<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to________________
Commission file number 2-86149
SELVAC CORPORATION
_______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 22-2408186
_______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) identification No.)
221 Boston Post Road, Suite 490, Marlboro, Massachusetts, 01752
_______________________________________________________________________________
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number (508) 481-9495
______________
_______________________________________________________________________________
Former name, former address and former fiscal year, if changed
since last report
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
____ ____
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of September 22, 1995
13,781,526 shares of common stock, $.01 par value
_______________________________________________________________________________
Page 1 of 12 pages
<PAGE> 2
SELVAC CORPORATION
Index
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Condensed consolidated balance sheet as
of August 31, 1995 3
Condensed consolidated statements of
operations for the three months ended
August 31, 1995 and 1994 4
Condensed consolidated statements of
cash flows for the three months ended
August 31, 1995 and 1994 5
Notes to condensed consolidated financial
statements 6
Item 2. Management's discussion and analysis of
financial condition and results of operations 7-8
PART II. OTHER INFORMATION 9
Signature 10
Exhibit 11 Statement Re: Computation of net income
per common share 11-12
* * * *
<PAGE> 3
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
SELVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AUGUST 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 993,905
Accounts receivable, net of allowance for doubtful
accounts of $166,855 476,273
Finished goods inventories 651,543
Note receivable, current portion 50,000
Other current assets 111,772
_________
Total current assets 2,283,493
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $647,315 99,504
PATENTS AND PATENT RIGHTS, net of accumulated amortization
of $811,662 149,493
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, net
of accumulated amortization of $144,603 78,241
NOTE RECEIVABLE - RELATED PARTY, net of current portion 250,948
OTHER ASSETS
Investment in non-marketable securities 750,000
Other 21,508
__________
$3,633,187
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 199,553
Accrued expenses 54,481
Other current liabilities 23,250
__________
Total current liabilities 277,284
__________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Serial preferred stock, $10 par value,
authorized-200,000 shares:
Series A, 12% cumulative convertible;
Issued and outstanding-24,000 shares 240,000
1985 Series, 12% cumulative convertible;
Issued and outstanding-24,500 shares 245,000
Common stock, $.01 par value,
authorized-20,000,000 shares:
Issued-16,256,485 shares 162,565
Additional paid-in capital 8,813,998
Accumulated deficit (5,150,061)
__________
4,311,502
Treasury stock, at cost, 2,474,959 common shares (955,599)
_________
Total stockholders' equity 3,355,903
_________
$3,633,187
==========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 4
SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
1995 1994
<S> <C> <C>
REVENUES:
Net sales $ 751,234 $ 979,817
Franchise revenue, net of related costs 0 5,577
__________ __________
751,234 985,394
COST OF SALES 412,388 577,045
__________ __________
GROSS MARGIN 338,846 408,349
__________ __________
OPERATING EXPENSES:
Selling, general and administrative 212,481 223,770
Loss on sale of property and equipment 0 10,101
__________ __________
212,481 233,871
__________ __________
126,365 174,478
INVESTMENT INCOME 32,831 27,996
__________ __________
INCOME BEFORE INCOME TAXES 159,196 202,474
RECOVERY OF INCOME TAXES 0 55,114
__________ __________
NET INCOME $ 159,196 $ 257,588
========== ==========
NET INCOME PER COMMON SHARE $ .01 $ .02
========== =========
INCOME APPLICABLE TO COMMON STOCK $ 144,646 $ 243,038
========== ==========
WEIGHTED AVERAGED NUMBER OF COMMON SHARES AND
DILUTIVE COMMON EQUIVALENT SHARES OUTSTANDING
DURING PERIOD 13,854,026 14,650,001
========== ==========
WEIGHTED AVERAGED NUMBER OF COMMON SHARES ASSUMING
FULL DILUTION DURING PERIOD 14,630,026 15,426,001
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 159,196 $ 257,588
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of property and equipment 0 10,101
Depreciation and amortization 34,321 42,660
Deferred taxes 0 (55,114)
Changes in operating assets and liabilities:
Accounts receivable 155,324 132,072
Inventories (115,588) 12,096
Other operating assets (80,306) (100,357)
Accounts payable 115,332 (128,226)
Accrued expenses (3,982) (79,689)
__________ ___________
Net cash provided by operating activities 264,297 91,131
__________ __________
CASH PROVIDED BY INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 0 350,000
Notes receivable repayments 112,500 20,600
Proceeds from sale of equipment 0 1,920
__________ __________
Net cash provided by investing activities 112,500 372,520
__________ __________
CASH USED BY FINANCING ACTIVITIES:
Repayment of note payable 0 (140,000)
Preferred stock dividends (14,100) (14,700)
Treasury stock acquisition (2,301) (71,682)
__________ __________
Net cash used by financing activities (16,401) (226,382)
__________ __________
INCREASE IN CASH FOR THE PERIOD 360,396 237,269
CASH, beginning of period 633,509 337,863
___________ __________
CASH, end of period $ 993,905 $ 575,132
========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Receipt of non-marketable securities as payment
of note receivable $ 750,000
==========
Receipt of stock into treasury in payment
of note receivable $ 37,500
==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
SELVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Regulation S.B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended August 31, 1995 are not
necessarily indicative of the results that may be expected for the year
ending May 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended May 31, 1995.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 1995 Selvac Corporation and
Subsidiaries Annual Report on form 10-KSB for the year ended May 31, 1995
2. CONTINGENCIES:
Since January 1990, the Company has been engaged in an ongoing dispute
with the United States Food and Drug Administration (FDA) regarding the
marketing status for Finally Free Hair Remover for personal
(non-professional) use. In June 1991, the Company agreed not to
manufacture, process, pack, label, promote, advertise, distribute, or
sell Finally Free Hair Remover unless it received marketing
authorization from the FDA. Subsequently, the Company received
approval to export this product to Canada.
In July 1994, the FDA determined that Finally Free shall be considered
a Class III device under the Food, Drug and Cosmetic Act and
accordingly, will require premarket approval before it is sold,
manufactured or distributed in the U.S. Presently, management is of
the opinion that the potential benefit to the Company, of obtaining
premarket approval, would not justify the cost. However, the Company
has entertained discussions with entities willing to subsidize a
significant portion of the cost. Although no agreements have resulted
from these discussions, management intends to continue to pursue
arrangements under which the Company will not have to absorb the entire
cost of the FDA approval process.
As of August 31, 1995, the carrying value of intangible assets relating
to the Domestic Finally Free product, consisting primarily of patents,
is $150,000.
3. INCOME TAXES:
The Company recognized a reduction in its deferred tax asset valuation
allowance of approximately $69,000 and $145,000 for the three months
ended August 31, 1995 and 1994, respectively.
4. NOTES RECEIVABLE:
In June 1995, the Company renegotiated its note receivable from CDF
Acquisition Corp. Under the terms of the new agreement, the remaining
principal balance of $200,000 at the date of the refinancing, is to be
paid in installments of $50,000 in December 1995, 1996, 1997 and June
1998. Interest on the unamortized principal balance, at 9% through
June 1996 and 7% thereafter, is payable with each principal installment.
Interest accrued prior to the refinancing, is payable at $50,000 in
December 1996 and $47,948 in December 1997.
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<PAGE> 7
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELVAC CORPORATION
LIQUIDITY AND CAPITAL RESOURCES:
For the three months ended August 31, 1995, operations provided the
Company with cash flows of $264,000. This combined with a note
receivable repayment of $112,500 enabled the Company to improve its cash
position at August 31, 1995 to $994,000.
In June 1995, the Company renegotiated its note receivable from CDF
Acquisition Corp. (CDF). Under the terms of the original agreement,
the entire principal plus accrued interest, at the prime rate, was
payable in May 1996. Under the terms of the new agreement, the Company
received $112,500 in cash, as discussed above, and 200,000 shares of its
own common stock valued at $37,500 as payment towards the CDF note
receivable. The remaining principal balance is to be paid in
installments of $50,000 in December 1995, 1996, 1997 and June 1998.
Accrued interest at May 31, 1995 of $96,000 and additional interest at
9% through June 1996 and 7% thereafter, is payable at $50,000 in
December 1996 with the remainder due in December 1997.
In July 1995, Roadrunner Video Enterprises, Inc. (Roadrunner) was
acquired by Business Data Group, Inc. (BDG), a publicly traded entity.
In satisfaction of Roadrunner's $750,000 note due to the Company, BDG
issued 75,000 shares of $10 par value, 12% preferred stock to the
Company. Each share of preferred stock is convertible into 10 shares
of BDG common stock through June 2000.
Although the preferred stock is a restricted security (not registered
for public trading) Roadrunner is obligated to register, for public
trading, a sufficient number of common shares to satisfy conversion
rights attached to the preferred shares. Management of Roadrunner
anticipates the completion of such registration by the fourth quarter of
calendar year 1995 or the first quarter of calendar year 1996. When and
if the registration has been completed, management intends to evaluate
the merit of retaining all or part of the preferred stock.
During the three months ended August 31, 1995, the Company acquired
11,600 of its common shares into treasury in addition to those received
as payment against the CDF note receivable. The Company anticipates
future treasury stock acquisitions provided there are no unexpected
price fluctuations or alternative need for funds.
The Company is presently dependent upon sales of one product in limited
markets. The present intent to pursue investment opportunities which
will enable the Company to expand or diversify its market. Accordingly,
management anticipates maintaining the Company's current liquidity
position should an investment opportunity requiring a significant
cash outlay, present itself.
Discussions have taken place with a company which owns several patents
and has pending patent applications for hair removal products. These
discussions are in their preliminary stage and there can be no assurance
they will result in a future transaction.
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<PAGE> 8
PART 1. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
Sales for the three months ended August 31, 1995 decreased $234,000 or
24% as compared to the corresponding period of the previous year. This
is due in part to a decrease in sales volume resulting from lower orders
of Finally Free products, particularly in Europe and Canada, and in part
to price reductions necessitated by increased competition. Despite
price reductions, cost of sales, as a percentage of sales, decreased
from 59% in 1994 to 55% in 1995, primarily a result of improved vendor
pricing and warehousing efficiency.
Current year selling, general and administrative (SG&A) costs were
$11,000 lower than those of the corresponding period of the previous
year, as a result of continued cost containment efforts.
The Company continues to be dependent on the sales of one product,
Finally Free, which was 99.7% of current period sales. With further
price decreases and reduced sales volume for Finally Free anticipated
in future periods, the Company is continuing efforts to establish
markets for Finally Firm.
The Company's Finally Firm has been introduced as a test market product
in Taiwan. If marketing efforts prove successful in this regard, it is
anticipated that improved Finally Firm sales will offset the effect of
anticipated decline in Finally Free Sales. If the marketing efforts
related to Finally Firm products are not successful, management feels
other alternatives will need to be considered for the Company to
maintain profitability. These alternatives will include further
selling and administrative cost reductions and/or product and market
expansion within or outside the Company's present industry.
-8-
<PAGE> 9
PART II. OTHER INFORMATION
SELVAC CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibit is included herein:
Exhibit 11: Statement re: computation of net income per
common share
(b) Reports on Form 8-K:
None
9-
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELVAC CORPORATION
DATE: October 6, 1995 BY: (s) Allan Borkowski
___________________ ___________________________
Allan Borkowski
Chairman of the Board and
Chief Financial Officer
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<PAGE> 11
SELVAC CORPORATION
(11) Statement re: Computation of New Income Per Common Share
(Unaudited)
Computation of average number of shares outstanding used in determining
primary and fully diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
1995 1994
<S> <C> <C>
PRIMARY:
Weighted average number of shares outstanding 13,854,026 14,650,001
Assumed exercise of common stock warrants and
certain stock options based on average market
value 0 0
__________ __________
Weighted average number of shares used in primary
per share computations 13,854,026 14,650,001
========== ==========
FULLY DILUTED:
Weighted average number of shares outstanding 13,854,026 14,650,001
Assumed conversion of Series A cumulative
convertible stock 384,000 384,000
Assumed conversion of 1985 Series cumulative
convertible stock 392,000 392,000
Assumed exercise of common stock warrants and
certain options based on higher of average
or closing market price 0 0
__________ __________
Weighted average number of shares used in fully
diluted per share computations 14,630,026 15,426,001
========== ==========
</TABLE>
-11-
<PAGE> 12
SELVAC CORPORATION
(11) Statement re: Computation of New Income Per Common Share
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
1995 1994
<S> <C> <C>
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 13,854,026 14,650,001
========== ==========
Fully diluted 14,630,026 15,426,001
========== ==========
PRIMARY:
Net income $ 159,196 $ 257,588
Paid and cumulative undeclared preferred
stock dividends (14,550) (14,550)
__________ __________
Net income applicable to common stock $ 144,646 $ 243,038
========== ==========
Net income per share $ .01 $ .02
========== ==========
FULLY DILUTED:
Net income $ 159,196 $ 257,588
========== ==========
NET INCOME PER SHARE $ .01 $ .02
========== ==========
</TABLE>
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