U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(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, 1998

               [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to __________________

                         Commission file number: 0-29624

                             SCNV ACQUISITION CORP.
                 (Name of small business issuer in its charter)

          Delaware                                         13-3952659
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)

 Omer Industrial Park, P.O.B. 3026, Omer, Israel             84965
   (Address of principal executive offices)                (Zip Code)

Issuer's telephone number: (972) 7-690-0950

Securities registered under Section 12 (b) of the Exchange Act:

    Title of each class:              Name of each exchange on which registered:
           None                                  Not Applicable

Securities registered under Section 12 (g) of the Act:

  Units, each consisting of one share of Common Stock and one Class A Redeemable
   Warrant

                                (Title of class)

                                  Common Stock
                                (Title of class)

                           Class A Redeemable Warrants
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB. [ ].

The Issuer did not have revenues for the fiscal year ended June 30, 1998.

The  aggregate  market value of the voting and  non-voting  Common Stock held by
non-affiliates  was  approximately  $6,311,329.25 as at the close of business on
September 24, 1998.

The number of shares of Common Stock  outstanding  as at September 24, 1998, was
2,082,088.

Documents incorporated by reference: None


<PAGE>


                             SCNV Acquisition Corp.

                                   Form 10-KSB

                                Table of Contents
                                                                            Page
                                                                            ----

Part I 

ITEM 1    Description of Business...........................................   3

ITEM 2    Description of Property...........................................   9

ITEM 3    Legal Proceedings.................................................   9

ITEM 4    Submission of Matters to a Vote of
          Security Holders..................................................   9

Part II

ITEM 5    Market for Common Equity and Related Stockholder Matters..........   9

ITEM 6    Management's Discussion and Analysis or Plan of Operation.........  10

ITEM 7    Financial Statements..............................................  13

ITEM 8    Changes in and Disagreements With
          Accountants on Accounting and Financial
          Disclosure........................................................  13

Part III

ITEM 9    Directors, Executive Officers, Promoters
          and Control Persons; Compliance with Section
          16 (a) of the Exchange Act........................................  14

ITEM 10   Executive Compensation............................................  15

ITEM 11   Security Ownership of Certain Beneficial Owners and Management....  17

ITEM 12   Certain Relationships and Related Transactions....................  18

ITEM 13   Exhibits and Reports on Form 8-K..................................  19


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<PAGE>


Part I.

ITEM 1.  Description of the Business

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements.  Certain  information  included in this Report
contains  statements that are  forward-looking,  such as statements  relating to
plans for future activities. Such forward-looking information involves known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance or achievements of the Company to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such forward-looking  statements made by or on the behalf of the Company.  These
risks, uncertainties and factors include, but are not limited to, those relating
to the Company's growth strategy,  the ability to hire and retain key personnel,
uncertainty   of  feasibility   of  the  Company's   technologies   and  product
development, uncertainty of market acceptance of the Company's technologies, the
acquisition of Solmecs  Corporation N.V. and its subsidiary,  relationships with
and   dependence  on   third-party   equipment   manufacturers   and  suppliers,
uncertainties  relating to business and economic  conditions in markets in which
the Company  operates,  uncertainties  relating  to  government  and  regulatory
policies  and  other  political   risks,   expansion  and  other  activities  of
competitors,  protection of patents and other proprietary rights and the general
condition  of the economy and its effect on the  securities  markets.  The words
"believe", "expect",  "anticipate",  "intend" and "plan" and similar expressions
identify  forward-looking  statements.  Readers are cautioned not to place undue
reliance on these forward- looking  statements,  which speak only as of the date
the statement was made.

General

SCNV Acquisition Corp., a Delaware  corporation (the "Company")  incorporated on
May 19,  1997,  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.  Since  its  inception  the  Company  has  been  engaged  principally  in
organizational  activities,   including  developing  a  business  plan,  matters
directly  related to the  initial  public  offering  of its  securities  and the
acquisition of an Israel based company (as described  below),  in furtherance of
its business  objectives.  To a lesser  extent,  the Company may seek to develop
technologies invented by scientists from other countries.

Initial Public Offering and Acquisition of Solmecs Corporation N.V.

On July 8, 1998, the Company consummated an initial public offering (the "Public
Offering") of 1,041,044 units (the "Units") each Unit consisting of one share of
common stock,  $.01 par value per share, of the Company (the "Common Stock") and
one Class A redeemable  Common Stock purchase  warrant (the  "Warrants") for net
proceeds to the Company of approximately  $4,600,000.  Contemporaneous  with the
consummation  of the  Public  Offering,  the  Company  acquired,  in a tax  free
stock-for-stock   transaction  (the  "Acquisition"),   all  of  the  issued  and
outstanding  capital  stock  of  Solmecs  Corporation,   N.V.   ("Solmecs"),   a
Netherlands  Antilles company and its wholly-owned  subsidiary  Solmecs (Israel)
Ltd. ("SIL"), the operations of which are located in Israel. (Unless the context
otherwise requires, Solmecs and SIL shall be referred to herein as the "Company"
or "SCNV".)

Solmecs  was  organized  in 1980 to  engage  in the  research,  development  and
commercialization   of  high  energy,  low  pollution  products  in  the  energy
conversion and conservation  fields. 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.

Strategy

The Company's strategy is to identify and exploit innovative  technologies which
represent advances over existing products and technologies.


                                       3
<PAGE>


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.

Technologies Currently Developed by Solmecs

The  Company   intends  to  concentrate  on  the  further   development   and/or
commercialization  of  a  number  of  technologies  identified  by  Solmecs  for
exploitation,  including  technologies  that have begun to be  commercialized as
well as technologies  that the Company believes are ready for  commercialization
in the near  future.  Initially,  the Company  intends to pursue the  commercial
development of: (i)  monocrystals  and (ii)  photo-voltaic  cells for use in the
conversion of solar energy.

o    Monocrystals.  Solmecs,  in  cooperation  with a scientist  in Russia,  has
     identified a potential use of MHD phenomena in the growth of  monocrystals,
     which are among the critical compnents of the electronic chip industry. The
     Company  believes that the  application of MHD methods in the production of
     these  monocrystals  will result in  monocrystals  of large size with fewer
     imperfections  and thus a greater  yield of usable  material  than standard
     methods of production. It is believed that this will substantially increase
     the commercial  value of such  monocrystals.  The Company  intends to apply
     this  method  initially  to  monocrystals  of silicon and  subsequently  to
     monocrystals of gallium-arsenide and  cadmium-telluride,  which the Company
     believes  may  serve as  alternatives  to  silicon  chips  (chips  based on
     monocrystals of silicon) in the computer and electronics  industries.  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 this
     process,  with respect to  monocrystals  of silicon,  will not be ready for
     industrial  application  for at  least  one  year,  and,  with  respect  to
     monocrystals of gallium-arsenice and  cadmium-telluride,  will not be ready
     for industrial application for at least two years.

     The Company has identified equipment required for the  commercialization of
     monocrystals and has commenced  negotiations with potential  manufacturers.
     Initally,  the Company  intends to purchase two systems for growing silicon
     monocrystals and anticipates that it will modify the purchased equipment in
     order to apply the MHD methods to the growth process.


                                       4

<PAGE>


o    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.

     In February  1998,  Solmecs,  through its subsidiary  SIL,  entered into an
     arrangement with a Russian  manufacturer  pursuant to which Solmecs 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.

     Solmecs  had limited  sales of  photovoltaic  cells  during the fiscal year
     ended June 30, 1998.

     The Company has commenced  negotiations  for the purchase of  photo-voltaic
     cell equipment and technology from a company in Russia, formerly a supplier
     of Russian made space  stations,  including Mir, and intends to establish a
     complete production line in Israel which may utilize silicon  monocrystals.
     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.

Another  technology  which is at or near the  commercialization  stage which the
Company may pursue for further  development in the future is the  solar/electric
hot water  tank  control/display  system  developed  by  Solmecs,  the system is
comprised  of 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 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.

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.

Neither Solmecs nor the Company has begun to commercially  produce the hot water
tank control/display system. Consequently there have been no sales of the system
through June 30, 1998.

Furthermore, after testing market feasability, the Company has determined not to
pursue  further  development  of the  plasma-chemically  treated  rubber  gasket
technology at this time.

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


                                       5
<PAGE>


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.

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.

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

The Company has identified various Solmecs and non-Solmecs technologies, some of
which involve LMMHD technology, for potential acquisition and development in the
future. These technologies include,  among others, new types of energy efficient
centrifugal pumps for chemical and other  industries;  new methods of prediction
of dispersion of contaminants in the  atmosphere;  extraction of  carbon-dioxide
from combustion  gases;  enhancement of boiler  efficiency and  productivity and
treatment of fertilizer to remove infectious bacteria.

There can be no assurance  that the Company will be able to obtain the necessary
rights to exploit the foregoing  technologies or that any such technologies will
prove technologically or commercially viable.

Consulting Services

Solmecs  recently  developed a pumping system based on a conductive MHD pump for
use in magnesium  handling for the Israeli  Dead Sea Works  Industry  ("Dead Sea
Works").  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.  In  February  1998,  Solmecs was  approached  by an entity
affiliated  with the  Nuclear  Center of United  Europe  ("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. Thereafter,  Solmecs and such affiliate entered into an agreement
whereby Solmecs provided CERN with data on LMMHD related technology for possible
use in  connection  with the  proposed  power plant.  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.

Intellectual Property

Solmecs  currently owns five Israeli patents  relating to the LMMHD  technology.
All of such patents have  corresponding  patents registered in the United States
(one in the name of Ben-Gurion University of the


                                       6
<PAGE>


Negev  Research and  Development  Authority),  and a number of such patents have
corresponding  patents  registered  in one or more  other  countries,  including
Australia, Canada, France, Germany, Great Britain, Italy and Japan. In addition,
Solmecs owns a United States patent, not registered  elsewhere,  relating to the
LMMHD technology, and an Israeli patent, not registered elsewhere, relating to a
device for voltage  conversion  which can be used in conjunction  with the LMMHD
technology.  Three of such patents expire during the next five years,  beginning
in April 1999.  The Company does not believe that the expiration of such patents
will have a material  adverse  effect on the  Company's  business;  however,  no
assurance can be given in that regard.

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 June 30, 1998,  this  liability  amounted to
approximately  $321,000  (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.  As of June 30,  1998,  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
June  30,  1998,  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
through June 30, 1998.

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 short product  lifecycles.
Accordingly, the ability of the Company to compete will depend on its ability


                                       7
<PAGE>


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

As of June 30, 1998,  Solmecs had 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 next two fiscal years.  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 and, subsequent to the Acquisition, to be
continued by the Company,  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.


                                       8
<PAGE>


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.

ITEM 2.  Description of Property

Solmecs no longer maintains office space on the campus of Ben Gurion University.
Solmecs, however, has been permitted to utilize the laboratory facilities and to
access the LMMHD pilot plants,  which are maintained on the campus of Ben Gurion
University, free of charge.

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.

ITEM 3. Legal Proceedings

No legal proceedings are currently pending against the Company.

ITEM 4. Submissions of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Company's security holders during the
year ended June 30, 1998.

Part II

ITEM 5. Market for Common Equity and Related Stockholder Matters

The Company's Units, Common Stock and Warrants, are traded on the OTC Electronic
Bulletin  Board  under the  symbols  SAQCU,  SAQC and SAQCW,  respectively.  The
Company's Registration Statement (SEC File No. 333-43955) registering the Units,
Common Stock and Warrants was declared  effective by the Securities and Exchange
Commission on June 29, 1998 and trading in the Units commenced on June 30, 1998,
the final day of the Company's  fiscal year.  The Common Stock and Warrants were
detached  from the Units and became  separately  transferrable  on September 29,
1998.  The Units were offered and sold to the public at $5.75 per Unit. The high
and low quotations  expressed below reflect the quotations for the one day (June
30,  1998) on which  trading in the Units took place and  constitute  quotations
among dealers and do not reflect retail mark-ups, markdowns, or commissions, and
may not represent actual retail transactions:

Year Ended June 30, 1998              High           Low
------------------------              -----         -----
Fourth Quarter                        $6.00         $6.00

As of September 24, 1998 there were 2,082,088 shares of Common Stock outstanding
and held of record by approximately 5 stockholders.

The payment of dividends on the Company's  common stock is within the discretion
of the  Company's  Board of  Directors.  To date,  the  Company has not paid any
dividends on its common  stock,  and does not expect to pay any dividends in the
foreseeable  future.  The Company  intends to retain all earnings for use in the
Company's operations.

The securities  (1,041,044  Units,  each Unit  consisting of one share of Common
Stock and one  Warrant  exercisable  to  purchase  one  share of  Common  Stock)
registered in the Public Offering were offered and sold on behalf of the Company
by  Patterson  Travis,  Inc.,  the  underwriter  ("Underwriter")  of the  Public
Offering,   resulting  in  gross  proceeds  to  the  Company  of   approximately
$5,986,000.  The Company incurred the following  expenses in connection with the
Public Offering: (i) underwriting discounts and


                                       9
<PAGE>


commissions of  approximately  $598,600;  (ii)  non-accountable  expenses to the
Underwriter of approximately  $179,600; and (iii) other expenses including,  but
not  limited to,  legal,  accounting  and  printing  expenses  of  approximately
$640,000.

From the effective date of the Company's registration statement on June 29, 1998
until the end of the Company's fiscal year on June 30, 1998, the Company did not
use any of the net proceeds  from the Public  Offering.  Thereafter,  on July 8,
1998 (the closing date of the Public Offering) the Company applied approximately
$391,000 of net proceeds  toward the repayment of  indebtedness  of Solmecs to a
stockholder of the Company. The Company also repaid approximately  $110,000 owed
to such stockholder for monies advanced for pre-offering  expenses. As of August
31, 1998 the Company  has  applied the balance of net  proceeds  from the Public
Offering as follows: (i) approximately  $19,000 to market research and marketing
activities;  (ii)  approximately  $80,500 to  research  and  development;  (iii)
approximately  $60,000 to repayment of a short term, non  interest-bearing  loan
incurred after March 31, 1998;  (iv)  approximately  $182,000 to repayment of an
existing credit line facility, approximately $90,000 of which was incurred after
March 31, 1998,  and which allows for future  borrowing by the Company;  and (v)
approximately $90,200 to working capital and general corporation purposes.

The  Company  did not sell any  unregistered  securities  during the fiscal year
ended June 30, 1998.  On July 8, 1998,  contemporaneous  with the closing of the
Public Offering, the Company acquired in a tax free stock-for-stock transaction,
all of the issued and  outstanding  capital stock of Solmecs and its  subsidiary
SIL from Bayou  International  Ltd. ("Bayou") and issued to Bayou 499,701 shares
of unregistered Common Stock of the Company.

ITEM 6. Management's Discussion and Analysis or Plan of Operation

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  acquired  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, matters related
to the Public Offering and negotiating an agreement relating to the Acquisition.
As of June 30, 1998, the Company did not have any operations.

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,  photovoltaic  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 $14,222,626 at June 30,
1998.  The rate of loss is 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.


                                       10
<PAGE>


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.

Completion of the research,  development and  commercialization of the Company's
technologies  or any potential  application  of such  technologies  will require
significant   additional   effort,   resources  and  time,   including   funding
substantially  greater than the proceeds  otherwise  currently  available to the
Company.  Such research and  development  efforts  remain  subject to all of the
risks  associated  with the  development  of new products  based on emerging and
innovative technologies,  including, without limitation, unanticipated technical
or other  problems  and the  possible  insufficiency  of the funds  allocated to
complete  such  development,   which  could  result  in  delay  of  research  or
development  or substantial  change or  abandonment of research and  development
activities.

Results of Operations of Solmecs

The  consolidated  statements of income and other  financial and operating  data
contained  elsewhere  herein and the  consolidated  balance  sheet and financial
results have been reflected in U.S. dollars unless otherwise stated.

Fiscal Year Ended June 30, 1998 Compared with Fiscal Year Ended June 30, 1997

Total Revenues.  Total revenues were essentially  unchanged,  at $57,910 for the
fiscal year ended June 30,  1998,  compared to $57,276 for the fiscal year ended
June 30, 1997. The decrease in sales of photovoltaic cells and panels was offset
by the income generated by the Dead Sea Works and CERN projects.

Research  and  Development  Costs and Cost of  Contract  Services  Performed  by
Subcontractors.  Research,  development and contract services costs increased by
$19,462 or 7% to $295,721 for the fiscal year ended June 30,  1998,  compared to
$276,259 for the fiscal year ended June 30, 1997. The increase is due to (i) the
retention of  subcontractors  in connection  with the "Dead Sea Works"  Project,
(ii) the increase in consultants for new projects' feasibility testing and (iii)
the  increase  in fees  associated  with the leasing of new  facilities  in Omer
Industrial  Park.  Such increase was partially  offset from  reimbursement  by a
Norwegian  company  of  expenses  incurred  by the  Company in  connection  with
preliminary  research performed on carbon dioxide extraction  processes pursuant
to a joint venture letter of intent.

Cost of  Merchandise  Purchased.  Costs of  merchandise  purchased  decreased by
$40,448 or 83% to $8,190 for the fiscal year ended June 30,  1998,  from $48,638
for the fiscal year ended June 30,  1997.  The decrease is  attributable  to the
decrease in sales of photovoltaic cells and panels.

Marketing,   General  and  Administrative  Expenses.   Marketing,   general  and
administrative  expenses increased by $140,819 or 54% to $404,038 for the fiscal
year ended June 30, 1998, from $263,219 for the fiscal year ended June 30, 1997.
This  increase  was  primarily  attributable  to (i) foreign  travel  related to
investigating market feasibility of new products and technologies; (ii) salaries
and related  expenses  resulting  from an  allocation  of personnel to marketing
positions as a part of Solmecs' efforts to improve sales of commercially  viable
technologies;  (iii)  professional  fees  associated  with services  rendered to
Solmecs;  and (iv) fees  associated  with the leasing of new  facilities in Omer
Industrial Park.


                                       11
<PAGE>


Operating Loss.  Operating Loss increased by $119,199 or 22% to $650,039 for the
fiscal year ended June 30, 1998 from $530,840 for the fiscal year ended June 30,
1997. The increase in operating loss is  attributable to an increase in expenses
as set forth above.

Financing  Expenses,  Net.  Financing  expenses of $419,711  for the fiscal year
ended  June 30,  1998,  and  $390,484  for the fiscal  year ended June 30,  1997
primarily  related to the charge for the imputed  interest,  at a rate of 8%, in
connection with the loan from its parent  company.  The difference of $29,227 is
attributable  to (i) an  increase  in  interest  resulting  from an  increase in
principal of the loan from the parent  company,  and (ii) the  interest  paid on
short term borrowing.

Net Loss. As a result of the  foregoing,  net loss increased by $148,426 or 16%,
to  $1,069,750  for the fiscal  year ended June 30, 1998 from  $921,324  for the
fiscal year ended June 30, 1997.

Liquidity and Capital Resources

As of June 30,  1998,  Solmecs  had a working  capital  deficit of  $738,370,  a
stockholders'   deficiency  of  $5,927,671   and  an   accumulated   deficit  of
$14,222,626.   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  was forgiven prior to the  consummation of the
Acquisition.

As of June 30, 1998 the Company had a pro forma, as adjusted, working capital of
$3,867,105 and stockholders'  equity of $3,760,701.  The foregoing pro forma, as
adjusted,  information gives effect to the following: (i) the Acquisition;  (ii)
the forgiveness by Bayou of a loan to Solmecs of $5,082,897;  (iii) the one-time
write-off of acquired  research and  development in process of $3,718,054;  (iv)
the return of Bayou's shares held by Solmecs,  which  amounted to $500,000;  (v)
the payment of approximately  $120,000 to officers in accordance with employment
agreements; (vi) the elimination of imputed interest on the forgiven Bayou loan;
(vii)  the  Public  Offering  resulting  in  net  proceeds  to  the  Company  of
approximately $4,600,000; and (viii) the repayment of indebtedness in the amount
of $451,300.

During the period from inception through June 30, 1998, Batei Sefer Limlacha,  a
principal stockholder of the Company, loaned to the Company $110,108 for working
capital  purposes  and agreed  that such loans were to become due and payable on
the  earlier of  December  31,  1998 or the  consummation  of  certain  types of
transactions,  including the Public Offering. Such loans were unsecured and were
interest free except in the event of default by Solmecs.

During the period  from  September  1997  through  June 30,  1998,  Batei  Sefer
Limlacha loaned to Solmecs $375,000 for working capital purposes and agreed with
Solmecs  that such loans  were to become due and  payable on earlier of June 30,
1998 or the  consummation  of  certain  types  of  transactions,  including  the
Acquisition.  Such loans were  unsecured and bore interest at the rate of 8% per
annum.  On June 23, 1998 Batei Sefer  Limlacha  agreed to extend the term of the
loans through the earlier of July 31, 1998 or the  consummation of certain types
of transactions, including the Public Offering.

The loans from Batei Sefer  Limlacha  were repaid in full by the Company on July
8, 1998.

In April,  1998,  Solmecs  (Israel) Ltd.  obtained a line of credit  facility of
approximately  $270,000  from an Israeli bank allowing for overdraft for working
capital  purposes.  The line of credit  facility is secured by a fixed charge on
Solmecs  (Israel)  Ltd.'s  uncalled  share  capital and  goodwill and a floating
charge on all of its present and future acquired property and rights. As of June
30, 1998, Solmecs (Israel) Ltd. had drawn approximately  $182,000 under the line
of credit facility.

In April,  1998,  Solmecs  obtained a loan of $60,000  from an  unrelated  third
party.  The loan did not bear interest and was repaid on the consummation of the
Public Offering.

On July 8, 1998 the Company  consummated  the Public Offering of 1,041,044 Units
consisting  of Common  Stock and  Warrants  for net  proceeds  to the Company of
approximately $4,600,000 after expenses of the offering.


                                       12
<PAGE>


The Company's capital requirements will be significant. The Company is dependent
upon the  proceeds  of the Public  Offering  to finance  the  operations  of the
Company,  including  the  costs of market  research  and  marketing  activities,
continued   research  and  development   efforts,   establishing   manufacturing
capabilities and the acquisition of intellectual  property  rights.  The Company
anticipates,  based on management's  internal forecasts and assumptions relating
to its operations  (including  assumptions  regarding the timing and progress of
the Company's  technologies),  that the net proceeds of the Public Offering will
be sufficient to satisfy the Company's  contemplated  cash  requirements  for at
least 12 months following the consummation of the Public Offering.  In the event
that the Company's plans change, its assumptions change or prove inaccurate,  or
if the  proceeds  of the  Public  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 the Public  Offering and  otherwise
currently  available to the  Company.  Moreover,  the  proceeds  received in the
Public 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.

Inflation

In the 1990's the economy of Israel experienced  significant  expansion.  During
calendar  years 1992 through  1997,  Israel's  gross  domestic  product  ("GDP")
increased by 6.2%, 6.7%, 3.4%,  6.5%, 6.8% and 2.1%  (estimated),  respectively.
The Israeli  Government's  monetary  policy  contributed  to relative  price and
exchange rate stability during most of these years despite  fluctuating rates of
economic  growth and a high rate of  unemployment.  The inflation rate for 1994,
1995,  1996 and 1997 was 14.5%,  8.1%,  10.6% and 7.0%,  respectively.  Although
during 1997 the rate of devaluation  of the NIS against the dollar  exceeded the
rate of inflation in Israel,  for the several years  preceding  1997 the rate of
inflation  in Israel  exceeded  the rate of  devaluation  of the NIS against the
dollar.

Israel's economy has been subject to numerous destabilizing factors, including a
period of rampant  inflation in the early to  mid-1980's,  low foreign  exchange
reserves,  fluctuations in world commodity prices,  military conflicts and civil
unrest. In response to these problems,  the Israeli Government has intervened in
various  sectors  of the  economy,  employing,  among  other  means,  fiscal and
monetary policies,  import duties, foreign currency restrictions and controls of
wages,  prices and foreign  currency  exchange  rates.  The  Israeli  Government
frequently has changed its policies in all these areas.

ITEM 7. Financial Statements

The  Consolidated  Financial  Statements of the Company appear herein  following
Item 13 below.

ITEM  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

There were no changes in and/or disagreements with accountants on accounting and
financial disclosure during the fiscal year ended June 30, 1998.


                                       13
<PAGE>


Part III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act

The table  below  sets forth the name,  age and  certain  information  as to the
Directors and executive officers of the Company.

Name                        Age  Position
----                        ---  --------
Emmanuel Althaus            52   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

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.


                                       14
<PAGE>


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.

Patterson  Travis,  Inc.,  the  Underwriter  of the Company's  securities in the
Public  Offering has the right to designate one member to the Company's board of
directors for a period ending June 29, 2001. The Acquisition  Agreement executed
in connection  with the Acquisition  provided that the initial  directors of the
Company  after  the  Acquisition  would  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  would  be
appointed by the Company's board of directors. Neither the Underwriter nor Batei
Sefer Limlacha has indicated a designee to date.

Compliance with Section 16(a) of the Securities Exchange Act

Section  16(a)  of  the  Securities  Exchange  Act  of  1934,  as  amended  (the
"Securities Exchange Act"),  requires the Company's officers and directors,  and
persons  who own more than 10 percent  of a  registered  class of the  Company's
equity  securities,  to file reports of ownership and changes in ownership  with
the Securities and Exchange Commission ("SEC"). Officers, directors, and greater
than 10 percent  shareholders  are  required  by SEC  regulation  to furnish the
Company with copies of all Section 16(a) forms they file.

Based solely on the Company's review of the copies of such forms received by the
Company,  the Company  believes  that,  during the year ended June 30, 1998, all
filing requirements applicable to its officers,  directors,  and greater than 10
percent  beneficial  owners  were  complied  with  except  that  Forms 3 for the
officers and  directors  of the Company  were filed one day after the  effective
date of the Company's  registration under the Securities Exchange Act and a Form
3 for Batei Sefer Limlacha  reporting its percentage  ownership of the Company's
Common  Stock was filed  three days after the  effective  date of the  Company's
registration under the Securities Exchange Act.

ITEM 10. Executive Compensation

Officers Salaries

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, 1996, 1997
and 1998. 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
                                                               Annual Compensation                     Compensation Awards($)(1)
                                                    ------------------------------------------       ---------------------------
                                                                                                                      Securities
                                                                                  Other Annual       Restricted       Underlying
                                      Fiscal        Salary                        Compensation         Stock           Options/
Name and Principal Position            Year         ($)(2)        Bonus($)            ($)              Award            SARs(#)
---------------------------            ----         ------        --------            ---              -----            -------
<S>                                    <C>         <C>              <C>              <C>                <C>                <C>     

Professor Herman Branover,                        
Chief Executive Officer..........      1996        $40,835          $ --             $ --               --                 --
                                       1997         62,361
                                       1998         57,780
</TABLE>

----------
(1)  The Company did not have any long-term incentive or option plans during the
     fiscal  years  ended June 30, 1996 or 1997.  The  Company  adopted its 1997
     Stock  Option Plan in December  1997.  To date no options have been granted
     pursuant to such plan.


                                       15
<PAGE>


(2)  During the fiscal  years ended June 30,  1996,  1997 and 1998,  the Company
     paid an  automobile  allowance  to  Professor  Branover  in the  amount  of
     approximately $5,500, $8,200 and $6,900, respectively.

Employment Agreements

On July 8, 1998 Solmecs entered 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,
Solmecs will  contribute  on behalf of each employee an amount equal to 15.8% of
such employee's salary to a fund known as "Manager's Insurance" and 7.5% of such
employee's  salary  to a fund  known  as  "Education  Fund."  See  "Business  --
Employees."

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 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.

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


                                       16
<PAGE>


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 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 June 30, 1998, the Company had not granted any options under the Plan.

ITEM 11 Security Ownership of Certain Beneficial Owners and Management

The following  table sets forth,  as of September 24, 1998, the number of shares
of the  Company's  outstanding  Common  Stock  beneficially  owned  by (i)  each
director  of the  Company;  (ii)  each  person  who is known by the  Company  to
beneficially own 5% or more of the outstanding  Common Stock;  (iii) each of the
persons named in the Summary  Compensation Table (the "Named  Executives");  and
(iv) all of the Company's  directors and executive officers as a group (based on
information  furnished  by  such  persons).   Unless  otherwise  indicated,  the
beneficial  owners  exercise  sole  voting  and/or  investment  power over their
shares.


                                              Amount and Nature
                                                     of           Percentage of
                                                  Beneficial       Outstanding
Name and Address of Beneficial Owner(1)         Ownership(2 )        Shares
---------------------------------------         -------------        ------
Bayou International, Ltd.                        499,701             24%
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia

Batei Sefer Limlacha(3)                          312,313             15%
766 Montgomery Street
Brooklyn, New York  11213

H.B. Capital Ltd.(4)                             145,746              7%

Emmanuel Althaus(5)                               83,284              4%

All executive officers and directors as a
group (four persons)                             229,030             11%

----------
(1)  The address of HB Research Corp.  and Mr.  Althaus is c/o SCNV  Acquisition
     Corp.,


                                       17
<PAGE>


     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  Report  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 Report 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.

(3)  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
     Limlacha  may be deemed to be a  "promoter"  of the Company as such term is
     defined under the Federal Securities Laws.

(4)  Professor  Herman Branover is the sole shareholder of H.B. Capital Ltd., an
     Irish  corporation.   Professor  Branover  and  Shmuel  Gurfinkel  are  the
     directors.  H.B.  Capital  Ltd.  may be  deemed to be a  "promoter"  of the
     Company, as such term is defined under the federal securities laws.

(5)  Mr.  Althaus may be deemed to be a "promoter" of the Company,  as such term
     is defined under the federal securities laws.

ITEM 12. Certain Relationships and Related Transactions

In May 1997, the Company issued 145,746 shares of Common Stock, 83,284 shares of
Common Stock and 312,313 shares of Common Stock to H.B.  Capital Ltd.,  Emmanuel
Althaus  and Batei Sefer  Limlacha,  respectively,  for  nominal  consideration.
Emmanuel  Althaus,  the Chairman of the Board of Directors of the Company,  is a
Director of Solmecs and was the Vice  President and Director of Bayou from March
1990 through November 1996.

Simultaneously  with  the  consummation  of the  Public  Offering,  the  Company
acquired all of the issued and outstanding capital stock of Solmecs.  Bayou, the
current parent of Solmecs, received 499,701 shares of the Company's Common Stock
in connection with the Acquisition.  In connection with the  Acquisition,  Bayou
forgave  indebtedness  of  Solmecs  in the  amount,  as of  June  30,  1998,  of
$5,082,897 as a capital  contribution.  The 499,701  shares issued to Bayou were
not registered in the Offering but are subject to certain registration rights to
be granted by the Company.

During the period from inception through June 30, 1998, Batei Sefer Limlacha,  a
principal stockholder of the Company, loaned to the Company $110,108 for working
capital  purposes  and agreed  that such loans were to become due and payable on
the  earlier of  December  31,  1998 or the  consummation  of  certain  types of
transactions,  including the Public Offering. Such loans were unsecured and were
interest free except in an event of default.

During the period  from  September  1997  through  June 30,  1998,  Batei  Sefer
Limlacha loaned to Solmecs $375,000 for working capital purposes and agreed with
Solmecs  that such loans were to become due and  payable on the  earlier of June
30, 1998 or the  consummation  of certain types of  transactions,  including the
Acquisition.  Such loans were  unsecured and bore interest at the rate of 8% per
annum.  On June 23, 1998,  Batei Sefer Limlacha agreed to extend the term of the
loans through the earlier of July 31, 1998 or the  consummation of certain types
of  transactions,  including  the Public  Offering.

The loans from Batei Sefer  Limlacha  were repaid in full by the Company on July
8, 1998.


                                       18
<PAGE>


ITEM 13. Exhibits, Lists and Reports on Form 8-K

     (a)  Financial Statements

          See  list of Financial Statements on F-1.

     (b)  Reports on Forms 8-K and 8-K/A

          The Company did not file any reports with the  Securities and Exchange
          Commission on Form 8-K for the year ended June 30, 1998.

     (c)  Exhibits

     3.1       Certificate of Incorporation of the Registrant.(1)

     3.3       Bylaws of the Registrant.(1)

     4.1       Form of Registrant's Common Stock Certificate.(1)
 
     4.3       Form of Registrant's Public Warrant Certificate.(1)

     4.4       Form of Registrants Unit Certificate.(1)

     10.1      Form of Stock Purchase  Agreement between SCNV Acquisition Corp.,
               Solmecs Corporation, N.V. and Bayou International Ltd.(1)
     
     10.2      Agreement,  dated  as of June 4,  1980  by and  between  Advanced
               Products  Beer Sheva Ltd.  (AP) and the Ben Gurion  University of
               the Negar (The Research and  Development  Authority)  and Solmecs
               Corporation N.V.(1)

     10.3      Agreement,  dated  as of  March  31,  1981,  by and  between  the
               Government of Israel Ministry of Energy and  Infrastructure,  the
               Ben Gurion  University of the Negev (The Research and Development
               Authority  - RDA) and  Advanced  Products  Beer  Sheva  Ltd.  and
               Solmecs (Israel) Ltd. and Solmecs Corporation N.V.(1)
     
     10.4      Agreement,  dated as of November 5, 1981 by and between  Advanced
               Products  Beer Sheva Ltd.  (AP) and the Ben Gurion  University of
               the Negev (The Research and Development Authority) (RDA), Solmecs
               Corporation N.V. and Solmecs Corporation (U.K) Limited.(1)
     
     10.5      Agreement,   dated  as  of  January   25,  1990  by  and  between
               International Lead Zinc Research  Organization,  Inc. and Solmecs
               (Israel) Ltd.(1)
     
     10.6      Agreement, dated as of March 7, 1991 by and between International
               Lead  Zinc  Research  Organization,  Inc.  and  Solmecs  (Israel)
               Ltd.(1)

     10.7      Agreement,  dated as of June 9, 1997 by and between the Institute
               of Physics in Riga, Latvia and Solmecs (Israel) Ltd.(1)

     10.8      Agreement,  effective  as of September  30, 1997,  by and between
               Solmecs Corporation N.V. and Batei Sefer Limlacha.(1)

     10.9      Agreement,  effective  as of September  30, 1997,  by and between
               Registrant and Batei Sefer Limlacha.(1)

     10.10     Agreement,  dated as of  January 1, 1998 by and  between  Solmecs
               (Israel) Ltd. and Leon Aprimov.(1)
     
     10.11     Lease by and  between  Tefen  Entrepreneurship  Ltd.  and Solmecs
               (Israel) Ltd. dated October 14, 1997.(1)

     10.12     Form of Employment  Agreement  between  Registrant  and Professor
               Herman Branover.(1)

     10.13     Form of Employment  Agreement  between  Registrant  and Dr. Shaul
               Lesin.(1)

     10.14     Form of  Employment  Agreement  between  Registrant  and  Jacline
               Bavli.(1)


                                       19
<PAGE>


     10.15     1997 Stock Option Plan.(1)

     27        Financial Data Schedule (for SEC use only).

----------

(1)  Incorporated  by  reference  to  the  comparable  exhibit  filed  with  the
     Company's Registration Statement on Form SB-2, File No. 333-43955.


                                       20
<PAGE>


                                   SIGNATURES

     In  accordance  with  the  requirements  of  Section  13 or  15(d)  of  the
Securities  Exchange Act of 1934,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

                                       SCNV ACQUISITION CORP.


                                       By: /s/ Herman Branover
                                           ----------------------------------
                                           Herman Branover
                                           President, Chief Executive Officer
                                           and Director






                                POWER OF ATTORNEY

     In accordance with the requirements of the Securities Exchange Act of 1934,
this  registration  statement  has been signed by the  following  persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
          Signatures                              Title(s)                                  Date
          ----------                              --------                                  ----


<S>                                     <C>                                         <C> 
/s/ Emmanuel Althaus                    Chairman of the Board of Directors          September 28, 1998
-------------------------------------
Emmanuel Althaus

/s/ Herman Branover                     President, Chief Executive Officer          September 28, 1998
-------------------------------------   and Director
Herman Branover                         

/s/ Shaul Lesin                         Executive Vice President                    September 28, 1998
-------------------------------------   
Shaul Lesin

/s/ Jacline Bavli                       Chief Financial Officer                     September 28, 1998
-------------------------------------   
Jacline Bavli

</TABLE>


                                       21

<PAGE>


                             SCNV ACQUISITION CORP.

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
SCNV Acquisition Corp.

Report of Independent Public Accountants                                     F-2

Balance Sheet as of June 30, 1998                                            F-3

Notes to the Financial Statements                                            F-4

Solmecs Corporation N.V.

Report of Independent Public Accountants                                    F-8

Consolidated Balance Sheet as of June 30, 1998                               F-9

Consolidated Statements of Operations for the years ended                
  June 30, 1997 and 1998                                                    F-10

Consolidated Statements of Changes in Shareholders' Deficiency for
  the years ended June 30, 1997 and 1998                                    F-11

Consolidated Statements of Cash Flows for the years ended
  June 30, 1997 and 1998                                                    F-12

Notes to the Consolidated Financial Statements                              F-13


                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To SCNV Acquisition Corp.:


     We have audited the accompanying balance sheet of SCNV Acquisition Corp. (a
Delaware  Corporation)  as of June 30,  1998.  This  financial  statement is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this balance sheet based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  balance  sheet  is free of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in the  balance  sheet.  An audit also  includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the balance sheet referred to above presents fairly, in all
material  respects,  the financial position of SCNV Acquisition Corp. as of June
30, 1998, in conformity with generally accepted accounting principles.


                                                Arthur Andersen LLP



New York, New York
September 17, 1998


                                      F-2
<PAGE>


                             SCNV ACQUISITION CORP.

                                  BALANCE SHEET


                                                                        June 30,
                                                                         1998
                                                                        --------

                                     ASSETS

CURRENT ASSETS
  Deferred public offering costs                                        $609,940
                                                                        --------
          Total assets                                                  $609,940
                                                                        ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accrued expenses                                                      $444,755
  Sundry payables                                                         47,485
  Stockholder loan                                                       110,108
                                                                        --------
          Total current liabilities                                      602,348


STOCKHOLDERS' EQUITY
  Preferred stock $.01 par
    value, 1,000,000 shares
    authorized;  none issued and
    outstanding                                                               --
  Common stock $.01 par value,
    10,000,000 shares authorized;
    541,343 shares issued and
    outstanding                                                            5,413
  Additional paid-in-capital                                               2,179
                                                                        --------
          Total stockholders'
            equity                                                         7,592
                                                                        --------
          Total liabilities and
            stockholders' equity                                        $609,940
                                                                        ========
       


The accompanying notes are an integral part of this balance sheet.


                                      F-3
<PAGE>


                             SCNV ACQUISITION CORP.
 
                       NOTES TO THE FINANCIAL STATEMENTS

Note 1 -       GENERAL

               SCNV  Acquisition  Corp.  (the "Company") was organized under the
               laws of the State of Delaware on May 19, 1997, to acquire Solmecs
               Corporation N.V. and its wholly owned subsidiary Solmecs (Israel)
               Ltd. ("Solmecs") and to select,  develop and commercially exploit
               proprietary  technologies,  in  various  stages  of  development,
               invented primarily by scientists who have recently  immigrated to
               Israel from,  and by scientists  and  institutions in, Russia and
               other  countries  that formerly  comprised  the Soviet Union.  To
               date, the Company has not had any operations.


Note 2 -       SUBSEQUENT EVENTS

               a.   Initial Public Offering

                    Subsequent  to  year  end,  on  July  8,  1998  the  Company
                    consummated an Initial Public  Offering (the "IPO") in which
                    1,041,044  Units,  composed  of  1,041,044  shares of Common
                    Stock  and  1,041,044   redeemable   Common  Stock  purchase
                    warrants ("Warrants"),  were sold to the public at $5.75 per
                    Unit. Each Warrant entitles the holder to purchase one share
                    of Common Stock at a price of $7.50,  subject to  adjustment
                    in certain  circumstances,  at any time during the four-year
                    period  commencing  June 29, 1999. The net proceeds from the
                    IPO were approximately $4,600,000.

                    In  addition,  the Company  sold to the  underwriter  for an
                    aggregate  of  $104,  warrants  to  purchase  an  additional
                    104,104 Units at an exercise  price of 120% of the IPO price
                    per   unit   ($6.90)   ("Underwriter's    Warrants").    The
                    Underwriter's  Warrants are  exercisable  at any time during
                    the four-year period commencing June 29, 1999.

               b.   Acquisition of Solmecs

                    Simultaneously with the consummation of the IPO, the Company
                    acquired all of the issued and outstanding  capital stock of
                    Solmecs in consideration for 499,701 shares of the Company's
                    Common Stock issued to Bayou International,  Ltd. ("Bayou"),
                    the parent of Solmecs.  The  acquisition  has been accounted
                    for as a purchase.  The excess of  purchase  price over fair
                    value of assets  acquired of $3,718,054 will be reflected as
                    acquired  research  and  development  in  process  and fully
                    expensed  at the  date  of  the  acquisition.  Solmecs,  the
                    operations  of which are  located  in Israel,  owns  certain
                    technologies  developed by it in the past. The  technologies
                    of Solmecs and certain offshoots of such technologies are in
                    various stages of development and include  technologies that
                    have begun to be commercialized as well as technologies that
                    the Company believes will be ready for  commercialization in
                    the near future.


                                      F-4
<PAGE>


                             SCNV ACQUISITION CORP.

                  NOTES TO THE FINANCIAL STATEMENTS (Continued)


Note 3 -       PRO FORMA FINANCIAL STATEMENTS (Unaudited)

               The following  Unaudited Pro Forma Consolidated  Balance Sheet as
               of  June  30,  1998  and Pro  Forma  Consolidated  Statements  of
               Operations  for the years  ended June 30, 1998 and 1997 have been
               prepared  to reflect  the  combined  financial  position  and the
               results  of  the  Company  and  Solmecs  as if  the  Combination,
               described  in Note 2b, had been  effective  as of June 30,  1998,
               July 1, 1997, and July 1, 1996,  respectively.  The Unaudited Pro
               Forma As Adjusted  Consolidated Balance Sheet as of June 30, 1998
               has been prepared to reflect both the  Combination and the IPO as
               if they had been  effective as of June 30,  1998.  Such pro forma
               information gives effect to:

               (a)  The  acquisition  of Solmecs in  consideration  for  499,701
                    shares of the  Company's  common stock issued to Bayou for a
                    purchase price of $2,873,280.

               (b)  The forgiveness by Bayou of a loan to Solmecs of $5,082,897.

               (c)  The return of Bayou's shares held by Solmecs, which amounted
                    to $500,000.

               (d)  The  payment  of  approximately   $120,000  to  officers  in
                    accordance with employment agreements.

               (e)  The  elimination  of imputed  interest on the forgiven Bayou
                    loan.

               (f)  The  sale  of  1,041,044  Units  to  the  public  for  a net
                    consideration of approximately $4,600,000.

               (g)  The repayment of indebtedness in the amount of $451,300.

               This pro forma financial  statement should be read in conjunction
               with the historical financial statements and notes thereto of the
               Company and Solmecs as of June 30, 1998. In management's opinion,
               all material adjustments  necessary to reflect the effects of the
               Combination  and the IPO have been made. The pro forma  financial
               information  is unaudited and not  necessarily  indicative of the
               consolidated  results which  actually  would have occurred if the
               Combination had been  consummated at the beginning of the periods
               presented,  nor does it purport to represent the future financial
               position and results of operations for future periods.

              Pro Forma Consolidated Balance Sheet (Unaudited)

                                                       June 30, 1998
                                               -----------------------------
                                                Pro Forma        As Adjusted
                                               -----------       -----------
               
Current Assets                                 $   670,012       $ 4,261,732
Equipment, net of accumulated depreciation         115,038           115,038
                                               -----------       -----------
     Total Assets                                  785,050         4,376,770
                                               ===========       ===========

Current Liabilities                              1,400,790           394,627
Long-term liabilities                              221,442           221,442
                                               -----------       -----------
     Total Liabilities                           1,622,232           616,069
Stockholders' Equity (Deficiency)                 (837,182)(1)     3,760,701(1)
                                               -----------       -----------
      Total liabilities and stockholders'
        equity (deficiency)                    $   785,050       $ 4,376,770
                                               ===========       ===========


                                      F-5
<PAGE>


                             SCNV ACQUISITION CORP.

                  NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 3 -      PRO FORMA FINANCIAL STATEMENTS (Unaudited) (continued)

              Pro Forma Consolidated Statements of Operations (Unaudited)

                                                         For the year ended
                                                             June 30,
                                                   -----------------------------
                                                       1998             1997
                                                   -----------      -----------
REVENUES
   Sales                                           $     6,571      $    51,841
   Contract services                                    51,339            5,435
                                                   -----------      -----------
       Total revenues                                   57,910           57,276
                                                   -----------      -----------
COSTS AND EXPENSES (1)
   Research and development costs                      268,924          276,259
   Cost of merchandise purchased                         8,190           48,638
   Cost of services provided by
     subcontractors                                     26,797             --
   Marketing expenses                                   86,258           42,906
   General and administrative expenses                 437,780          340,313
                                                   -----------      -----------
       Total costs and expenses                        827,949          708,116
                                                   -----------      -----------
       Operating loss                                 (770,039)        (650,840)

FINANCING EXPENSES, NET                                (15,093)         (10,484)
                                                   -----------      -----------
       Net loss                                    $  (785,132)     $  (661,324)
                                                   ===========      ===========
Pro Forma Net loss per share                       $     (0.75)     $     (0.64)
                                                   ===========      ===========
Weighted average number  of  shares
  outstanding                                        1,041,044        1,041,044
                                                   ===========      ===========

(1)  The Pro Forma  Condensed  Consolidated  Statements of  Operations  does not
     include the one-time  charge of $3,718,054,  of excess  purchase price over
     fair value of the assets acquired.  This charge will be reflected in future
     periods as "Acquired  Research and  Development  In-Process  Expense."  The
     Stockholders'  Equity  (Deficiency)  balance at June 30, 1998 has reflected
     this one-time write off.

Note 4 -       STOCKHOLDER LOAN

               The loan does not bear  interest.  The maturity is the earlier of
               December  31,  1998  or the  consummation  of  certain  types  of
               transactions that will provide proceeds of at least $3 million to
               the Company.


                                      F-6
<PAGE>


                             SCNV ACQUISITION CORP.

                  NOTES TO THE FINANCIAL STATEMENTS (Continued)


Notee 5 -      STOCK CAPITAL

               a.   Preferred Stock

                    The Board of Directors has the  authority,  without  further
                    action  by the  stockholders,  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.

               b.   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.  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 these  financial  statements,  the Company
                    has not granted any options under the Plan.


                                      F-7
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of:
Solmecs Corporation N.V.

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Solmecs
Corporation N.V. (a Netherlands Corporation) and subsidiary as of June 30, 1998,
and the related consolidated statements of operations,  changes in shareholders'
deficiency  and cash  flows for the years  ended June 30,  1998 and 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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. 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.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of the Company and
subsidiary as of June 30, 1998,  and the results of their  operations  and their
cash  flows for the years  ended  June 30,  1998 and 1997,  in  conformity  with
accounting principles generally accepted in the United States.


                                                  LUBOSHITZ, KASIERER & CO.
                                                  Member Firm of Arthur Andersen


Beer-Sheva, September 17, 1998


                                      F-8
<PAGE>


                             SOLMECS CORPORATION N.V
                           CONSOLIDATED BALANCE SHEET
                                (In U.S. dollars)


                                                                      June 30,
                                                                       1998
                                                                   -------------
                        ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                        $      4,301
  Trade receivables                                                      39,455
  SCNV Acquisition Corp (Note 3)                                         47,485
  Other receivables and prepaid expenses (Note 4)                        16,316
                                                                   -------------
         Total current assets                                           107,557
                                                                   -------------
FIXED ASSETS (Note 5)
  Cost                                                                  247,415
  Less - accumulated depreciation                                      (132,377)
                                                                   -------------
                                                                        115,038
                                                                   -------------
         Total assets                                              $    222,595
                                                                   =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY

  CURRENT LIABILITIES
    Short-term borrowings (Note 6)                                 $    633,024
    Sundry payables and accrued expenses (Note 7)                       212,903
                                                                   -------------
         Total current liabilities                                      845,927
                                                                   -------------
  LONG-TERM LIABILITIES
    Parent company (Note 8)                                           5,082,897
    Long-term loan (Note 9)                                             200,000
    Accrued severance pay (Note 10)                                      21,442
                                                                   -------------
         Total long-term liabilities                                  5,304,339
                                                                   -------------
         Total liabilities                                            6,150,266
                                                                   -------------
COMMITMENTS AND CONTINGENCIES (Note 11)

SHAREHOLDERS' DEFICIENCY (Note 12)
  Share capital
    Preferred "A" shares of DFL 10 par value;
      authorized 1,200 shares; issued and outstanding
      1,200 shares as of June 30, 1998                                    6,154
    Common "B" shares of DFL 10 par value;
      authorized 23,800 shares; issued and outstanding
      7,286 shares as of June 30, 1998                                   48,028
  Share premium                                                       8,740,773
  Accumulated deficit                                               (14,222,626)
                                                                   -------------
         Total                                                       (5,427,671)

Less - Cost of shares of parent company (Note 13)                      (500,000)
                                                                   -------------
         Total shareholders' deficiency                              (5,927,671)
                                                                   -------------
         Total liabilities and shareholders' deficiency            $    222,595
                                                                   =============


The  notes  to the  consolidated  financial  statements  form an  integral  part
thereof.


                                      F-9
<PAGE>


                             SOLMECS CORPORATION N.V

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                (In U.S. dollars)




                                                     For the year ended June 30,
                                                     ---------------------------
                                                         1997          1998
                                                     -----------    -----------
REVENUES (Note 14)
  Sales                                                  $51,841         $6,571
  Contract services                                        5,435         51,339
                                                     -----------    -----------
         Total revenues                                   57,276         57,910
                                                     -----------    -----------
COSTS AND EXPENSES
  Research and development costs (Note 15)               276,259        268,924
  Cost of merchandise purchased                           48,638          8,190
  Cost of contract services performed by
     subcontractors                                         --           26,797
  Marketing expenses (Note 16)                            42,906         86,258
  General and administrative expenses (Note 17)          220,313        317,780
                                                     -----------    -----------
         Total costs and expenses                        588,116        707,949
                                                     -----------    -----------
         Operating loss                                 (530,840)      (650,039)

FINANCING EXPENSES, NET                                 (390,484)      (419,711)
                                                     -----------    -----------
         Net loss                                      $(921,324)   $(1,069,750)
                                                     ===========    ===========
Net loss per common share                               $(126.45)      $(146.82)
                                                     ===========    ===========
Weighted average number of common
shares outstanding                                         7,286          7,286
                                                     ===========    ===========


The  notes  to the  consolidated  financial  statements  form an  integral  part
thereof.


                                      F-10
<PAGE>


                             SOLMECS CORPORATION N.V

                       CONSOLIDATED STATEMENTS OF CHANGES
                           IN SHAREHOLDERS' DEFICIENCY
                                (In U.S. dollars)

<TABLE>
<CAPTION>
                                     Preferred     Common        Share           Accumulated     Cost of shares
                                     shares        shares        premium         deficit         of parent              Total
                                     ---------   -----------   -----------     -------------     --------------        --------
<S>                                  <C>         <C>           <C>             <C>               <C>                <C>        
Balance as of July 1, 1996           $   6,154   $    48,028   $ 7,956,155     $ (12,231,552)    $ (500,000)       $(4,721,215)
                                                                                                                  
Imputed interest on long-term                                                                                     
  loan from the parent                                                                                          
  company                                   --            --       380,000                --             --            380,000
                                                                                                                  
Net loss for the year ended                                                                                     
  June 30, 1997                             --            --            --                --       (921,324)          (921,324)
                                     ---------   -----------   -----------     -------------     ----------        ----------- 
Balance as of June 30, 1997              6,154        48,028     8,336,155       (13,152,876)      (500,000)        (5,262,539)
                                                                                                                  
Imputed interest on long-term                                                                                     
  loan from the parent                                                                                          
  company                                   --            --       404,618                --             --            404,618
                                                                                                                    
Net loss for the year ended                                                                                        
  June 30, 1998                             --            --            --        (1,069,750)            --         (1,069,750)
                                     ---------   -----------   -----------     -------------     ----------        ----------- 
                                                                                                                  
Balance as of June 30, 1998          $   6,154   $    48,028   $ 8,740,773     $ (14,222,626)    $ (500,000)       $(5,927,671)
                                     =========   ===========   ===========     =============     ==========        =========== 
</TABLE>


The  notes  to the  consolidated  financial  statements  form an  integral  part
thereof.                                                                        
                                                                                

                                      F-11
<PAGE>


                             SOLMECS CORPORATION N.V
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In U.S. dollars)



                                                                 For the year ended June 30,
                                                               -----------------------------
                                                                    1997              1998
                                                               -----------       -----------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                            <C>               <C>         
  Net loss                                                     $  (921,324)      $(1,069,750)
  Adjustments to reconcile net loss to net cash used in
    operating activities (see below)                               380,534           398,147
                                                               -----------       -----------
       Net cash used in operating activities                      (540,790)         (671,603)
                                                               -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in equipment                                           (3,853)          (98,235)
  Proceeds from sale of fixed assets                                  --               6,972
                                                               -----------       -----------
       Net cash used in investing activities                        (3,853)          (91,263)
                                                               -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Short-term borrowings, net                                          --             633,024
  Increase in liability to parent company                          526,946            94,604
                                                               -----------       -----------
       Net cash provided by financing activities                   526,946           727,628
                                                               -----------       -----------
DECREASE IN CASH AND
  CASH EQUIVALENTS                                                 (17,697)          (35,238)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                                 57,236            39,539
                                                               -----------       -----------
CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                                  $    39,539       $     4,301
                                                               ===========       ===========
                                                           
ADJUSTMENTS TO RECONCILE NET LOSS TO
  NET CASH USED IN OPERATING ACTIVITIES
    Items not involving cash flows:
      Imputed interest on long-term loan from the
       parent company                                          $   380,000       $   404,618
      Depreciation                                                   9,364            14,016
      Severance pay                                                (10,779)            5,811
      Loss on sale of equipment                                       --                  42
    Changes in operating assets and liabilities:
      Increase in receivables
       and prepaid expenses                                         (4,697)           (9,460)
      SCNV Acquisition Corp., net                                     --             (47,485)
      Increase in sundry payables and
       accrued expenses                                              6,646            30,605
                                                               -----------       -----------
                                                               $   380,534       $   398,147
                                                               ===========       ===========
</TABLE>


The  notes  to the  consolidated  financial  statements  form an  integral  part
thereof.


                                      F-12
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 1 -  GENERAL

     A.   The Company is engaged, through its subsidiary, Solmecs (Israel) Ltd.,
          in the research and  development  of energy  conversion  systems,  the
          provision of contract services, and the sale of advanced photo-voltaic
          cells.

          As of June 30, 1998,  the Company,  a registered  company in the Dutch
          Antilles,  was a wholly owned subsidiary of Bayou  International Ltd.,
          ("Bayou" or the "parent company") a publicly traded corporation in the
          United States.

          In July 1998, SCNV Acquisition Corp.  ("SAQC"), a company organized in
          the United States,  completed an initial public  offering (IPO) of its
          shares in the United  States.  The net proceeds  received by SAQC from
          the IPO amounted to approximately $4.6 million.

          Concurrently  with the  consummation  of the IPO,  SAQC  acquired from
          Bayou all of the issued and  outstanding  capital stock of the Company
          in  consideration  for 24% of the common  stock of SAQC.  In addition,
          Bayou forgave  indebtedness  of the Company in the amount,  as of June
          30, 1998,  of $5,082,897  as a capital  contribution,  and the Company
          returned  for  cancellation  shares of Bayou held by it. In  addition,
          short-term,  unsecured loans in the aggregate  amount of approximately
          $451,000 as of June 30,  1998,  were  repaid from the  proceeds of the
          IPO.

     B.   The  financial  statements  of the Company have been  prepared in U.S.
          dollars, as the Company's revenues are determined  principally in U.S.
          dollars  and its  primary  source of  financing  is  received  in U.S.
          dollars.  Thus,  the  functional  currency  of the Company is the U.S.
          dollar.

          Transactions and balances denominated in U.S. dollars are presented at
          their original amounts.  Transactions and balances in other currencies
          are  remeasured  into  U.S.  dollars  in  accordance  with  principles
          identical  to those set  forth in  Statement  No. 52 of the  Financial
          Accounting Standards Board of the United States.

          Exchange gains and losses from the  aforementioned  remeasurement  are
          reflected in the statement of operations.  The representative  rate of
          exchange at June 30, 1998,  was U.S.$ 1.00 = 3.667 New Israeli  Shekel
          ("NIS") (1997 - NIS 3.587).


                                      F-13
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 1 -  GENERAL (Cont.)

     C.   The Company has incurred substantial  operating losses and at June 30,
          1998, has an accumulated deficit of approximately $14,223,000. At June
          30, 1998, the Company's  working capital  deficiency and shareholders'
          deficiency   amounted  to   approximately   $738,000  and  $5,928,000,
          respectively.  In July 1998, upon the repayment of the short-term loan
          and the  forgiveness of Bayou  indebtedness  (see A above) the working
          capital   deficiency   and   shareholders'   deficiency   amounted  to
          approximately $287,000 and $845,000  respectively.  The Company is not
          generating  sufficient  revenues  from  its  operations  to  fund  its
          activities and  anticipates  that it will continue to incur losses for
          some time. The Company is continuing  its efforts in  development  and
          commercialization  of products  and  technologies  which will  require
          substantial  additional  expenditures.  The Company  believes that the
          portion of the  proceeds of the IPO  referred to in A above that is to
          be allocated to projects of the Company will be sufficient to fund the
          Company's operations at least through June 30, 1999.

     D.   The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.


Note 2 -  SIGNIFICANT ACCOUNTING POLICIES

          The  financial  statements  have  been  prepared  in  conformity  with
          generally  accepted  accounting  principles in the United States.  The
          significant  accounting  policies  followed in the  preparation of the
          financial statements, applied on a consistent basis, are:

     A.   PRINCIPLES OF CONSOLIDATION

               The consolidated financial statements include the accounts of the
               Company and its wholly-owned  subsidiary.  Material  intercompany
               balances and transactions have been eliminated in consolidation.


                                      F-14
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 2 -  SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     B.   CASH EQUIVALENTS

          Cash equivalents  include  deposits,  the maturity of which, as of the
          date of deposit, does not exceed three months.

     C.   FIXED ASSETS

          Fixed  assets  are  stated  at  cost  less  accumulated  depreciation.
          Depreciation  is  computed  by  the  straight-line   method  over  the
          estimated  useful  lives of the assets,  ranging  from five to fifteen
          years.  Leasehold  improvements  are amortized  over the period of the
          lease.

     D.   REVENUE RECOGNITION

          Revenues from sales of merchandise are recognized upon shipment.

          Revenues  from  contract  services  are  recognized  as  the  work  is
          performed, according to contract benchmarks.

          The  balance  of  trade  receivables  is  comprised  mainly  of a  few
          customers,  and  accordingly  no allowance  for  doubtful  accounts is
          considered necessary.

     E.   RESEARCH AND DEVELOPMENT COSTS

          Research and development costs are charged to operations as incurred.

     F.   EARNINGS (LOSS) PER SHARE

          Earnings  (loss) per share is computed  based on the weighted  average
          number of ordinary shares outstanding during each period. Earnings are
          adjusted for noncumulative  dividends on preferred shares only if such
          dividends have been declared.


                                      F-15
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 2 -  SIGNIFICANT ACCOUNTING POLICIES (Cont.)

     G.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD

          In  June  1998,  the  Financial   Accounting  Standards  Board  issued
          Statement of Financial  Accounting  Standards No. 133,  Accounting for
          Derivative   Instruments   and  Hedging   Activities.   The  Statement
          establishes  accounting and reporting  standards  requiring that every
          derivative  instrument   (including  certain  derivative   instruments
          embedded in other  contracts)  be  recorded  in the  balance  sheet as
          either an asset or liability measured at its fair value. The Statement
          requires  that changes in the  derivative's  fair value be  recognized
          currently in earnings  unless specific hedge  accounting  criteria are
          met.  Special  accounting for qualifying  hedges allows a derivative's
          gains and losses to offset  related  results on the hedged item in the
          income statement,  and requires that a company must formally document,
          designate,  and assess the  effectiveness of transactions that receive
          hedge accounting.

          Statement 133 is effective for fiscal years  beginning  after June 15,
          1999.  Statement  133 cannot be applied  retroactively.  Statement 133
          must  be  applied  to  (a)  derivative  instruments  and  (b)  certain
          derivative  instruments embedded in hybrid contracts that were issued,
          acquired, or substantively modified after December 31, 1997.

          The Company  believes  that the adoption of Statement 133 will have an
          immaterial effect on its financial statements.


Note 3 -  SCNV ACQUISITION CORP.

          The current account with SCNV Acquisition Corp. is in U.S. dollars and
          does not bear interest.


                                      F-16
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 4 -  OTHER RECEIVABLES AND PREPAID EXPENSES                     June 30,
                                                                       1998
                                                                    -----------
               Value Added Tax refundable                                 2,732
               Grants receivable from the State of Israel                 7,736
               Prepaid expenses                                           4,368
               Other                                                      1,480
                                                                    -----------
                                                                    $    16,316
                                                                    ===========

Note 5 -  FIXED ASSETS
                                                                      June 30,
                                                                        1998
                                                                    -----------
               Cost                                                        
                 Computers and office equipment                         162,930
                 Motor vehicles                                          40,489
                 Leasehold improvements                                  43,996
                                                                    -----------
                                                                        247,415
               Accumulated depreciation                             -----------

                 Computers and office equipment                         119,692
                 Motor vehicles                                           9,423
                 Leasehold improvements                                   3,262
                                                                    -----------
                                                                        132,377
                                                                    -----------
               Net book value                                           115,038 
                                                                    ===========
               Principal annual depreciation rates:
                 Computers and office equipment                            7-20%
                 Motor vehicles                                              15%
                 Leasehold improvements                                      20%


Note 6 -  SHORT-TERM BORROWINGS

                                                      Interest         June 30,
                                                        rate             1998
                                                      ----------     -----------
               Banks in shekels unlinked (1)           14.7%         $  181,724
               Unsecured loans from private
                 institution in U.S. dollars (2)          8%            451,300
                                                                     -----------
                                                                     $  633,024
                                                                     ===========
               (1)  Collateral - see Note 11(H).
               (2)  Subsequent to balance sheet date, the unsecured loans were
                    repaid from the proceeds of the IPO - see Note 1A.


                                      F-17
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 7 -  SUNDRY PAYABLES AND ACCRUED EXPENSES
          
                                                           June 30,
                                                             1998
                                                           --------
          Ben-Gurion University for services
            rendered                                       $ 83,501
          Payroll and related expenses                       30,506
          Accrued expenses                                   76,877
          Suppliers                                          18,472
          Other                                               3,547
                                                           --------
                                                           $212,903
                                                           ========

Note 8 -  PARENT COMPANY

          The loan from the parent company does not bear interest. Imputed
          interest at a rate of 8% per annum was charged and reflected in the
          statement of operations, and is presented as additional share premium.

          Subsequent to balance sheet date, the parent company forgave the loan
          (see Note 1A).


Note 9 -  LONG-TERM LOAN

          The long-term loan is interest free. The date of repayment has not yet
          been determined.


Note 10 - SEVERANCE PAY

          The subsidiary's obligation in Israel in respect of severance pay to
          employees is covered by insurance policies. The amounts on deposit
          with the insurance companies are not under the control or management
          of the subsidiary, and therefore, such amounts and the related
          liability are not reflected in the balance sheet.

          The accrual in the balance sheet represents the unfunded portion of
          the severance obligation.


                                      F-18
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 11 - COMMITMENTS AND CONTINGENCIES

     A.   Royalties - BGU

          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 (related to
          L.M.M.H.D. power generation) 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 June 30, 1998, this liability amounted to
          approximately $321,000 (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 June 30, 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, the subsidiary
          agreed to pay ILZRO a fee for any lead used in future production by
          the subsidiary. The total fee commitment is limited to $ 1,864,000.
          Through June 30, 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, the subsidiary received
          participations 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, 1998, there were
          no sales on which royalties were payable.


                                      F-19
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 11 - COMMITMENTS AND CONTINGENCIES (Cont.)

     D.   Royalties and Licensing Fees

          In January 1998, an agreement was signed between the subsidiary and a
          party which had participated in the development of a certain product.
          In this agreement, the subsidiary undertook to pay royalties as a
          certain percentage of sales and a certain percentage of revenues from
          licensing fees. As of June 30, 1998, no sales had been made for which
          royalties would be payable.

     E.   Lease Agreement

          On October 28, 1997, the subsidiary entered into a lease agreement of
          premises for a period of two years ending November 1999 for an annual
          rent of $41,000. The Company has a renewal option for an additional
          three years.

     F.   Letter of Intent

          In September 1997 the subsidiary signed a letter of intent in which it
          agreed to cooperate with another party in establishing a jointly owned
          entity for the development of certain technology. The other party will
          be responsible for providing financing of the jointly owned entity. As
          of June 30, 1998, the subsidiary had received $15,505 from the other
          party as participation in the costs of technology development.

     G.   Performance Guarantee

          The subsidiary is contingently liable for a contract performance
          guarantee issued by a bank in favor of a customer in the amount of
          $20,000.

     H.   Lien

          Short-term borrowings from a bank of approximately $182,000 are
          collateralized by a fixed charge on the subsidiary's uncalled share
          capital and its goodwill and floating charge on all its present and
          future acquired property and rights.


                                      F-20
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 12 - SHARE CAPITAL

          The preferred "A" shares are entitled to a 5% non-cumulative dividend.
          All other rights of the preferred shares are identical to those of the
          common "B" shares.


Note 13 - INVESTMENT IN SHARES OF PARENT COMPANY

          The Company owns 50,000 shares of its parent company, the investment
          in which is stated at cost. The fair market value of the shares as of
          June 30, 1998, is approximately $18,750. Subsequent to balance sheet
          date, the shares were returned to the parent company for cancellation
          (see Note 1A).


Note 14 - REVENUES

                                          For the year ended June 30,
                                          ---------------------------
                                             1997            1998
                                              %                %
                                          ----------      -----------
Revenues by geographic areas
  are as follows:
    Italy                                         --               17
    Israel                                       100               83
                                          ----------      -----------
                                                 100              100
                                          ==========      ===========
Sales to single customers
  exceeding 10%:
    Customer A                                    60               --
    Customer B                                    31               --
    Customer C                                    --               64
    Customer D                                    --               17


                                      F-21
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 15 - RESEARCH AND DEVELOPMENT COSTS

                                                     For the year ended June 30,
                                                     ---------------------------
                                                       1997               1998
                                                     -------            --------
           Salaries and related expenses
             (after deduction of
             immigrant absorption grant
             as follows:
             June 30, 1998 - $7,334;
             June 30, 1997 - $17,854)                $ 219,642        $ 195,786
           Materials                                     6,187            5,204
           Subcontractors                               18,285           13,971
           Consultants                                   9,074           26,538
           Rental fee                                   13,711           23,594
           Depreciation                                   --              3,709
           Other                                         9,360           15,627
                                                     ---------        ----------
                                                       276,259          284,429
           Less - participation in
              technology development (*)                  --            (15,505)
                                                     ---------        ----------
                                                     $ 276,259        $ 268,924
                                                     =========        ==========

          (*) See Note 11F.


Note 16 - MARKETING EXPENSES

                                                     For the year ended June 30,
                                                     ---------------------------
                                                       1997              1998
                                                     ---------        ----------
Salaries and related expenses                        $    --          $  38,559
Market research                                         22,514           13,389
Foreign travel                                          17,614           43,255
Publications                                             2,778              618
Other                                                     --              4,895
                                                     ---------        ----------
                                                        42,906          100,716
Less - government grants                                  --            (14,458)
                                                     ---------        ----------
                                                     $  42,906        $  86,258
                                                     =========        ==========


                                      F-22
<PAGE>


                             SOLMECS CORPORATION N.V

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
                                (In U.S. dollars)


Note 17 - GENERAL AND ADMINISTRATIVE EXPENSES

                                                For the year ended June 30,
                                               -----------------------------
                                                  1997                1998
                                               ----------         ----------
          Salaries and related expenses        $   88,133         $  131,715
          Professional fees                        44,642             87,500
          Rental fee                                3,614             21,015
          Vehicles maintenance                     11,686             21,391
          Communications                           23,032             23,815
          Foreign travel                            9,143              4,054
          Depreciation                              9,364             10,307
          Other                                    30,699             17,983
                                               ----------         ----------
                                               $  220,313         $  317,780
                                               ==========         ==========


Note 18 - TAXES ON INCOME

     A.   The Company has carryforward losses of approximately $2.4 million as
          of June 30, 1998, which expire in the years 1999-2003. Due to the
          uncertainty as to realization of these losses, a valuation allowance
          for the entire amount of the tax benefit has been recorded.

     B.   The subsidiary in Israel is subject to the Income Tax Law
          (Inflationary Adjustments), 1985, which measures income on the basis
          of changes in the Israeli Consumer Price Index. For tax purposes, the
          subsidiary reports on a December 31 year-end.

          The carryforward losses of the subsidiary for tax purposes as of
          December 31, 1997, are approximately $309,000. In addition, research
          and development expenses in the approximate amount of $699,000 will be
          deductible for tax purposes upon recognition of income derived from
          the R&D project. Due to the uncertainty as to realization, a valuation
          allowance of approximately $363,000 has been recorded.

          The subsidiary has received final income tax assessments through
          December 31, 1995.


                                      F-23