is subject to the approval of shareholders of Bayou.
Following the signing of formal contracts for the sale of Solmecs, Bayou
will prepare and distribute an Information Memorandum for the purpose of
seeking shareholder approval.
In the event that the sale of Solmecs is consummated, of which there can
be no assurance, Bayou intends to seek other business activities, which
may be in the fields of energy conversion and conservation and/or other
industries, including the mineral exploration industry. It is the policy
of the Board of Directors of Bayou that it will not engage in any
activities the scope and nature of which would subject the Company to the
registration and reporting requirements of the Investment Company Act of
1940.
12
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
l. 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 (85% owned through Solmecs (Israel)
Ltd).
<PAGE> 1
LUBOSHITZ,
KASIERER & CO
ARTHUR ANDERSEN
AUDITORS' REPORT TO THE SHAREHOLDERS
OF
SOLMECS CORPORATION N.V.
We have audited the accompanying balance sheets of SOLMECS CORPORATION N.V. (the
"Company") of June 30, 1997 and 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.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 liability will not have
to be repaid.
As more fully discussed in Note 2, the Company prepares its financial statements
in US 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 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position as of June 30, 1997 and 1996, and the results of operations, changes in
shareholders' deficiency and cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States.
We draw attention to the matter discussed in Note x. The Company has incurred
substantial operating losses, and at June 30, 1997, the Company has an
accumulated deficient of approximately $12.7 million and a shareholders'
deficiency of approximately $5.1 million. 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, August 29, 1997
