<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of report (Date of earliest event reported) June 4, 1996
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(Exact name of registrant as Specified in its Charter)
Delaware 0-11969 22-2408186
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
4020 Newberry Road, Gainesville, Florida 32607
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (352) 373-2565
Selvac Corporation
221 Boston Post Road
Marlboro, Massachusetts 01752
(Former Name and Address)
<PAGE> 2
ITEM 7 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
Balance sheets of SLS (Wales) Limited as of May 31, 1996 and September
30, 1995 and 1994
Profit and loss accounts of SLS (Wales) Limited for the eight months
ended May 31, 1996 and for the years ended September 30, 1995 and 1994
Cash flow statements of SLS (Wales) Limited for the eight months ended
May 31, 1996 and for the years ended September 30, 1995 and 1994
<PAGE> 3
[COOPERS & LYBRAND LETTERHEAD]
The Directors
SLS (Wales) Limited
Units 1 & 2
Heol Rhosyn
Dafen Industrial Park
SA14 8LX 8 August 1996
Dear Sirs
ACCOUNTANTS' REPORT IN CONNECTION WITH THE ACQUISITION OF
SLS (WALES) LIMITED ("COMPANY") BY MEHL/BIOPHILE INTERNATIONAL
CORPORATION AND THE AMERICAN STOCK EXCHANGE REQUIREMENTS
1 We have examined the audited accounts of the company for the two
years ended 30 September 1994, 30 September 1995 and the eight month period
ended 31 May 1996. Audited accounts of the company have not been made up for any
period subsequent to 31 May 1996.
2 The financial statements of the company for the period covered by
this report were audited by Coopers & Lybrand, Chartered Accountants. The
financial statements of the company for the period ended 30 September 1993 were
audited by KPMG, Chartered Accountants.
3 The financial information set out in this report is based on the
audited accounts of the company after making such adjustments as we consider
necessary.
<PAGE> 4
2
4 As a result of a change in accounting policy by the company in the 1995
accounts, the following adjustments have been made to the audited accounts for
the year ended 30 September 1994 in order to apply consistent accounting
policies with the audited accounts for the year ended 30 September 1995 and the
period ended 31 May 1996.
<TABLE>
<CAPTION>
POUND STERLING POUND STERLING
<S> <C> <C>
Accumulated losses at 1 October 1993 as previously stated (18,391)
Research and development costs previously capitalised
during the period ended 30 September 1993 358,440
Write off of stock as a result of the change in
accounting policies 268,429
--------
(626,869)
--------
Accumulated losses at 1 October 1993 as restated (645,260)
Loss for the year ended 30 September 1994
as previously reported by the company (89,956)
Research and development costs previously capitalised
during the year ended 30 September 1994 (131,984)
Write off of stock as a result of the change in
accounting policies (19,763)
--------
Loss for the year ended 30 September 1994 as restated (241,703)
--------
Accumulated losses at 30 September 1994 as restated (886,963)
========
</TABLE>
5 In our opinion the financial information set out below gives, for the
purposes of the said accountants' report, a true and fair view of the state of
affairs of the company as at 30 September 1994, 30 September 1995 and 31 May
1996 and of its loss for each of the periods then ended.
PRINCIPAL ACCOUNTING POLICIES
6 The financial information contained in this report has been prepared in
accordance with Accounting Standards currently applicable in the United Kingdom.
A summary of the more important accounting policies, which have been applied
consistently for all the periods covered by this report, except as noted in
paragraph 4 above, is set out below.
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with the historical cost
convention.
CASH FLOW STATEMENT
The company is exempt under FRS1 from the requirement to prepare a cash flow
statement on the grounds that it is a small company as defined by FRS1.
<PAGE> 5
3
TANGIBLE FIXED ASSETS
The cost of tangible fixed assets is their purchase cost, together with any
incidental costs of acquisition.
Depreciation is calculated to write off the cost of tangible fixed assets by
equal instalments over the estimated useful economic lives of the assets
concerned. The principal annual rates of depreciation used for this purpose are
set out below:
%
Leasehold improvements 20
Plant, machinery, fixtures and fittings 20
Motor vehicles 20
INTANGIBLE FIXED ASSETS
The purchase cost of intellectual property, know how and other intangible assets
are written off to the profit and loss account as the expenditure is incurred.
DEVELOPMENT EXPENDITURE
Development expenditure relating to specific projects intended for commercial
exploitation is carried forward where the ultimate commercial viability has been
assessed with reasonable certainty. Such expenditure is amortised over the
period expected to benefit. Expenditure on pure and applied research and for
products where the long term commercial viability has not been established with
reasonable certainty is written off as incurred.
FINANCE AND OPERATING LEASES
Where the company enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over its estimated useful life or the term of the lease,
whichever is shorter. Future instalments under such leases, net of finance
charges, are included in creditors. Rentals payable are apportioned between the
finance element, which is charged to the profit and loss account, and the
capital element, which reduces the outstanding obligation for future
instalments.
All other leases are accounted for as operating leases and the rental charges
are charged to the profit and loss account on a straight line basis over the
life of the lease.
PENSION COSTS
The company operates a defined contribution pension scheme for the benefit of
certain employees. Pension costs charged to the profit and loss account in the
period represent contributions payable during the period.
<PAGE> 6
4
FOREIGN CURRENCY
Transactions in foreign currency are recorded using the rate of exchange ruling
at the time of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated using the rate of exchange ruling at the
balance sheet date and the gains and losses on translation are included in the
profit and loss account.
INVESTMENTS
Fixed asset investments are stated at cost.
STOCKS AND WORK IN PROGRESS
Stocks and work in progress held for development purposes are written off to the
profit and loss account in the period in which the expenditure is incurred.
Stocks and work in progress are only recognised where the sales of the products
to which they relate can be determined with reasonable accuracy.
Where stocks and work in progress are recognised stocks and work in progress are
stated at the lower of cost and net realisable value. Cost is determined on a
first in, first out basis. In the case of manufactured products, cost includes
all direct expenditure and production overheads based upon a normal level of
activity. Net realisable value is the price at which the stock can be realised
in the normal course of business after allowing for the costs of realisation
and, where appropriate, the cost of conversion from its existing state to a
finished condition. Provision is made for obsolete, slow-moving and defective
stocks.
DEFERRED TAXATION
Provision is made for deferred taxation at the rate of corporation tax expected
to be in force when the timing differences reverse (the liability method), to
the extent that it is anticipated that a liability will arise.
WARRANTY CLAIMS
Provision is made for the estimated liability on all products under warranty for
which claims have been received.
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of goods
despatched and services rendered during the period.
GOVERNMENT GRANTS
Government grants based on revenue expenditure are accrued and credited to the
profit and loss account as the related expenditure is incurred.
<PAGE> 7
5
PROFIT AND LOSS ACCOUNTS
7 The profit and loss accounts for the period ended 31 May 1996 and each
of the two years in the period ended 30 September 1995 are set out below:
<TABLE>
<CAPTION>
NOTES 8 MONTHS YEAR YEAR
ENDED ENDED ENDED
31 MAY 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
Turnover 2 1,114,307 1,297,211 1,299,794
Change in stocks of finished
goods and work in progress 33,596 (11,366) (66,937)
Own work capitalised - - 165,250
Other operating income 43,665 109,068 147,811
Raw materials and consumables (701,479) (502,494) (556,266)
Other external charges (266,875) (407,079) (534,662)
Staff costs (268,616) (504,344) (627,174)
Depreciation and other amounts
written off tangible fixed assets (47,007) (61,437) (30,168)
Other operating charges (13,837) (4,922) (1,059)
--------- --------- ---------
Operating loss (106,246) (85,363) (203,411)
Income from participating
interests 2,812 8,437 -
Interest payable and similar
charges 3 (68,342) (73,515) (38,292)
--------- --------- ---------
Loss on ordinary activities before
taxation 4 (171,776) (150,441) (241,703)
Tax on loss on ordinary activities 5 (562) (1,687) -
--------- --------- ---------
Loss for the period 14 (172,338) (152,128) (241,703)
========= ========= =========
</TABLE>
The company has no recognised gains and losses other than the losses above and
therefore no separate statement of total recognised gains and losses has been
presented.
There is no difference between the operating loss and the loss for the period
stated above, and their historical cost equivalents.
Turnover and operating loss for the period are derived from the continuing
operations of the company.
<PAGE> 8
6
BALANCE SHEETS
8 The balance sheet at 31 May 1996, 30 September 1995 and 30 September
1994 are set out below:
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 6 112,517 167,707 255,049
Investments 7 2,700 2,250 2,250
---------- ---------- ----------
115,217 169,957 257,299
---------- ---------- ----------
CURRENT ASSETS
Stocks 8 132,019 87,605 110,208
Debtors 9 344,605 360,529 289,281
Cash at bank and in hand -- -- 192
---------- ---------- ----------
476,624 448,134 399,681
CREDITORS: amounts falling due
within one year 10 (761,491) (567,598) (574,323)
---------- ---------- ----------
NET CURRENT LIABILITIES (284,867) (119,464) (174,642)
---------- ---------- ----------
TOTAL ASSETS LESS CURRENT (169,650) 50,493 82,657
LIABILITIES
CREDITORS: amounts falling due
after more than one year 11 (518,979) (566,784) (446,820)
---------- ---------- ----------
NET LIABILITIES (688,629) (516,291) (364,163)
========== ========== ==========
CAPITAL AND RESERVES
Called-up share capital 12 403,010 403,010 403,010
Share premium account 13 119,790 119,790 119,790
Profit and loss account 14 (1,211,429) (1,039,091) (886,963)
---------- ---------- ----------
TOTAL SHAREHOLDERS' FUNDS 15 (688,629) (516,291) (364,163)
========== ========== ==========
TOTAL SHAREHOLDERS' FUNDS CAN BE
FURTHER ANALYSED AS FOLLOWS:
Equity shareholders' funds (1,120,014) (929,711) (748,737)
Non-equity shareholders' funds 22 431,385 413,420 384,574
---------- ---------- ----------
(688,629) (516,291) (364,163)
========== ========== ==========
</TABLE>
9 In the preparation of the company's annual accounts advantage has been
taken of special exemptions applicable to small companies conferred by Part I of
schedule 8 to the Companies Act 1985, because, in the directors' opinion, as it
meets the conditions, the company is entitled to these exemptions as a small
company.
<PAGE> 9
7
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED 30 SEPTEMBER 1994,
30 SEPTEMBER 1995 AND THE PERIOD ENDED 31 MAY 1996
1 BASIS OF PREPARING THE FINANCIAL STATEMENTS
The company has developed laser technology for use in medical and cosmetic
treatment of skin. Recently the company has successfully launched a product used
for hair depilation and is currently in the process of satisfying an increasing
demand for this product.
On 4 June 1996, 81% of the equity share capital and 100% of the preference share
capital was acquired by Mehl/Biophile International Corporation. Mehl/Biophile
have committed themselves to finance the continuing development of the company.
The financial statements have been prepared on a going concern basis which
assumes that the company will continue in operational existence for the
foreseeable future. The validity of this assumption depends on the new
shareholder providing adequate finance to fund the ongoing requirements of the
company until profitability is achieved.
If the company were unable to continue in operational existence for the
foreseeable future, adjustments would have to be made to reduce the balance
sheet values of assets to their recoverable amounts, to provide for further
liabilities that might arise and to reclassify fixed assets and long term
liabilities as current assets and liabilities.
The directors believe it is appropriate for the financial statements to be
prepared on a going concern basis.
2 TURNOVER
The turnover and loss for the period are attributable to the principal activity
of the company. No disclosures of dis-aggregated information are included in
these financial statements, as, in the opinion of the directors such disclosure
would be seriously prejudicial to the interests of the company.
<PAGE> 10
8
3 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
8 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED
31 MAY 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
On debentures, bank loans overdrafts, and other loans:
Due within 5 years, not by instalments 4,544 14,247 16,122
Due within 5 years, by instalments 34,196 1,302 --
Due in more than five years by instalments 22,378 57,966 22,170
Premium on early redemption of convertible loan 7,224 -- --
------ ------ ------
68,342 73,515 38,292
====== ====== ======
</TABLE>
4 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
8 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED
31 MAY 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Loss on ordinary activities before taxation is
stated after charging:
Directors' remuneration 67,172 50,755 69,290
Auditors' remuneration and expenses 10,000 7,500 5,950
Depreciation of tangible fixed assets 47,007 61,437 30,168
Operating leases - land and buildings 15,470 41,880 45,456
and after crediting:
UK government grants receivable 43,665 99,068 137,811
======= ======= =======
</TABLE>
5 TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
8 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED
31 MAY 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Tax credit on franked investment income 562 1,687 --
===== ===== ======
</TABLE>
Due to the losses incurred during the periods there is no liability for taxation
required.
<PAGE> 11
9
6 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET
COST DEPRECIATION BOOK
VALUE
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Leasehold improvements 34,624 24,815 9,809
Machinery, equipment and fittings 222,026 121,871 100,155
Motor vehicles 10,083 7,530 2,553
------- ------- -------
266,733 154,216 112,517
======= ======= =======
</TABLE>
7 INVESTMENTS
The investments are stated at cost and comprise of shares owned in private
companies which are associated undertakings and are not listed on a recognised
stock exchange. The market value of these shares is considered by the directors
to be greater than the book value.
8 STOCKS
<TABLE>
<CAPTION>
1996 1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Raw materials and consumables 98,423 87,605 98,842
Work in progress -- -- 11,366
Finished goods and goods for resale 33,596 -- --
------- ------- -------
132,019 87,605 110,208
======= ======= =======
</TABLE>
9 DEBTORS
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Trade debtors 236,090 275,382 228,626
Amounts owed by associated undertakings -- 6,750 --
Prepayments and accrued income 72,668 78,397 60,655
Other debtors 35,847 -- --
------- ------- -------
344,605 360,529 289,281
======= ======= =======
</TABLE>
<PAGE> 12
10
10 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Debenture loans (see note 11) 53,673 34,737 28,140
Bank loans and overdraft (see (a) below) 120,315 172,419 204,949
Payments received on account 53,604 6,964 20,000
Trade creditors 301,978 208,380 238,327
Other taxation and social security 28,359 50,009 30,150
Accruals and deferred income 203,562 95,089 52,757
------- ------- -------
761,491 567,598 574,323
======= ======= =======
</TABLE>
(a) The bank overdraft is secured by a fixed and floating charge over the
assets and undertakings of the company.
11 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Debenture loan (see (a) below) 333,054 351,990 365,320
Bank loans (see (b) below) 99,869 128,738 --
Other loans (see (c) below) 81,500 81,500 81,500
Convertible loans (see (d) below) 4,556 4,556 --
------- ------- -------
518,979 566,784 446,820
======= ======= =======
</TABLE>
The above loans were repayable as follows:
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Repayable in 1-2 years 109,568 73,777 31,595
Repayable in 2-5 years 297,911 332,122 180,026
Repayable in more than 5 years 111,500 160,885 235,199
------- ------- -------
518,979 566,784 446,820
======= ======= =======
</TABLE>
<PAGE> 13
11
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
(a) Debenture loans were issued to enable the company to continue
developing its product ranges. The debenture loans are made up of 2
loans from 3i plc. The first loan attracts interest at a rate of 11.75%
per annum and is repayable by quarterly capital and interest
instalments of pound sterling 15,265 and was due to be repaid in the
year ended 30 September 2001. The second loan attracts interest in
arrears at the rate of 3 1/2% above the higher of 5% per annum and the
relevant LIBOR rate and was repayable in 5 equal annual instalments of
pound sterling 30,000 which were due to commence on 31 December 1997.
Attached to the second loan were share options which give 3i plc the
right to subscribe for 10% of the company's equity share capital at
pound sterling 25 per share up until 31 December 2002. Both loans are
secured by a second fixed and floating charge over the assets and
undertaking of the company.
(b) During the year ended 30 September 1995, pound sterling 150,000 of the
bank overdraft was converted to a bank loan. The bank loan was
repayable in 48 monthly instalments of pound sterling 3,782 which
commenced in February 1996. On inception, the bank loan had a 1 year
capital repayment holiday. The loan attracts interest at 3 1/2% above
the bank's base rate. The loan is secured by a fixed and floating
charge on all the assets of the company and a charge on all the
company's worldwide intellectual property rights.
(c) The other loan represented an amount due to a director of the company,
B Mair. The amount is unsecured and was only due to be repaid when the
3i Group plc debenture loans were repaid in full. The loan attracted no
interest and no movement in the loan took place during the year.
(d) In January 1995 convertible loans were made available to the company by
employees of the company. The loans were repayable at any time at par.
The earliest the loans could have been converted was in the year 2000
at the option of the lender. The shares would be purchased at a fixed
price of pound sterling 25 per share up to a maximum of 1% of the
company's authorised equity share capital. The loan attracts interest
at 3 1/2% above LIBOR and was payable annually.
Subsequent to 31 May 1996, all the loans were repaid from funds introduced by
the new shareholder.
<PAGE> 14
12
12 SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
AUTHORISED
11,756 ordinary shares of 10p each 1,176 1,176 1,176
6,471 convertible 'A' ordinary shares of 10p each 647 647 647
447,050 deferred ordinary shares of 10p each 44,705 44,705 44,705
100,000 cumulative 9 1/2% A redeemable
preference shares of pound sterling 1 each 100,000 100,000 100,000
100,000 cumulative 9 1/2% B convertible
redeemable preference shares of pound sterling 1 each 100,000 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455 157,455
------- ------- -------
403,983 403,983 403,983
------- ------- -------
ALLOTTED, ISSUED AND FULLY PAID
8,050 ordinary shares of 10p each 805 805 805
900 convertible 'A' ordinary shares of 10p each 90 90 90
446,600 deferred ordinary shares of 10p each 44,660 44,660 44,660
100,000 cumulative 9 1/2% A redeemable
preference shares of pound sterling1 each 100,000 100,000 100,000
100,000 cumulative 9 1/2% B convertible
redeemable preference shares of pound sterling 1 each 100,000 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455 157,455
------- ------- -------
403,010 403,010 403,010
======= ======= =======
</TABLE>
DIVIDEND RIGHTS
The following are the dividend rights of the non-equity shares in the order of
entitlement:
- - Cumulative 5% 'C' redeemable preference shares - net cash dividend of
five pence per annum per share, payable 30 June and 31 December.
- - Cumulative 9 1/2% 'A' redeemable preference shares and cumulative 9
1/2% 'B' convertible redeemable preference shares - net cash dividend
of nine and a half pence per share, payable 30 June and 31 December.
ARREARS OF DIVIDEND
The following dividends, net of tax credit, were in arrears at 31 May 1996 and
covers the period from 1 July 1993 to 31 May 1996:
<TABLE>
<CAPTION>
POUND STERLING
<S> <C>
'A' Preference shares 27,746
'B' Preference shares 23,191
'C' Preference shares 22,993
------
73,930
======
</TABLE>
<PAGE> 15
13
CONVERSION RIGHTS
The 'A' ordinary shares may be converted on a one for one basis into ordinary
shares at any time with the agreement of 75% of the holders of 'A' ordinary
shares.
At any time before they have been redeemed a certain number of the B preference
shares may be sub-divided into 10p shares and converted into a mixture of 'A'
ordinary shares and deferred shares. The number which may be converted depends
on the number subscribed for, as follows:
The number of 'B' preference shares which may be subdivided and converted shall
be determined by the number of 'B' preference shares which have then been
subscribed for (regardless of whether or not any such 'B' preference shares were
subsequently redeemed) as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
TOTAL NUMBER OF 'B' PREFERENCE SHARES
PREFERENCE SHARES TO BE SUBDIVIDED
SUBSCRIBED FOR AND CONVERTED
<S> <C>
25,000 6,400
50,000 13,150
75,000 20,275
100,000 27,775
</TABLE>
The number of deferred shares and 'A' ordinary shares resulting from the
subdivision and conversion will be determined by the number of 'B' preference
shares being subdivided and converted as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
PREFERENCE SHARES NUMBER OF NUMBER
SUBDIVIDED AND 'A' ORDINARY OF DEFERRED
AND CONVERTED SHARES RESULTING SHARES RESULTING
<S> <C> <C>
6,400 224 63,776
13,150 466 131,034
20,275 720 202,030
27,775 989 276,761
</TABLE>
REDEMPTION RIGHTS
The redeemable shares were due to be redeemed at par, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE TO BE REDEEMED
<S> <C>
A PREFERENCE SHARES
30 June 1995 33,333
30 June 1996 33,333
30 June 1997 33,334
B PREFERENCE SHARES
30 June 1998 50,000
30 June 1999 50,000
C PREFERENCE SHARES
30 June 2000 175,455
</TABLE>
<PAGE> 16
14
The company may, with the agreement of the individual preference shareholders,
redeem shares earlier than these due dates. The company did not redeem the A
preference shares due for redemption on 30 June 1995 and was in discussions with
the preference shareholders, regarding the redemption of the preference shares.
All of the preference shares were acquired by Mehl/Biophile International
Corporation in June 1996 (see note 19).
13 SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Share premium account at the beginning of the
period and end of the period 119,790 119,790 119,790
======= ======= =======
</TABLE>
14 PROFIT AND LOSS ACCOUNT
The movements on the profit and loss account for each of the three periods are
set out below:
<TABLE>
<CAPTION>
1996 1995 1994
(as restated)
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Profit and loss account at beginning of the period (1,039,091) (886,963) (645,260)
Loss for the period (172,338) (152,128) (241,703)
---------- ---------- ----------
Profit and loss account at the end of the period (1,211,429) (1,039,091) (886,963)
========== ========== ==========
</TABLE>
15 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
The movements in shareholders funds for each of the three periods are set out
below:
<TABLE>
<CAPTION>
1996 1995 1994
(as restated)
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Issue of share capital including share premium - - 75,000
Loss for the period (172,338) (152,128) (241,703)
Shareholders' funds at the beginning of the period (516,291) (364,163) (197,460)
------- ------- -------
Shareholders' funds at the end of the period (688,629) (516,291) (364,163)
======= ======= =======
</TABLE>
<PAGE> 17
15
16 FINANCIAL COMMITMENTS
The annual commitments under non cancellable operating leases on land and
buildings at the end of each of the three periods are set out below:
<TABLE>
<CAPTION>
1996 1995 1994
AS RESTATED
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Expiring in over 5 years 43,556 24,000 45,450
====== ====== ======
</TABLE>
17 PENSION SCHEMES
The pension costs charged represent contributions payable by the company.
<TABLE>
<CAPTION>
8 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED
31 MAY 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Defined contributions scheme 6,014 11,983 12,860
====== ====== ======
</TABLE>
The company operates a defined contribution scheme for some of its employees.
The assets of the scheme are held separately from those of the company. The
pension cost charge for the period represents contributions payable by the
company to the fund.
18 CAPITAL EXPENDITURE
There were no capital commitments at any of the period ends whether they were
contracted for but not provided or authorised by directors but not contracted
for.
19 SIGNIFICANT EVENTS
On 4 June 1996, Mehl/Biophile International Corporation a company incorporated
in the United States of America, acquired 81% of the equity share capital of the
company and 100% of the preference share capital. Mehl/Biophile has injected a
substantial amount of funds into the company in order that all borrowings have
been repaid in 1996.
20 CONTINGENT LIABILITY
The company sells high technology products under warranty. Provision is made for
any expected claim under the warranties, although, to date, the company's
experience of warranty claims is limited. Based on current experience, the
directors do not expect any future cost to the company in excess of the level of
provisions for which warranties are included in these financial statements.
The company sold certain intellectual property under a joint user arrangement.
There is a dispute on the availability of such intellectual property to the
company under this joint sales arrangement. No loss to the company is expected
as a result of this dispute.
<PAGE> 18
16
21 RELATED PARTY TRANSACTIONS
During the period ended 31 May 1996 the company was charged pound sterling
10,000 consultancy fees by one of its associated undertakings, S L Sensors
Limited. B Mair is a director and shareholder of S L Sensors Limited. These
related party transactions were carried out on an arm's length basis.
22 NON-EQUITY SHAREHOLDERS' FUNDS
Non-equity shareholders' funds may be further analysed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Cumulative 9 1/2% 'A' redeemable preference
shares 100,000 100,000 100,000
Cumulative 9 1/2% 'B' convertible redeemable
preference shares 100,000 100,000 100,000
Cumulative 5% 'C' redeemable preference shares 157,455 157,455 157,455
Arrears of dividends on preference shares 73,930 55,965 27,119
------- ------- -------
431,385 413,420 384,574
======= ======= =======
</TABLE>
Yours faithfully
COOPERS & LYBRAND
<PAGE> 19
Registered no: 2714095
SLS (WALES) LIMITED
Financial report
for the period ended 31 May 1996
<PAGE> 20
SLS (WALES) LIMITED
FINANCIAL REPORT
FOR THE PERIOD ENDED 31 MAY 1996
PAGES
DIRECTORS AND ADVISERS 1
DIRECTORS' REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES 2 - 4
REPORT OF THE AUDITORS 5 - 6
PROFIT AND LOSS ACCOUNT 7
BALANCE SHEET 8
NOTES TO THE FINANCIAL STATEMENTS 9 - 22
<PAGE> 21
SLS (WALES) LIMITED
1
DIRECTORS AND ADVISERS
EXECUTIVE DIRECTORS
T Mehl
R M Clement
T J Chapple
SECRETARY AND REGISTERED OFFICE
I Hughes
46/47 Bloomsbury Square
London
WC1A 2RU
AUDITORS
Coopers & Lybrand
Princess House
Princess Way
SWANSEA
SA1 5LH
SOLICITORS
Eversheds, Phillips & Buck
Fitzalan House
Fitzalan Road
CARDIFF
CF2 1XZ
BANKERS
Barclays Bank Plc
PO Box 756
Slough
SL1 4SG
<PAGE> 22
SLS (WALES) LIMITED
2
DIRECTORS' REPORT
FOR THE PERIOD ENDED 31 MAY 1996
The directors present their report and the audited financial statements for the
period ended 31 May 1996. The comparative figures are for the year ended 30
September 1995.
PRINCIPAL ACTIVITIES
The profit and loss account for the period is set out on page 7.
The principal activities of the company are the development, manufacture and
marketing of lasers, and associated consultancy and research work. The company
is committed to a programme of continued development of its product range.
SIGNIFICANT EVENTS
On 4 June 1996, Mehl/Biophile International Corporation, a company incorporated
in the United States of America, acquired 81% of the equity share capital of the
company and 100% of the preference share capital. Mehl/Biophile has injected a
substantial amount of funds into the company in order that all borrowings have
been repaid in full in June 1996.
DIVIDENDS
The directors do not recommend the payment of a dividend in respect of the
period ended 31 May 1996.
DIRECTORS
The directors of the company at 31 May 1996, both of whom have been directors
for the whole of the period then ended, were:
B Mair (Chairman)
R M Clement
Subsequent to the end of the financial period B Mair resigned as director of the
company on 4 June 1996 and T Mehl was appointed a director on 4 June 1996 and T
J Chapple was appointed a director on 1 August 1996.
<PAGE> 23
SLS (WALES) LIMITED
3
Directors' interests in shares
The interests of the directors of the company in the shares of the company at 31
May 1996, together with their interests at 1 October 1995 were as follows:
<TABLE>
<CAPTION>
10p ordinary shares 10p deferred ordinary shares
31 May 1 October 31 May 1 October
1996 1995 1996 1995
<S> <C> <C> <C> <C>
B Mair 3,900 3,900 446,100 446,100
R M Clement 2,500 2,500 500 500
</TABLE>
None of the directors hold any other interests in any other classes of shares
issued by the company.
During the year ended 30 September 1994 a share option scheme was created. The
only director included was B Mair. At 31 May 1996 no options had been granted or
exercised.
DIRECTORS' RESPONSIBILITIES
The directors are required by UK company law to prepare financial statements for
each financial period that give a true and fair view of the state of affairs of
the company as at the end of the financial period and of the profit or loss and
total recognised gains or losses of the company for that period.
The directors confirm that suitable accounting policies have been used and
applied consistently, and reasonable and prudent judgements and estimates have
been made, in the preparation of the financial statements for the period ended
31 May 1996. The directors also confirm that applicable accounting standards
have been followed and that the financial statements have been prepared on the
going concern basis.
The directors are responsible for keeping proper accounting records, for taking
reasonable steps to safeguard the assets of the company and to prevent and
detect fraud and other irregularities.
TAXATION STATUS
The company is not a close company within the meaning of the Income and
Corporation Taxes Act 1988 and this position has not changed since the end of
the financial year.
AUDITORS
A resolution to reappoint the auditors, Coopers & Lybrand, will be proposed at
the annual general meeting.
<PAGE> 24
SLS (WALES) LIMITED
4
EXEMPTIONS
In preparing the directors report, advantage has been taken of the special
exemptions applicable to small companies conferred by Part II of Schedule 8 of
the Companies Act 1985.
BY ORDER OF THE BOARD
/s/ IAN HUGHES
- -----------------
Ian Hughes
Company Secretary
<PAGE> 25
SLS (WALES) LIMITED
5
REPORT OF THE AUDITORS TO THE MEMBERS OF
SLS (WALES) LIMITED
We have audited the financial statements on pages 7 to 22.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 3 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
FUNDAMENTAL UNCERTAINTY
In forming our opinion we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of preparation. The financial
statements have been prepared on a going concern basis, the validity of which
depends upon the company achieving profitability and upon the new shareholder
continuing to support the company through the provision of additional finance
until such profits are achieved.
The financial statements do not include any adjustments that would result from a
failure to achieve future profitability nor from a failure of the new
shareholder to continue to provide support until such profitability is achieved.
Details of the circumstances relating to this fundamental uncertainty are
disclosed in note 1. Our opinion is not qualified in this respect.
<PAGE> 26
SLS (WALES) LIMITED
6
REPORT OF THE AUDITORS TO THE MEMBERS OF
SLS (WALES) LIMITED (CONTINUED)
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 31 May 1996 and of its loss and total recognised
losses for the period then ended and have been properly prepared in accordance
with the Companies Act 1985, applicable to small companies.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
SWANSEA, 8 AUGUST 1996
<PAGE> 27
SLS (WALES) LIMITED
7
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31 MAY 1996
<TABLE>
<CAPTION>
NOTES 1996 1995
POUND STERLING POUND STERLING
<S> <C> <C> <C>
TURNOVER 3 1,114,307 1,297,211
Change in stocks of finished goods and work in
progress 33,596 (11,366)
Other operating income 43,665 109,068
Raw materials and consumables (701,479) (502,494)
Other external charges (266,875) (407,079)
Staff costs (268,616) (504,344)
Depreciation and other amounts written off
tangible fixed assets (47,007) (61,437)
Other operating charges (13,837) (4,922)
------- -------
OPERATING LOSS (106,246) (85,363)
Income from participating interests 2,812 8,437
Interest payable and similar charges 4 (68,342) (73,515)
------- -------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 5 (171,776) (150,441)
Tax on loss on ordinary activities 7 (562) (1,687)
------- -------
LOSS FOR THE PERIOD 16 (172,338) (152,128)
======= =======
</TABLE>
The company has no recognised gains and losses other than the losses above and
therefore no separate statement of total recognised gains and losses has been
presented.
There is no difference between the operating loss and the loss for the period
stated above, and their historical cost equivalents.
Turnover and operating loss for the period are derived from the continuing
operations of the company.
<PAGE> 28
SLS (WALES) LIMITED
8
BALANCE SHEET
AT 31 MAY 1996
<TABLE>
<CAPTION>
31 MAY 1996 30 SEPTEMBER 1995
NOTES POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 112,517 167,707
Investments 10 2,700 2,250
--------- ---------
115,217 169,957
CURRENT ASSETS
Stocks 11 132,019 87,605
Debtors 12 344,605 360,529
------- -------
476,624 448,134
CREDITORS: amounts falling due
within one year 13 (761,491) (567,598)
------- -------
NET CURRENT LIABILITIES (284,867) (119,464)
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES (169,650) 50,493
CREDITORS: amounts falling due
after more than one year
(including convertible debt) 14 (518,979) (566,784)
--------- ---------
NET LIABILITIES (688,629) (516,291)
========= =========
CAPITAL AND RESERVES
Called-up share capital 15 403,010 403,010
Share premium account 16 119,790 119,790
Profit and loss account 16 (1,211,429) (1,039,091)
--------- ---------
TOTAL SHAREHOLDERS' FUNDS 19 (688,629) (516,291)
========= =========
TOTAL SHAREHOLDERS' FUNDS CAN BE
FURTHER ANALYSED AS FOLLOWS:
Equity shareholders' funds (1,120,014) (929,711)
Non-equity shareholders' funds 23 431,385 413,420
--------- ---------
(688,629) (516,291)
========= =========
</TABLE>
In the preparation of the company's annual accounts advantage has been taken of
special exemptions applicable to small companies conferred by Part I of schedule
8 to the Companies Act 1985, because, in the directors' opinion, as it meets the
conditions, the company is entitled to these exemptions as a small company.
The financial statements on pages 7 to 22 were approved by the board of
directors on 8 August 1996 and were signed on its behalf by:
/s/ ROBERT MARC CLEMENT
- -----------------------
Robert Marc Clement
DIRECTOR
<PAGE> 29
SLS (WALES) LIMITED
9
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MAY 1996
1 BASIS OF PREPARING THE FINANCIAL STATEMENTS
The company has developed laser technology for use in medical and cosmetic
treatment of skin. Recently the company has successfully launched a product used
for hair depilation and is currently in the process of satisfying an increasing
demand for this product.
On 4 June 1996, 81% of the equity share capital and 100% of the preference share
capital was acquired by Mehl/Biophile International Corporation. Mehl/Biophile
have committed themselves to finance the continuing development of the company.
The financial statements have been prepared on a going concern basis which
assumes that the company will continue in operational existence for the
foreseeable future. The validity of this assumption depends on the new
shareholder providing adequate finance to fund the ongoing requirements of the
company until profitability is achieved.
If the company were unable to continue in operational existence for the
foreseeable future, adjustments would have to be made to reduce the balance
sheet values of assets to their recoverable amounts, to provide for further
liabilities that might arise and to reclassify fixed assets and long term
liabilities as current assets and liabilities.
The directors believe it is appropriate for the financial statements to be
prepared on a going concern basis.
2 PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies, which have been applied consistently, is set out below.
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with the historical cost
convention.
CASH FLOW STATEMENT
The company is exempt under FRS1 from the requirement to prepare a cash flow
statement on the grounds that it is a small company as defined by FRS1.
<PAGE> 30
SLS (WALES) LIMITED
10
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
TANGIBLE FIXED ASSETS
The cost of tangible fixed assets is their purchase cost, together with any
incidental costs of acquisition.
Depreciation is calculated to write off the cost of tangible fixed assets by
equal instalments over the estimated useful economic lives of the assets
concerned. The principal annual rates of depreciation used for this purpose are
set out below:
%
Leasehold improvements 20
Plant, machinery, fixtures and fittings 20
Motor vehicles 20
INTANGIBLE FIXED ASSETS
The purchase cost of intellectual property, know how and other intangible assets
are written off to the profit and loss account as the expenditure is incurred.
DEVELOPMENT EXPENDITURE
Development expenditure relating to specific projects intended for commercial
exploitation is carried forward where the ultimate commercial viability has been
assessed with reasonable certainty. Such expenditure is amortised over the
period expected to benefit. Expenditure on pure and applied research and for
products where the long term commercial viability has not been established with
reasonable certainty is written off as incurred.
FINANCE AND OPERATING LEASES
Where the company enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over its estimated useful life or the term of the lease,
whichever is shorter. Future instalments under such leases, net of finance
charges, are included in creditors. Rentals payable are apportioned between the
finance element, which is charged to the profit and loss account, and the
capital element, which reduces the outstanding obligation for future
instalments.
All other leases are accounted for as operating leases and the rental charges
are charged to the profit and loss account on a straight line basis over the
life of the lease.
PENSION COSTS
The company operates a defined contribution pension scheme for the benefit of
certain employees. Pension costs charged to the profit and loss account in the
period represent contributions payable during the period.
<PAGE> 31
SLS (WALES) LIMITED
11
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
Transactions in foreign currency are recorded using the rate of exchange ruling
at the time of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated using the rate of exchange ruling at the
balance sheet date and the gains and losses on translation are included in the
profit and loss account.
INVESTMENTS
Fixed asset investments are stated at cost.
STOCKS AND WORK IN PROGRESS
Stocks and work in progress held for development purposes are written off to the
profit and loss account in the period in which the expenditure is incurred.
Stocks and work in progress are only recognised where the sales of the products
to which they relate can be determined with reasonable accuracy.
Where stocks and work in progress are recognised stocks and work in progress are
stated at the lower of cost and net realisable value. Cost is determined on a
first in, first out basis. In the case of manufactured products, cost includes
all direct expenditure and production overheads based upon a normal level of
activity. Net realisable value is the price at which the stock can be realised
in the normal course of business after allowing for the costs of realisation
and, where appropriate, the cost of conversion from its existing state to a
finished condition. Provision is made for obsolete, slow-moving and defective
stocks.
DEFERRED TAXATION
Provision is made for deferred taxation at the rate of corporation tax expected
to be in force when the timing differences reverse (the liability method), to
the extent that it is anticipated that a liability will arise.
WARRANTY CLAIMS
Provision is made for the estimated liability on all products under warranty for
which claims have been received.
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of goods
despatched and services rendered during the period.
GOVERNMENT GRANTS
Government grants based on revenue expenditure are accrued and credited to the
profit and loss account as the related expenditure is incurred.
<PAGE> 32
SLS (WALES) LIMITED
12
3 TURNOVER
The turnover and loss for the period are attributable to the principal activity
of the company. No disclosures of dis-aggregated information are included in
these financial statements, as, in the opinion of the directors such disclosure
would be seriously prejudicial to the interests of the company.
4 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
On debentures, bank loans overdrafts, and other loans:
Due within 5 years, not by instalments 4,544 14,247
Due within 5 years, by instalments 34,196 1,302
Due in more than 5 years, by instalments 22,378 57,966
Premium on early redemption of convertible loan 7,224 -
------- -------
68,342 73,515
======= =======
</TABLE>
5 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Loss on ordinary activities before taxation is stated after charging:
Directors' remuneration 67,172 50,755
Auditors' remuneration and expenses 10,000 7,500
Depreciation of tangible fixed assets 37,507 61,437
Permanent diminution in the value of assets 9,500 -
Operating leases - land and buildings 15,470 41,880
and after crediting:
UK government grants receivable 43,665 99,068
======= =======
</TABLE>
<PAGE> 33
SLS (WALES) LIMITED
13
6 DIRECTORS EMOLUMENTS
Emoluments paid to directors during the period were (including benefits in kind
and excluding pension costs):
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Aggregate emoluments of the directors 67,172 57,673
======= ======
Emoluments of the chairman
- Salary 1,000 13,871
- Compensation for loss of office 30,000 -
------- ------
31,000 13,871
======= ======
Emoluments of highest paid director 36,172 24,794
======= ======
</TABLE>
The number of directors (including the chairman and highest paid director) who
received fees and other emoluments (excluding pension contributions) within the
following ranges was:
<TABLE>
<CAPTION>
1996 1995
NUMBER NUMBER
<S> <C> <C>
POUND STERLING 0 - POUND STERLING 5,000 - 2
POUND STERLING 10,001 - POUND STERLING 15,000 - 1
POUND STERLING 15,001 - POUND STERLING 20,000 - 1
POUND STERLING 20,001 - POUND STERLING 25,000 - 1
POUND STERLING 30,001 - POUND STERLING 35,000 2 -
</TABLE>
One director, B Mair has waived emoluments of pound sterling 20,000 (1995: pound
sterling 16,664) for the period ended 31 May 1996.
7 TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Tax credit on franked investment income 562 1,687
===== =====
</TABLE>
Due to the losses incurred during the period there is no liability for taxation
required.
<PAGE> 34
SLS (WALES) LIMITED
14
8 INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY DEVELOPMENTS
RIGHTS COSTS TOTAL
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
COST
At 1 October 1995 and 31 May 1996 150,000 367,924 517,924
------- ------- -------
AMORTISATION
At 1 October 1995 and 31 May 1996 150,000 367,924 517,924
------- ------- -------
NET BOOK VALUE
At 31 May 1996 and 30 September 1995 - - -
======= ======= =======
</TABLE>
9 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
MACHINERY,
LEASEHOLD EQUIPMENT MOTOR
IMPROVEMENTS AND FITTINGS VEHICLES TOTAL
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 October 1995 34,624 230,209 10,083 274,916
Additions -- 4,979 -- 4,979
Transfer to stocks -- (6,334) -- (6,334)
Disposals -- (6,828) -- (6,828)
-------- -------- -------- --------
AT 31 MAY 1996 34,624 222,026 10,083 266,733
-------- -------- -------- --------
DEPRECIATION
At 1 October 1995 20,198 80,825 6,186 107,209
Charge for the period 4,617 41,046 1,344 47,007
-------- -------- -------- --------
AT 31 MAY 1996 24,815 121,871 7,530 154,216
-------- -------- -------- --------
NET BOOK VALUE
AT 31 MAY 1996 9,809 100,155 2,553 112,517
======== ======== ======== ========
At 30 September 1995 14,426 149,384 3,897 167,707
======== ======== ======== ========
</TABLE>
Machinery, equipment and fittings includes plant and machinery costs for the
development of products by the company which are held for the purpose of hire or
resale.
<PAGE> 35
SLS (WALES) LIMITED
15
10 INVESTMENTS
<TABLE>
<CAPTION>
ASSOCIATED
UNDERTAKINGS TOTAL
POUND STERLING POUND STERLING
<S> <C> <C>
COST
At 1 October 1995 2,250 2,250
Additions 450 450
----- -----
AT 31 MAY 1996 2,700 2,700
----- -----
NET BOOK VALUE
AT 31 MAY 1996 2,700 2,700
===== =====
At 30 September 1995 2,250 2,250
===== =====
</TABLE>
Associated undertakings are made up as follows:
<TABLE>
<CAPTION>
THE CHARING S L
CROSS HOSPITAL SENSORS
SKIN LASER LIMITED
CENTRE LIMITED
<S> <C> <C>
Cost of shares pound sterling 2,250 pound sterling 450
Country of incorporation England England
Type of shares held pound sterling 1 pound sterling 1
ordinary shares ordinary shares
Proportion of shares held 45% 45%
Principal activity Treatment of Development
skin disorders and
by the manufacture
application of medical
of laser supervisory
technology products
Profit for the year ended 31 December 1995 pound sterling 41,775 -
Capital and reserves at 31 December 1995 pound sterling 38,300 -
</TABLE>
SL Sensors Limited commenced to trade in May 1996 and, as a result, no audited
accounts are available.
The accounts of The Charing Cross Hospital Skin Laser Centre Limited and SL
Sensors Limited have not been included in the accounts of SLS (Wales) Limited as
SLS (Wales) Limited would qualify as a small group.
<PAGE> 36
SLS (WALES) LIMITED
16
11 STOCKS
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Raw materials and consumables 98,423 87,605
Finished goods and goods for resale 33,596 -
------- ------
132,019 87,605
======= ======
</TABLE>
12 DEBTORS
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Trade debtors 236,090 275,382
Amounts owed by associated undertakings - 6,750
Prepayments and accrued income 72,668 78,397
Other debtors 35,847 -
------- -------
344,605 360,529
======= =======
</TABLE>
13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Debenture loans (see note 14 below) 53,673 34,737
Bank loans and overdraft (see (a) below) 120,315 172,419
Payments received on account 53,604 6,964
Trade creditors 301,978 208,380
Other taxation and social security 28,359 50,009
Accruals and deferred income 203,562 95,089
------- -------
761,491 567,598
======= =======
</TABLE>
(a) The bank overdraft is secured by a fixed and floating charge over the
assets and undertakings of the company.
<PAGE> 37
SLS (WALES) LIMITED
17
14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Debenture loan (see (a) below) 333,054 351,990
Bank loans (see (b) below) 99,869 128,738
Other loans (see (c) below) 81,500 81,500
Convertible loans (see (d) below) 4,556 4,556
------- -------
518,979 566,784
======= =======
<CAPTION>
The above loans were repayable as follows:
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Repayable in 1-2 years 109,568 73,777
Repayable in 2-5 years 297,911 332,122
Repayable in more than 5 years 111,500 160,885
------- -------
518,979 566,784
======= =======
</TABLE>
(a) Debenture loans were issued to enable the company to continue
developing its product ranges. The debenture loans are made up of 2
loans from 3i plc. The first loan attracts interest at a rate of 11.75%
per annum and is repayable by quarterly capital and interest
instalments of pound sterling 15,265 and was due to be repaid in the
year ended 30 September 2001. The second loan attracts interest in
arrears at the rate of 3 1/2% above the higher of 5% per annum and the
relevant LIBOR rate and was repayable in 5 equal annual instalments of
pound sterling 30,000 which were due to commence on 31 December 1997.
Attached to the second loan were share options which give 3i plc the
right to subscribe for 10% of the company's equity share capital at
pound sterling 25 per share up until 31 December 2002. Both loans are
secured by a second fixed and floating charge over the assets and
undertaking of the company.
(b) During the year ended 30 September 1995, pound sterling 150,000 of the
bank overdraft was converted to a bank loan. The bank loan was
repayable in 48 monthly instalments of pound sterling 3,782 which
commenced in February 1996. On inception, the bank loan had a 1 year
capital repayment holiday. The loan attracts interest at 3 1/2% above
the bank's base rate. The loan is secured by a fixed and floating
charge on all the assets of the company and a charge on all the
company's worldwide intellectual property rights.
(c) The other loan represented an amount due to a director of the company,
B Mair. The amount is unsecured and was only due to be repaid when the
3i Group plc debenture loans were repaid in full. The loan attracted no
interest and no movement in the loan took place during the year.
<PAGE> 38
SLS (WALES) LIMITED
18
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
(d) In January 1995 convertible loans were made available to the company by
employees of the company. The loans were repayable at any time at par.
The earliest the loans could have been converted was in the year 2000
at the option of the lender. The shares would be purchased at a fixed
price of pound sterling 25 per share up to a maximum of 1% of the
company's authorised equity share capital. The loan attracts interest
at 3 1/2% above LIBOR and was payable annually.
Subsequent to 31 May 1996, all the loans were repaid from funds introduced by
the new shareholder.
15 SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
AUTHORISED
11,756 ordinary shares of 10p each 1,176 1,176
6,471 convertible 'A' ordinary shares of 10p each 647 647
447,050 deferred ordinary shares of 10p each 44,705 44,705
100,000 cumulative 9 1/2% A redeemable preference
shares of pound sterling 1 each 100,000 100,000
100,000 cumulative 9 1/2% B convertible redeemable
preference shares of pound sterling 1 each 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455
------- -------
403,983 403,983
------- -------
ALLOTTED, ISSUED AND FULLY PAID
8,050 ordinary shares of 10p each 805 805
900 convertible 'A' ordinary shares of 10p each 90 90
446,600 deferred ordinary shares of 10p each 44,660 44,660
100,000 cumulative 9 1/2% A redeemable preference
shares of pound sterling 1 each 100,000 100,000
100,000 cumulative 9 1/2% B convertible redeemable
preference shares of pound sterling 1 each 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455
------- -------
403,010 403,010
======= =======
</TABLE>
DIVIDEND RIGHTS
The following are the dividend rights of the non-equity shares in the order of
entitlement:-
- Cumulative 5% 'C' redeemable preference shares - net cash dividend of
five pence per annum per share, payable 30 June and 31 December.
- Cumulative 9 1/2% 'A' redeemable preference shares and cumulative
9 1/2% 'B' convertible redeemable preference shares - net cash dividend
of nine and half pence per share, payable 30 June and 31 December.
<PAGE> 39
SLS (WALES) LIMITED
19
ARREARS OF DIVIDEND
The following dividends, net of tax credit, were in arrears at 31 May 1996 and
covers the period from 1 July 1993 to 31 May 1996:-
<TABLE>
<CAPTION>
POUND STERLING
<S> <C>
'A' Preference shares 27,746
'B' Preference shares 23,191
'C' Preference shares 22,993
------
73,930
======
</TABLE>
CONVERSION RIGHTS
The 'A' ordinary shares may be converted on a one for one basis into ordinary
shares at any time with the agreement of 75% of the holders of 'A' ordinary
shares.
At any time before they have been redeemed a certain number of the B preference
shares may be sub-divided into 10p shares and converted into a mixture of 'A'
ordinary shares and deferred shares. The number which may be converted depends
on the number subscribed for, as follows:
The number of 'B' preference shares which may be subdivided and converted shall
be determined by the number of 'B' preference shares which have then been
subscribed for (regardless of whether or not any such 'B' preference shares were
subsequently redeemed) as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
TOTAL NUMBER OF 'B' PREFERENCE SHARES
PREFERENCE SHARES TO BE SUBDIVIDED
SUBSCRIBED FOR AND CONVERTED
<S> <C>
25,000 6,400
50,000 13,150
75,000 20,275
100,000 27,775
</TABLE>
The number of deferred shares and 'A' ordinary shares resulting from the
subdivision and conversion will be determined by the number of 'B' preference
shares being subdivided and converted as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
PREFERENCE SHARES NUMBER OF NUMBER
SUBDIVIDED AND 'A' ORDINARY OF DEFERRED
AND CONVERTED SHARES RESULTING SHARES RESULTING
<S> <C> <C>
6,400 224 63,776
13,150 466 131,034
20,275 720 202,030
27,775 989 276,761
</TABLE>
<PAGE> 40
SLS (WALES) LIMITED
20
REDEMPTION RIGHTS
The redeemable shares were due to be redeemed at par, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE TO BE REDEEMED
A PREFERENCE SHARES
<S> <C>
30 June 1995 33,333
30 June 1996 33,333
30 June 1997 33,334
B PREFERENCE SHARES
30 June 1998 50,000
30 June 1999 50,000
C PREFERENCE SHARES
30 June 2000 157,455
</TABLE>
The company may, with the agreement of the individual preference shareholders,
redeem shares earlier than these due dates. The company did not redeem the A
preference shares due for redemption on 30 June 1995 and was in discussions with
the preference shareholders regarding the redemption of the preference shares.
All of the preference shares were acquired by Mehl/Biophile International
Corporation in June 1996 (see note 20).
16 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM PROFIT AND
ACCOUNT LOSS ACCOUNT
POUND STERLING POUND STERLING
<S> <C> <C>
At 1 October 1995 119,790 (1,039,091)
Loss for the period - (172,338)
------- ---------
At 31 May 1996 119,790 (1,211,429)
======= =========
</TABLE>
17 FINANCIAL COMMITMENTS
At 31 May 1996 the company had annual commitments under non-cancellable
operating leases for land and buildings as follows:
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Expiring in over five years 43,556 24,000
====== ======
</TABLE>
<PAGE> 41
SLS (WALES) LIMITED
21
18 PENSION COSTS
The company operates a defined contribution pension scheme. The assets of the
scheme are held separately from those of the company. The pension cost charge
for the period represents contributions payable by the company to the fund and
amounted to pound sterling 6,014 (1995: pound sterling 11,983). Contributions
amounting to pound sterling 8,164 were payable to the fund and are included in
creditors at 31 May 1996.
19 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Loss for the financial period (172,338) (152,128)
Opening shareholders' funds (516,291) (364,163)
------- -------
CLOSING SHAREHOLDERS' FUNDS (688,629) (516,291)
======= =======
</TABLE>
20 SIGNIFICANT EVENTS
On 4 June 1996, Mehl/Biophile International Corporation a company incorporated
in the United States of America, acquired 81% of the equity share capital of the
company and 100% of the preference share capital. Mehl/Biophile has injected a
substantial amount of funds into the company in order that all borrowings have
been repaid in June 1996.
21 CONTINGENT LIABILITY
The company sells high technology products under warranty. Provision is made for
any expected claim under the warranties, although, to date, the company's
experience of warranty claims is limited. Based on current experience, the
directors do not expect any future cost to the company in excess of the level of
provisions for which warranties are included in these financial statements.
The company sold certain intellectual property under a joint user arrangement.
There is a dispute on the availability of such intellectual property to the
company under this joint sales arrangement. No loss to the company is expected
as a result of this dispute.
22 RELATED PARTY TRANSACTIONS
During the period the company was charged pound sterling 10,000 consultancy fees
by one of its associated undertakings, SL Sensors Limited. B Mair is a director
and shareholder of S L Sensors Limited. These transactions were carried out on
an arm's length basis.
<PAGE> 42
SLS (WALES) LIMITED
22
23 NON-EQUITY SHAREHOLDERS FUNDS
Non-equity shareholders funds may be further analysed as follows:
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Cumulative 9 1/2% 'A' redeemable preference shares 100,000 100,000
Cumulative 9 1/2% 'B' convertible redeemable preference shares 100,000 100,000
Cumulative 5% 'C' redeemable preference shares 157,455 157,455
Arrears of dividends on preference shares 73,930 55,965
------- -------
431,385 413,420
======= =======
</TABLE>
<PAGE> 43
Registered no: 2714095
SLS (WALES) LIMITED
Annual report
for the year ended 30 September 1995
<PAGE> 44
SLS (WALES) LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED 30 SEPTEMBER 1995
<TABLE>
<CAPTION>
PAGES
<S> <C>
DIRECTORS AND ADVISERS 1
DIRECTORS' REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES 2 - 4
REPORT OF THE AUDITORS 5 - 6
PROFIT AND LOSS ACCOUNT 7
BALANCE SHEET 8
NOTES TO THE FINANCIAL STATEMENTS 9 - 22
</TABLE>
<PAGE> 45
SLS (WALES) LIMITED 1
DIRECTORS AND ADVISERS
EXECUTIVE DIRECTORS
T Mehl
R M Clement
T J Chapple
SECRETARY AND REGISTERED OFFICE
I Hughes
46/47 Bloomsbury Square
London
WC1A 2RU
AUDITORS
Coopers & Lybrand
Princess House
Princess Way
SWANSEA
SA1 5LH
SOLICITORS
Eversheds, Phillips & Buck
Fitzalan House
Fitzalan Road
CARDIFF
CF2 1XZ
BANKERS
Barclays Bank Plc
PO Box 756
Slough
SL1 4SG
<PAGE> 46
SLS (WALES) LIMITED 2
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 SEPTEMBER 1995
The directors present their report and the audited financial statements for the
year ended 30 September 1995.
PRINCIPAL ACTIVITIES
The profit and loss account for the year is set out on page 7.
The principal activities of the company are the development, manufacture and
marketing of lasers, and associated consultancy and research work. The company
is committed to a programme of continued development of its product range.
SIGNIFICANT EVENTS
On 4 June 1996, Mehl/Biophile International Corporation, a company incorporated
in the United States of America, acquired 81% of the equity share capital of the
company and 100% of the preference share capital. Mehl/Biophile has injected a
substantial amount of funds into the company in order that all borrowings have
been repaid in full shortly after the new accounting reference period which
ended on 31 May 1996.
DIVIDENDS AND TRANSFERS TO RESERVES
The directors do not recommend the payment of a dividend in respect of the year
ended 30 September 1995. The loss for the financial year of pound sterling
152,128 (1994: revised loss pound sterling 241,703) has been transferred to
reserves.
DIRECTORS
The directors of the company at 30 September 1995, both of whom have been
directors for the whole of the year then ended, were:
B Mair (Chairman)
R M Clement
J D Price, D Hoskins and P Woolman who were directors of the company on 1
October 1994, resigned as directors on 24 January 1995, 11 April 1995 and 30
June 1995 respectively. Subsequent to the end of the financial year B Mair
resigned as a director on 4 June 1996 and T Mehl was appointed a director on 4
June 1996 and T J Chapple was appointed a director on 1 August 1996.
<PAGE> 47
SLS (WALES) LIMITED 3
DIRECTORS' INTERESTS IN SHARES
The interests of the directors of the company in the shares of the company at 30
September 1995, together with their interests at 1 October 1994 were as follows:
<TABLE>
<CAPTION>
10p ordinary shares 10p deferred ordinary shares
30 September 1 October 30 September 1 October
1995 1994 1995 1994
<S> <C> <C> <C> <C>
B Mair 3,900 3,900 446,100 446,100
R M Clement 2,500 2,500 500 500
</TABLE>
None of the directors hold any other interests in any other classes of shares
issued by the company.
During the year ended 30 September 1994 a share option scheme was created. The
only director included was B Mair. At 30 September 1995 no options had been
granted or exercised.
CHANGES IN FIXED ASSETS
The movements in tangible fixed assets during the year are set out in note 11 to
the financial statements.
DIRECTORS' RESPONSIBILITIES
The directors are required by UK company law to prepare financial statements for
each financial year that give a true and fair view of the state of affairs of
the company as at the end of the financial year and of the profit or loss and
total recognised gains or losses of the company for that year.
The directors confirm that suitable accounting policies have been used and
applied consistently, and reasonable and prudent judgements and estimates have
been made, in the preparation of the financial statements for the year ended 30
September 1995. The directors also confirm that applicable accounting standards
have been followed and that the financial statements have been prepared on the
going concern basis.
The directors are responsible for keeping proper accounting records, for taking
reasonable steps to safeguard the assets of the company and to prevent and
detect fraud and other irregularities.
TAXATION STATUS
The company is not a close company within the meaning of the Income and
Corporation Taxes Act 1988 and this position has not changed since the end of
the financial year.
<PAGE> 48
SLS (WALES) LIMITED 4
AUDITORS
A resolution to reappoint the auditors, Coopers & Lybrand, will be proposed at
the annual general meeting.
EXEMPTIONS
In preparing the directors report, advantage has been taken of the special
exemptions applicable to small companies conferred by Part II of Schedule 8 of
the Companies Act 1985.
BY ORDER OF THE BOARD
/s/ IAN HUGHES
- --------------
IAN HUGHES
COMPANY SECRETARY
<PAGE> 49
SLS (WALES) LIMITED 5
REPORT OF THE AUDITORS TO THE MEMBERS OF
SLS (WALES) LIMITED
We have audited the financial statements on pages 7 to 22.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 3 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
FUNDAMENTAL UNCERTAINTY
In forming our opinion we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of preparation. The financial
statements have been prepared on a going concern basis, the validity of which
depends upon the company achieving profitability and upon the new shareholder
continuing to support the company through the provision of additional finance
until such profits are achieved.
The financial statements do not include any adjustments that would result from a
failure to achieve future profitability nor from a failure of the new
shareholder to continue to provide support until such profitability is achieved.
Details of the circumstances relating to this fundamental uncertainty are
disclosed in note 1. Our opinion is not qualified in this respect.
<PAGE> 50
SLS (WALES) LIMITED 6
REPORT OF THE AUDITORS TO THE MEMBERS OF
SLS (WALES) LIMITED (CONTINUED)
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 30 September 1995 and of its loss and total
recognised losses for the year then ended and have been properly prepared in
accordance with the Companies Act 1985, applicable to small companies.
/s/ COOPERS & LYBRAND
- ---------------------
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
SWANSEA, 8 AUGUST 1996
<PAGE> 51
SLS (WALES) LIMITED 7
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 1995
<TABLE>
<CAPTION>
NOTES 1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING
<S> <C> <C> <C>
TURNOVER 4 1,297,211 1,299,794
Change in stocks of finished goods and work in
progress (11,366) (66,937)
Own work capitalised -- 165,250
Other operating income 109,068 147,811
Raw materials and consumables (502,494) (556,266)
Other external charges (407,079) (534,662)
Staff costs 5 (504,344) (627,174)
Depreciation and other amounts written off tangible
and intangible fixed assets (61,437) (30,168)
Other operating charges (4,922) (1,059)
--------- ---------
OPERATING LOSS (85,363) (203,411)
Income from participating interests 8,437 --
Interest payable and similar charges 6 (73,515) (38,292)
--------- ---------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 7 (150,441) (241,703)
Tax on loss on ordinary activities 9 (1,687) --
--------- ---------
LOSS FOR THE YEAR 18 (152,128) (241,703)
========= =========
</TABLE>
The company has no recognised gains and losses other than the losses above and
therefore no separate statement of total recognised gains and losses has been
presented.
There is no difference between the operating loss and the loss for the year
stated above, and their historical cost equivalents.
Turnover and operating loss for the year are derived from the continuing
operations of the company.
<PAGE> 52
SLS (WALES) LIMITED 8
BALANCE SHEET
AT 30 SEPTEMBER 1995
<TABLE>
<CAPTION>
1995 1994
NOTES (AS RESTATED)
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 11 167,707 255,049
Investments 12 2,250 2,250
---------- --------
169,957 257,299
CURRENT ASSETS
Stocks 13 87,605 110,208
Debtors 14 360,529 289,281
Cash at bank and in hand -- 192
-------- --------
448,134 399,681
CREDITORS: amounts falling due
within one year 15 (567,598) (574,323)
-------- --------
NET CURRENT LIABILITIES (119,464) (174,642)
---------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 50,493 82,657
CREDITORS: amounts falling due
after more than one year
(including convertible debt) 16 (566,784) (446,820)
---------- --------
NET LIABILITIES (516,291) (364,163)
========== ========
CAPITAL AND RESERVES
Called-up share capital 17 403,010 403,010
Share premium account 18 119,790 119,790
Profit and loss account 18 (1,039,091) (886,963)
---------- --------
TOTAL SHAREHOLDERS' FUNDS 22 (516,291) (364,163)
========== ========
TOTAL SHAREHOLDERS' FUNDS CAN BE
FURTHER ANALYSED AS FOLLOWS:
Equity shareholders' funds (929,711) (748,737)
Non-equity shareholders' funds 26 413,420 384,574
---------- --------
(516,291) (364,163)
========== ========
</TABLE>
In the preparation of the company's annual accounts advantage has been taken of
special exemptions applicable to small companies conferred by Part I of schedule
8 to the Companies Act 1985, because, in the directors' opinion, as it meets the
conditions, the company is entitled to these exemptions as a small company.
The financial statements on pages 7 to 22 were approved by the board of
directors on 8th August 1996 and were signed on its behalf by:
/s/ ROBERT MARC CLEMENT
- -----------------------
ROBERT MARC CLEMENT
DIRECTORS
<PAGE> 53
SLS (WALES) LIMITED 9
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 1995
1 BASIS OF PREPARING THE FINANCIAL STATEMENTS
The company has developed laser technology for use in medical and cosmetic
treatment of skin. Recently the company has successfully launched a product used
for hair depilation and is currently in the process of satisfying an increasing
demand for this product.
On 4 June 1996, 81% of the equity share capital and 100% of the preference share
capital was acquired by Mehl/Biophile International Corporation. Mehl/Biophile
have committed themselves to finance the continuing development of the company.
The financial statements have been prepared on a going concern basis which
assumes that the company will continue in operational existence for the
foreseeable future. The validity of this assumption depends on the new
shareholder providing adequate finance to fund the ongoing requirements of the
company until profitability is achieved.
If the company were unable to continue in operational existence for the
foreseeable future, adjustments would have to be made to reduce the balance
sheet values of assets to their recoverable amounts, to provide for further
liabilities that might arise and to reclassify fixed assets and long term
liabilities as current assets and liabilities.
The directors believe it is appropriate for the financial statements to be
prepared on a going concern basis.
2 PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies, which have been applied consistently, is set out below.
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with the historical cost
convention.
CASH FLOW STATEMENT
The company is exempt under FRS1 from the requirement to prepare a cash flow
statement on the grounds that it is a small company as defined by FRS1.
<PAGE> 54
SLS (WALES) LIMITED 10
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
TANGIBLE FIXED ASSETS
The cost of tangible fixed assets is their purchase cost, together with any
incidental costs of acquisition.
Depreciation is calculated to write off the cost of tangible fixed assets by
equal instalments over the estimated useful economic lives of the assets
concerned. The principal annual rates of depreciation used for this purpose are
set out below:
<TABLE>
<CAPTION>
%
<S> <C>
Leasehold improvements 20
Plant, machinery, fixtures and fittings 20
Motor vehicles 20
</TABLE>
INTANGIBLE FIXED ASSETS
The purchase cost of intellectual property, know how and other intangible assets
are written off to the profit and loss account as the expenditure is incurred.
DEVELOPMENT EXPENDITURE
Development expenditure relating to specific projects intended for commercial
exploitation is carried forward where the ultimate commercial viability has been
assessed with reasonable certainty. Such expenditure is amortised over the
period expected to benefit. Expenditure on pure and applied research and for
products where the long term commercial viability has not been established with
reasonable certainty is written off as incurred.
FINANCE AND OPERATING LEASES
Where the company enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over its estimated useful life or the term of the lease,
whichever is shorter. Future instalments under such leases, net of finance
charges, are included in creditors. Rentals payable are apportioned between the
finance element, which is charged to the profit and loss account, and the
capital element, which reduces the outstanding obligation for future
instalments.
All other leases are accounted for as operating leases and the rental charges
are charged to the profit and loss account on a straight line basis over the
life of the lease.
PENSION COSTS
The company operates a defined contribution pension scheme for the benefit of
certain employees. Pension costs charged to the profit and loss account in the
period represent contributions payable during the period.
<PAGE> 55
SLS (WALES) LIMITED 11
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
Transactions in foreign currency are recorded using the rate of exchange ruling
at the time of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated using the rate of exchange ruling at the
balance sheet date and the gains and losses on translation are included in the
profit and loss account.
INVESTMENTS
Fixed asset investments are stated at cost.
STOCKS AND WORK IN PROGRESS
Stocks and work in progress held for development purposes are written off to the
profit and loss account, in the year in which the expenditure is incurred.
Stocks and work in progress are only recognised where the sales of the products
to which they relate can be determined with reasonable accuracy.
Where stocks and work in progress are recognised stocks and work in progress are
stated at the lower of cost and net realisable value. Cost is determined on a
first in, first out basis. In the case of manufactured products, cost includes
all direct expenditure and production overheads based upon a normal level of
activity. Net realisable value is the price at which the stock can be realised
in the normal course of business after allowing for the costs of realisation
and, where appropriate, the cost of conversion from its existing state to a
finished condition. Provision is made for obsolete, slow-moving and defective
stocks.
DEFERRED TAXATION
Provision is made for deferred taxation at the rate of corporation tax expected
to be in force when the timing differences reverse (the liability method), to
the extent that it is anticipated that a liability will arise.
WARRANTY CLAIMS
Provision is made for the estimated liability on all products under warranty for
which claims have been received.
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of goods
despatched and services rendered during the year.
GOVERNMENT GRANTS
Government grants based on revenue expenditure are accrued and credited to the
profit and loss account as the related expenditure is incurred.
<PAGE> 56
SLS (WALES) LIMITED 12
3 CHANGES IN ACCOUNTING POLICIES
The company has changed its accounting policies in respect of the accounting
treatment of:
(a) intangible assets;
(b) development costs; and
(c) stocks and work in progress.
Previously such items were carried as assets in the balance sheet, although
their ultimate economic value to the company remained uncertain. The audit
opinion in respect of such assets was qualified in previous years. The revised
accounting policies for such assets is to write off such expenditure as incurred
and only to include as assets development costs and stock and work in progress
where there is reasonable certainty that such items will result in the
development and production of products which can be sold on a commercial basis.
The effects of the above changes in accounting policies are disclosed in notes
18 and 24.
4 TURNOVER
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
United Kingdom 905,365 842,326
Rest of Europe 99,632 81,800
Asia 6,005 81,485
Middle East 286,209 294,183
--------- ---------
1,297,211 1,299,794
========= =========
</TABLE>
5 EMPLOYEE INFORMATION
The average weekly number of persons (including executive directors) employed by
the company during the year was:
<TABLE>
<CAPTION>
1995 1994
NUMBER NUMBER
<S> <C> <C>
Administration 16 21
Sales 3 6
Production and development 6 9
-- --
25 36
== ==
</TABLE>
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
STAFF COSTS (FOR THE ABOVE PERSONS)
Wages and salaries 450,480 564,329
Social security costs 41,881 49,985
Other pension costs (see note 21) 11,983 12,860
------- -------
504,344 627,174
======= =======
</TABLE>
<PAGE> 57
SLS (WALES) LIMITED 13
6 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
On debentures, bank loans, overdrafts and other loans:
Due within 5 years, not by instalments 14,247 16,122
Due within 5 years, by instalments 1,302 --
Due in more than five years by instalments 57,966 22,170
------ ------
73,515 38,292
====== ======
</TABLE>
7 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Loss on ordinary activities before taxation is stated after charging:
Directors' remuneration 50,755 69,290
Auditors' remuneration and expenses 7,500 5,950
Depreciation of tangible fixed assets 61,437 30,168
Operating leases - land and buildings 41,880 45,456
and after crediting:
UK government grants receivable 99,068 137,811
====== =======
</TABLE>
8 DIRECTORS EMOLUMENTS
Emoluments paid to directors during the year were (including benefits in kind
and excluding pension costs):
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Aggregate emoluments of the directors 57,673 76,032
====== ======
Emoluments of the chairman 13,871 24,486
====== ======
Emoluments of highest paid director 24,794 37,442
====== ======
</TABLE>
The number of directors (including the chairman and highest paid director) who
received fees and other emoluments (excluding pension contributions) within the
following ranges was:
<TABLE>
<CAPTION>
1995 1994
NUMBER NUMBER
<S> <C> <C>
pound sterling 0 - pound sterling 5,000 2 2
pound sterling 10,001 - pound sterling 15,000 1 --
pound sterling 15,001 - pound sterling 20,000 1 --
pound sterling 20,001 - pound sterling 25,000 1 2
pound sterling 35,001 - pound sterling 40,000 -- 1
</TABLE>
One director, B Mair, has waived emoluments of pound sterling 16,664 due for the
year ended 30 September 1995.
<PAGE> 58
SLS (WALES) LIMITED 14
9 TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Tax credits on franked investment income 1,687 --
===== =====
</TABLE>
Due to the losses incurred during the year there is no liability for taxation
required.
10 INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY DEVELOPMENTS
RIGHTS COSTS TOTAL
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
COST
At 1 October 1994 and 30 September 1995 150,000 367,924 517,924
------- ------- -------
AMORTISATION
At 1 October 1994 27,500 -- 27,500
Prior year adjustment (see note 24) 122,500 367,924 490,424
------- ------- -------
AT 30 SEPTEMBER 1995 150,000 367,924 517,924
------- ------- -------
NET BOOK VALUE
AT 30 SEPTEMBER 1995 -- -- --
======= ======= =======
At 30 September 1994 122,500 367,924 490,424
======= ======= =======
</TABLE>
The company considers there to be a permanent diminution in the value of the
intangible fixed assets as a result of a change in accounting policy to write
off the balance of intangible fixed assets at 30 September 1994.
<PAGE> 59
SLS (WALES) LIMITED 15
11 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
MACHINERY,
LEASEHOLD EQUIPMENT MOTOR
IMPROVEMENTS AND FITTINGS VEHICLES TOTAL
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 October 1994 34,624 256,114 10,083 300,821
Additions - 5,595 - 5,595
Disposals - (31,500) - (31,500)
------ ------- ------ -------
AT 30 SEPTEMBER 1995 34,624 230,209 10,083 274,916
------ ------- ------ -------
DEPRECIATION
At 1 October 1994 13,273 28,812 3,687 45,772
Charge for the year 6,925 52,013 2,499 61,437
------ ------- ------ -------
AT 30 SEPTEMBER 1995 20,198 80,825 6,186 107,209
------ ------- ------ -------
NET BOOK VALUE
AT 30 SEPTEMBER 1995 14,426 149,384 3,897 167,707
====== ======= ====== =======
At 30 September 1994 21,351 227,302 6,396 255,049
====== ======= ====== =======
</TABLE>
Machinery, equipment and fittings includes plant and machinery costs for the
development of products by the Company which are held for the purpose of hire or
resale.
12 INVESTMENTS
<TABLE>
<CAPTION>
ASSOCIATED
UNDERTAKING TOTAL
POUND STERLING POUND STERLING
<S> <C> <C>
COST
AT 30 SEPTEMBER 1994 AND 1995 2,250 2,250
===== =====
NET BOOK VALUE
AT 30 SEPTEMBER 1994 AND 1995 2,250 2,250
===== =====
</TABLE>
The net book value above is represented entirely by a holding of 45% of the
pound sterling 1 ordinary shares of The Charing Cross Hospital Skin Laser Centre
Limited, a company registered in England. The company is not listed on a
recognised investment exchange. The aggregate amount of capital and reserves of
the company at 31 December 1994 were a deficit of pound sterling 3,475 and the
loss for the period ended 31 December 1994 was pound sterling 8,475. The
principal activity of the company is the treatment of skin disorders by the
application of laser technology.
The accounts of The Charing Cross Hospital Skin Laser Centre Limited have not
been included in the accounts of SLS (Wales) limited as SLS (Wales) limited
would qualify as a small group.
<PAGE> 60
SLS (WALES) LIMITED 16
13 STOCKS
<TABLE>
<CAPTION>
1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING
<S> <C> <C>
Raw materials and consumables 87,605 98,842
Work in progress -- 11,366
------ -------
87,605 110,208
====== =======
</TABLE>
The company considers it to be prudent to write off stocks of research and
development items when they are purchased, and to write off stocks which are
unlikely to be sold on a commercial basis.
14 DEBTORS
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Trade debtors 275,382 228,626
Amounts owed by associated undertakings 6,750 --
Prepayments and accrued income 78,397 60,655
------- -------
360,529 289,281
======= =======
</TABLE>
15 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Debenture loans (see note 16) 34,737 28,140
Bank loans and overdrafts (see (a) below) 172,419 204,949
Payments received on account 6,964 20,000
Trade creditors 208,380 238,327
Other creditors -- 5,170
Other taxation and social security 50,009 30,150
Accruals and deferred income 95,089 47,587
------- -------
567,598 574,323
======= =======
</TABLE>
(a) The bank overdraft is secured by a fixed and floating charge over the
assets and undertakings of the company.
<PAGE> 61
SLS (WALES) LIMITED 17
16 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Debenture loan (see (a) below) 351,990 365,320
Bank loans (see (b) below) 128,738 --
Other loans (see (c) below) 81,500 81,500
Convertible loans (see (d) below) 4,556 --
------- -------
566,784 446,820
======= =======
</TABLE>
The above loans were repayable as follows:
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Repayable in 1-2 years 73,777 31,595
Repayable in 2-5 years 332,122 180,026
Repayable in more than 5 years 160,885 235,199
------- -------
566,784 446,820
======= =======
</TABLE>
(a) Debenture loans were issued to enable the company to continue
developing its product ranges. The debenture loans are made up of 2
loans from 3i plc. The first loan attracts interest at a rate of 11.75%
per annum and is repayable by quarterly capital and interest
instalments of pound sterling 15,265 and was due to be repaid in the
year ended 30 September 2001. The second loan attracts interest in
arrears at the rate of 3 1/2% above the higher of 5% per annum and the
relevant LIBOR rate and was repayable in 5 equal annual instalments of
pound sterling 30,000 which were due to commence on 31 December 1997.
Attached to the second loan were share options which give 3i plc the
right to subscribe for 10% of the company's equity share capital at
pound sterling 25 per share up until 31 December 2002. Both loans are
secured by a second fixed and floating charge over the assets and
undertaking of the company.
(b) During the year, pound sterling 150,000 of the bank overdraft was
converted to a bank loan. The bank loan was repayable in 48 monthly
instalments of pound sterling 3,782 which commenced in February 1996.
On inception, the bank loan had a 1 year capital repayment holiday. The
loan attracts interest at 3 1/2% above the bank's base rate. The loan
is secured by a fixed and floating charge on all the assets of the
company and a charge on all the company's worldwide intellectual
property rights.
(c) The other loan represented an amount due to a director of the company,
B Mair. The amount is unsecured and was only due to be repaid when the
3i Group plc debenture loans were repaid in full. The loan attracted no
interest and no movement in the loan took place during the year.
<PAGE> 62
SLS (WALES) LIMITED 18
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
(d) In January 1995 convertible loans were made available to the company by
employees of the company. The loans were repayable at any time at par.
The earliest the loans could have been converted was in the year 2000
at the option of the lender. The shares could be purchased at a fixed
price of pound sterling 25 per share up to a maximum of 1% of the
company's authorised equity share capital. The loan attracts interest
at 3 1/2% above LIBOR and was payable annually.
Subsequent to 31 May 1996, all the loans were repaid from funds introduced by
the new shareholder.
17 SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
AUTHORISED
11,756 ordinary shares of 10p each 1,176 1,176
6,471 convertible 'A' ordinary shares of 10p each 647 647
447,050 deferred ordinary shares of 10p each 44,705 44,705
100,000 cumulative 9 1/2% A redeemable preference
shares of pound sterling 1 each 100,000 100,000
100,000 cumulative 9 1/2% B convertible redeemable
preference shares of pound sterling 1 each 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455
------- -------
403,983 403,983
------- -------
ALLOTTED, ISSUED AND FULLY PAID
8,050 ordinary shares of 10p each 805 805
900 convertible 'A' ordinary shares of 10p each 90 90
446,600 deferred ordinary shares of 10p each 44,660 44,660
100,000 cumulative 9 1/2% A redeemable preference
shares of pound sterling 1 each 100,000 100,000
100,000 cumulative 9 1/2% B convertible redeemable
preference shares of pound sterling 1 each 100,000 100,000
157,455 cumulative 5% C redeemable preference
shares of pound sterling 1 each 157,455 157,455
------- -------
403,010 403,010
======= =======
</TABLE>
DIVIDEND RIGHTS
The following are the dividend rights of the non-equity shares in the order of
entitlement:
- Cumulative 5% 'C' redeemable preference shares - net cash dividend of
five pence per annum per share, payable 30 June and 31 December
- Cumulative 9 1/2% 'A' redeemable preference shares and cumulative
9 1/2% 'B' convertible redeemable preference shares - net cash dividend
of nine and a half pence per share, payable 30 June and 31 December.
<PAGE> 63
SLS (WALES) LIMITED 19
SHARE CAPITAL (CONTINUED)
ARREARS OF DIVIDEND
The following dividends, net of tax credit, were in arrears at 30 September 1995
and covers the period from 1 July 1993 to 30 September 1995:-
<TABLE>
<CAPTION>
POUND STERLING
<S> <C>
'A' Preference shares 21,395
'B' Preference shares 16,840
'C' Preference shares 17,730
------
55,965
======
</TABLE>
CONVERSION RIGHTS
The 'A' ordinary shares may be converted on a one for one basis into ordinary
shares at any time with the agreement of 75% of the holders of 'A' ordinary
shares.
At any time before they have been redeemed a certain number of the B preference
shares may be sub-divided into 10p shares and converted into a mixture of 'A'
ordinary shares and deferred shares. The number which may be converted depends
on the number subscribed for, as follows:
The number of 'B' preference shares which may be subdivided and converted shall
be determined by the number of 'B' preference shares which have then been
subscribed for (regardless of whether or not any such 'B' preference shares were
subsequently redeemed) as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
TOTAL NUMBER OF 'B' PREFERENCE SHARES
PREFERENCE SHARES TO BE SUBDIVIDED
SUBSCRIBED FOR AND CONVERTED
<S> <C>
25,000 6,400
50,000 13,150
75,000 20,275
100,000 27,775
</TABLE>
The number of deferred shares and 'A' ordinary shares resulting from the
subdivision and conversion will be determined by the number of 'B' preference
shares being subdivided and converted as follows:
<TABLE>
<CAPTION>
NUMBER OF 'B'
PREFERENCE SHARES NUMBER OF NUMBER
SUBDIVIDED AND 'A' ORDINARY OF DEFERRED
AND CONVERTED SHARES RESULTING SHARES RESULTING
<S> <C> <C>
6,400 224 63,776
13,150 466 131,034
20,275 720 202,030
27,775 989 276,761
</TABLE>
<PAGE> 64
SLS (WALES) LIMITED 20
SHARE CAPITAL (CONTINUED)
REDEMPTION RIGHTS
The redeemable shares were due to be redeemed at par, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE TO BE REDEEMED
<S> <C>
A PREFERENCE SHARES
30 June 1995 33,333
30 June 1996 33,333
30 June 1997 33,334
B PREFERENCE SHARES
30 June 1998 50,000
30 June 1999 50,000
C PREFERENCE SHARES
30 June 2000 157,455
</TABLE>
The company may, with the agreement of the individual preference shareholders,
redeem shares earlier than these due dates. The company did not redeem the A
preference shares due for redemption on 30 June 1995 and was in discussions with
the preference shareholders regarding the redemption of the preference shares.
All of the preference shares were acquired by Mehl/Biophile International
Corporation in June 1996 (see note 23).
18 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM PROFIT AND
ACCOUNT LOSS ACCOUNT
POUND STERLING POUND STERLING
<S> <C> <C>
At 1 October 1994 as previously stated 119,790 (108,347)
Prior year adjustment (see note 24) -- (778,616)
------- ----------
At 1 October 1994 as restated 119,790 (886,963)
Loss for the year -- (152,128)
------- ----------
At 30 September 1995 119,790 (1,039,091)
======= ==========
</TABLE>
19 FINANCIAL COMMITMENTS
At 30 September 1995 the company had annual commitments under non-cancellable
operating leases for land and buildings as follows:
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Expiring in over five years 24,000 45,450
====== ======
</TABLE>
<PAGE> 65
SLS (WALES) LIMITED 21
20 TRANSACTIONS WITH DIRECTORS
During the year, two of the directors, D Hoskins and J D Price carried out
consultancy work for which the company was invoiced pound sterling 7,931 and
pound sterling 4,000 respectively.
21 PENSION COSTS
The company operates a defined contribution pension scheme. The assets of the
scheme are held separately from those of the company. The pension cost charge
for the year represents contributions payable by the company to the fund and
amounted to pound sterling 11,983 (1994: pound sterling 12,860). Contributions
amounting to pound sterling 9,151 were payable to the fund and are included in
creditors at 30 September 1995.
22 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1995 1994
(AS RESTATED)
POUND STERLING POUND STERLING
<S> <C> <C>
Issue of share capital including share premium -- 75,000
Loss for the financial year (152,128) (241,703)
-------- --------
Net movement in shareholders' funds (152,128) (166,703)
Opening shareholders' funds (364,163) (197,460)
-------- --------
Closing shareholders' funds (516,291) (364,163)
======== ========
</TABLE>
23 SIGNIFICANT EVENTS
On 4 June 1996, Mehl/Biophile International Corporation, a company incorporated
in the United States of America, acquired 81% of the equity share capital of the
company and 100% of the preference share capital. Mehl/Biophile has injected a
substantial amount of funds into the company in order that all borrowings have
been repaid in June 1996.
24 PRIOR YEAR ADJUSTMENT
The prior year adjustment is made up as follows:
<TABLE>
<CAPTION>
POUND STERLING
<S> <C>
Research and development costs previously capitalised
relating to year ended 30 September 1994 131,984
relating to year ended 30 September 1993 358,440
Write off of stock as a result of a change in accounting policies:
relating to year ended 30 September 1994 19,763
relating to year ended 30 September 1993 268,429
-------
778,616
=======
</TABLE>
<PAGE> 66
SLS (WALES) LIMITED 22
25 CONTINGENT LIABILITIES
The company sells high technology products under warranty. Provision is made for
any expected claim under the warranties, although, to date, the company's
experience of warranty claims is limited. Based on current experience, the
directors do not expect any future cost to the company in excess of the level of
provisions for which warranties are included in these financial statements.
The company sold certain intellectual property under a joint user arrangement.
There is a dispute on the availability of such intellectual property to the
company under this joint sales arrangement. No loss to the company is expected
as a result of this dispute.
26 NON-EQUITY SHAREHOLDERS FUNDS
Non-equity shareholders funds may be further analysed as follows:-
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Cumulative 9 1/2% A redeemable preference shares 100,000 100,000
Cumulative 9 1/2% B convertible redeemable preference shares 100,000 100,000
Cumulative 5% C redeemable preference shares 157,455 157,455
Arrears of dividend on preference shares 55,965 27,119
------- -------
413,420 384,574
======= =======
</TABLE>
<PAGE> 67
SLS (WALES) LIMITED
CASHFLOW STATEMENT FOR THE PERIOD ENDED
31 MAY 1996
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
OPERATING ACTIVITIES
Net cash inflow/(outflow) from operating activities 100,000 (54,759)
------- -------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid on bank overdrafts, loans and
other loans (10,263) (19,861)
Interest paid on finance leases and hire purchase
agreements -- (1,302)
Interest paid on debenture loans (19,613) (44,206)
Dividends received (net of ACT) 9,000 --
------- -------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (20,876) (65,369)
------- -------
INVESTING ACTIVITIES
Purchase of tangible fixed assets (4,979) (5,595)
Sale of tangible fixed assets 6,828 31,500
------- -------
NET CASH INFLOW FROM INVESTING ACTIVITIES 1,849 25,905
------- -------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 80,973 (94,223)
------- -------
FINANCING
Repayment of bank loans (15,127) --
Bank loan received -- 150,000
Repayment of debenture loans -- (6,733)
Convertible loans received -- 4,556
------- -------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (15,127) 147,823
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 65,846 53,600
======= =======
</TABLE>
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 68
SLS (WALES) LIMITED
RECONCILIATION OF OPERATING LOSS TO
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
Operating loss (106,246) (85,363)
Depreciation of tangible fixed assets 47,007 61,437
Transfer of fixed assets to stock 6,334 --
(Increase)/decrease in stocks (44,414) 22,603
Decrease/(increase) in trade debtors 39,292 (46,756)
Increase in other debtors (35,847) --
Decrease/(increase) in prepayments and accrued income 5,729 (17,742)
Increase/(decrease) in trade creditors 93,598 (29,947)
Increase/(decrease) in payments received on account 46,640 (13,036)
(Decrease)/increase in other taxation and social security (21,650) 19,859
Decrease in other creditors -- (5,170)
Increase in accruals and deferred income 69,557 39,356
-------- --------
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 100,000 (54,759)
-------- --------
</TABLE>
CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
POUND STERLING POUND STERLING
<S> <C> <C>
CHANGES DURING THE YEAR
At 1 October 1995 (151,157) (204,757)
Net cash inflow 65,846 53,600
-------- --------
AT 31 MAY 1996 (85,311) (151,157)
-------- --------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF BALANCES
CHANGE
1996 IN YEAR 1995
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Bank overdraft (85,311) 65,846 (151,157)
======= ====== ========
</TABLE>
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 69
SLS (WALES) LIMITED
CASHFLOW STATEMENT FOR THE YEAR ENDED
30 SEPTEMBER 1995
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
OPERATING ACTIVITIES
Net cash outflow from operating activities (54,759) (246,973)
------- -------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid on bank overdrafts, loans and other loans (19,861) (16,122)
Interest paid on finance leases and hire purchase
agreements (1,302) --
Interest paid on debenture loans (44,206) (22,170)
------- -------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (65,369) (38,292)
------- -------
INVESTING ACTIVITIES
Purchase of tangible fixed assets (5,595) (197,094)
Sale of tangible fixed assets 31,500 --
Purchase of fixed asset investments -- (2,250)
------- -------
NEW CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES 25,905 (199,344)
------- -------
NEW CASH OUTFLOW BEFORE FINANCING (94,223) (484,609)
------- -------
FINANCING
Issue of shares -- 75,000
Debenture loans received -- 337,500
Other loans received -- 46,500
Bank loan received 150,000 --
Repayment of debenture loans (6,733) (6,540)
Convertible loans received 4,556 --
------- -------
NET CASH INFLOW FROM FINANCING 147,823 452,460
------- -------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 53,600 (32,149)
======= ========
</TABLE>
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 70
SLS (WALES) LIMITED
RECONCILIATION OF OPERATING LOSS TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
Operating loss (85,363) (203,411)
Depreciation of tangible fixed assets 61,437 30,168
Decrease/(increase) in stocks 22,603 (21,905)
Increase in trade debtors (46,756) (51,844)
Decrease in other debtors - 17,041
(Increase)/decrease in prepayments and accrued income (17,742) 24,482
(Decrease)/increase in trade creditors (29,947) 32,941
Decrease in payments received on account (13,036) (65,000)
Increase in other taxation and social security 19,859 14,401
Decrease in other creditors (5,170) (5,493)
Increase/(decrease) in accruals and deferred income 39,356 (18,353)
------- --------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (54,759) (246,973)
------- --------
</TABLE>
CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994
POUND STERLING POUND STERLING
<S> <C> <C>
CHANGES DURING THE YEAR
At 1 October 1994 (204,757) (172,608)
Net cash inflow/(outflow) 53,600 (32,149)
-------- --------
At 30 September 1995 (151,157) (204,757)
-------- --------
</TABLE>
ANALYSIS OF BALANCES
<TABLE>
<CAPTION>
CHANGE
1995 IN YEAR 1994
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Cash at bank and in hand - (192) 192
Bank overdraft (151,157) 53,792 (204,949)
-------- -------- --------
(151,157) 53,600 (204,757)
======== ======== ========
</TABLE>
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 71
SLS (WALES) LIMITED
CASHFLOW STATEMENT FOR THE YEAR ENDED
30 SEPTEMBER 1995
<TABLE>
<CAPTION>
1994 1993
POUND STERLING POUND STERLING
<S> <C> <C>
OPERATING ACTIVITIES
Net cash outflow from operating activities (246,973) (604,349)
-------- --------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid on bank overdrafts, loans and
other loans (16,122) (7,109)
Interest paid on finance leases and hire
purchase agreements -- (1,070)
Interest paid on debenture loans (22,170) (543)
-------- --------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (38,292) (8,722)
-------- --------
INVESTING ACTIVITIES
Purchase of tangible fixed assets (197,094) (106,837)
Sale of tangible fixed assets -- 2,000
Purchase of fixed asset investments (2,250) --
-------- --------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (199,344) (104,837)
-------- --------
NET CASH OUTFLOW BEFORE FINANCING (484,609) (717,908)
-------- --------
FINANCING
Issue of shares 75,000 447,800
Debenture loans received 337,500 62,500
Other loans received 46,500 35,000
Repayment of debenture loans (6,540) --
-------- --------
NET CASH INFLOW FROM FINANCING 452,460 545,300
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (32,149) (172,608)
======== ========
</TABLE>
The above cash flow statement has been adjusted for the change in accounting
policies by the company which have been reflected in the 1995 statutory
accounts of the company. The comparative figures for 1994 have also been
adjusted for in the statutory accounts of the company.
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 72
SLS (WALES) LIMITED
RECONCILIATION OF OPERATING LOSS TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1994 1993
POUND STERLING POUND STERLING
<S> <C> <C>
Operating loss (203,411) (636,538)
Depreciation of tangible fixed assets 30,168 15,993
Loss on sale of tangible fixed assets -- 721
Increase in stocks (21,905) (88,303)
Increase in trade debtors (51,844) (176,782)
Decrease/(increase) in other debtors 17,041 (17,041)
Decrease/(increase) in prepayments and accrued income 24,482 (85,137)
Increase in trade creditors 32,941 205,386
(Decrease)/increase in payments received on account (65,000) 85,000
Increase in other taxation and social security 14,401 15,749
(Decrease)/increase in other creditors (5,493) 10,663
(Decrease)/increase in accruals and deferred income (18,353) 65,940
-------- --------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (246,973) (604,349)
</TABLE>
CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1994 1993
POUND STERLING POUND STERLING
<S> <C> <C>
CHANGES DURING THE YEAR
AT 1 October 1993 (172,608) --
Net cash outflow (32,149) (172,608)
-------- --------
At 30 September 1994 (204,757) (172,608)
-------- --------
</TABLE>
ANALYSIS OF BALANCES
<TABLE>
<CAPTION>
CHANGE
1994 IN YEAR 1993
POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C>
Cash at bank and in hand 192 192 --
Bank overdraft (204,949) (32,341) (172,608)
-------- -------- --------
(204,757) (32,149) (172,608)
======== ======== ========
</TABLE>
These cashflow statements have been prepared for information purposes only and
have not been audited and do not form part of the audited financial statements.
<PAGE> 73
ITEM 7 (b) PROFORMA FINANCIAL INFORMATION
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MAY 31, 1996
(DOLLAR AMOUNTS EXPRESSED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MEHL/BIOPHILE
INTERNATIONAL CLASSY LADY PROFORMA
CORPORATION BY MEHL SLS -----------
AND OF PUERTO (WALES) (UNAUDITED)
SUBSIDIARY RICO, INC. LIMITED ADJUSTMENTS CONSOLIDATED
---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 9,839 $ 9,839
Accounts receivable, net 484 $ 530 1,014
Inventories 388 203 591
Marketable securities 478 478
Note receivable, current portion 100 100
Other current assets 66 66
------- ------- -------
Total current assets 11,355 733 12,088
PROPERTY AND EQUIPMENT, net 6 $ 48 54
PATENTS AND PATENT RIGHTS, net 95 26 173 (1) 1,320 5,385
(2) 3,771
NOTES AND LOANS RECEIVABLE - 4,203 (3) (850)
RELATED PARTIES, net of current portion (2) (1,900) 1,453
OTHER ASSETS
Investment in non-marketable securities 750 4 754
Other 39 39
------- ------ ------- ----------- -------
$16,448 $ 74 $ 910 $ 2,341 $19,773
======= ====== ======= =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans and cash overdraft $ 185 $ 185
Current portion of long-term debt 83 83
Accounts payable $ 208 465 673
Accrued expenses and deferred income 111 $ 190 356 657
Notes payable, related party 850 (3) (850)
Other current liabilities 10 82 92
------- ------ ------- ----------- -------
Total current liabilities 329 1,040 1,171 (850) 1,690
------- ------ ------- ----------- -------
LONG-TERM DEBT, net of current portion 750 799 1,549
------- ------- -------
MINORITY INTEREST IN SUBSIDIARY (2) 612 612
STOCKHOLDERS' EQUITY: ----------- -------
5% cumulative convertible series C preferred
stock, $1,000 stated value, 10,000 shares
authorized, issued and outstanding 10,000 549 (2) (549) 10,000
Common stock, $.01 par value,
authorized-20,000,000 shares: (1) 250
Issued-18,132,516 shares of Selvac and (2) (71)
43,157,560 proforma shares 181 1 71 (1) (1) 431
Additional paid-in capital 12,055 184 (1) 1,071 13,325
(2) 15
Receivable for stock (1) (1)
Accumulated deficit (5,909) (966) (1,911) (2) 1,911 (6,875)
Unrealized loss-marketable securities (3) (3)
Foreign currency transaction adjustment 47 (2) (47)
------- ------ ------- ----------- -------
16,324 (966) (1,060) 2,579 16,877
Treasury stock, at cost, 2,474,959 common shares (955) (955)
------- ------ ------- ----------- -------
Total stockholders' equity 15,369 (966) (1,060) 2,579 15,922
------- ------ ------- ----------- -------
$16,448 $ 74 $ 910 $ 2,341 $19,773
======= ====== ======= =========== =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 74
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31, 1996
(DOLLAR AMOUNTS EXPRESSED IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MEHL/BIOPHILE
INTERNATIONAL CLASSY LADY PROFORMA
CORPORATION BY MEHL SLS -----------
AND OF PUERTO (WALES) (UNAUDITED)
SUBSIDIARY RICO, INC. LIMITED ADJUSTMENTS CONSOLIDATED
---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 2,352 $2,457 $ 4,809
COST OF REVENUES 1,517 1,184 2,701
----------- ------ -----------
GROSS MARGIN 835 1,273 2,108
----------- ------ -----------
OPERATING EXPENSES:
Research and development $ 132 132
Selling, general and administration 1,585 834 1,440 (4) 781 4,640
Interest expense 33 144 177
----------- ----- ------ -----------
1,618 966 1,584 781 4,949
----------- ----- ------ ----------- -----------
(783) (966) (311) (781) (2,841)
MINORITY INTEREST IN
LOSS OF SUBSIDIARY (5) 177 177
OTHER INCOME 193 7 200
----------- ----- ------ ----------- -----------
LOSS BEFORE INCOME TAXES (590) (966) (304) (604) (2,464)
RECOVERY OF INCOME TAXES
----------- ----- ------ ----------- -----------
NET LOSS $ (590) $(966) $ (304) $ (604) $ (2,464)
=========== ===== ====== =========== ===========
NET LOSS PER COMMON SHARE $ (.04) $ (.06)
=========== ===========
LOSS APPLICABLE TO COMMON STOCK $ (614) $ (2,488)
=========== ===========
WEIGHTED AVERAGED NUMBER OF
COMMON SHARES AND DILUTIVE
COMMON EQUIVALENT SHARES
OUTSTANDING DURING PERIOD 14,075,207 39,100,251
========== ==========
WEIGHTED AVERAGED NUMBER OF
COMMON SHARES ASSUMING FULL
DILUTION DURING PERIOD 14,075,207 39,100,251
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 75
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS EXPRESSED IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
MEHL/BIOPHILE
INTERNATIONAL CLASSY LADY PROFORMA
CORPORATION BY MEHL SLS -----------
AND OF PUERTO (WALES) (UNAUDITED)
SUBSIDIARY RICO, INC. LIMITED ADJUSTMENTS CONSOLIDATED
---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 2,745 $ 2,295 $ 5,040
COST OF REVENUES 1,563 900 2,463
------- ------- -------
GROSS MARGIN 1,182 1,395 2,577
------- -------
OPERATING EXPENSES:
Selling, general and administrative 1,088 1,648 (4) 750 3,486
Loss on sale of property and equipment 20 20
Loss on sale of marketable securities 8 8
Interest 104 104
------- ------- ------ -------
1,116 1,752 750 3,618
------- ------- ------ -------
66 (357) (750) (1,041)
MINORITY INTEREST IN LOSS
OF SUBSIDIARY (5) 186 186
OTHER INCOME 127 7 134
------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES 193 (350) (564) (721)
PROVISION FOR INCOME TAXES 49 49
------- ------- ------ -------
NET INCOME (LOSS) $ 144 $ 0 $ (350) $ (564) $ (770)
======= ======== ======= ====== =======
NET INCOME (LOSS) PER COMMON
SHARE $ .01 $ (.02)
======= =======
INCOME (LOSS) APPLICABLE TO
COMMON STOCK $ 86 $ (728)
======= =======
WEIGHTED AVERAGED NUMBER OF
COMMON SHARES AND DILUTIVE
COMMON EQUIVALENT SHARES
OUTSTANDING DURING PERIOD 14,345,234 39,370,278
========== ==========
WEIGHTED AVERAGED NUMBER OF
COMMON SHARES ASSUMING FULL
DILUTION DURING PERIOD 14,345,234 39,370,278
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 76
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITIONS:
On June 4, 1996, the Registrant completed the purchase of capital stock
representing in the aggregate of 81% interest in SLS ( Wales) Limited,
a privately held Welsh company ("SLS") engaged in developing,
manufacturing and selling lasers primarily in the field of hair
removal. The consideration for the acquisition of the SLS shares
consisted of a cash payment approximately $1.9 million and the
assumption of certain liabilities and obligations of SLS and the
issuance of 25,044 shares of the Registrant's Common Stock.
Additionally, on June 4, 1996, Classy Lady by Mehl of Puerto Rico, Inc.
a privately-held Puerto Rico company ("Classy Lady"), merged with and
into a wholly-owned subsidiary of the Registrant (the "Merger"). In
consideration for the Merger, the Registrant issued an aggregate of
25,000,000 shares of Common Stock, $.01 par value per share, to the
shareholders of Classy Lady.
In exchange for the issuance of the shares of the Registrant issued
pursuant to the Merger, the Registrant obtained all of the stock of
Classy Lady, which owns the exclusive licensing rights granted to
Classy Lady by Thomas L. Mehl, Sr. for a multiple hair removal
technology and by Dr. Nardo Zaias for a laser hair removal technology.
The Merger was completed in accordance with the terms of the Second
amended and Restated Agreement and Plan of Merger dated as of June 4,
1996 ( the "Merger Agreement"). Pursuant to the Merger Agreement,
the name of the Registrant was changed to Mehl/Biophile International
Corporation.
PROFORMA ADJUSTMENTS:
The proforma adjustments give effect to the SLS transaction accounted
for as a purchase acquisition, and the Classy Lady Merger accounted for
as a non-monetary exchange, as if they had occurred on June 1, 1994. As
a valuation of the Classy Lady intangible assets would be highly
subjective, such valuation is based on the value of the Company's
common shares to be issued.
Increases to the carrying value of acquired patent and patent rights
are amortized over their estimated economic useful lives which range
from 6 to 9 years. Amortization is calculated beginning the later of
June 1, 1994 or the issue date of the particular patent.
MAY 31, 1996 BALANCE SHEET ADJUSTMENTS:
(1) Issuance of 25,000,000 shares of the Company's common stock in
exchange for all of the voting stock and stock rights in
Classy Lady:
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
<S> <C>
Assets:
Patents and Patent Rights $ 1,320,000
-----------
Liabilities and Stockholders Equity:
Selvac $.01 par value Common Stock issued $ 250,000
Classy Lady Common Stock (1,000)
Additional Paid-in-Capital 1,071,000
-----------
$ 1,320,000
===========
</TABLE>
(2) Application of approximately 1.9 million advanced deposit and
issuance of 25,044 shares of the Company's common stock in
exchange for 81% interest in SLS.
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
<S> <C>
Assets:
Patents and Patents Rights $ 3,771,000
Notes and loans receivable related party (1,900,000)
-----------
$ 1,871,000
===========
Liabilities and Stockholders Equity:
Minority interest $ 612,000
Preferred stock (549,000)
Common stock (71,000)
Paid in capital 15,000
Retained earnings 1,911,000
Foreign currency translation adjustment (47,000)
-----------
$ 1,871,000
===========
</TABLE>
<PAGE> 77
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MAY 31, 1996 BALANCE SHEET ADJUSTMENTS: (continued)
(3) Elimination of intercompany notes, loans and advances.
<TABLE>
<CAPTION>
Increase
(Decease)
---------
<S> <C>
Assets:
Notes receivable - related parties $(850,000)
=========
Liabilities:
Notes payable - related party $(850,000)
=========
</TABLE>
ADJUSTMENTS TO THE STATEMENTS OF OPERATIONS:
(4) Increase in amortization expense resulting from increase in
carrying amounts of patents and patent rights:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
----- ----
<S> <C> <C>
Operating expenses $781,000 $750,000
======== ========
</TABLE>
(5) Allocation of SLS loss to minority interest investees:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
----- ----
<S> <C> <C>
Minority interest in loss of
subsidiary $177,000 $186,000
======== ========
</TABLE>
FOREIGN CURRENCY TRANSLATION:
The functional currency for SLS is the British Pound. SLS assets and
liabilities have been translated into U.S. dollars at the rate of exchange in
effect at the balance sheet date. Revenues and expenses have been translated at
the average exchange rate for each respective period.
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEHL/BIOPHILE INTERNATIONAL CORPORATION
By: /s/ Thomas L. Mehl, Sr.
-----------------------------------
Title Chief Executive Officer
Date: August 19, 1996
