<PAGE> 1
SCHEDULE 14C
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES EXCHANGE ACT
OF 1934
(AMENDMENT NO. )
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
BAYOU INTERNATIONAL, LTD.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1):
Based upon an initial public offering price of $5.75, per share for
499,701 shares of SCNV Acquisition Corp. to be received by the
Registrant in exchange for assets
4) Proposed maximum aggregate value of transaction:
$2,873,281
- --------------------------------------------------------------------------------
5) Total Fee Paid:
$575.00
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$575.00
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Preliminary Information Statement
- --------------------------------------------------------------------------------
3 Filing Party:
Bayou International Ltd.
- --------------------------------------------------------------------------------
4) Date Filed:
May 15, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
BAYOU INTERNATIONAL, LTD.
(A DELAWARE CORPORATION)
INFORMATION STATEMENT
DATE FIRST MAILED OUT TO STOCKHOLDERS:
JUNE 5, 1998
210 KINGS WAY
SOUTH MELBOURNE VICTORIA 3205
AUSTRALIA
TELEPHONE: 011 (613) 9234 1100
(PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY)
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
<PAGE> 3
BAYOU INTERNATIONAL, LTD.
INFORMATION STATEMENT
JUNE 5, 1998
INTRODUCTION
This Information Statement is being furnished to Stockholders of Bayou
International, Ltd., a Delaware corporation ("Bayou"), pursuant to the
requirements of Regulation 14C under the Securities Exchange Act of 1934, as
amended, in connection with an Action by Written Consent, dated June 5, 1998, of
the Stockholders of Bayou (the "Written Consent"). A copy of the Written Consent
is attached as Annex A to this Information Statement.
The Written Consent contains a resolution consenting to the execution and
performance by Bayou of the "Stock Purchase Agreement", dated June 5, 1998,
entered into by Bayou, Solmecs Corporation N.V., a company organised under the
laws of the Netherlands Antilles and a wholly-owned subsidiary of Bayou
("Solmecs"), and SCNV Acquisition Corp., a Delaware corporation ("SCNV") (the
"Agreement"), pursuant to which Bayou shall sell, convey, assign, transfer and
deliver to SCNV all of the issued and outstanding shares of capital stock of
Solmecs (the "Solmecs Shares") in return for 499,701 shares of Common Stock, par
value $.01 per share, of SCNV (the "SCNV Shares") (the "Solmecs Acquisition").
The Solmecs Shares may be deemed to constitute substantially all of the assets
of Bayou as at the date of this Information Statement.
Management of Bayou is utilising the Written Consent in order to reduce the
expenses and demands on Bayou's executives' time necessitated by the holding of
a Special Meeting of Stockholders, since Bayou has received executed Written
Consents from Bayou's major Stockholder, Edensor Nominees Pty Ltd, and certain
other companies which have some common Directors with Bayou, representing 69.2%
of the issued and outstanding shares of Bayou's $.15 par value common stock,
thereby ensuring that a majority of the Stockholders of Bayou have consented to
the transactions contemplated by the Agreement. See further "GENERAL; ACTION BY
WRITTEN CONSENT" and "STOCKHOLDERS WHO HAVE EXECUTED THE WRITTEN CONSENT".
The Written Consents received by Bayou shall be effective 21 days from the
date this Information Statement is first mailed to Stockholders.
Unless the Agreement is terminated pursuant to its terms, the closing of
the Agreement shall take place as promptly as practicable (and in any event
within five business days) after satisfaction or waiver of the various
conditions (including the provision of consent to the transactions contemplated
by the Agreement by a majority of the Stockholders of Bayou) set forth in the
Agreement, or such later date as is fixed by a written instrument signed by the
parties.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is dated June 5, 1998 and is first being mailed
to Stockholders on or about June 5, 1998.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 1
SUMMARY..................................................... 3
THE COMPANIES............................................. 3
ACTION BY WRITTEN CONSENT................................. 4
STOCK PURCHASE AGREEMENT.................................. 5
SELECTED FINANCIAL INFORMATION OF THE COMPANY............. 6
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA............... 8
MARKET PRICE DATA......................................... 15
GENERAL; ACTION BY WRITTEN CONSENT.......................... 16
STOCK PURCHASE AGREEMENT.................................... 17
Background................................................ 17
Terms of Agreement........................................ 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 24
STOCKHOLDERS WHO HAVE EXECUTED THE WRITTEN CONSENT.......... 25
OTHER INFORMATION........................................... 25
EXPERTS..................................................... 26
AVAILABLE INFORMATION....................................... 26
ANNEXES
ANNEX A -- Written Consent dated June 5, 1998
ANNEX B -- Bayou's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997
ANNEX C -- Bayou's Quarterly Report on Form 10-Q for the
nine month period ended March 31, 1998
ANNEX D -- Selected Information from Amendment No. 2 to
the SCNV Registration Statement on Form SB-2
(File No. 333-43955)
</TABLE>
<PAGE> 5
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained, or incorporated by
reference, in this Information Statement and the Annexes hereto.
Information with respect to SCNV which is contained in this Information
Statement, including this summary, has been derived, without independent
verification, from Amendment No. 2 to the SCNV Registration Statement on Form
SB-2 (File No. 333-43955) filed by SCNV with the Securities and Exchange
Commission ("SEC") (the "SCNV Registration Statement").
The management of SCNV has not participated in the preparation of this
Information Statement.
STOCKHOLDERS OF BAYOU ARE URGED TO READ THIS INFORMATION STATEMENT AND THE
ANNEXES HERETO IN THEIR ENTIRETY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
THE COMPANIES
BAYOU INTERNATIONAL, LTD.: Bayou is a Delaware corporation which has since
1987 been 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.
In the event that the Solmecs Acquisition is
consummated pursuant to the Agreement, 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
(however, such activities will not be in
competition with SCNV) and/or other industries
including the mineral exploration industry. There
can be no assurance that Bayou will be able to
locate or engage in an alternative business
activity or that Bayou will have access to
sufficient funds to develop such businesses.
The principle executive offices of Bayou are
located at 210 Kings Way, South Melbourne, Victoria
3205 Australia and the telephone number is 011
(613) 9234 1100.
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. A primary area of research and development
for Solmecs involves the innovative technology
known as LMMHD Energy Conversion Technology. Bayou
owns all of the issued and outstanding shares of
capital stock of Solmecs. Solmecs, in turn, owns
all of the issued and outstanding shares of Solmecs
(Israel) Ltd, an Israeli corporation ("Solmecs
Israel"). Solmecs Israel owns all of the issued and
outstanding shares of Heatex Ltd, also an Israeli
corporation.
The principal executive offices of Solmecs are
located at Omer Industrial Park, P.O. Box 3026,
Omer Israel 84965.
SCNV ACQUISITION CORP.: SCNV is a Delaware corporation established in May
1997 to select, develop and commercially exploit
proprietary technologies, in various stages of
development, invented primarily by scientists who
have recently immigrated to Israel from, and by
scientists and institutions in, Russia and other
countries that formerly comprised the Soviet Union.
In furtherance of this goal, SCNV will acquire
Solmecs.
3
<PAGE> 6
In accordance with the SCNV Registration Statement,
SCNV proposes to offer 1,041,044 shares of Common
Stock and 1,041,044 Class A Redeemable Warrants to
purchase shares of Common Stock (in Units of one
share of Common Stock and one Warrant) at a price
per Unit equal to $5.75 in a firm commitment public
offering, which will generate the gross proceeds of
US$5,986,000. It is a condition to the closing of
the Agreement that SCNV consummates the public
offering, of which there can be no assurance.
The current management of Bayou has not
participated in the organisation of SCNV and is not
expected to play any role in the management of SCNV
following the completion of the SCNV public
offering. The President of SCNV, Professor Herman
Branover, is currently the Scientific Director of
Solmecs Israel and prior to 1993, was also a
director and officer of Bayou. In addition, Mr
Emmanuel Althaus, a director of SCNV, is a director
of Solmecs and prior to November 1996, was a
director of Bayou.
The principal executive offices of SCNV are located
at Omer Industrial Park, P.O. Box 3026, Omer Israel
84965 and the telephone number is (972) 7690 0590.
ACTION BY WRITTEN CONSENT
WRITTEN CONSENT: This Information Statement is being furnished to
Stockholders of Bayou in connection with the
Written Consent. A copy of the Written Consent is
attached as Annex A to this Information Statement.
The Written Consent contains a resolution
consenting to the execution and performance by
Bayou of the Agreement, pursuant to which Bayou
shall sell, convey, assign, transfer and deliver to
SCNV the Solmecs Shares in return for the SCNV
Shares.
RECORD DATES: Stockholders of record at the close of business on
June 5, 1998 (the date of the Written Consent) are
being furnished copies of this Information
Statement.
REQUIRED CONSENT: The transfer by Bayou to SCNV of the Solmecs Shares
pursuant to the Agreement may be deemed to
constitute the sale of substantially all of the
assets of Bayou. Under the Delaware General
Corporation Law ("GCL"), such a transaction
requires the approval of the holders of a majority
of the issued and outstanding shares of Common
Stock of Bayou.
As of June 5, 1998 (the date of the Written
Consent), 46,941,789 shares of Common Stock of
Bayou were issued and outstanding. Thus,
Stockholders representing no less than 23,470,895
shares of Common Stock are required to execute the
Written Consent to effect the matters set forth
therein. Edensor Nominees Pty Ltd and certain other
companies which have some common Directors with
Bayou, together beneficially owning approximately
32,445,599 shares of Common Stock, or 69.2% of the
issued and outstanding Common Stock, have executed
the Written Consent, thereby ensuring that
Stockholders representing a majority of the issued
and outstanding shares of Common Stock of Bayou
have consented to the transactions contemplated by
the Agreement. See further "GENERAL; ACTION BY
WRITTEN CON-
4
<PAGE> 7
SENT" and "STOCKHOLDERS WHO HAVE EXECUTED THE
WRITTEN CONSENT". MANAGEMENT IS NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND
MANAGEMENT A PROXY.
STOCK PURCHASE AGREEMENT
EFFECT OF THE AGREEMENT: Upon closing of the Agreement, Solmecs will become
a wholly owned subsidiary of SCNV, and Bayou will
beneficially own 499,701 shares of Common Stock of
SCNV, representing approximately 24% of the issued
and outstanding shares of Common Stock of SCNV
(prior to the exercise of any warrants or options
which may be granted by SCNV).
In connection with the Solmecs Acquisition, Bayou
will convert all indebtedness owing by Bayou to
Solmecs (currently, approximately US$5,000,000) to
a capital contribution to Solmecs (the "Capital
Contribution").
REGISTRATION RIGHTS AND
LOCK-UP AGREEMENTS: Bayou will be granted certain demand and
"piggyback" registration rights with respect to the
SCNV Shares pursuant to a registration rights
agreement which will be executed simultaneously
with the Agreement. Notwithstanding the foregoing,
Bayou has agreed that it will execute a lock-up
agreement with respect to the SCNV Shares pursuant
to which Bayou shall agree not to sell, grant
options for sale of, assign or transfer any of the
SCNV Shares, for a period of 24 months from the
closing of the Agreement, provided, however, that
under certain circumstances Bayou shall have the
right to distribute the SCNV Shares pro rata to its
Stockholders and provided further that the
recipients will take such Shares subject to the
remaining term of the lock-up. As at the date of
this Information Statement, Bayou does not have any
plans to distribute the SCNV Shares to its
Stockholders.
APPROVAL OF BOARD: On June 5, 1998, the Board of Directors of Bayou
(the "Board") unanimously determined that the
execution of the Agreement and the performance of
the transactions contemplated thereby, is in the
best interests of Bayou, approved the Agreement and
recommended that Bayou's Stockholders provide their
consent to the transactions contemplated by the
Agreement. The Agreement was executed by Bayou on
June 5, 1998.
CLOSING OF AGREEMENT: Unless the Agreement is terminated pursuant to its
terms, the closing of the Agreement shall take
place as promptly as practicable (and in any event
within five business days) after satisfaction or
waiver of the various conditions (including the
provision of consent to the transactions
contemplated by the Agreement by a majority of the
Stockholders of Bayou) set forth in the Agreement
(the "Closing Date"), or such later date as is
fixed by a written instrument signed by the
parties.
CONDITIONS: The obligation of SCNV to purchase, and the
obligation of Bayou to sell, the Solmecs Shares, is
subject to the fulfilment of numerous conditions by
the respective parties. See further "STOCK PURCHASE
AGREEMENT -- Terms of Agreement".
TERMINATION: The Agreement may be terminated by either SCNV or
Bayou if the closing of the Agreement does not
occur prior to June 30, 1998. The
5
<PAGE> 8
Agreement includes other rights of termination. See
further "STOCK PURCHASE AGREEMENT -- Terms of
Agreement".
NO APPRAISAL RIGHTS: Holders of Bayou's Common Stock are not entitled to
dissenters' appraisal rights under the Delaware GCL
in connection with the Solmecs Acquisition.
CERTAIN US FEDERAL INCOME
TAX CONSEQUENCES: It is expected that the Solmecs Acquisition will
constitute a tax free reorganisation pursuant to
Section 368(a)(1)(b) of the Internal Revenue Code
of 1986, as amended, and accordingly, Bayou will
not recognise any gain or loss on the exchange of
the Solmecs Shares for the SCNV Shares.
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The selected financial information presented below for each of the years in
the five year period ended June 30, 1997 and balance sheet information at June
30, 1993, 1994, 1995, 1996 and 1997 has been derived from the audited
consolidated financial statements of Bayou. The financial information for the
nine-month period ended March 31, 1998 is derived from the unaudited
consolidated financial statements of Bayou. The unaudited consolidated financial
statements of Bayou should be read in conjunction with the financial statements
and notes thereto included in Bayou's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997 (see Annex B). The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position and the results of operations
of Bayou for the relevant periods. The financial information presented below
should be read in conjunction with the audited consolidated financial
statements, related notes and other financial information of Bayou included
elsewhere herein or incorporated by reference herein.
6
<PAGE> 9
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30(1)
---------------------------------------------------
CONV. NINE MONTHS CONV.
TRANSL ENDED TRANSL
------ MARCH 31, ------
1993 1994 1995 1996 1997 1997 1998 1998
A$ A$ A$ A$ A$ US$ A$(2) US$(2)
------ ------ ------ ------ ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales revenue............... -- -- -- 30 66 49 -- --
Other income................ 305 114 82 117 11 8 48 32
------ ------ ------ ------ ------ ------ ------ ------
Total revenue............... 305 114 82 147 77 57 48 32
Costs and expenses.......... (2,063) (1,935) (1,761) (1,698) (1,667) (1,244) (1,043) (691)
------ ------ ------ ------ ------ ------ ------ ------
Loss from operations........ (1,758) (1,821) (1,679) (1,551) (1,590) (1,187) (995) (659)
Other income (loss)......... 247 686 233 (459) 330 247 874 (579)
------ ------ ------ ------ ------ ------ ------ ------
Loss before income tax...... (1,511) (1,135) (1,446) (2,010) (1,260) (940) (121) (80)
Provision for income tax.... -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net Income (Loss)........... (1,511) (1,135) (1,446) (2,010) (1,260) (940) (121) (80)
====== ====== ====== ====== ====== ====== ====== ======
CENTS CENTS CENTS CENTS CENTS CENTS CENTS CENTS
Net loss per share.......... (0.06) (0.03) (0.03) (0.04) (0.03) (0.02)
Earnings per Common
Equivalent Share.......... 0.01 0.01
------ ------ ------ ------ ------ ------ ------ ------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
Weighted average number of
Common shares
outstanding............... 26,426 34,501 46,942 46,942 46,942 46,942 46,942 46,942
------ ------ ------ ------ ------ ------ ------ ------
Total assets................ 2,487 2,060 1,357 717 167 125 339 224
Total liabilities........... 3,421 660 1,542 2,344 3,405 2,540 (4,893) (3,240)
------ ------ ------ ------ ------ ------ ------ ------
Stockholders' equity
(deficiency).............. (934) 1,400 (185) (1,627) (3,238) (2,415) (4,554) (3,016)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
CONVENIENCE TRANSLATION TO US$
(1) The consolidated financial statements at June 30, 1997 have been translated
into United States dollars using the rate of exchange of AUS $1.00 = US
$.7459 at June 30, 1997. The translation is made solely for the convenience
of readers in the United States.
(2) The consolidated financial statements at March 31, 1998 have been translated
into United States dollars using the rate of exchange of AUS$1.00 = US$.6622
at March 31, 1998. The translation is made solely for the convenience of
readers in the United States.
7
<PAGE> 10
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
The following unaudited pro forma selected financial data is based on the
historical consolidated financial statements of Bayou contained in Bayou's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (See Annex B)
and the unaudited consolidated financial statements of Bayou contained in
Bayou's Quarterly Report on Form 10-Q for the nine month period ended March 31,
1998 (see Annex C), giving effect to the disposition of the Solmecs Shares and
the acquisition of the SCNV Shares by Bayou pursuant to the Solmecs Acquisition
in accordance with the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma financial statements. These unaudited pro forma
selected financial statements may not be indicative of the results that actually
would have occurred if the transaction contemplated by the Agreement had been
effected on the dates indicated or which may be obtained in the future. These
unaudited pro forma selected financial statements should be read in conjunction
with the audited consolidated financial statements, related notes and other
financial information of Bayou included elsewhere herein or incorporated by
reference herein.
8
<PAGE> 11
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PER PRO-FORMA ADJUSTMENTS
CONSOLIDATED -------------------------------- PRO-FORMA
STATEMENTS # DR # CR BALANCE
------------ --- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets
Cash.................................. $ 53 1 (52) $ 1
Accounts Receivable, net.............. 63 1 (63) 0
Investments........................... 0 0
-------- ------ ------ --------
Total Current Assets..................... 116 1
-------- ------ ------ --------
Other Assets
Property and Equipment, net........... 51 1 (51) 0
Goodwill, net......................... 0 0
Investment in SCNV.................... 0 1,5 8,469 4 (5,669) 2,800
-------- ------ ------ --------
Total Other Assets....................... 51 2,800
-------- ------ ------ --------
Total Assets..................... $ 167 5,669 (5,835) $ 2,801
======== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Expenses... $ 406 1 (265) $ 141
Total Current Liabilities................ 406 141
Long-Term Debt........................... 3,267 1 (268) 2,999
-------- ------ ------ --------
Total Liabilities................ 3,673 3,140
-------- ------ ------ --------
Stockholders' Equity (Deficit)
Common Stock.......................... 9,388 9,388
Additional Paid-In-Capital............ 11,592 11,592
Treasury Stock........................ 0 3 (635) (635)
Cumulative Translation
Adjustments......................... (435) 1 435 0
Retained Deficits..................... (24,051) 2,4 (6,202) 1,3,pl,5 9,569 (20,684)
-------- ------ ------ --------
Total Stockholders' Deficit.............. (3,506) (339)
-------- ------ ------ --------
Total Liabilities & Stockholders'
Equity......................... $ 167 (8,389) 8,223 $ 2,801
======== ====== ====== ========
</TABLE>
9
<PAGE> 12
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA STATEMENT OF OPERATIONS
JUNE 30, 1997
<TABLE>
<CAPTION>
PER PRO-FORMA ADJUSTMENTS
CONSOLIDATED ---------------------- PRO-FORMA
STATEMENTS # DR # CR BALANCE
------------ --- ---- --- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Sales........................................... $ 66 (66) $ 0
Other Income.................................... 11 (11) 0
------- ---- ----- -------
77 0
------- ---- ----- -------
Cost and Expenses
Cost of Sales................................... 63 1 (63) 0
Interest Expense................................ 259 1 (3) 256
Legal, Accounting & Professional................ 89 1 (56) 33
Depreciation & Amortisation..................... 12 1 (12) 0
Amortisation of Goodwill........................ 533 2 (533) 0
Salaries & Wages................................ 393 1 (393) 0
Administrative.................................. 212 1 (121) 91
Research & Development.......................... 72 1 (72) 0
Travel & Accommodation.......................... 34 1 (34) 0
------- ---- ----- -------
1,667 380
------- ---- ----- -------
Loss from Operations.............................. (1,590) (380)
------- ---- ----- -------
Unrealised Gain (Loss) on Investments........... 0 0
Gain (Loss) on Disposition of Assets............ (2) (2)
Foreign Currency Exchange Gain.................. 332 1 (346) 1 14 0
Subsequent Advances forgiven.................... 0 1 (673) (673)
------- ---- ----- -------
330 (675)
------- ---- ----- -------
Loss before Income Tax............................ (1,260) (1,055)
Provision for Income Tax........................ 0 0
------- ---- ----- -------
Net Loss.......................................... $(1,260) $(1,055)
======= ==== ===== =======
Earnings (Loss) per Common Equivalent Share....... $ (0.03) $ (0.02)
======= ==== ===== =======
Weighted Number of Common Equivalent Shares
outstanding..................................... 46,942 46,942
======= ==== ===== =======
</TABLE>
10
<PAGE> 13
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA ADJUSTMENTS
JUNE 30, 1997
NOTES
1 Remove Solmecs Assets, Liabilities and Operations
2 Write off balance of Goodwill of $553,000
3 Record Receipt of 50,000 shares of Bayou Stock, Treasury cost of $635,000
4 Forgive Note Receivable from Solmecs totaling $5,669,000
5 Receipt of 499,701 shares of SCNV in consideration for Sale of Solmecs for
$2,800,000
11
<PAGE> 14
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
PER PRO-FORMA ADJUSTMENTS
CONSOLIDATED -------------------------------- PRO-FORMA
STATEMENTS # DR # CR BALANCE
------------ --- ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets
Cash................................. $ 9 1 (8) $ 1
Accounts Receivable, net............. 153 1 (153) 0
Investments.......................... 0 0
-------- ------ ------- --------
Total Current Assets.................... 162 1
-------- ------ ------- --------
Other Assets
Property and Equipment, net.......... 177 1 (177) 0
Goodwill, net........................ 0 0
Investment in SCNV................... 0 1,4 8,469 3 (5,669) 2,800
-------- ------ ------- --------
Total Other Assets...................... 177 2,800
-------- ------ ------- --------
Total Assets.................... $ 339 8,469 (6,007) $ 2,801
======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short Term Notes..................... $ 648 1 (648) $ --
Accounts Payable & Accrued
Expenses........................... 492 1 (333) 159
-------- ------ --------
Total Current Liabilities............... 1,140 159
-------- ------ --------
Long-Term Debt.......................... 3,753 1 (302) 3,451
-------- ------ ------- --------
Total Liabilities............... 4,893 3,610
-------- ------ ------- --------
Stockholders' Equity (Deficit)
Common Stock......................... 9,388 9,388
Additional Paid-In-Capital........... 11,592 11,592
Treasury Stock....................... 2 (635) (635)
Cumulative Translation Adjustments... (1,362) 1 1,362 0
Retained Deficits.................... (21,172) 3 (5,997) 1,2,pl,4 9,015 (21,154)
-------- ------ ------- --------
Total Stockholders' Deficit............. (4,554) (809)
-------- ------ ------- --------
Total Liabilities &
Stockholders' Equity.......... $ 339 (7,915) 10,377 $ 2,801
======== ====== ======= ========
</TABLE>
12
<PAGE> 15
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA STATEMENT OF OPERATIONS
MARCH 31, 1998
<TABLE>
<CAPTION>
PER PRO-FORMA ADJUSTMENTS
CONSOLIDATED ------------------------ PRO-FORMA
STATEMENTS # DR # CR BALANCE
------------ --- ------ --- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Sales.......................................... $ 0 1 0 $ 0
Other Income................................... 48 1 (48) 0
------- ------ ---- -------
48 0
------- ------ ---- -------
Cost and Expenses
Cost of Sales.................................. 0 1 0 0
Interest Expense............................... 231 1 (16) 215
Legal, Accounting & Professional............... 97 1 (42) 55
Depreciation & Amortisation.................... 10 1 (10) 0
Amortisation of Goodwill....................... 0 1 0 0
Salaries & Wages............................... 0 1 0 0
Administrative................................. 606 1 (533) 73
Research & Development......................... 99 1 (99) 0
Travel & Accommodation......................... 0 1 0 0
------- ------ ---- -------
1,043 343
------- ------ ---- -------
Loss from Operations............................. (995) (343)
------- ------ ---- -------
Unrealised Gain (Loss) on Investments.......... 0 0
Gain (Loss) on Disposition of Assets........... 1 1 (1) 0
Foreign Currency Exchange Gain................. 873 1 (873) 0
Subsequent Advances forgiven................... 0 1 (127) (127)
------- ------ ---- -------
874 (127)
------- ------ ---- -------
Loss before Income Tax........................... 121 (470)
Provision for Income Tax....................... 0 0
------- ------ ---- -------
Net Loss......................................... $ (121) $ (470)
------- ------ ---- -------
Earnings (Loss) per Common Equivalent Share...... $ (0.01) $ (0.01)
======= ====== ==== =======
Weighted Number of Common Equivalent Shares
outstanding.................................... 46,942 46,942
======= ====== ==== =======
</TABLE>
13
<PAGE> 16
BAYOU INTERNATIONAL, LTD.
UNAUDITED PRO-FORMA ADJUSTMENTS
MARCH 31, 1998
NOTES
1 Remove Solmecs Assets, Liabilities and Operations
2 Record Receipt of 50,000 shares of Bayou Stock, Treasury cost of $635,000
3 Forgive Note Receivable from Solmecs totaling $5,669,000
4 Receipt of 499,701 shares of SCNV in consideration for Sale of Solmecs for
$2,800,000
14
<PAGE> 17
MARKET PRICE DATA
The Common Stock of Bayou is traded in the over-the-counter market. The
trading for the Common Stock has been sporadic and the market for the Common
Stock cannot be classified as an established public trading market. As of June
1, 1998, Bayou had approximately 300 holders of record. The following table sets
forth the high and low bid information for the Common Stock of Bayou as reported
by the National Quotation Service Bureau for each period/quarter indicated in
US$:
<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH BID(1)(2) LOW BID(1)(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
Third Quarter................................. 1/4 1/4
Fourth Quarter................................ 1/4 1/8
1998
First Quarter................................. 1/8 1/8
</TABLE>
- ---------------
(1) The quotations set forth herein reflect interdealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
(2) These prices reflect market adjustments made in connection with the
Company's one-for-five reverse stock split effective as of December 31,
1986.
On June 2, 1998, the closing bid for the Common Stock was 5/32.
15
<PAGE> 18
GENERAL; ACTION BY WRITTEN CONSENT
This Information Statement is being furnished to Stockholders of Bayou
pursuant to the requirements of Regulation 14C under the Securities Exchange Act
of 1934, as amended, in connection with the Written Consent. A copy of the
Written Consent is attached as Annex A to this Information Statement.
The Written Consent contains a resolution consenting to the execution and
performance by Bayou of the Agreement, pursuant to which Bayou shall sell,
convey, assign, transfer and deliver to SCNV the Solmecs Shares in return for
the SCNV Shares.
The transfer by Bayou to SCNV of the Solmecs Shares pursuant to the
Agreement may be deemed to constitute the sale of substantially all of the
assets of Bayou. Under the Delaware GCL, such a transaction requires the
approval of the holders of a majority of the issued and outstanding shares of
Common Stock of Bayou.
Holders of Bayou's Common Stock are not entitled to dissenters' appraisal
rights under the Delaware GCL in connection with the Solmecs Acquisition.
As of June 5, 1998 (the date of the Written Consent), 46,941,789 shares of
Common Stock of Bayou were issued and outstanding. Thus, Stockholders
representing no less than 23,470,895 shares of Common Stock are required to
execute the Written Consent to effect the matters set forth therein.
Stockholders of record at the close of business on June 5, 1998 (the date
of the Written Consent) are being furnished copies of this Information
Statement.
Edensor Nominees Pty Ltd and certain other companies which have some common
Directors with Bayou, together beneficially owning approximately 32,445,599
shares of Common Stock, or 69.2% of the issued and outstanding Common Stock,
have executed the Written Consent, thereby ensuring that Stockholders
representing a majority of the issued and outstanding shares of Common Stock of
Bayou have consented to the transactions contemplated by the Agreement.
The Written Consents received by Bayou shall be effective 21 days from the
date this Information Statement is first mailed to Stockholders. This
Information Statement is first being mailed to Stockholders on or about June 5,
1998.
Unless the Agreement is terminated pursuant to its terms, the closing of
the Agreement shall take place as promptly as practicable (and in any event
within five business days) after satisfaction or waiver of the various
conditions (including the provision of consent to the transactions contemplated
by the Agreement by a majority of the Stockholders of Bayou) set forth in the
Agreement, or such later date as is fixed by a written instrument signed by the
parties.
16
<PAGE> 19
STOCK PURCHASE AGREEMENT
BACKGROUND
Solmecs
Solmecs was established in 1980 to engage in the research, development and
commercialisation of high efficiency, low pollution products in the energy
conversion and conservation fields. A primary area of research and development
for Solmecs involves the innovative technology known as LMMHD Energy Conversion
Technology (ECT).
In September 1987, Bayou acquired 54% of the issued and outstanding capital
stock of Solmecs. On January 2, 1992, Bayou acquired the remaining 46% interest
in Solmecs. Solmecs' minority shareholders received shares in Bayou in exchange
for their Solmecs shares. Since January 1992, Bayou has held all of the issued
and outstanding shares of Solmecs.
Solmecs holds a 100% interest in Solmecs Israel. Solmecs Israel owns all of
the issued and outstanding shares of Heatex Ltd, an Israeli corporation. Heatex
Ltd was incorporated by Solmecs (through Solmecs Israel) in 1995 for the purpose
of engaging in research, development and commercialisation of a domestic hot
water tank control and display system.
During the past few years, Bayou has been seeking, without success, to
obtain substantial additional funding (estimated to be at least US$25 million in
1995) in order to complete the development of ETGAR, the next stage of Solmecs'
LMMHD project. Most recently, during 1994 through 1996, Bayou attempted to
negotiate a joint venture for the development of the LMMHD project with an
affiliate of Johns Hopkins University which would have been funded with United
States Government research and development grants. However, Bayou was not
successful in obtaining such grants.
Between 1987 and 1997, Bayou advanced approximately US$5,000,000 to Solmecs
to fund its day to day operating expenses. Bayou also invested an additional
US$5,000,000 in Solmecs over the same period. Bayou obtained these funds (as
well as the funds to support Bayou's other cash flow requirements) principally
in the form of loans from an affiliate of Bayou's Chairman, Mr. Joseph Gutnick.
In March 1997, the founders of SCNV, including Professor Herman Branover
and Mr. Emmanuel Althaus, approached Bayou with a proposal to acquire Solmecs
from Bayou in exchange for shares of SCNV. Professor Branover is currently the
Scientific Director of Solmecs Israel and prior to 1993, Professor Branover was
also a director and officer of Bayou. Professor Branover was one of the
originators of the LMMHD Energy Conversion Technology. Mr. Althaus is a director
of Solmecs and prior to November 1996, was a director of Bayou. Negotiations
ensued and in May 1997, Bayou executed a letter of intent (which was
subsequently amended) with SCNV with respect to the preparation and execution of
the Agreement for the Solmecs Acquisition.
In determining to approve the disposition of Solmecs pursuant to the
Agreement, the Board considered that Solmecs will require substantial additional
funds in order to complete the development and commercialisation of the ETGAR
project, which funds Bayou has not been able to obtain. The Board believes that
in light of the limited resources available to Bayou, it would be advisable for
Bayou to seek to refocus its business towards other businesses or activities
that would provide greater opportunities for commercial development in the near
term, without the same level of expenditures as Solmecs will require.
Bayou believes that the disposition of Solmecs to SCNV in exchange for the
SCNV Shares will relieve Bayou of the ongoing financial obligations in respect
of Solmecs' operating expenses, while permitting Bayou to participate in the
potential future appreciation of the Solmecs technology through its ownership of
shares in SCNV.
During the period from September through December 1997, a shareholder of
SCNV loaned to Solmecs US$240,000 for working capital purposes and agreed with
Solmecs that such loan and any additional loans to be made by such shareholder
to Solmecs shall be due and payable on the earlier of June 30, 1998 or the
17
<PAGE> 20
consummation of certain types of transactions, including the Solmecs
Acquisition, and that such loans will be unsecured and will bear interest at the
rate of 8% per annum.
A key consideration in the Board's decision to approve the Agreement was
SCNV's commitment to effect the SCNV public offering which is intended to
generate gross proceeds of not less than US$5,900,000 for SCNV. The Board
believes that such proceeds will enable SCNV to continue to develop the LMMHD
technology, including the possible development of applications for this
technology in areas other than the energy conversion field, which may yield more
immediate results without the same level of funding required to commercialise
the ETGAR project.
After the sale of Solmecs, Bayou intends to pursue other business
activities which may be in the fields of energy conversion and conservation
(however, such activities will not be in competition with SCNV) and/or other
industries including the mineral exploration industry. There is no assurance
that Bayou will be able to locate or engage in an alternative business activity
or that Bayou will have access to sufficient funds to develop such businesses.
In connection with Bayou's future business activities, it is the policy of
the Board that Bayou will not engage in any activities the scope and nature of
which would subject Bayou to the registration and reporting requirements of the
Investment Company Act of 1940.
SCNV
The following information has been derived, without independent
verification, from the SCNV Registration Statement.
SCNV was organised to select, develop and commercially exploit proprietary
technologies, in various stages of development, invented primarily by scientists
who have recently immigrated to Israel from, and by scientists and institutions
in, Russia and other countries that formerly comprised the Soviet Union. In
furtherance of this goal, SCNV will acquire Solmecs, the operations of which are
located in Israel, which owns certain technologies developed by such scientists
in the past and actively seeks to identify such technologies for exploitation.
The technologies of Solmecs and technologies identified by Solmecs for
exploitation are in various stages of development and include technologies that
have begun to be commercialised as well as technologies that SCNV believes are
ready for commercialisation in the near future.
SCNV intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified. Initially,
SCNV, through its scientific, engineering and administrative personnel, will
seek to identify and analyse a number of proposed advanced technologies with
potential commercial viability. SCNV will then assess the costs of further
research and development (including the building and testing of prototypes, if
required) and seek to obtain intellectual property rights in viable
technologies. SCNV will develop a business plan detailing the exploitation of
such technologies from the research and development phase through product
commercialisation, develop and, in some instances, implement financing
strategies to further such business development plan, and suggest and, in some
cases, assemble a team of scientists and engineers most suitable for
implementation of such business plan. Upon completion of the business
development plan for each project, SCNV may seek to manufacture and market the
project itself, enter into strategic alliances for such commercialisation, or
sell or license the proprietary information and know-how to third parties in
consideration of technology transfer or licence fees.
The current management of Bayou has not participated in the organisation of
SCNV and is not expected to play any role in the management of SCNV following
the completion of the SCNV public offering and the Solmecs Acquisition. See
further "OTHER INFORMATION -- SCNV" and Annex D.
18
<PAGE> 21
TERMS OF AGREEMENT
The following is a summary of the material terms of the Agreement. The
summary is qualified in its entirety by reference to the Agreement. A copy of
the Agreement will be made available upon a request in writing sent to Bayou.
PARTIES AND DATE: The Agreement is by and among Bayou, Solmecs and
SCNV. The Agreement is dated June 5, 1998.
PURCHASE AND SALE OF
SOLMECS SHARES: The Agreement provides that, subject to the terms
and conditions provided therein and in reliance
upon the representations, warranties, covenants and
conditions contained therein, on the Closing Date,
Bayou shall sell, convey, assign, transfer and
deliver to SCNV the Solmecs Shares, free and clear
of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and
encumbrances of any nature whatsoever (except for
United States and state securities law restrictions
of general applicability).
PURCHASE PRICE: The purchase price for the purchase and sale of the
Solmecs Shares by Bayou shall be 499,701 shares of
Common Stock, par value $.01 per share, of SCNV.
In connection with the Solmecs Acquisition, Bayou
will make the Capital Contribution.
REPRESENTATIONS AND
WARRANTIES AS TO SOLMECS: The representations and warranties made by Bayou
and Solmecs, jointly and severally, to SCNV, cover
(and are not limited to): (i) the organisation,
validity and good standing of Solmecs, and the full
power and authority of Solmecs to, amongst other
things, carry on the Business and execute and
deliver, and perform under the Agreement; (ii) the
organisation, validity and good standing of Bayou,
and the full corporate power and corporate
authority to execute and deliver, and perform under
the Agreement; (iii) the good and marketable title
of the Solmecs Shares; (iv) the necessary corporate
power and corporate authority of Solmecs and Bayou
to perform their respective obligations under the
Agreement; (v) financial statements; (vi)
undisclosed liabilities; (vii) litigation; (viii)
tax matters; (ix) employee arrangements; and (x)
the Common Stock of SCNV issued to Bayou, in
particular, that Bayou understands that the Common
Stock received by it pursuant to the Agreement will
not be registered under the Securities Act of 1933,
as amended (the "Act"), or under applicable state
securities laws, in reliance upon exemptions
contained in the Act and such other laws, and
cannot be offered for sale, sold or otherwise
transferred unless such SCNV Common Stock is
subsequently so registered or qualifies for
exemption from registration under the Act and such
other applicable state securities laws.
QUALIFICATION OF
REPRESENTATIONS AND
WARRANTIES: Notwithstanding anything to the contrary contained
in the Agreement, all of the representations and
warranties of Bayou and Solmecs set forth in the
Agreement (except for representations and
warranties specifically excluded), whether or not
qualified, are made and qualified to the "actual
knowledge" of Bayou and to the "best knowledge" of
Solmecs. The "actual knowledge" of Bayou shall mean
the actual knowledge (that
19
<PAGE> 22
is, not constructive knowledge) of the officers and
directors of Bayou after due inquiry but without
independent investigation. The "best knowledge" of
Solmecs shall mean the actual knowledge of Solmecs'
directors without independent investigation and the
actual knowledge (that is, not constructive
knowledge) of the management of Solmecs after due
investigation.
REPRESENTATIONS AND
WARRANTIES AS TO SCNV: The representations and warranties made by SCNV to
Bayou and Solmecs cover (and are not limited to):
(i) the organisation, validity and good standing of
SCNV, and the full corporate power and authority of
SCNV to, amongst other things, carry on its
businesses; (ii) the Common Stock of SCNV, in
particular, the Common Stock issued to Bayou will
be duly authorised and validly issued, fully paid
and non-assessable, will be delivered free and
clear of all encumbrances of any nature whatsoever,
except that such shares of Common Stock will be
subject to restrictions on transfer pursuant to the
Act or the laws of applicable states and the terms
of the "Lock-up Agreement" (defined as a lock-up
agreement substantially in the form set out in an
exhibit to the Agreement); (iii) the Common Stock
issued to Bayou will, after the closing of the
Agreement and the "SCNV Public Offering" (as
defined under "SCNV Public Offering" below),
represent no less than 24% of the issued and
outstanding Common Stock as of the Closing Date,
provided, however, that SCNV may issue up to an
additional 1,000,000 shares of SCNV Common Stock or
units (containing up to an additional 1,000,000
shares of the SCNV Common Stock) in connection with
or simultaneously with, and at a substantially
similar valuation as, the SCNV Public Offering, in
which case the SCNV Common Stock (and other stock
outstanding prior to such offering) would represent
a proportionately lower percentage of the SCNV
Common Stock; and (iv) the necessary corporate
power and corporate authority of SCNV to perform
its obligations under the Agreement.
INDEMNIFICATION BY BAYOU: Bayou and Solmecs, jointly and severally, indemnify
and agree to defend and hold harmless SCNV from and
against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs
and expenses (including, without limitation, the
amount of any settlement entered into pursuant
hereto, and all reasonable legal and other expenses
incurred in connection with the investigation,
prosecution or defence of any matter indemnified
pursuant hereto) which it may sustain, suffer or
incur and which arise out of, are caused by, relate
to, or result or occur from or in connection with:
(i) any misrepresentation of a material fact
contained in any representation of Bayou and/or
Solmecs; (ii) the breach by Bayou or Solmecs of any
warranty or covenant made by either or both of them
in any Solmecs Document; or (iii) any claim,
demand, suit, action, proceeding or investigation
whatsoever by any creditor or security holder of
Solmecs or Bayou or any administrative or
governmental entity or agency relating to the
consummation of the transactions contemplated by
the Agreement. The indemnification also applies to
direct claims by SCNV against Bayou or Solmecs.
INDEMNIFICATION BY SCNV: SCNV indemnifies and agrees to defend and hold
harmless Bayou from and against any and all losses,
obligations, deficiencies, liabilities, claims,
damages, costs and expenses (including, without
limitation, the amount
20
<PAGE> 23
of any settlement entered into pursuant hereto, and
all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or
defence of any matter indemnified pursuant hereto),
which it may sustain, suffer or incur and which
arise out of, are caused by, relate to, or result
or occur from or in connection with: (i) any
misrepresentation of a material fact contained in
any representation of SCNV contained in, or the
material breach by SCNV of any warranty or covenant
made by it in, any SCNV Document; (ii) the breach
by SCNV of any warranty or covenant made by it in
any SCNV Document; or (iii) any claim, demand,
suit, action, proceeding or investigation
whatsoever by any creditor or security holder of
SCNV or administrative or governmental entity or
agency relating to the consummation of the
transactions contemplated by the Agreement. The
indemnification also applies to direct claims by
Bayou against SCNV.
LIMITATIONS: The Agreement provides that, notwithstanding
anything to the contrary contained in the
Agreement, SCNV agrees that: (i) the sole remedy
(at law or in equity) that SCNV may pursue against
Bayou for any claims or causes of action arising
out of or based upon the Agreement or the
transactions contemplated by the Agreement shall be
pursuant to the indemnification provisions of the
Agreement; (ii) the indemnification obligations of
Bayou are non-recourse against Bayou, and are
limited solely to the surrender of shares of SCNV
which comprise the SCNV Shares, based on the market
value of SCNV shares as of the surrender date; and
(iii) SCNV waives any claim or cause of action (at
law or in equity) arising out of or based upon the
Agreement and the transactions contemplated by the
Agreement that it may now or hereafter have against
any officer, director, employee or agent of Bayou
and Solmecs.
COVENANTS: The Agreement includes various covenants covering
(and not limited to): (i) investigation by Bayou,
Solmecs and SCNV of each other: in this respect,
the Agreement provides that, notwithstanding
anything to the contrary, if Bayou conclusively
demonstrates that any of the executive officers of
SCNV had actual knowledge that any of the
representations and warranties of Solmecs or Bayou
contained in the Agreement are not correct and
elects to close the transaction despite such
knowledge, then SCNV shall be deemed to have waived
any claim or cause of action directly arising from
such waived representation and warranty; (ii)
reasonable efforts by all parties to satisfy all
conditions precedent, including, but not limited
to, using all reasonable efforts to obtain all
required (if so required by the Agreement)
consents, waivers, amendments, modifications,
approvals and authorisations; (iii) co-operation;
(iv) accuracy of representations and warranties;
(v) management and administrative matters,
including an obligation upon SCNV to take any and
all steps or actions reasonably necessary to effect
the adoption of a stock option plan permitting the
issuance of options to purchase up to 200,000
shares of SCNV Common Stock to officers, directors,
employees and other persons eligible to receive
options; (vi) prohibited conduct and (vii) public
announcements.
SCNV PUBLIC OFFERING: SCNV covenants that it shall use its best
reasonable efforts to negotiate, prepare and enter
into such agreements, as well as to take or cause
to be taken such actions, as are necessary and
proper to promptly effectuate a public offering of
approximately 50% of the shares of SCNV Common
21
<PAGE> 24
Stock (the "SCNV Public Offering"), resulting in
funding in the amount of at least US$5,900,000.
Solmecs and Bayou covenant to co-operate on a
reasonable basis with SCNV, at SCNV's expense, to
provide information deemed necessary or advisable
by SCNV to be included in connection with the SCNV
Public Offering.
CONFIDENTIALITY: SCNV and Bayou agree not to, at any time, directly
or indirectly, use, communicate, disclose or
disseminate any "Confidential Information" (as
defined in the Agreement) in any manner whatsoever.
NON-COMPETE COVENANTS: Bayou has agreed to not compete with SCNV for a
period of two years following the Closing Date
CONDITIONS TO OBLIGATIONS
OF SCNV TO PURCHASE THE
SOLMECS SHARES: The obligations of SCNV to purchase the Solmecs
Shares shall be subject to the fulfilment at or
prior to the Closing Date of several conditions,
including (but not limited to): (i) the accuracy of
representations and warranties of each of Solmecs
and Bayou; (ii) the performance, observation and
compliance with all obligations, covenants and
agreements by each of Solmecs and Bayou; (iii) the
receipt by SCNV of the opinions of counsel for
Solmecs and Bayou; (iv) no litigation in relation
to the Agreement; (v) all consents and approvals
obtained; (vi) no material adverse change; (vii)
consummation of the SCNV Public Offering with gross
proceeds in an amount not less than US$5,900,000;
(viii) Professor Branover shall have executed and
delivered to SCNV an employment agreement
substantially in the form set out in an exhibit to
the Agreement; (ix) Bayou shall have executed the
Lock-Up Agreement; (x) Bayou shall have executed a
registration rights agreement, substantially in the
form set out in an exhibit to the Agreement (the
"Registration Rights Agreement"), binding upon the
Stockholders of Bayou in the event certain
considerations compel a "spin off" of the SCNV
Shares; (xi) Bayou shall have consented to the
resolutions of the Board of Directors of Solmecs
approving and authorising such steps as are
necessary to consummate the Agreement; and (xii)
Bayou shall have made the Capital Contribution.
CONDITIONS TO OBLIGATIONS
OF SOLMECS AND BAYOU TO
SELL THE SOLMECS SHARES: The obligations of Solmecs and Bayou to sell the
Solmecs Shares shall be subject to the fulfilment
at or prior to the Closing Date of several
conditions, including (but not limited to): (i) the
accuracy of representations and warranties of SCNV;
(ii) the performance, observation and compliance
with all obligations, covenants and agreements by
SCNV; (iii) the receipt by Bayou and Solmecs of the
opinion of Tenzer Greenblatt LLP, counsel for SCNV;
(iv) no litigation in relation to the Agreement;
(v) all consents and approvals obtained; (vi)
consummation of the SCNV Public Offering with gross
proceeds in an amount not less than US$5,900,000;
(vii) SCNV shall have executed and delivered the
Registration Rights Agreement; and (viii) the
shareholders of Bayou shall have consented to the
transactions in the Agreement by the affirmative
vote of a majority of such shareholders.
REGISTRATION RIGHTS: It is a condition of the closing of the Agreement
that SCNV enter into the Registration Rights
Agreement with Bayou with respect to the
22
<PAGE> 25
SCNV Shares pursuant to which SCNV shall grant
Bayou certain demands and "piggyback" registration
rights with respect to such Shares subject to the
lock-up of the SCNV Shares.
LOCK-UP OF SCNV SHARES: Notwithstanding the foregoing paragraph, it is a
condition of SCNV's obligation to consummate the
Agreement that Bayou executes and delivers to SCNV
the Lock-up Agreement pursuant to which Bayou shall
agree not to sell, grant an option for sale of,
assign or transfer any of the SCNV Shares, for a
period of 24 months from the Closing Date,
provided, however, that under certain circumstances
Bayou shall have the right to distribute the SCNV
Shares pro rata to its Stockholders and provided
further that the recipients will take such Shares
subject to the remaining term of the lock-up. As at
the date of this Information Statement, Bayou does
not have any plans to distribute the SCNV Shares to
its Stockholders.
CLOSING: Unless the Agreement shall have been terminated and
the transactions contemplated by the Agreement are
abandoned pursuant to the terms of the Agreement,
the closing will take place as promptly as
practicable (and in any event within five business
days) after satisfaction or waiver of the
conditions set forth in the Agreement; or such
later date as shall have been fixed by a written
instrument signed by the parties.
TERMINATION, AMENDMENT AND
WAIVER: The Agreement may be terminated at any time prior
to the Closing Date by either SCNV or Bayou, if the
closing shall not have occurred prior to June 30,
1998. In addition, the Agreement may be terminated:
(i) by mutual consent of the Boards of Directors of
SCNV and Solmecs; (ii) by SCNV or by Solmecs if, in
the reasonable judgment of SCNV or Solmecs, it has
been determined that the transaction contemplated
by the Agreement has become inadvisable or
impracticable by reason of the institution or
threat by state, local or federal governmental
authorities or by any other entity or individual of
material litigation or proceedings against SCNV or
Solmecs; (iii) by SCNV if, in the reasonable
judgment of SCNV, it is determined that the
business or assets or financial condition of
Solmecs has been materially and adversely affected
since June 30, 1997, whether by reason of changes,
developments or operations in the normal course of
business or otherwise; or (iv) in the event SCNV or
Solmecs breaches or otherwise fails to perform any
material part of the Agreement and the breach is
not corrected within a stipulated period. In the
event of the termination of the Agreement, the
Agreement becomes null and void and there shall be
no liability on the part of any party.
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES: The representations and warranties generally
survive for 18 months after the Closing Date and
thereafter terminate.
GOVERNING LAW: The Agreement is governed by, and construed in
accordance with, the law of the State of New York,
without regard to its choice of law principles,
except as Delaware GCL mandatorily applies.
23
<PAGE> 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth to the best of Bayou's knowledge the number
of shares beneficially owned as of June 5, 1998, by (i) each of the current
executive officers and Directors of Bayou (ii) each person (including any
"group" as that term is defined in Section 13(d)(3) of the Securities Exchange
Act) who beneficially owns more than 5% of the Common Stock, and (iii) all
current Directors and officers of Bayou as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES OWNED SHARES(1)
---- ------------ ----------
<S> <C> <C>
Centaur Mining & Exploration Limited........................ 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(4)............................................. -- *
David Tyrwhitt(2)........................................... -- *
Joseph I Gutnick(2)(4)(3)(5)(6)(7).......................... 21,079,207 44.9%
Stera M Gutnick(5)(7)....................................... 20,566,207 43.9%
Eduard Eshuys(2)(3)......................................... 100 *
David Simcox(2)(3).......................................... -- *
Peter Lee................................................... -- *
All officers and directors as a group (7 persons)........... 21,079,307 44.9%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Based upon 46,941,789 shares outstanding.
(2) Does not include (i) 941,651 shares of Common Stock beneficially owned by
Australia Wide Industries Limited or (ii) 5,076,000 shares of Common Stock
beneficially owned by Centaur Mining & Exploration Limited 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) 4,598,795 shares of Common Stock owned by A.W.I.
Administration Services Pty Ltd of which companies Messrs Gutnick, Eshuys,
Tyrwhitt, Lee and Simcox are officers and/or Directors however they disclaim
beneficial ownership to those shares.
(3) Does not include 38,376 shares of Common Stock beneficially owned by Quantum
Resources Limited of which company Messrs Gutnick, Eshuys, Lee and Simcox
are officers and/or Directors however they disclaim beneficial ownership to
those shares.
(4) Does not include 50,000 shares of Common Stock beneficially owned by
Solmecs: however the Directors of Bayou disclaim beneficial ownership to
those shares.
(5) 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.
(6) Joseph I Gutnick is the beneficial owner of 513,000 shares.
(7) Joseph I Gutnick and Stera M Gutnick are husband and wife.
24
<PAGE> 27
STOCKHOLDERS WHO HAVE EXECUTED THE WRITTEN CONSENT
Set forth below is a table of the Stockholders who have executed the
Written Consent and, to the best of Bayou's knowledge, the number of shares of
Common Stock beneficially owned by the such Stockholders as of June 5, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OF COMMON STOCK OUTSTANDING
STOCKHOLDER BENEFICIALLY OWNED COMMON STOCK
----------- ------------------ ------------
<S> <C> <C>
Australia Wide Industries Limited(1)........................ 941,651 2.0%
Centaur Mining & Exploration Limited(1)..................... 5,076,000 10.8%
Mt. Kersey Mining N.L....................................... 178,985 0.4%
Australian Gold Resources Limited(1)........................ 541,585 1.1%
Quantum Resources Limited(1)................................ 38,376 0.1%
A.W.I. Administration Services Pty Ltd(1)................... 4,589,795 9.8%
Edensor Nominees Pty Ltd(2)................................. 20,046,207 42.7%
Pearlway Investments Pty Ltd(2)............................. 520,000 1.1%
Joseph I Gutnick(1) and (2)................................. 513,000 1.2%
---------- ----
32,445,599 69.2%
========== ====
</TABLE>
- ---------------
(1) Messrs Gutnick, Eshuys, Tyrwhitt, Lee and Simcox are officers and/or
Directors of the companies.
(2) Joseph I Gutnick, Stera M Gutnick and members of their family are officers,
Directors and principal stockholders of Edensor and Pearlway.
OTHER INFORMATION
BAYOU
Attached hereto to this Information Statement as Annexes B and C are copies
of Bayou's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 as
amended (the "Form 10-K") and Bayou's Quarterly Report on Form 10-Q for the nine
month period ended March 31, 1998 as amended (the "Form 10-Q"), which are
incorporated herein in their entirety by this reference.
Any statements contained in the Form 10-K and Form 10-Q incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
hereof to the extent that a statement contained herein modifies, supersedes or
replaces such statements. Any statements that are modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Information Statement.
SCNV
The information listed below concerning SCNV and attached hereto as Annex D
has been derived, without independent verification, from the SCNV Registration
Statement:
- Capitalisation
- Selected Financial Data
- Management's Discussion and Analysis of Financial Condition and Results
of Operations
- Business
- Management
- Principal Stockholders
- Description of Securities
The statements contained in Annex D attached hereto shall be deemed to be
modified or superseded for the purposes hereof to the extent that a statement
contained herein modifies, supersedes or replaces such
25
<PAGE> 28
statements. Any statements that are modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Information
Statement.
The management of SCNV has not participated in the preparation of this
Information Statement.
EXPERTS
The consolidated financial statements of Bayou as of June 30, 1996 and 1997
and for the fiscal years ended June 30, 1995, 1996 and 1997 included in Bayou's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997, have been
audited by David T. Thomson, P.C., independent auditors as set forth in their
report thereon included therein and incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
Bayou is subject to the information filing requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files, reports and
proxy and information statements and other information with the SEC. The
reports, proxy and information statements and other information filed by Bayou
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.L., Room 1024,
Washington, D.C. 20549-1004 and at the following regional offices of the SEC:
Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information should
be obtainable by mail, upon payment of the SEC's customary charges, by writing
to the SEC's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549-1004. Such material should also be available
on-line through EDGAR, which is located on the SEC's public access site at
http://www.sec.gov.
Statements contained in this Information Statement or in any document
incorporated in this Information Statement by reference as to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an Annex to this Information Statement or such other
document, each such statement being qualified in all respects by such reference.
26
<PAGE> 29
ANNEXES
Annex A -- Written Consent dated June 5, 1998.
Annex B -- Bayou's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, as amended.
Annex C -- Bayou's Quarterly Report on Form 10-Q for the nine month period
ended March 31, 1998.
Annex D -- Selected Information from Amendment No. 2 to the SCNV
Registration Statement on Form SB-2 (File No. 333-43955).
<PAGE> 30
ANNEX A
WRITTEN CONSENT DATED JUNE 5, 1998.
<PAGE> 31
BAYOU INTERNATIONAL, LTD.
RESOLUTION IN WRITING IN LIEU OF SPECIAL MEETING
To: Bayou International, Ltd. ("Bayou")
We, the undersigned being shareholders representing 69.2% of the issued and
outstanding shares of Common Stock of Bayou hereby resolve to consent to the
execution and performance by Bayou of the "Stock Purchase Agreement", dated June
5, 1998, entered into by Bayou, Solmecs Corporation N.V., a company organised
under the laws of the Netherlands Antilles and a wholly-owned subsidiary of
Bayou ("Solmecs"), and SCNV Acquisition Corp., a Delaware corporation ("SCNV"),
pursuant to which, amongst other things, Bayou shall sell, convey, assign,
transfer and deliver to SCNV all of the issued and outstanding shares of capital
stock of Solmecs in return for 499,701 shares of Common Stock, par value $.01
per share, of SCNV.
Signed this 5th day of June, 1998
<PAGE> 32
The Common Seal of Australia Wide Industries Limited was hereto affixed in
accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Centaur Mining & Exploration Limited was hereto affixed
in accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Mt. Kersey Mining N.L. was hereto affixed in accordance
with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Australian Gold Resources Limited was hereto affixed in
accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Quantum Resources Limited was hereto affixed in
accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
<PAGE> 33
The Common Seal of A.W.I. Administration Services Pty Limited was hereto
affixed in accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Edensor Nominees Pty Limited was hereto affixed in
accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
The Common Seal of Pearlway Investments Pty Limited was hereto affixed in
accordance with the Articles of Association in the presence of:
Director:
---------------------------------
Director/Secretary:
---------------------------
Signed by Joseph Isaac Gutnick in the presence of
--------------------------------------
Witness
<PAGE> 34
ANNEX B
BAYOU'S ANNUAL REPORT ON 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, AS
AMENDED.
<PAGE> 35
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16097
BAYOU INTERNATIONAL, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011 (613) 9276-7860
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT :
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
N/A N/A
</TABLE>
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.
[X] Yes [ ] 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 10-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.
================================================================================
<PAGE> 36
TABLE OF CONTENTS PAGE
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1 Business.................................................... 2
Item 2 Properties.................................................. 9
Item 3 Not applicable.............................................. 10
Item 4 Not applicable.............................................. 10
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6 Selected Financial Data..................................... 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 8 Not applicable.............................................. 15
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 15
PART III
Item Directors and Executive Officers of the Registrant.......... 16
10
Item Executive Compensation...................................... 17
11
Item Security Ownership of Certain Beneficial Owners and
12 Management.................................................. 18
Item Certain Relationships and Related Transactions.............. 19
13
PART IV
Item Exhibits, Financial Statement Schedules, and Reports on Form
14 8-K......................................................... 20
Signatures.................................................. 21
Exhibit Index............................................... 23
</TABLE>
1
<PAGE> 37
PART I
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.
2
<PAGE> 38
BAYOU INTERNATIONAL, LTD
COMPANY STRUCTURE
[FLOW CHART DEPICTING COMPANY STRUCTURE]
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.
3
<PAGE> 39
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,
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.
4
<PAGE> 40
In January 1992, the Company completed the acquisition of the remaining 46%
of the issued and outstanding shares of Solmecs. Solmecs minority shareholders
received shares in the Company in exchange for their Solmecs shares. The Company
now holds all of the issued and outstanding shares of Solmecs.
In July 1992, the Company agreed to dilute its interest in TFC Power from
54% to 36% in consideration for services rendered by key executives and as an
incentive for future services.
In December 1994, the Company entered into an agreement with TFC Power, SFI
and Peter Kalms ("Kalms") whereby the Company transferred shares in TFC Power
and SFI to Kalms in consideration for Kalms taking an assignment of debts of
Solmecs to TFC Power and SFI and 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 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.
5
<PAGE> 41
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.
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
6
<PAGE> 42
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
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
- 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.
- 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
- Substantial improvement of the quality of complicated castings
- Creation of new alloys with "exotic" properties
- Advancement of monocrystal growths technology (larger crystals with
improved quality).
7
<PAGE> 43
(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.
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, 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
8
<PAGE> 44
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 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.
9
<PAGE> 45
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$250 per month.
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded in the over-the-counter market. The trading for
the Common Stock has been sporadic and the market for the Common Stock cannot be
classified as an established public trading market.
The following table sets forth the high and low bid information for the
Common Stock as reported by the National Quotation Service Bureau for each
period/quarter indicated in US$:
<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.
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.
10
<PAGE> 46
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."
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR END JUNE 30
<TABLE>
<CAPTION>
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>
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.
11
<PAGE> 47
<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.
(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.
12
<PAGE> 48
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.
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 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
13
<PAGE> 49
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.
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,
14
<PAGE> 50
have in some cases affected the Company's actual results and are in the future
likely to affect the Company's actual results and cause them to differ
materially from those expressed in any such forward-looking statements. This
Form 10-K contains forward-looking statements relating to future financial
results. Actual results may differ as a result of factors over which the Company
has no control including the strength of domestic and foreign economies, slower
than anticipated completion of research and development projects, and movements
in foreign exchange rates.
INFLATION
To date the Company believes that inflation has not had a material adverse
impact on its operations in Australia. In the United States the Company's
activities to date have been principally related to the exploration preliminary
testing of certain mineral claims and, although the Company has not operated in
the United States during a period of significant inflation, management believes
that inflation would not have a material adverse 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
15
<PAGE> 51
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.
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
16
<PAGE> 52
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.
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, 1997, 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.
17
<PAGE> 53
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, 1997.
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.
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, 1997, 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.
(1) Based upon 46,941,789 shares outstanding.
(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.
18
<PAGE> 54
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.
19
<PAGE> 55
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.
20
<PAGE> 56
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:
--------------------------------------
Joseph Gutnick
President
Dated: May 7, 1998
21
<PAGE> 57
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, President and May 7, 1998
- --------------------------------------------- Chief Executive Officer (Principal
Joseph Gutnick Executive Officer) and Director
Director, Assistant Secretary, Chief May 7, 1998
- --------------------------------------------- Financial Officer and Principal
Peter Lee Financial and Accounting Officer
Vice President and Director May 7, 1998
- ---------------------------------------------
Henry Herzog
Vice President and Director May 7, 1998
- ---------------------------------------------
David Tyrwhitt
Director May 7, 1998
- ---------------------------------------------
David H. Simcox
Vice President and Director May 7, 1998
- ---------------------------------------------
Eduard Eshuys
</TABLE>
22
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
INCORPORATED BY EXHIBIT SEQUENTIAL NO.
REFERENCE TO NO. EXHIBITS SYSTEM
- --------------- ------- -------- --------------
<S> <C> <C> <C>
(1) Exhibit 3.1 3.1 Certificate of Incorporation of the Registrant.......
(1) Exhibit 3.2 3.2 By-laws of the Registrant............................
(2) Exhibit 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................................
</TABLE>
- ---------------
* 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.
23
<PAGE> 59
BAYOU INTERNATIONAL, LTD AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(WITH INDEPENDENT AUDITOR'S REPORT)
<PAGE> 60
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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.................. 6-10
</TABLE>
<PAGE> 61
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> 62
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
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> 63
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> 64
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> 65
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................... -- (2) -- --
On Investments 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 1,015 757
New Borrowing........................................... -- -- -- --
------ ------ ------ ------
Net Cash Provided by (Used in) Financing Activities..... 812 1,110 1,015 757
------ ------ ------ ------
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> 66
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.
(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.
6
<PAGE> 67
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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.
7
<PAGE> 68
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(m) Research and Development
Research and development costs are charged to operations as incurred.
(3) ACCOUNTS RECEIVABLE
Accounts Receivable at June 30, 1996 and 1997 includes:
<TABLE>
<CAPTION>
A$000'S A$000'S
1996 1997
------- -------
<S> <C> <C>
Miscellaneous Receivables................................... 53 63
Less Allowance for Doubtful Account......................... -- --
---- ----
Net......................................................... 53 63
==== ====
</TABLE>
(4) INVESTMENT SECURITIES
The following is a summary of Investment Securities, 1996 and 1997:
<TABLE>
<CAPTION>
A$000'S A$000'S
1996 1997
------- -------
<S> <C> <C>
Trading Securities:
Marketable Equity Securities, at cost..................... 1 --
Gross Unrealised Gains.................................... 2 --
Gross Unrealised Losses................................... -- --
---- ----
Marketable Equity Securities, at fair value............... 3 --
==== ====
</TABLE>
(5) PROPERTY
Property at June 30, 1996 and 1997 includes:
<TABLE>
<CAPTION>
A$000'S A$000'S
1996 1997
------- -------
<S> <C> <C>
Office Furniture & Equipment................................ 170 185
Motor Vehicles.............................................. 38 40
---- ----
208 225
Less Accumulated Depreciation............................... (153) (174)
---- ----
55 51
==== ====
</TABLE>
8
<PAGE> 69
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHORT TERM AND LONG-TERM DEBT
The following is a summary of Bayou's borrowing arrangements as of June 30,
1996 and 1997:
<TABLE>
<CAPTION>
A$000'S A$000'S
1996 1997
------- -------
<S> <C> <C>
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.
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
9
<PAGE> 70
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
10
<PAGE> 71
EXHIBIT 21
LIST OF SUBSIDIARIES
1. Solmecs Corporation N.V., a Netherlands Antilles Corporation
(100% -- owned).
2. Solmecs (Israel) Ltd., an Israeli Corporation (100% owned through Solmecs
Corporation N.V.)
3. Heatex Ltd, an Israeli Corporation (85% owned through Solmecs (Israel) Ltd).
<PAGE> 72
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
<PAGE> 73
ANNEX C
BAYOU'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTH PERIOD ENDED MARCH 31,
1998, AS AMENDED.
<PAGE> 74
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16097
BAYOU INTERNATIONAL, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 98-0079697
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANISATION) IDENTIFICATION NO.)
210 KINGS WAY, SOUTH MELBOURNE, VICTORIA 3205 AUSTRALIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
011 (613) 9234-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
N/A N/A
</TABLE>
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the restraint has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. There were 46,941,789
outstanding shares on Common Stock, as of the latest practicable date. There
were 46,941,789 outstanding shares of Common Stock as of March 31, 1998.
================================================================================
<PAGE> 75
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION TO INTERIM FINANCIAL STATEMENTS
The interim financial statements included here in have been prepared by
Bayou International, Ltd. (the "Company") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (The "Commission").
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These interim financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of March 31, 1998 and March 31, 1997, the results of its operations
for the nine month periods ended March 31, 1998 and March 31, 1997, and the
changes in its cash flows for the nine month periods ended March 31, 1998 and
March 31, 1997, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION PRESENTED IS IN
AUSTRALIAN DOLLARS.
2
<PAGE> 76
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1997 AND MARCH 31, 1997
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
MAR 31 JUNE 30 MAR 31
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................................. $ 9 $ 53 $ 88
Accounts Receivable, net.............................. 153 63 55
Investments........................................... -- -- 3
-------- -------- --------
Total Current Assets................................ 162 116 146
-------- -------- --------
Other Assets:
Property and Equipment, net........................... 177 51 51
Goodwill, net......................................... -- -- 133
-------- -------- --------
Total Other Assets.................................. 177 51 184
-------- -------- --------
Total Assets..................................... $ 339 $ 167 $ 330
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short Term Notes...................................... $ 648 $ -- $ --
Accounts Payable and Accrued Expenses................. 492 406 322
-------- -------- --------
Total Current Liabilities........................... 1,140 406 322
Long-Term Debt........................................... 3,753 3,267 3,041
-------- -------- --------
Total Liabilities................................ 4,893 3,673 3,363
Stockholders' Equity (Deficit):
Common Stock: $0.20 par value 50,000,000 shares
authorized, 46,941,789 issued and outstanding....... 9,388 9,388 9,388
Additional Paid-in-Capital............................ 11,592 11,592 11,592
Cumulative Translation Adjustments.................... (1,362) (435) (92)
Retained Deficits..................................... (24,172) (24,051) (23,921)
-------- -------- --------
Total Stockholders' Deficit......................... (4,554) (3,506) (3,033)
-------- -------- --------
Total Liabilities and Stockholders' Equity....... $ 339 $ 167 $ 330
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 77
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(000'S OMITTED)
(IN AUSTRALIAN DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
MAR 31 MAR 31 MAR 31 MAR 31
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues:
Other Income......................................... $ 3 $ -- $ 48 $ 12
------ ------ ------ -------
3 -- 48 12
Costs and Expenses:
Management Fee....................................... -- -- -- --
Interest Expense..................................... 89 65 231 189
Legal, Accounting & Professional..................... 31 6 97 51
Depreciation & Amortization.......................... 4 3 10 9
Amortization of Goodwill............................. -- 133 -- 400
Administrative....................................... 262 83 606 196
Research & Development............................... 25 133 99 297
------ ------ ------ -------
411 423 1,043 1,142
------ ------ ------ -------
Loss from Operations................................... (408) (423) (995) (1,130)
Diminution of Asset Value............................ -- -- -- --
Gain (Loss) on Disposition of Assets................. -- -- 1 --
Foreign Currency Exchange Gain (Loss)................ (140) 54 873 --
Bad Debt (Expense) Recovery.......................... -- -- -- --
------ ------ ------ -------
(140) 54 874 --
------ ------ ------ -------
Loss before Income Tax................................. (548) (369) (121) (1,130)
Provision for Income Tax.......................... -- -- -- --
------ ------ ------ -------
Net Income (Loss)...................................... $ (548) $ (369) $ (121) $(1,130)
====== ====== ====== =======
Earnings Per Common Equivalent Share................... $ (.01) $ (.01) $ (.01) $ (.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.
4
<PAGE> 78
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MARCH 31, 1998 AND JUNE 30, 1997 AND MARCH 31, 1997
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
---------------- PAID-IN- TRANSLATION RETAINED
SHARES AMOUNT CAPITAL(DEFICIT) ADJUSTMENT EARNINGS
------ ------ ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1995............... 46,942 $9,388 $11,592 $ (665) $(20,781)
Net Income nine months ending
3-31-96........................ -- -- -- -- (1,499)
Foreign Currency Translation...... -- -- -- 546 --
------ ------ ------- ------- --------
Balance March 31, 1996.............. 46,942 9,388 11,592 (119) (22,280)
Net Income three months ending 6-
30-96.......................... -- -- -- (511)
Foreign Currency Translation...... -- -- -- 49 --
------ ------ ------- ------- --------
Balance June 30, 1996............... 46,942 9,388 11,592 (70) (22,791)
Net Income nine months ending 3-
31-97.......................... -- -- -- -- (1,130)
Foreign Currency Translation...... -- -- -- (22) --
------ ------ ------- ------- --------
Balance March 31, 1997.............. 46,942 9,388 11,592 (92) (23,921)
Net Income three months ending 6-
30-97.......................... -- -- -- -- (130)
Foreign Currency Translation...... -- -- -- (343) --
------ ------ ------- ------- --------
Balance June 30, 1997............... 46,942 9,388 11,592 (435) (24,051)
Net Income nine months ending 3-
31-98.......................... -- -- -- -- (121)
Foreign Currency Translation...... -- -- -- (927) --
------ ------ ------- ------- --------
Balance March 31, 1998.............. 46,942 $9,388 $11,592 $(1,362) $(24,172)
====== ====== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 79
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
AND YEAR ENDED JUNE 30, 1997
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
9 MONTHS YEAR 9 MONTHS
ENDED ENDED ENDED
MAR 31 JUNE 30 MAR 31
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $ (121) $(1,260) $(1,130)
Adjustments:
Foreign Currency Translation........................... (927) (365) 6
Depreciation and Amortization.......................... 10 545 409
(Gain) Loss on Disposition of Assets................... -- 2 --
Diminution of Value.................................... -- -- --
Provision for Bad Debt............................... --
Change Net of Effects of Subsidiary Acquisitions:
Accounts Receivable.................................. (90) (10) 2
A/P and Accrued Liabilities.......................... 86 60 (24)
------- ------- -------
Net Cash Provided (Used) by Operating Activities....... (1,042) (1,028) (741)
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital Expenditures, Net................................. (136) (8) (5)
Net Proceeds from Investments............................. -- (1) --
------- ------- -------
Net Cash Provided (Used) in Investing Activities....... (136) (7) (5)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowing under Credit Line Arrangements.............. -- -- --
Net Borrowing from Affiliates............................. 486 1,015 761
Proceeds from borrowings.................................. 648 -- --
------- ------- -------
Net Cash Provided by Financing Activities.............. 1,134 1,015 761
------- ------- -------
Net Increase (Decrease) in Cash............................. (44) (20) 15
Cash at Beginning of Year................................... 53 73 73
------- ------- -------
Cash at End of Year......................................... $ 9 $ 53 $ 88
======= ======= =======
Supplemental Disclosures:
Common Stock Issued in Lieu of Debt Repayment............. $ -- $ -- $ --
Interest Paid (Net Capitalized)........................... $ 231 $ 259 $ 189
Income Tax Paid........................................... $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 80
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, JUNE 30, 1997 AND MARCH 31, 1997
(1) ORGANIZATION
Bayou International, Ltd. (Bayou) is incorporated in the State of Delaware.
The principal shareholder of Bayou is Edensor Nominees Proprietary Limited
(Edensor), an Australian corporation. Edensor owned 42.7% of Bayou as of March
31, 1998.
Bayou's subsidiary is Solmecs Corporation N.V. (Solmecs), which it acquired
controlling interest of, on September 3, 1987 and complete 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 conservation fields through its 100%-owned subsidiary,
Solmecs. All revenue is from contracted services provided by Solmecs. Almost all
of Bayou's operating expenses are for general and administrative and research
and development cost.
(2) ACCOUNTS RECEIVABLE
Accounts Receivable at March 31, 1998, June 30, 1997 and March 31, 1997
includes:
<TABLE>
<CAPTION>
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
------------------------------
MAR 31 JUNE 30 MAR 31
1998 1997 1997
------- ------- --------
<S> <C> <C> <C>
Miscellaneous Receivables................................ $153 $63 $55
Less Allowance for Doubtful Account.................... -- -- --
---- --- ---
Net................................................. $153 $63 $55
==== === ===
</TABLE>
(3) INVESTMENT SECURITIES
The following is a summary of Investment Securities at March 31, 1998, June
30, 1997 and March 31, 1997:
<TABLE>
<CAPTION>
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
-----------------------------
MAR 31 JUNE 30 MAR 31
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Trading Securities:
Marketable Equity Securities, at cost.................. $ -- $ -- $ 1
Gross Unrealized Gains................................. -- -- 2
Gross Unrealized Losses................................ -- -- --
---- ---- ----
Marketable Equity Securities, at fair value............ $ -- $ -- $ 3
==== ==== ====
</TABLE>
7
<PAGE> 81
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998, JUNE 30, 1997 AND MARCH 31, 1997
(4) PROPERTY
Property at March 31, 1998, June 30, 1997 and March 31, 1997 includes:
<TABLE>
<CAPTION>
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
---------------------------
MAR 31 JUNE 30 MAR 31
1998 1997 1997
------ ------- ------
<S> <C> <C> <C>
Office Furniture & Equipment.............................. $ 341 $ 185 $ 175
Motor Vehicles............................................ 45 40 38
----- ----- -----
386 225 213
Less Accumulated Depreciation............................. (209) (174) (162)
----- ----- -----
$ 177 $ 51 $ 51
===== ===== =====
</TABLE>
(5) SHORT TERM AND LONG TERM DEBT
The following is a summary of Bayou's borrowing arrangements as of March
31, 1998, June 30, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
(IN AUSTRALIAN DOLLARS)
(000'S OMITTED)
---------------------------
MAR 31 JUNE 30 MAR 31
1998 1997 1997
------ ------- ------
<S> <C> <C> <C>
LONG-TERM
Loan made from affiliate of Subsidiary Loan has no
interest and has no fixed maturity date................ $ 302 $ 268 $ 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................. 3,451 2,999 2,773
------ ------ ------
Total Long-Term........................................ $3,753 $3,267 $3,041
------ ------ ------
SHORT-TERM
Notes Payable............................................ 648 -- --
Notes Payable -- Affiliates.............................. -- -- --
------ ------ ------
Total Short-Term....................................... 648 -- --
------ ------ ------
Total.......................................... $4,401 $3,267 $3,041
====== ====== ======
</TABLE>
(6) AFFILIATE TRANSACTIONS
Bayou advances to and receives advances from various affiliates. All
advances between consolidated affiliates are eliminated on consolidation. At
March 31, 1998, Bayou had no outstanding advances to or from unconsolidated
affiliated companies.
8
<PAGE> 82
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998, JUNE 30, 1997 AND MARCH 31, 1997
(7) 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.
Bayou anticipates that it will be able to defer repayment of certain of its
short term loan commitments until it has sufficient liquidity to enable these
loans to be repaid or other arrangements to be put in place.
In addition Bayou has historically relied on loans and advances from
corporations affiliated with the President of Bayou. Based on discussions with
these affiliate companies, Bayou believes this source of funding will continue
to be available.
Other than the arrangements noted above, Bayou has not confirmed any other
arrangements for ongoing funding. As a result Bayou may be required to raise
funds by additional debt or equity offerings in order to meet its cash flow
requirements during the forthcoming year.
(8) COMMITMENTS
Solmecs has entered into the following commitments:
(a) In accordance with an agreement dated November 5, 1981, between
the Company, Ben Gurion University and B.G. Negev Technology and
Applications Ltd. (BGU), the subsidiary in Israel is conducting research
and development projects on the campus of Ben-Gurion University in
consideration for a fee for the use of the facilities. The Company owns the
patents connected with these projects and agreed to pay royalties to BGU at
the rate of 1.725% on sales of products and at the rate of 11.5% on income
from licensing fees.
The Company also agreed to assume the obligation of BGU to pay
royalties to the Ministry of National Infrastructure on products
developed from these R&D projects for its participation in the research
and development costs of BGU. The royalties are to be paid at the rate
of 1% on sales of products and at the rate of 5% on income from
licensing fees. As of March 31, 1998, this liability amounted to
approximately $318,000 (including linkage to the Consumer Price Index
and interest at 4% per annum). Subsequent to the repayment of the
liability, the Company is to pay royalties to the Ministry of National
Infrastructure at a reduced rate of 0.3% on sales of products and at the
rate of 2% on income from licensing fees.
Through March 31, 1998, there were no sales or income on which
royalties were payable to BGU and the Ministry of National
Infrastructure.
(b) International Lead Zinc Research Organization (ILZRO)
In connection with a research contract with ILZRO, Solmecs'
subsidiary agreed to pay ILZRO a fee for any lead used in future
production by the subsidiary. The total fee commitment is limited to
US$1,864,000. Through March 31, 1998, 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
9
<PAGE> 83
BAYOU INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998, JUNE 30, 1997 AND MARCH 31, 1997
subsidiary is required to pay royalties at the rate of 2% of sales of
know-how or products derived from the project. Through March 31, 1998,
there were no sales on which royalties were payable.
(9) SUBSEQUENT EVENTS
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, 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. It is the policy of the Board of Directors of the Company that the
Company 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.
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.
10
<PAGE> 84
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FUND COSTS CONVERSION
The consolidated statements of income and other financial and operating
data contained elsewhere here in and the consolidated balance sheets and
financial results have been reflected in Australian dollars unless otherwise
stated.
The following table shows the average rate of exchange of the Australian
dollar as compared to the US dollar during the periods indicated:
9 months ended March 31, 1997 A$1.00 = U.S.$.7860
9 months ended March 31, 1998 A$1.00 = U.S.$.6622
RESULTS OF OPERATION
NINE MONTHS ENDED MARCH 31, 1998 VS. NINE MONTHS ENDED MARCH 31 1997.
Total revenues amounted to A$48,000 for the nine months ended March 31,
1998, compared to A$12,000 for the nine months ended March 31, 1997. The major
reason for the increase were photovoltaics sales and income from the Dead Seas
Project.
Costs and expenses decreased from A$1,142,000 in the nine months ended
March 31, 1997 to A$1,043,000 in the nine months ended March 31, 1998. The
decrease is a net result of:
(a) an increase in interest expense from A$189,000 for the nine months
ended March 31, 1997 to A$231,000 for the nine months ended March 31, 1998,
as a result of the increase in long term debt of the Company.
(b) the increase in legal, accounting and professional expense from
A$51,000 for the nine months ended March 31, 1997 to A$97,000 for the nine
months ended March 31, 1998, due to costs involved with the disposal of
Solmecs Corporation N.V.
(c) a decrease in amortization of goodwill from A$400,000 for the nine
months ended March 31, 1997, to A$nil for the nine months ended March 31,
1998, as a result of goodwill associated with the acquisition of Solmecs in
1987 being fully amortized.
(d) an increase in administrative costs including salaries from
A$196,000 in the nine months ended March 31, 1997, to A$606,000 in the nine
months ended March 31, 1998 due to:
(i) the reorganisation of the operations whereby the administration
of Solmecs (Israel) Ltd was moved from Ben-Gurion University to Omer
Industrial Part to provide greater accommodation for research,
development and administration together with associated costs; and
(ii) marketing expenses of the boiler and magnesium pump projects.
(e) a decrease in research and development from A$297,000 for the nine
months ended March 31, 1997, to A$99,000 for the nine months ended March
31, 1998, due to less research and development being undertaken by both
staff and subcontractors.
As a result of the foregoing, the loss from operations decreased from
A$1,130,000 in the nine months ended March 31, 1997, to A$995,000 in the nine
months ended March 31, 1998. The Company did not realise a foreign exchange gain
or loss for the nine months ended March 31, 1997, compared with a foreign
exchange gain of A$873,000 for the nine months ended March 31, 1998 caused by
the movement in the Australian dollar compared with the US dollar. All of the
Company's loan accounts are denominated in U.S. dollars.
The Company incurred a net loss of A$1,130,000 for the nine months ended
March 31, 1997, compared with the loss of A$121,000 for the nine months ended
March 31, 1998.
11
<PAGE> 85
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 the Company had short term obligations of A$1,140,000
comprising Short Term Notes and accounts payable and accrued expenses and long
term obligations of A$3,753,000 consisting of an amount of A$3,451,000 to Chevas
Pty Ltd of which the President and the Chief Executive Officer of the Company
Mr. J I Gutnick is a Director and A$302,000 to a affiliate of Solmecs.
The Company 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 which there can be no assurance. In addition the
Company has historically relied upon loans and advances from affiliates to meet
a significant portion of the Company's cash flow requirements which the Company
believes based on discussions with such affiliates will continue to be available
during fiscal 1998 and 1999.
The Company will still be required to locate substantial additional
financing to permit Solmecs to complete the development of the next stage of the
LMMHD project together with other projects that Solmecs is developing.
Other than the arrangements above the Company has not confirmed any further
arrangements for ongoing funding. As a result the Company may be required to
raise funds from additional debt or equity offerings and/or increase the
revenues from operations in order to meet its cash flow requirements during the
forthcoming year.
CAUTIONARY SAFE HARBOR STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Certain information contained in this Form 10-Q is forward looking
information 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 harbor" provisions of the act for any such forwarding looking
statements, the Company wishes to caution investors and prospective investors
about significant factors which among others have 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-Q report 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 the domestic and
foreign economies, slower than anticipated completion of research and
development projects and movements in the foreign exchange rate. Additional
information which could affect the Company's financial results is included in
the Company's Form 10-K on file with the Securities and Exchange Commission.
12
<PAGE> 86
PART II
Item 1. Legal
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any Report on Form 8-K during the nine months
ended March 31, 1998.
Item 5. Other Information
13
<PAGE> 87
(FORM 10-Q)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereinto duly authorised.
BAYOU INTERNATIONAL, LTD.
By: /s/ JOSEPH I. GUTNICK
------------------------------------
Joseph I. Gutnick
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ PETER LEE
------------------------------------
Peter Lee
Director, Assistant Secretary and
Chief Financial Officer
(Principal Financial Officer)
Dated: May 25, 1998
14
<PAGE> 88
ANNEX D
The following information has been derived, without independent
investigation, from Amendment No. 2 to the SCNV Registration Statement on Form
SB-2 (SEC File No. 333-43955).
References herein to the "Company" are to SCNV Acquisition Corp.
<PAGE> 89
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (i) on an actual basis, (ii) on a pro forma basis, giving effect
to (a) the acquisition by the Company of Solmecs in consideration of the
issuance of Bayou of 499,701 shares of Common Stock, accounted for as a
purchase, (b) the write-off of acquired research and development in process of
$3,498,619, (c) the forgiveness by Bayou of a loan to Solmecs, of which
$5,082,897 was outstanding as of March 31, 1998, and (d) the return of Bayou's
shares held by Solmecs, and (iii) as adjusted to give effect to the sale of
1,041,044 Units offered hereby and the anticipated application of the estimated
net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
<S> <C> <C> <C>
Short Term Debt...................................... $110,108 $ 539,362 $ --
======== ============ ===========
Long term debt....................................... -- $ 200,000 $ 200,000
-------- ------------ -----------
Stockholders' equity (deficiency):
Common stock, $.01 par value, 10,000,000
authorized, 541,343 outstanding, 1,041,044 pro
forma(1), 2,082,088 as adjusted(2)................. 5,413 10,410 20,820
Additional paid-in-capital......................... 2,179 2,870,462 7,567,455
Accumulated deficit................................ -- (3,498,619) (3,598,619)
Total stockholders' equity (deficiency).............. 7,592 (617,747) 3,989,656
-------- ------------ -----------
Total capitalization................................. $ 7,592 $ (417,747) $ 4,189,656
======== ============ ===========
</TABLE>
- ---------------
(1) Does not include (i) 1,041,044 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 208,208 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's Unit Purchase
Option and the warrants included therein; and (iii) 200,000 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the Plan. See "Management -- 1997 Stock Option Plan," and
"Underwriting."
(2) Gives effect to the sale of the 1,041,044 Units offered hereby and the
application of the estimated net proceeds therefrom, including the repayment
of indebtedness in the amount of $429,254 and the payment costs of the
Acquisition in the amount of $100,000.
2
<PAGE> 90
SELECTED FINANCIAL DATA
The balance sheet data as of June 30, 1997, has been derived from the
Financial Statements included elsewhere herein which have been audited by Arthur
Andersen LLP, independent public accountants. The balance sheet data as of March
31, 1998, is derived from the unaudited financial statements of the Company,
which are also included elsewhere herein. The unaudited financial information
reflects all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair statement of the financial data for
such period. The Pro Forma Financial information should be read in conjunction
with the unaudited Pro Forma Financial Statements of the Company and Solmecs,
the Financial Statements of Solmecs for the year ended June 30, 1996 and 1997,
that have been audited by Luboshitz Kasierer & Co. (member firm of Arthur
Andersen), and the unaudited Financial Statements of Solmecs for the nine months
ended March 31, 1997 and 1998. These financial statements, including the notes
thereto, appear elsewhere in this Prospectus. In management's opinion, all
material adjustments necessary to reflect the effects of the Acquisition have
been made in the Pro Forma Financial Statements. The unaudited Pro Forma
consolidated statements of operations are not necessarily indicative of what the
actual results of operations of the Company would have been assuming the
Acquisition had been completed as of July 1, 1995, July 1, 1996 and July 1,
1997, respectively, nor is it necessarily indicative of the results of
operations for future periods. The results of the Pro Forma operations for the
nine months ended March 31, 1997 and 1998, are not necessarily indicative of
results to be expected for any future period. The following selected financial
data are qualified by the more detailed Financial Statements included elsewhere
in this Prospectus and should be read in conjunction with such Financial
Statements and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(1) PRO FORMA(1)
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------- ----------------------------
1996 1997 1997 1998
--------- --------- ------------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATION DATA:
Revenues.................................. $ 75,057 $ 57,276 $ 42,911 $ 38,876
Research and Development Costs............ 347,318 276,259 219,595 187,143
Cost of services performed by
subcontractors.......................... -- -- -- 26,056
Cost of Merchandise Purchased............. 17,420 48,638 37,337 5,257
Marketing, General & Administrative
Expenses................................ 493,614 383,219 267,771 353,823
Operating Loss............................ (783,295) (650,840) (481,792) (533,403)
Net Loss.................................. (688,629) (661,324) (486,935) (535,697)
Net Loss Per Share........................ $ (.66) $ (.64) $ (.47) $ (.51)
Weighted average number of shares
outstanding............................. 1,041,044 1,041,044 1,041,044 1,041,044
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1998
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total Assets................................................ $25,000 $266,200
Working Capital............................................. 25,000 7,592
Current Liabilities......................................... -- 258,608
Long-Term Liabilities....................................... 17,408 --
Stockholders' Equity........................................ 7,592 7,592
</TABLE>
- ---------------
(1) The unaudited Pro Forma financial statement of operations information
reflects the combined financial position and results of the Company and
Solmecs as if the Acquisition had been effective as of March 31, 1998, July
1, 1995, July 1, 1996 and July 1, 1997, respectively, without giving effect
to the Offering. Such pro forma information gives effect to (i) the
acquisition by the Company, upon consummation of this Offering, of Solmecs
in consideration of the issuance to Bayou of 499,701 shares of Common Stock
accounted for as a purchase; (ii) the R&D Write-Off of acquired research and
development in process of $3,498,619; (iii) the Loan Forgiveness by Bayou of
a loan to Solmecs, of which $5,082,897 was outstanding as of March 31, 1998;
(iv) the Bayou Share Return; and (v) the payment of $170,000, and $120,000
for fiscal years 1996 and 1997, respectively, and $90,000 for the nine
months ended March 31, 1998, to officers in connection with employment
agreements. See Pro Forma Financial Information.
3
<PAGE> 91
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutions in, Russia and other countries that formerly comprised the Soviet
Union. In furtherance of this goal, the Company will acquire Solmecs N.V., a
Netherlands Antilles company, the operations of which are located in Israel,
which owns certain technologies developed by such scientists in the past and
actively seeks to identify such technologies for exploitation. The technologies
of Solmecs and technologies identified by Solmecs for exploitation are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes are ready for
commercialization in the near future. The Company itself was organized in May
1997 and, since its inception, the Company has been engaged principally in
organizational activities, including developing a business plan, and negotiating
an agreement relating to the Acquisition.
The Company expects to manufacture and market certain technologies which
have been identified by Solmecs and shown to be commercially viable, such as hot
water tank display control systems, photo-voltaic cells and plasma chemically
treated extra smooth rubber gaskets. The Company further intends to offer its
engineering services to industry and research institutions in the fields of
LMMHD power technology and liquid metal engineering. To date, Solmecs has not
generated significant revenues and the Company does not expect to generate any
meaningful revenues for the foreseeable future and until such time, if ever, as
it successfully commercializes one or more of Solmecs' existing or future
technologies or sells proprietary rights relating to one or more of Solmecs'
existing or future technologies. Although the LMMHD power technology has been in
development since the late 1970's, it has not yet reached commercialization. In
order to achieve commercialization of such technology, the Company will be
required to build a commercial scale demonstration plant, which will require a
significant capital expenditure. The Company intends to commence building such a
plant within the next few years, provided that it will be able to obtain the
necessary funds for such project. Solmecs has incurred significant losses since
its inception, resulting in an accumulated deficit of $13,898,573 at March 31,
1998 and losses are continuing through the date of this Prospectus. The rate of
loss is expected to increase after the Acquisition as the Company's activities
increase and losses are expected to continue for the foreseeable future and
until such time, if ever, as the Company is able to achieve sufficient levels of
revenue from the commercial exploitation of its technologies to support its
operations. The Company's independent public accountants have included an
explanatory paragraph in their report on the Company's financial statements
stating that the fact that the Company is dependent upon its ability to raise
resources to finance its operations raises substantial doubt about the Company's
ability to continue as a going concern. In addition, Solmecs' independent public
accountants have included an explanatory paragraph in their report on Solmecs'
financial statements stating that certain factors create a substantial doubt
about Solmecs' ability to continue as a going concern.
The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if indicated), seek to obtain intellectual property
rights in viable technologies, develop a business plan detailing the
exploitation of such technologies from the research and development phase
through product commercialization, develop and, in some instances, implement
financing strategies to further such business plan, and suggest and, in some
cases, assemble a team of scientists and engineers most suitable for
implementation of such business plan. Upon completion of the business
development plan for each project, the Company may seek to manufacture and
market the project itself, enter into strategic alliances for such
commercialization, or sell or license the proprietary information and know-how
to third parties in consideration of technology transfer or license fees.
4
<PAGE> 92
Completion of the research, development and commercialization of the
Company's technologies or any potential application of such technologies will
require significant additional effort, resources and time, including funding
substantially greater than the proceeds of this offering and otherwise currently
available to the Company. Such research and development efforts remain subject
to all of the risks associated with the development of new products based on
emerging and innovative technologies, including, without limitation,
unanticipated technical or other problems and the possible insufficiency of the
funds allocated to complete such development, which could result in delay of
research or development or substantial change or abandonment of research and
development activities.
RESULTS OF OPERATIONS OF SOLMECS
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1997
Total Revenues. Total revenues decreased by $4,035 or 9% to $38,876 for
the nine months ended March 31, 1998, from $42,911 for the nine months ended
March 31, 1997. The decrease is mainly attributable to a decrease in sales of
photovoltaic cells and panels due to the slow-down in growth of the Israeli
economy which caused a decrease in investments in the area of alternative energy
methods. The decrease in sales of photovoltaic cells and panels was partly
offset by income generated from the "Dead Sea Works" project.
Research and Development Costs. Research and development costs decreased
by $32,452 or 15% to $187,143 for the nine months ended March 31, 1998, from
$219,595 for the nine months ended March 31, 1997. The decrease is attributable
to the decrease in salaries and related expenses resulting from a shift of
personnel from research and development positions to general, administrative and
marketing positions as well as an increase in research and development performed
by third party subcontractors, the expense of which is included under cost of
contract services performed by subcontractors.
Cost of Merchandise Purchased. Cost of merchandise purchased decreased by
$32,080, or 86%, to $5,257 for the nine months ended March 31, 1998, from
$37,337 for the nine months ended March 31, 1997. This decrease was primarily
attributable to the aforesaid decrease in sales.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses increased by $86,052 or 48%, to $263,823 for the nine
months ended March 31, 1998, from $177,771 for the nine months ended March 31,
1997. This increase was primarily attributable to an increase in (i) marketing
expenses related to the initial commercialization of Solmecs' products, (ii)
fees associated with the leasing of new facilities in Omer Industrial Park, and
(iii) an increase in salaries and related expenses resulting from a shift of
personnel from research and development positions to general, administrative and
marketing positions.
Operating Loss. Operating loss increased by $51,611, or 13%, to $443,403
for the nine months ended March 31, 1998 from $391,792 for the nine months ended
March 31, 1997. The increase in operating loss was primarily attributable to an
increase in marketing, general and administrative expense as set forth above.
Financing Expenses, Net. Financing expenses, net of $301,239 for the nine
months ended March 31, 1998, and $282,143 for the nine months ended March 31,
1997 primarily related to the charge for imputed interest, at a rate of 8% per
annum, in connection with the loan from its parent company. The difference of
$19,096 is attributed to an increase in interest resulting from an increase in
principal of the loan from the parent company.
Net Loss. As a result of the foregoing, net loss increased by $71,762, or
11%, to $745,697 for the nine months ended March 31, 1998, from $673,935 for the
nine months ended March 31, 1997.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1996.
Total Revenues. Total revenues decreased by $17,781 or 24% to $57,276 for
the fiscal year ended June 30, 1997, from $75,057 for the fiscal year ended June
30, 1996. The decrease was attributable to no revenues generated from the
International Lead Zinc Research Organization, Inc. project in fiscal 1997 as
compared to $52,075 for fiscal 1996, which was partially offset by an increase
in sales of photovoltaic cells to $51,841 in 1997 from $22,982 in 1996.
5
<PAGE> 93
Research and Development Costs. Research and development costs decreased
by $71,059 or 20%, to $276,259 for the fiscal year ended June 30, 1997, from
$347,318 for the fiscal year ended June 30, 1996. The decrease in research and
development costs was primarily attributable to a reduction in salaries and
related expenses and a reduction in consulting fees resulting from the internal
reorganization of the Company.
Cost of Merchandise Purchased. Cost of merchandise purchased increased by
$31,218, or 179%, to $48,638 for the fiscal year ended June 30, 1997, from
$17,420 for the fiscal year ended June 30, 1996. This increase was primarily
attributable to the increase in sales of photovoltaic cells.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses decreased by $60,395, or 19%, to $263,219 for the fiscal
year ended June 30, 1997, from $323,614 for the fiscal year ended June 30, 1996.
This decrease was primarily attributable to a decrease in salaries and
consulting fees resulting from increased efficiencies, the move of the Company's
offices from Jerusalem to Beer-Sheva and from termination of certain consulting
arrangements.
Operating Loss. Operating loss decreased by $82,455, or 13%, to $530,840
for the fiscal year ended June 30, 1997 from $613,295 for the fiscal year ended
June 30, 1996. The decrease in operating loss was primarily attributable to a
decrease in general and administrative expenses and research and development
costs.
Financing Expenses, Net. Financing expenses of $390,484 for the fiscal
year ended June 30, 1997 and $300,069 for the fiscal year ended June 30, 1996
primarily related to the charge for imputed interest in connection with the loan
from its parent company. The difference of $90,415 is attributable to (i) an
increase in interest resulting from an increase in the principal of the loan
from the parent company and (ii) a decrease in interest received in connection
with the recovery of bad debt during the earlier period.
Net Loss. As a result of the foregoing and due to other income
(principally the recovery of bad debt from a related party in the amount of
$60,000 during the earlier period), net loss increased by $22,695, or 4%, to
$541,324 for the fiscal year ended June 30, 1997, from $518,629 for the fiscal
year ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, Solmecs had a working capital deficit of $513,297, a
stockholders' deficiency of $5,708,236 and an accumulated deficit of
$13,898,573. The aforesaid stockholders' deficiency was chiefly due to
indebtedness of Solmecs to its parent company, Bayou, in the amount of
$5,082,897, which indebtedness will be forgiven prior to the consummation of the
Acquisition.
During the period from inception through March 31, 1998, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $110,108
for working capital purposes and agreed that such loan and any additional loans
which may be made by Batei Sefer Limlacha to the Company shall be due and
payable on the earlier of December 31, 1998 or the consummation of certain types
of transactions, including this offering, that such loans will be unsecured and
will not bear interest unless an event of default occurs.
During the period from September through March 1997, Batei Sefer Limlacha
loaned to Solmecs $337,900 for working capital purposes and agreed with Solmecs
that such loan and any additional loans to be made by Batei Sefer Limlacha to
Solmecs shall be due and payable on earlier of June 30, 1998 or the consummation
of certain types of transactions, including the Acquisition which will occur
simultaneously with the consummation of this offering, and that such loans will
be unsecured and will bear interest at the rate of 8% per annum.
No assurance can be given that Batei Sefer Limlacha will make any
additional loans to the Company or Solmecs and it is not obligated to do so.
The Company's capital requirements will be significant. The Company is
dependent upon the proceeds of this offering to finance the operations of the
Company, including the costs of market research and marketing activities,
continued research and development efforts, establishing manufacturing
capabilities and the acquisition of intellectual property rights. The Company
anticipates, based on management's internal forecasts and assumptions relating
to its operations (including assumptions regarding the timing and progress of
the
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Company's technologies), that the net proceeds of this offering will be
sufficient to satisfy the Company's contemplated cash requirements for at least
12 months following the consummation of this offering. In the event that the
Company's plans change, its assumptions change or prove inaccurate, or if the
proceeds of this offering prove to be insufficient to fund operations, the
Company could be required to seek additional financing. Based on the results of
preliminary assessment activity to be performed on several potential projects
identified or to be identified by the Company, the Company intends to engage in
research and development of two such projects in the first year and four
projects in the second year (which may include an additional years work on all
or both of the projects from the first year) and believes that a number of such
projects will enter the commercialization stage during such two-year period.
Completion of the research, development and commercialization of the Company's
technologies or any potential application of such technologies will require
significant additional effort, resources and time including funding
substantially greater than the proceeds of this offering and otherwise currently
available to the Company. Moreover, the proceeds received in this offering may
be insufficient to satisfy the scheduled projects, requiring the Company to seek
additional financing. The Company has no current arrangements with respect to,
or sources of, additional financing, and it is not anticipated that existing
shareholders will provide any portion of the Company's future financing
requirements. There can be no assurance that additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. See "Risk Factors."
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS an Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed based on the weighted average number of share
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and earlier application is not permitted. The adoption of this statement
did not have a material effect on its financial position or results of
operations.
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BUSINESS
GENERAL
The Company was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutes in, Russia and other countries that formerly comprised the Soviet
Union. In furtherance of this goal, the Company will acquire Solmecs N.V., a
Netherlands Antilles company the operations of which are located in Israel,
which owns certain technologies developed by such scientists in the past and
actively seeks to identify such technologies for exploitation. The technologies
of Solmecs and technologies identified by Solmecs for exploitation are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes are ready for
commercialization in the near future.
The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if required) and seek to obtain intellectual property
rights in viable technologies. Upon the establishment of the commercial
viability of certain technologies, the Company will develop a business plan
detailing the exploitation of such technologies from the research and
development phase through product commercialization, develop and, in some
instances, implement financing strategies to further such business plan, and
suggest and, in some cases, assemble a team of scientists and engineers most
suitable for implementation of such business plan. Upon completion of the
business development plan for each project, the Company may seek to manufacture
(directly or through contractors) and market (directly or through distributors)
the project itself, enter into strategic alliances for such commercialization,
or sell or license the proprietary information and know-how to a third party in
consideration of technology transfer or license fees. To a lesser extent, the
Company may seek to develop technologies invented by scientists from other
countries.
Upon the consummation of this offering, the Company will complete the
Acquisition, pursuant to which all of the stock of Solmecs, currently a
wholly-owned subsidiary of Bayou International, Ltd., a public company the
Common Stock of which is traded in the over-the-counter market, will be acquired
by the Company. As a result of such acquisition, the Company will acquire all of
the assets of Solmecs, subject to all of Solmecs' liabilities. Thereupon, the
Company will change its name to Solmecs Corp. The current management of Bayou
has not participated in the organization of the Company and is not expected to
play any role in the management of the Company following the completion of this
offering. Solmecs was organized in 1980 to engage in the research, development
and commercialization of high efficiency, low pollution products in the energy
conversion and conservation fields. Solmecs currently seeks to select, acquire
and commercially exploit proprietary technologies, primarily invented by
scientists in the former Soviet Union. From 1980 until the mid-1990's Solmecs
was primarily engaged in the development of Liquid Metal Magnetohydrodynamics
("LMMHD") energy conversion technology, a process developed approximately 20
years ago by Professor Herman Branover, a Soviet emigre to Israel who is the
President and a director of the Company.
The expertise and know-how in MHD phenomena accumulated by Solmecs in the
development of LMMHD power technology will be applied to the development of new
industrial processes. For example, Solmecs, in cooperation with a scientist in
Russia, has identified a potential use of MHD phenomena in the growth of
mono-crystals, which are among the critical components of the electronic chip
industry. The Company believes that the use of constant and alternate magnetic
fields for influencing the process of mono-crystal growth will result in larger,
higher quality (i.e. fewer dislocations) crystals. It is believed that this will
substantially increase the commercial value of such mono-crystals. The Company
intends to apply this method initially to mono-crystals of silicon and
subsequently to mono-crystals of gallium-arsenide and cadmium-telluride, which
will compete with and may gradually replace silicon chips (chips based on
mono-crystals of silicon) in the computer and electronics industries.
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The Company also intends to (i) manufacture and market solar/electrical
hot-water tank control/display systems developed and tested by Solmecs; (ii)
market Russian-manufactured photo-voltaic cells for use in the conversion of
solar energy; and (iii) market plasma-chemically treated extra smooth rubber
gaskets developed and currently produced by a company in the former Soviet Union
for the aviation industry. Solmecs is currently in the process of marketing such
photo-voltaic cells and the Company believes that marketing activities with
respect to the solar/electric hot-water tank control/display system and the
plasma-chemically treated extra smooth rubber gaskets, both of which are at or
near the commercialization stage, could begin immediately after the Acquisition.
Two recent surveys performed for Solmecs demonstrate the commercial viability of
the hot-water tank control/display system in the French and Israeli markets,
respectively. In addition, the Company has identified approximately a dozen
projects in the viability testing stage, including those involving Solmecs
technologies and those not involving such technologies, in which the Company may
invest. These projects include new types of centrifugal pumps with provisions
for substantial savings of energy; new methods of prediction of dispersion of
contaminants in the atmosphere; and extraction of carbon-dioxide from combustion
gases. In addition, Solmecs currently sells its consulting and development
services to industry and research institutions in the fields of LMMHD technology
and liquid metal engineering. Such services are currently being provided by
Solmecs to the Israeli Dead Sea Works Industry (LMMHD technology for magnesium
handling). The Company has recently been approached by the Nuclear Center of
United Europe ("CERN"), located in Geneva, Switzerland to provide its expertise
in molten lead energy conversion in the development of a safe nuclear power
plant which will generate power from the burning of nuclear waste. The Company
and CERN are currently in discussions relating to such services and have not
arrived at any understanding to date.
BACKGROUND
The Company believes that the recent mass immigration to Israel of highly
trained and experienced scientists and engineers, when combined with Western
technology, infrastructure and commercial skill, will provide an opportunity for
the Company to exploit innovative technologies and products. Between 1989 and
1996, approximately 60,000 engineers and 11,000 scientists immigrated to Israel
from the former Soviet Union. These immigrants are highly skilled specialists
with unique expertise in a number of technological fields, particularly in
mechanical, electrical and chemical engineering, energy sources and energy
conversion, metallurgy, material sciences and others. Many of them are authors
of numerous inventions and novel advanced technologies. Although the mass
immigration began more than seven years ago and is continuing, the Company
believes that the Israeli government has not developed a database which contains
an organized listing of the professional skills, experience and intellectual
property possessed by each of the immigrants. To the Company's knowledge, there
have only been a few private initiatives which sought to develop such a
database, including the Public Center for Immigrant Employment (the "Public
Center") a center established by certain principals of the Company and others
located in Beer-Sheva, Israel in 1991. A partial database developed by the
Public Center reflected that approximately 70% of the Soviet immigrant job
applicants seeking the Public Center services held undergraduate or graduate
science degrees and approximately 20% of such applicants held doctoral degrees.
Only 10% of the applicants did not graduate from a university. By contrast, of
the employment opportunities the Public Center had identified, 62% of such
opportunities were suited for non-academic applicants. The Company believes that
the disparity between the types of employment opportunities and applicants shows
that the current Israeli economy cannot effectively absorb the number of
scientists and engineers that have immigrated.
The Company believes that Israeli absorption authorities have not been able
to deal with professional analysis, initial development and market evaluations
of the patents or patentable ideas which have been brought to Israel by the
immigrants. However, the Company believes that the current immigration of
leading scientists and technologists has created new opportunities which should
not be overlooked. Linking Russian know-how with Western technology and Israeli
enterprise and creativity provides a special opportunity to introduce innovative
products and technologies into Western markets.
Moreover, these immigrants appear to have a significant number of ideas for
patentable inventions. Of the 1,500 immigrants which have sought the Public
Center's services, 140 have authored inventions, of which
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many have been patented in the former Soviet Union. The Company believes that
the foregoing provides support for its plan of operations.
The Company believes that Russian scientists have developed advanced
inventions and techniques in certain areas of research, including metallurgy,
coating and thin film technology, semiconductors, environmental technologies
(such as water purification and desalination), and energy technologies
(including conversion and conservation), as well as use of renewable energies
(such as photo-voltaics, which involves the direct conversion of solar energy
into electricity).
The Company is aware of potential difficulties in exploiting these
technologies. These difficulties are the result of differences between Russian
and Western cultures, approaches, and working styles, communications problems
and the relatively limited capacity of Israeli industry. However, the Company
believes that these difficulties can be overcome. The Company intends to employ
Israel/Western specialists to analyze the scientific and commercial viability of
technologies proposed by immigrant scientists and engineers that are developed
or partially developed by the industries in the former Soviet Union at which
such scientists were employed, and perform the business development functions
set forth below. A contributing factor to the Company's business development
functions will be the significant experience that certain administrative and
scientific/technical personnel have in working with immigrant scientists from
the former Soviet Union.
STRATEGY
The Company's strategy is to identify and exploit innovative technologies
which represent advances over existing products or technologies. The Company
plans to implement its strategy through a four-step process:
- Identify potential business opportunities. The Company's personnel,
including Professor Branover, consist of scientific and engineering
experts with numerous relationships with scientists who have recently
immigrated from the former Soviet Union, as well as with scientists,
universities, research institutes and industries in the former Soviet
Union. The Company intends to utilize such relationships in order to form
a database of proposals of advanced technologies and inventions from
which viable projects will be selected for acquisition and development.
The Company intends to hire financial experts with such relationships
after the consummation of this offering. The Company will, where
appropriate, seek to obtain intellectual property rights to the
technologies and inventions that it identifies for development.
- Assess project scientific and commercial viability. The Company, through
the use of specialized scientific and marketing experts, will conduct
tests on proposals compiled in the Company's database, including market
analysis and assessment of the cost and time required for research,
development and commercialization. The Company may also construct
prototypes in order to test technical feasibility.
- Create a business plan. Projects that demonstrate market and technical
feasibility will be developed into business and commercialization plans
ready for implementation. The plans created by the Company will recommend
scientific, financial and marketing personnel suited for each project and
will present a complete timeline, budget and description of project
implementation from the research and development phase through end-user
marketing. In addition, where appropriate, the Company intends to apply
for patents or copyrights and will seek to obtain other proprietary
protection for the technologies.
- Commercialize technologies. Upon completion of the business plan, the
Company will achieve the manufacture and marketing of the technologies in
one of a number ways, including: the Company may develop, manufacture and
market the technology in house, as it intends to do with certain
applications of the LMMHD technology and other technologies acquired in
the Acquisition; the Company may choose to enter into strategic alliances
with companies with substantially greater capital and expertise in the
development, manufacture and marketing of certain products or
technologies; and the Company may sell or license the technologies and
proprietary rights to third parties in consideration of a technology
transfer or license fees.
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TECHNOLOGIES CURRENTLY DEVELOPED BY SOLMECS
Upon the consummation of this offering, the Company will complete the
Acquisition, pursuant to which all of the stock of Solmecs will be acquired by
the Company. Solmecs was organized in 1980 to engage in the research,
development and commercialization of high efficiency, low pollution products in
the energy conversion and conservation fields. Solmecs currently seeks to
select, acquire and commercially exploit proprietary technologies, primarily
invented by scientists in the former Soviet Union. From 1980 until the
mid-1990's, Solmecs was primarily engaged in the development of LMMHD energy
conversion, a process developed by Professor Branover. The LMMHD energy
conversion technology which is currently being utilized in a developmental stage
power plant facility, generates electric power (and, in most cases, steam) by
utilizing a non-conventional process in which an electro-conducting fluid (such
as molten lead) is forced through a magnetic field. The Company believes that
power generation facilities utilizing LMMHD energy conversion technology will
have a lower installed capital cost and higher efficiency than conventional
steam turbo-generator plants, resulting in lower electricity costs and reduced
pollutive effects. Although the LMMHD power technology has been in development
since the late 1970's it has not yet reached commercialization. In order to
achieve commercialization of such technology, the Company will be required to
build a commercial scale demonstration plant, which will involve a significant
capital expenditure. The Company intends to commence building such a plant
within the next few years, provided that it will be able to obtain the necessary
funds for such project. The Company believes that the further development and
commercialization of LMMHD energy conversion technology is consistent with its
intent to develop advanced technologies featuring competitive advantages over
existing products.
The Company intends to concentrate initially on the further development
and/or commercialization of a number of technologies, including certain
technologies to be acquired by the Company in the Acquisition, certain
technologies that are applications of MHD phenomena, as well as certain other
technologies.
The Company's initial plans include development of the following
technologies:
- Monocrystals. Solmecs, in cooperation with a scientist in Russia, has
identified a potential use of MHD phenomena in the growth of monocrystals
of gallium-arsenide and cadmium-telluride. The method of production of
these monocrystals lead to monocrystals of large size with fewer
imperfections and thus greater yield of usable material than standard
methods. This process is still in the development stage and it has not
yet been the subject of a patent application. The process is owned by the
aforesaid scientist who currently resides in Russia and certain
executives of the Company have a close relationship with him. The Company
believes that it can enter into an agreement with the scientist that
would be advantageous to the Company, but no assurances can be given in
that regard. The Company believes that this process will not be ready for
industrial application for at least two years. The major potential
application of these monocrystals is as a possible alternative to silicon
in electronic chips used in all types of electronics, including
computers. The Company estimates that the current size of the market for
gallium-arsenide monocrystals is approximately 15 billion dollars per
year worldwide.
- Hot water tank control and display system. Solmecs has developed a gauge
and display to indicate the amount of hot water in a hot water tank,
which is especially useful for solar and electrical hot water tanks. This
new system provides the user with accurate information on the amount of
hot water left for use in the domestic hot water tank and allows the user
to remotely control the operation of the water heating system, whether it
uses electricity or solar power. The device displays the necessary
information such as the number of standard showers available in the tank
and the user is able to fix the desired number of showers he wants to
keep in the system at time intervals he chooses. Thus, the device will
help to avoid unnecessary waste of energy and will allow a comfortable
use of the water heating system. The Company estimates that the hot water
tank display and control system will provide approximately 40% savings of
electrical energy. This technology is currently ready for manufacture.
Solmecs is currently in the process of selecting a partner for a joint
venture.
In a market survey performed on behalf of Solmecs by independent
consultants in France, manufacturers of hot water tanks (electrical and
solar) that are potential customers for the control and display
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system responded favorably. In a market survey performed on behalf of
Solmecs by independent consultants in Israel, consumers that are
potential end-user customers responded favorably.
Solmecs has manufactured two prototypes of the control/display system
through a subcontracting arrangement with an Israeli firm and has entered
into discussions with two European based hot water tank manufacturers for
possible insertion of the control/display system into next generation
boiler and hot water tank systems.
- Advanced Double-sided photo-voltaic cells. Solmecs has identified a
technology developed by Russian scientists working in the space and
military industries of the former Soviet Union that provides for reliable
solar panels that are more efficient than those currently available in
the market. These panels involve double-sided photovoltaic cells,
allowing more surface area to receive the reflection of solar energy,
including solar energy that is reflected back from the ground, and result
in approximately 30% more power. The unit also involves less space and
fewer panels than currently available technology. The Company will be
required to negotiate a license to allow it to produce these photo-
voltaic cells in Israel. No assurance can be given that the Company will
be able to enter into any such arrangement.
The Company has entered into an arrangement with a Russian manufacturer
pursuant to which the Company acts as the exclusive distributor of such
manufacturer's photovoltaic cells in Israel. This arrangement is
scheduled to continue through the end of 1998 at which time the parties
will renegotiate the terms of the arrangement.
- Rubber gaskets treatment. Solmecs is involved in the commercialization
of a method of surface treatment of rubber that results in smoother
rubber for use in gaskets for sophisticated machinery, especially in
aircraft. The rubber treatment process involves plasma-chemical
modification methods. The method was developed and the product is
produced by a company in the former Soviet Union. The Company and such
company are currently engaged in discussions towards an agreement
pursuant to which the Company would create the production capability for
the product in Israel an would improve on the technology. No assurances
can be given that any understanding will be reached on favorable terms or
at all.
At present, the Company ships products directly to the Russian company
for surface treatment.
LMMHD ENERGY CONVERSION TECHNOLOGY
Solmecs is currently involved in further advancement and perfection of
LMMHD energy conversion technology. This technology is distinctive from
conventional energy producing steam turbo-generator technology in which steam,
produced in a boiler, propels a turbine which in turn forces the rotation of an
electrical generator. Although the LMMHD process also employs the use of steam,
in LMMHD power technology the steam is used to accelerate a stream of molten
metal across a magnetic field which leads to the generation of electricity. This
process does not require the use of moving or rotating mechanical machinery but
utilizes an assembly of hermetically sealed pipes in which the energy conversion
process occurs. The Company believes the process and technology to be reliable
and require only a marginal amount of maintenance, and anticipates commercially
developed systems to have a long life span.
According to the Company's calculations which were confirmed by a study
performed on behalf of Solmecs by an independent consultant, the developmental
cogeneration power plant facility, which utilizes LMMHD power technology, had
installed costs of $1,339 per KW as compared to an average of $1,850 per KW in
comparable conventional steam turbo generator facilities (a difference of 28%),
as well as higher electricity efficiency of approximately 17.4% as compared to
an average of 15.8% for comparable steam turbo generator facilities (a
difference of 9%) which results in lower installed costs as well as greater
efficiency.
Solmecs has constructed and completed several pilot plants utilizing the
LMMHD energy conversion technology and has developed an engineering design and a
universal computer code for the calculation, design and optimization for each
specific application of the LMMHD energy conversion system. The Company intends
to further engage in the improvement of the LMMHD system.
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Although the LMMHD power technology has been in development since the late
1970's it has not yet reached commercialization. In order to achieve
commercialization of such technology, the Company will be required to build a
commercial scale demonstration plant, which will involve a significant capital
expenditure. The Company intends to commence building such a plant within the
next few years, provided that it will be able to obtain the necessary funds for
such project.
FUTURE TECHNOLOGIES AND PRODUCTS
The Company has identified various Solmecs and non-Solmecs technologies,
some of which involve LMMHD technology, for potential acquisition and
development in the future:
- Carbon dioxide extraction. Ever increasing amounts of fossil fuel burned
in electrical power stations and combustion engines result in a permanent
increase in the amounts of carbon dioxide accumulated in the atmosphere.
This process is aggravated by the systematic destruction of the earth's
biosphere, through, as an example, the reduction of the rain forests
which absorb carbon dioxide. High concentrations of carbon dioxide make
the atmosphere less "transparent" for heat irradiated by the earth into
outer space, leading to global warming with all its adverse effects.
Solmecs established a professional relationship with a team of scientists
in Russia who are developing an efficient and economically attractive
method for extraction of carbon dioxide from combustion gases. Solmecs
has performed a preliminary feasibility study for a Norwegian company
that has expressed interest in a possible joint venture to further
develop this technology. The Company believes that the construction of a
semi-industrial scale demonstration plant can commence within the next
few months. A portion of the proceeds of this offering has been allocated
for acquisition of rights associated with this technology.
- Novel centrifugal pumps. Centrifugal pumps currently widely used in the
chemical and other industries are inefficient in that they are designed
for a particular flow rate and can be adjusted to provide for a lower
flow only through closing valves. This wastes large amounts of energy.
Solmecs has identified a centrifugal pump developed by others that solves
this problem, allowing adjustment to needed flow rates. The Company will
seek to obtain certain intellectual property rights in connection with
the centrifugal pump development and a portion of the proceeds of this
offering has been allocated for that purpose.
- Forecasting of atmosphere contaminants dispersion. The Solmecs LMMHD
know-how can be used to determine which areas have greater potential for
atmosphere contamination. This technology has applications in the power
plant industry as well as other industries which burn large quantities of
fossil fuels.
- Boiler efficiency enhancement. It has been demonstrated by ex-Soviet
engineers that by treating the air used for combustion of fuels in
boilers with high voltage electric fields, the oxygen molecules present
in the air will be split into single atoms, making the combustion much
more complete, resulting in the generation of more heat. In addition,
fewer poisonous compounds are exhausted into the atmosphere. The process
has been tested with a number of industrial boilers and shown to be
effective; improving the efficiency of the boilers by approximately 10 to
15%.
- Fertilizer treatment. Manure is recognized as the best fertilizer and is
widely used in agriculture. However, manure contains numerous kinds of
infectious bacteria that present a serious threat to public health. A
method was invented and developed by Russian engineers in which the
manure is moved through a generator of high frequency electromagnetic
fields. This not only destroys the harmful bacteria, but also accelerates
the processes leading to maturation of the manure and its conversion into
a fertilizer. Medical and agricultural tests performed on this process
have indicated that the process is scientifically viable. Solmecs is
currently involved in the assessment of this technology to determine
commercial viability.
- Reduction of Carbon Dioxide Emissions. A process has been developed by
Russian scientists to reduce the levels of carbon dioxide emitted from
the combustion of natural gas, such as methane, in
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power stations. Known as "pyrolysis," the process involves a natural gas
thermal decomposition whereby carbon is extracted from methane prior to
the combustion process. The oxygen component of the methane is released
and the resulting natural gas fuel is pure hydrogen which can be used for
electrical or mechanical power production without hazardous pollution of
the environment. The extracted carbon is captured in solid form (crystals
and powder) which is efficiently stored and may be utilized in production
processes such as rubber production and metallurgy. The Company may
allocate a portion of the proceeds of this offering for construction of a
demonstration plant on an intermediate semi-industrial scale.
- Vortex Microconditioner Air Cooler. Conventional air
cooling/refrigerating devices involve a refrigeration cycle with freon
vapor compression which can be costly as well as ecologically unsound.
The Company has established a relationship with a group of Russian
researchers who have improved, to a near operative level, an air cooling
technology in which a turbulent fluid is rotated around an axis at a high
rate of speed through the use of compressed air, simulating the vortex of
a tornado. The flow is spontaneously thermally separated into two air
streams, one hot and one cold. The principle allows for the development
of a smaller, lightweight device with no moving parts and which is
environmentally friendly (no freon), for application in industrial and
high-technology settings. The Company may allocate a portion of the
proceeds of this offering to acquire the technology and to further the
development of a commercially viable product.
- Luminescent Flat Multicolored Light Emitting Polymers. The Company has
identified a Russian company that is in the late stages of development of
a new technology of multicolored light emitting polymers (LEP) which
could replace conventional liquid crystal displays (LCD) currently
utilized in most computers, phones and other consumer electronic
equipment. The LEP technology could enable the development of a new
generation of display systems with greater flexibility for size and
location which would be extremely thin, have high visibility without
backlighting and permit attractive images from all viewing angles without
color filtration.
There can be no assurance that the Company will be able to obtain the
necessary rights to exploit the foregoing technologies.
CONSULTING SERVICES
The Company anticipates entering into agreements to provide consulting and
development services to industry and research institutions in the fields of
LMMHD technology and liquid metal engineering. For example, in response to a
purchase order from the Israeli Dead Sea Works Industry ("Dead Sea Works"),
Solmecs recently developed a pumping system based on a conductive MHD pump for
use in magnesium handling. The system is currently installed at Dead Sea Works
as a demonstration system and is operated and supported by Solmecs. The system
is currently in early stages of operation tests. In the event this system proves
to be effective, the Company expects to provide additional systems to Dead Sea
Works and to use the current system as a demonstration site for marketing the
system to other companies. The Company has recently been approached by CERN to
provide its expertise in molten lead energy conversion in connection with the
development by CERN of a safe nuclear power plant which will generate power from
the burning of nuclear waste. The Company and CERN are currently in discussions
relating to such services and have not arrived at any understanding to date.
Disposal of nuclear waste produced by nuclear power stations is regarded as one
of the most acute concerns of the energy industry. The method developed by CERN
employs a process by which nuclear waste is destroyed, thereby avoiding the
necessity of disposal, and electricity is generated. The CERN system entails a
flux of accelerated protons hitting a molten lead target and causing neutron
emission directed on rods made from highly radioactive nuclear waste.
Ultimately, the generated thermal energy is absorbed by the molten lead and
converted to electricity. Solmecs has suggested that the hot lead be directed
into an LMMHD electricity generating device of the type developed by Solmecs.
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INTELLECTUAL PROPERTY
Solmecs currently owns six patents which cover most of the developed
countries in connection with its development of LMMHD technology. Five of the
patents are registered in the name of Solmecs and one patent is registered in
the name of Ben Gurion University which was assigned to Solmecs. Solmecs has
been granted patents for its MHD Applications (homogenous flow) in the United
States, Israel, Italy, Great Britain, Germany, France, Canada, Japan and
Australia and for its Solar MHD in the United States.
Pursuant to an agreement dated November 5, 1981, between Solmecs,
Ben-Gurion University and B.G. Negev Technology and Applications Ltd. ("BGU"),
Solmecs is conducting research and development projects on the campus of
Ben-Gurion University in consideration for a fee for the use of the facilities.
Solmecs owns the patents connected with these projects and agreed to pay
royalties to BGU at the rate of 1.725% on sales of products and at the rate of
11.5% on income from licensing fees. Solmecs also agreed to assume the
obligation of BGU to pay royalties to the Ministry of National Infrastructure of
the State of Israel on products developed from these research and development
projects for its participation in the research and development costs of BGU. The
royalties are to be paid at the rate of 1% on sales of products and at the rate
of 5% on income from licensing fees. As of December 31, 1997, this liability
amounted to approximately $325,000 (including linkage to the Consumer Price
Index and interest at 4% per annum). Subsequent to the repayment of the
liability, Solmecs is required to pay royalties to the Ministry of National
Infrastructure at a reduced rate of .3% on sales of products and at the rate of
2% on income from licensing fees. To date, there were no sales or income on
which royalties were payable to BGU or the Ministry of National Infrastructure.
In March 1991, Solmecs entered into an agreement with International Lead
Zinc Research Organization, Inc. ("ILZRO") pursuant to which ILZRO funded
certain research of Solmecs and Solmecs agreed to pay a fee to ILZRO with
respect to any lead used in future production by Solmecs, up to a maximum of
$1,864,000. As of the date of this Prospectus, Solmecs has not used any lead
with respect to which it is required to pay such fee.
From 1981 to 1991, Solmecs received from the Office of the Chief Scientist
of the Ministry of Industry and Commerce of the Government of Israel (the
"OCS"), $2,274,420 in grants towards the cost of a research and development
project relating to LMMHD energy conversion technology. Under the terms of
Israeli Government participation, a royalty of 2% to 3% of the net sales of, or
licensing revenues from, products developed from a project funded by the OCS
must be paid, beginning with commencement of sales of products developed with
grant funds and ending when 100% to 150% of the grant is repaid. The terms of
Israeli Government participation also require that the manufacturing of products
developed with Government grants be performed in Israel, unless a special
approval has been granted. Such approval, if given, is generally made subject to
an increase in the maximum amount of royalties that must be repaid. Separate
Israeli Government consent is required to transfer to third parties technologies
developed through projects in which the Government participates. Such
restrictions do not apply to exports from Israel of products developed with such
technologies. Solmecs has not yet commenced marketing of products developed
through funds granted by the OCS. Accordingly, no royalties have been paid to
date.
Solmecs has agreed to pay the inventor of technology incorporated in its
hot water tank control and display systems certain royalties with respect to
sales of products incorporating such technology and/or the sale or licensing of
such technology.
COMPETITION
The products that will be based on the Company's technologies will likely
be used in highly competitive industries. Numerous domestic and foreign
companies are seeking to research, develop and commercialize technologies
similar to those of the Company, many of which have greater name recognition and
financial, technical, marketing, personnel and research capabilities than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing technologies and applications that are more cost
effective, or have fewer limitations than, or have other advantages as compared
to, the Company's technologies. The markets for the technologies and products to
be developed or acquired by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or
15
<PAGE> 103
short product lifecycles. Accordingly, the ability of the Company to compete
will depend on its ability to complete development and introduce to the
marketplace, directly or through strategic partners, in a timely manner its
proposed products and technologies, to continually enhance and improve such
products and technology, to adapt its proposed products to be compatible with
specific products manufactured by others, and to successfully develop and market
new products and technologies. There can be no assurance that the Company will
be able to compete successfully, that its competitors or future competitors will
not develop technologies or products that render the Company's products and
technologies obsolete or less marketable or that the Company will be able to
successfully enhance its proposed products or technologies or adapt them
satisfactorily.
The Company believes that Solmecs is the only commercial company engaged in
the development of LMMHD generator systems. However, the Company believes that
the competition in the worldwide market for energy conversion systems is intense
and the Company may encounter substantial competition from other companies
engaged in the development of competing energy conversion systems which
companies may have grater name recognition and financial, technical, marketing,
personnel and research capabilities than the Company.
There can be no assurance that other companies are not dedicated to
identifying, obtaining and developing technologies of Russian scientists and
engineers currently residing in Israel. Any such competitors may have greater
financial, technical, marketing, personnel and other resources than the Company.
EMPLOYEES
Solmecs currently has eight full-time employees and five part-time
employees, including four administrative and executive personnel, two full-time
and one part-time senior scientists, two full-time and one part-time engineers
and technicians and three part-time support personnel. The Company anticipates
hiring one senior scientist, one engineer/technician and one marketing
specialist in each of the two years following the consummation of this Offering.
Solmecs believes that it has satisfactory labor relations with its employees and
has never experienced work stoppage.
Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists' Associations) are
applicable to Solmecs' employees by order of the Israeli Ministry of Labor.
These provisions concern principally the length of the work day, minimum daily
wages for professional workers, insurance for work-related accidents, procedures
for dismissing employees, determination of severance pay, and other conditions
of employment. Solmecs generally provides its employees with benefits and
working conditions beyond the required minimums.
Israeli law generally requires severance pay, which may be funded by
Managers' Insurance described below, upon the retirement or death of an employee
or termination of employment without cause (as defined in the law). The payments
pursuant thereto amount to approximately 8.33% of wages. Furthermore, Israeli
employees and employers are required to pay predetermined sums to the National
Insurance Institute, which is similar to the United states Social Security
Administration. Such amounts also include payments by the employee for national
health insurance. The total payments to the National Insurance Institute are
equal to approximately 14.6% of the wages (up to a specified amount), of which
the employee contributes approximately 66% and the employer contributes
approximately 34%.
A general practice followed by Solmecs, although not legally required, is
the contribution of funds on behalf of most of its employees to a fund known as
"Managers' Insurance." This fund provides a combination of savings plan,
insurance and severance pay benefits to the employee, giving the employee
payments upon retirement or death and securing the severance pay, if legally
entitled, upon termination of employment. The employer decides whether each
employee is entitled to participate in the plan, and each employee who agrees to
participate contributes 5% of his salary and the employer contributes an amount
equal to between 13.3% and 15.8% of the employee's salary.
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<PAGE> 104
The Company's success will be dependent to a large degree on its ability to
retain the services of key personnel and to attract additional qualified
personnel in the future. Competition for such personnel is intense. There can be
no assurance that the Company will be able to attract, assimilate or retain key
personnel in the future and the failure of the Company to do so would have a
material adverse affect on the Company's business, financial condition and
results of operations.
FACILITIES
In addition to its laboratory arrangement at the Ben Gurion University,
Solmecs occupies certain laboratory and office space in Omer Industrial Park,
Israel (near Beer-Sheva) pursuant to a two-year lease expiring in November 1999
with a renewal option for an additional three-year period, at an annual rent of
approximately $41,000.
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<PAGE> 105
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Emmanuel Althaus................. 51 Chairman of the Board of Directors
Professor Herman Branover........ 66 President, Chief Executive Officer and Director
Dr. Shaul Lesin.................. 44 Executive Vice President and Secretary
Jacline Bavli.................... 44 Chief Financial Officer
</TABLE>
Mr. Althaus has served as Chairman of the Board of Directors of the Company
since May 1997. He was Vice President and Director of Bayou from March 1990
through November 1996, and is a Director of Solmecs. Since 1986, Mr. Althaus has
been principally employed as Executive Director of National Diversified
Industries (Australia) Pty Ltd., a company that provides administrative services
to public companies. He serves on the board of directors of Golden Triangle
Resources N.L. (of which he is Chairman and Managing Director) and Allegiance
Mining N.L., each of which is a company engaged in mineral exploration the stock
of which is listed on the Australian Stock Exchange.
Professor Branover has served as President, Chief Executive and a director
of the Company since May 1997 and as Scientific Director of Solmecs (Israel)
Ltd. since 1980. He served as Executive Vice President and Director of Bayou
from May 1989 until 1993. He has been principally employed as head of the Center
for MHD Studies of Ben Gurion University since 1981 and as the Lady Davis
Professor of Magnetohydrodynamics at Ben Gurion University since 1978. Professor
Branover received a Ph.D in Technical Sciences from Moscow Aviation Institute in
1962 and a Doctor of Sciences Degree in Physics and Mathematics from Leningrad
Polytechnical Institute in 1969. He was also, for a number of years, an Adjunct
Professor of applied sciences at New York University and served as a visiting
researcher at Argonne National Laboratory in Chicago. Professor Branover has
also served as a director of the Joint Israeli Russian Laboratory for Energy
Research since 1991. He currently serves as an Advisor to Israel's Prime
Minister on immigrant employment and on the use of Russian technologies in
Israel. Professor Branover founded two Israeli high-tech companies, Ontec, Inc.,
in 1991, located in Beer Sheva, and Satec, Inc., in 1987, located in Jerusalem,
both of which have developed commercially viable products for sale in several
foreign countries. Professor Branover is no longer affiliated with either of
those companies.
Dr. Lesin has served as Executive Vice President of the Company since May
1997. Dr. Lesin has held various positions with Solmecs (Israel) Ltd. since
1980, most recently serving as Chief Executive Manager. Dr. Lesin also served as
the Deputy Director of the Joint Israeli Russian Laboratory for Energy Research
since 1991, and as a member of the Board of the Center for MHD Studies of Ben
Gurion University since 1986. He received his Ph.D in Mechanical Engineering
from Ben Gurion University in 1993.
Ms. Bavli has served as Chief Financial Officer of the Company since May
1997. Prior thereto since 1996, she served as Financial and Marketing Manager of
Solmecs (Israel) Ltd. From 1995 to 1996, Ms. Bavli engaged in the private
practice of accounting. From 1990 until 1995, Ms. Bavli held various positions
with Kibbutz Magen, Israel, most recently serving as its Deputy Treasurer.
The Company's directors are elected at the annual meeting of stockholders
to hold office until the annual meeting of stockholders for the ensuing year or
until their successors have been duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
The Underwriter has the right to designate one member to the Company's
board of directors for a period of three years following the Effective Date.
Pursuant to the Acquisition Agreement, the initial directors of the Company
immediately following this offering shall consist of five directors including
Professor Branover and Mr. Althaus as well as a designee of Batei Sefer
Limlacha, one of the Company's principal stockholders, and a designee of the
Underwriter as described immediately above. The fifth director shall be
appointed by the
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<PAGE> 106
Company's board of directors upon the consummation of the Acquisition. Neither
the Underwriter nor Batei Sefer Limlacha has indicated a designee to date.
Effective upon the consummation of this offering, the Company will be the
beneficiary of a key man life insurance policy on the life of Professor Branover
in the amount of $1,000,000.
EXECUTIVE COMPENSATION
The following table sets forth the cost of compensation paid to Professor
Herman Branover, the Company's Chief Executive Officer, by Solmecs, in his
capacity as Scientific Director of Solmecs, for the fiscal years ended June 30,
1995, 1996 and 1997. No executive officer of the Company received aggregate
compensation and bonuses which exceeded $100,000 during such years.
COST OF COMPENSATION SUMMARY TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS($)(1)
ANNUAL COMPENSATION ------------------------
-------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
FISCAL SALARY BONUS COMPENSATION STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARD SARS(#)
- --------------------------- ------ ------- ----- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Professor Herman Branover,
Chief Executive Officer..... 1995 $72,613 $ -- $ -- -- --
1996 40,835(2)
1997 62,361
</TABLE>
- ---------------
(1) The Company did not have any long-term incentive or option plans during the
fiscal years ended June 30, 1995, 1996 or 1997.
(2) During the fiscal year ended June 30, 1996, the Company paid an automobile
allowance to Professor Branover in the amount of $5,500.
EMPLOYMENT AGREEMENTS
Concurrently with the consummation of this offering Solmecs will enter into
employment agreements with Professor Herman Branover, Dr. Shaul Lesin and
Jacline Bavli, the Company's President and Chief Executive Officer, Executive
Vice President and Chief Financial Officer, which provide for annual base
compensation of $98,400, $98,400 and $39,600, respectively, payable in NIS in
accordance with the rate of exchange into U.S. dollars in effect on the date of
payment. The base compensation may be increased from time to time by the Board
of Directors in its sole discretion. In addition, each employee will be entitled
to pension, retirement and severance benefits commonly provided to employees in
Israel.
Solmecs has agreed to provide Messrs. Branover and Lesin with an automobile
and a cellular phone during the term of their employment for which Solmecs shall
pay all expenses. Solmecs has also agreed to pay the costs associated with
maintaining a telephone line in their homes during the course of their
employment with the Company.
Each of the employment agreements contains a confidentiality provision
preventing the employees from disclosing, during the terms of their respective
employment agreements and at any time following the termination of their
employment, any proprietary information of the Company without the Company's
consent. Further, each of the employment agreements contains a provision that
such employee will not directly or indirectly compete or engage in a business
competitive with the Company or solicit the employees or consultants of the
Company for employment in a business in competition with the Company, during the
term of the employment agreement and for a period of one year thereafter.
Pursuant to the terms of the employment agreements the Company has agreed
to indemnify the employee for any claim or liability arising from such
employee's good faith fulfillment of his employment
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<PAGE> 107
obligations provided that the employee: (i) provides the Company with timely
written notice of the claim or liability; (ii) cooperates with the Company in
the defense of the claim and (iii) allows the Company to control defense of the
claim.
The employment agreements for Messrs. Branover and Lesin provide that in
the event of termination other than "for cause" or as a result of a continuing
disability (as defined in the employment agreements) the employee shall be
entitled to: (i) an adjustment grant equal to three months base salary payable
in three equal monthly installments beginning on the first day of the month
following the date of termination; (ii) an additional payment of one month's
base salary for each year in which employee was employed; and (iii) the use of
an automobile and cellular phone for a period of three months following
termination. The Company may not terminate an employee "for cause" unless it has
given the employee (i) written notice of the basis for termination, and (ii) at
least 30 days to cure the basis for such cause.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, fines, amounts paid in settlement and expenses (including
attorneys' fees) actually and reasonably incurred as the result of an action,
suit or proceeding in which they may be involved by reason of having been a
director or officer of the Company. In its Certificate of Incorporation, the
Company has included a provision that limits the personal liability of its
directors to the Company or its stockholders for monetary damages arising from a
breach of their fiduciary duties as directors. This provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of laws, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
The Company's Certificate of Incorporation provides for the Company to
indemnify each director and officer of the Company to the fullest extent
permitted by the DGCL. The foregoing provision may reduce the likelihood of
derivative litigation against directors and may discourage or deter stockholders
or management from suing directors for breaches of their duty of care, even
though such an action, if successful, might otherwise benefit the Company and
its stockholders.
It is the position of the Commission that insofar as the foregoing
provisions may be invoked to disclaim liability for damages arising under the
Securities Act, such provisions are against public policy as expressed in the
Securities Act and are therefore unenforceable.
LIABILITY INSURANCE
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
1997 STOCK OPTION PLAN
In December 1997, the Board of Directors and stockholders of the Company
adopted the 1997 Stock Option Plan (the "Plan"), pursuant to which 200,000
shares of Common Stock are reserved for issuance upon exercise of options. The
Plan is designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
The Company's Board of Directors, or a committee thereof, administers the
Plan and is authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company, including officers and
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<PAGE> 108
directors (whether or not employees) of, and consultants to, the Company. The
Plan provides for the granting of both "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) and non-qualified
stock options. Options can be granted under the Plan on such terms and at such
prices as determined by the Board of Directors, or a committee thereof, except
that the per share exercise price of options will not be less than the fair
market value of the Common Stock on the date of grant. In the case of an
incentive stock option granted to a stockholder who owns stock of the Company
possessing more than 10% of the total combined voting power of all classes of
stock ("10% stockholder"), the per share exercise price will not be less than
110% of such fair market value. The aggregate fair market value (determined on
the date of grant) of the shares covered by incentive stock options granted
under the Plan that become exercisable by a grantee for the first time in any
calendar year is subject to a $100,000 limit.
Options granted under the Plan will be exercisable during the period or
periods specified in each option agreement. Options granted under the Plan are
not exercisable after the expiration of ten years from the date of grant (five
years in the case of incentive stock options granted to a 10% stockholder) and
are not transferable other than by will or by the laws of descent and
distribution.
As of the date of this Prospectus, the Company has not granted any options
under the Plan.
PRINCIPAL STOCKHOLDERS
The following table sets forth information (based on information obtained
from the persons named below) regarding the beneficial ownership of the Common
Stock of the Company as of the date of this Prospectus and as adjusted to give
effect to the Acquisition and to reflect the sale by the Company of the
1,041,044 Units offered hereby, by (i) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each of the Company's executive officers and directors and (iii) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND NATURE ----------------------
OF BENEFICIAL PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING OFFERING
- --------------------------------------- ----------------- -------- --------
<S> <C> <C> <C>
Bayou International, Ltd.(3)
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia............... 499,701 -- 24%
Batei Sefer Limlacha(4)
766 Montgomery Street
Brooklyn, New York 11213.......................... 312,313 58% 15%
HB Capital Ltd.(5).................................. 145,746 27% 7%
Emmanuel Althaus(6)................................. 83,284 15% 4%
All executive officers and directors as a group
(four persons).................................... 229,030 42% 11%
</TABLE>
- ---------------
(1) The address of HB Research Corp. and Mr. Althaus is c/o SCNV Acquisition
Corp., Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from the date of this Prospectus upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that options that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Prospectus have been exercised. Except as otherwise indicated, the
Company believes that each of the persons named has sole voting and
investment power with respect to the shares shown as beneficially owned by
him.
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<PAGE> 109
(3) Inasmuch as, following the consummation of this offering, each of Batei
Sefer Limlacha and the Underwriter have the right to appoint a member of the
Company's Board of Directors and Professor Herman Branover and Mr. Althaus
have the right to be appointed to the Company's Board of Directors, while
Bayou has no such right, the Company does not consider Bayou to be a control
person of the Company. Moreover, Bayou has informed the Company that it has
no intention of seeking or exercising control over the Company.
(4) Batei Sefer Limlacha is a religious corporation organized under the New York
Religious Corporation Law. David Laine is President and trustee and Joseph
Kazin and Benzion Raskin are the remaining trustees. Batei Sefer Limacha may
be deemed to be a "promoter" of the Company as such term is defined under
the Federal Securities Laws.
(5) Professor Herman Branover is the sole shareholder of HB Capital Ltd., an
Irish corporation. Professor Branover and Shmuel Gurfinkel are the
directors. HB Capital Ltd. may be deemed to be a "promoter" of the Company,
as such term is defined under the federal securities laws.
(6) Mr. Althaus may be deemed to be a "promoter" of the Company, as such term is
defined under the federal securities laws.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share. As of the date of this Prospectus, after giving effect to the
Acquisition, there are 1,041,044 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
UNITS
Each Unit consists of one share of Common Stock and one Warrant to purchase
one share of Common Stock. The securities comprising the Units will become
detachable and separately transferable on the date that is three months after
their issuance unless earlier detached pursuant to an agreement between the
Company and the Underwriter.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of Common Stock are
entitled to receive ratably such dividends when, as and if declared by the Board
of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, when issued in exchange for
the consideration set forth in this Prospectus, will be, fully paid and
nonassessable.
The Company has agreed with the Underwriter that it will not issue any
shares of Common Stock for a period of 24 months from the Effective Date without
the written consent of the Underwriter.
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<PAGE> 110
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $7.50,
subject to adjustment in certain circumstances, at any time between
, 1999 and 5:00 p.m., Eastern Time, on , 2003. The
securities comprising the Units will become detachable and separately
transferable on the date that is three months after their issuance, unless
earlier detached pursuant to an agreement between the Company and the
Underwriter.
The Warrants are redeemable by the Company, at any time after becoming
exercisable, upon notice of not less than 30 days, at a price of $.01 per
Warrant, provided that the average of the closing bid quotations of the Common
Stock on any ten trading days ending within five days prior to the day on which
the Company gives notice has been at least $10.00 per share (subject to
adjustment). The Warrant Holders shall have the right to exercise their Warrants
until the close of business on the date fixed for redemption. The Warrants will
be issued in registered form under a warrant agreement by and among the Company,
American Stock Transfer & Trust Company, as warrant agent, and the Underwriter
(the "Warrant Agreement"). The exercise price and number of shares of Common
Stock or other securities issuable on exercise of the Warrants are subject to
adjustment in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part) for a complete description of the
terms and conditions therein (the description herein contained being qualified
in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate
during the exercise period at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to one million shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock. The
Company has agreed with the Underwriters that it will not issue any shares of
Preferred Stock for a period of 24 months from the Effective Date without the
written consent of the Underwriter.
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<PAGE> 111
DIVIDENDS
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The Board of Directors does not intend to declare any dividends in the
foreseeable future, but instead intends to retain earnings, if any, for use in
the Company's business operations.
DELAWARE ANTI-TAKEOVER LAW
Upon the consummation of this offering, the Company will be governed by the
provisions of Section 203 of the DGCL. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the warrant agent for the
Warrants is Continental Stock Transfer & Trust Company.
REPORTS TO STOCKHOLDERS
The Company intends to file a registration statement with the Securities
and Exchange Commission to register its Common Stock and Warrants under the
provisions of Section 12(g) of the Exchange Act prior to the date of this
Prospectus and has agreed with the Underwriter that it will use its best efforts
to continue to maintain such registration. Such registration will require the
Company to comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
24
