<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB-A2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-11969
SELVAC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2408186 .
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
221 Boston Post Road
Marlboro, Massachusetts 01752
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 481-9495
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, $.01 par value
Common stock purchase warrant, entitling the holder to purchase one
share of common stock at $1.25 per share to December 7, 1996
Unit, consisting of (a) four shares of common stock and (b) four common
stock purchase warrants
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,744,620
The appropriate aggregate market value of the voting stock of the Registrant
held by nonaffiliates of the Registrant as of July 31, 1995 (based upon the
closing bid and asked prices as reported by the National Association of
Securities Dealers Automatic Quotation System) was approximately $ 1,937,043.
The number of shares outstanding of each of the registrant's claims of stock,
as of July 31, 1995, is 13,723,126
Exhibit index is located on page 11 of this Annual Report Form 10-KSB.
<PAGE> 2
PART I
ITEM 1. BUSINESS:
Selvac Corporation (Selvac or the Registrant) is incorporated under the laws of
Delaware. As used herein the term "Company" refers to Selvac.
After the sale of substantially all of the assets used in the Company's Home
Entertainment Segment effective at the close of business on May 31, 1994,
the Company's Personal Care Appliance division was its only significant
industry segment.
Business Development:
On April 22, 1985, the Company acquired all of the outstanding capital
stock of (a) The Mehl International Corporation (Mehl) and (b) Nutrolysis
International Corporation (Nutrolysis) for 1,000,000 and 100,000 shares,
respectively, of common stock of the Company. Certain additional cash
payments were made, and royalty payments of 2% of net Finally Free Hair Remover
(Finally Free) worldwide sales collections are being made to the stockholders
of Mehl. As part of the acquisition, the Company was assigned the rights to
an exclusive License Agreement with Thomas L. Mehl, Jr., the inventor of
Finally Free, for the licensed patent rights to his invention. The Agreement
calls for payments of $1.50 per unit royalty for the first 500,000 units and
$1.00 per Finally Free unit thereafter for the life of the patents. All
royalties are based on net unit sales. Royalty expense under the agreements
for fiscal years ended May 31, 1995, 1994, and 1993 was approximately $53,000,
$64,000 and $96,000 respectively. An additional 100,000 shares of common stock
of the company were issued by the Company to an investment banker for
services in connection with the acquisition. Mehl was the owner of the Finally
Free hair removal appliance described below.
Effective January 1, 1988, the Company merged the assets of its two wholly
owned subsidiaries, The Mehl International Corporation and Nutrolysis
International Corporation into Selvac Corporation. The subsidiaries were
liquidated in order to reduce the administrative costs associated with
maintaining more than one corporation.
The Company entered the personal care appliance business in 1985 with its
acquisition of Mehl and Nutrolysis. Mehl owned the rights to a proprietary
patented method of hair removal that uses directed radio frequency waves. This
technology is employed in two products - a consumer appliance sold under the
trade name Finally Free and a professional appliance sold under the trade name
NU-Trolysis.
Both Finally Free and NU-Trolysis use the same energy, radio frequency. The
unit's patented plated tips grasp the unwanted hair above the skin line. There
is no needle, no head, and no pain. The radio frequency is transmitted from
the unit to the hair where it works to weaken the chemical structure of the
hair so that it can be easily removed.
Selvac has the worldwide rights to manufacture and sell products sold under the
patented Mehl method to hair removal. The United States patents relating to
hair removal system expire in 1996. The Company holds trademarks for the names
"Selvac", "Finally Free", and "NU-Trolysis". Expiration of US patents is not
expected to have a significant impact on the Company's operations or financial
condition.
<PAGE> 3
As had been noted in previous years' Forms 10-K and 10-KSB as well as quarterly
filings, the FDA determined that the Company did not have the appropriate
marketing approval to sell Finally Free domestically. The Company filed a
number of appeals as well as developed and submitted new data in an attempt to
gain marketing approval. On June 28, 1991, the United States District Court
for the Eastern District of Pennsylvania approved a settlement, the Company
denied allegations of the complaint but agreed, among other things, that the
Company would not manufacture, process, pack, label, promote, advertise,
distribute, or sell Finally Free unless and until it received marketing
authorization from FDA. On December 6, 1991, FDA requested that the Company
provide additional information for its 510(k) filing as part of the marketing
authorization process. In February of 1992, Selvac received export approval
for existing domestic units of Finally Free to Canada from the FDA. In July
1994, the FDA determined that Finally Free shall be considered a Class III
device under the Food, Drug and Cosmetic Act and accordingly, will require
premarket approval before it is sold, manufactured or distributed in the U.S.
Finally Free has represented the single largest part of the Company's sales
since its acquisition. The uncertainty raised by the FDA situation caused the
Company to look toward its foreign markets for new marketing opportunities.
Hair removal is practiced worldwide, and the Company moved aggressively to open
new markets, distributors, and sources of supply. The Finally Free sales base
has shifted to international distribution primarily in Canada, England, Japan,
Australia, Spain, and Korea. Manufacture of the Finally Free is through a
manufacturer in the United Kingdom. Management believes that the international
appliance business segment represents the Company's best opportunity for sales
growth. The Company plans to continue to pursue additional international
markets during the next year as well as evaluate new appliances for its
distribution network.
Export sales primarily of Finally Free products, amounted to $2,733,000,
$2,897,000 and $3,823,000 in 1995, 1994 and 1993, respectively. The 1995
export sales were $2,090,000 to Japan and $322,000 to Europe. The 1994 export
sales included approximately $1,846,000 to Japan and $412,000 to Europe.
Export sales for 1993 included approximately $1,335,000 to Japan and $1,810,000
to Europe.
Sales to major customers as a percentage of total sales for the Company's
personal care appliance segment were as follows:
1995 1994 1993
Ikeda Corporation 76% 68% 36%
Cranley Distribution 36%
Impromedia S.L. 10% 25%
Percentages not presented represent less than 10% of the sales from continuing
operations.
Any substantial decrease in sales to Ikeda Corporation would have a significant
detrimental impact on the Company's operations and financial condition.
The NU-Trolysis unit is sold to dermatologists, estheticians and salons for use
on their patients/clients. NU-Trolysis is offered for sale both domestically
and internationally. The NU-Trolysis system is marketed in the United States
pursuant to Section 510(k) Notification K780348, which was cleared by the FDA
on May 18, 1974. To the best of its knowledge, the Company is in compliance
with all manufacturing and annual registration requirements for this product.
<PAGE> 4
The Company has moved its focus on skin care products overseas. The Finally
Firm Facial Toning System (Finally Firm) is being marketed in Korea. A test
market for this unique skin care product continues in Japan and another test
market in Taiwan is to begin in fiscal 1996. These efforts are not expected to
produce meaningful results prior to the summer of 1996. The Company will also
attempt to increase its market for Finally Firm in the United States and
Europe. While Finally Firm's sales accounted for less than 5% of revenues for
the Company's personal care appliance segment for each of the past three years,
efforts will be made to increase sales of this product in future years.
The Company is party to a Royalty Agreement with a concern entitled to
manufacturing rights for Finally Firm. The terms of this agreement call for
royalty payments of $15 per unit for sales of 25,000 units of Finally Firm
after the sale of the first 10,000 units. The Royalty amount is reduced to 3%
of sales for units sold thereafter. Royalty expense for the years ended May
31, 1995, 1994 and 1993, under the terms of this agreement, were $48,000,
$25,000 and $35,000, respectively.
The domestic personal care business has historically been highly seasonal, with
the fall selling season being its strongest period. The consent decree with
FDA has resulted in a shift in focus to international markets and
internationally, the Company believes that its business is not seasonal in any
material respect.
Research and development expenditures were less that .5% of consolidated net
sales for each of the past three years.
Competitive Business Conditions:
As a result of FDA restrictions, the Company does not produce or sell its
Finally Free product in the US. Sales have been through arrangements with
distributors in Japan, Canada, Korea, Spain, United Kingdom, Australia,
Netherlands and other lesser significant foreign markets.
Significant competitive products in this industry include over-the-counter
depilatory solutions, "waxing" products for home use and products which employ
technologies similar to those employed by Finally Free (knock-off products).
The Company markets its product as a painless alternative to commercially
available electrolysis and waxing without the potential for skin rashes and
irritation associated with depilatory solutions.
The Company sells its Finally Free product at prices competitive with those of
knock-off products, with the benefit of patent protection and what management
considers to be superior design and performance qualities. Additionally, the
Company takes necessary actions to assure that its products meet regulatory
e-by-case basis concerning whether or not action is taken against competitors
offering products considered to be in violation of Company patents. Such
decisions give consideration to anticipated costs and benefits.
Selvac System:
Management of Selvac has decided to withhold any further investment in the
SELVAC SYSTEM until there is convincing evidence from consumers that such
investment would be productive. The SELVAC SYSTEM is a nonaerosol dispensing
unit employing a push-button continuous action mechanism.
Resources:
At July 31, 1995, the Company employed 5 employees (4 full time and 1 part
time). As a marketing company, Selvac has elected not to manufacture its
product directly. In the case of Finally Free and Finally Firm appliances, the
Company owns the molds from which the plastic parts are produced as well as
some of the production equipment and uses two primary vendors for the actual
assembly work. Neither of these vendors is under contract and numerous
alternative vendors are available to produce the Company's products. No
unusual quality control, production or delivery problems have been encountered
with current suppliers.
<PAGE> 5
Business Disposition:
Effective at the close of business on May 31, 1994, the Company sold
substantially all of the assets of Video Knights, Inc., its unprofitable
subsidiary, to Roadrunner Video Enterprises, Inc. for $350,000 cash and
promissory notes aggregating $1,060,000. For further information, see Note 4
to the consolidated financial statements.
The Company has retained the trademarks and franchising rights for "Video
Knights" and "Just the Hits". One video cassette retail facility is in
operation under a Video Knights franchise agreement at no cost to the Company.
There are no immediate plans or intentions to sell additional franchises.
Management has and will continue to entertain offers to sell its "Video
Knights" and "Just the Hits" trademarks and franchising rights.
Backlog:
The sales order backlog of the Company, at any point in time, is negligible.
Orders are shipped from inventory as received and are based upon purchase
orders.
<PAGE> 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Results of Operations:
For the year ended May 31, 1995, the Company realized a profit from continuing
operations of $144,000, $.01 per share as compared to a loss of $260,000, $.02
per share, for the previous year. This return to profitability was primarily
attributed to reduced selling, general and administrative costs in 1995 as a
result of efforts instituted by management and the absence of certain "non-
recurring costs" which had an impact on 1994 operations.
For the year ended May 31, 1995 net sales were $2,745,000, a decrease of
$208,000 or 6% as compared to the prior year. Increased competition
necessitated price reductions which was the primary factor contributing to the
decrease in net sales. Despite the price reductions, cost of sales, as a
percentage of sales, was 57% for both 1995 and 1994. This is primarily a
result of improved vendor pricing, warehousing efficiency and product
diversification for the current fiscal year.
In fiscal 1994 the Company recorded a charge of $237,000 for write down of
inventories of products which had been discontinued or replaced and where it
was determined that existing inventories would be of limited value.
Additionally, as a result of a Massachusetts audit of the Company's Corporate
income tax returns for the years ended May 31, 1988, 1989, and 1990, the
Company was assessed $39,000 for underpayment of Massachusetts corporate income
tax and related interest of $27,000. These amounts, which represent the
entire balance due as a result of the audit, had been charged to operations in
1994. The tax assessment and related interest charge did not have a material
effect on the Company's financial condition.
Selling, general and administrative costs for the current fiscal year were
$213,000, or 16%, lower than those for the previous year. This decrease is
primarily a result of downsizing efforts which were completed in May, 1994.
Additionally, selling and administrative costs for 1994 included significant
costs required to protect the Company's intellectual property rights in its
Asian markets. Management does not anticipate significant costs of this nature
in the immediate future.
Interest income for fiscal 1995 was $127,000, an increase of $97,000 over the
previous year. This was primarily attributed to interest earned on the note
receivable from Roadrunner Video Enterprises, Inc. obtained from the sale of
the Video Knights assets.
The Company has continued to be dependent on foreign sales of one product,
Finally Free. Continuing efforts to establish markets for Finally Firm are
being pursued. Fiscal 1995 sales of Finally Firm units and related products
were $130,000, an increase of 20% from the prior year.
<PAGE> 7
Continued price decreases and reduced sales volume for the Company's Finally
Free products are anticipated for future periods. The Company's Finally Firm
is to be introduced as a test market product in Taiwan through a distributor.
If marketing efforts prove successful in this regard, it is anticipated that
improved Finally Firm sales will offset the effects of anticipated decline in
Finally Free Sales.
If the marketing efforts related to Finally Firm products are not successful,
management feels other alternatives will need to be considered for the Company
to maintain profitability. These alternatives will include further selling and
administrative cost reductions and/or product and market expansion within or
outside the Company's present industry.
Expiration of the Company's US Finally Free patents in 1996, is not expected to
have a significant impact on future operations.
Liquidity and Capital Resources:
For the year ended May 31, 1995, the cash flows from continuing operations
along with proceeds from the sale of the Company's discontinued business
segment enabled the Company to improve its year end cash position by
year. Video Knights remains secondarily liable under facilities lease
agreements and the Company is the guarantor of one of these leases. Roadrunner
continues to pay the lessors and the Company does not anticipate incurring any
costs in this regard.
Several of the Company's distributors have experienced difficulties in meeting
their payment terms prompting the Company to increase its provision for
doubtful accounts. This combined with lower sales volume for the year has
resulted in the net accounts receivable balance decreasing by $287,000 for the
current year. Accounts payable balances were above their normal levels at the
end of fiscal 1994. With improvement in cash flows for 1995, resulting
primarily from the Video Knights disposition, accounts payable and accrued
expense balances were reduced by $451,000.
In June 1995, the Company renegotiated its note receivable from CDF Acquisition
Corp. (CDF). Under the terms of the original agreement, the entire principal
plus accrued interest, at the prime rate, was payable in May 1996. In June
1995, under the terms of the new agreement, the Company received $112,500 in
cash and $37,500 of its own common stock as payment towards the CDF note
receivable. The remaining principal balance is to be paid in installments of
$50,000 in December 1995, 1996, 1997 and June 1998. Accrued interest at May
31, 1995 of $96,000 and additional interest at 9% through June 1996 and 7%
thereafter, is payable at $50,000 in December 1996 with the remainder due in
December 1997.
At May 31, 1995, the Company had an outstanding $750,000 note receivable from
Roadrunner Video Enterprises, Inc. (Roadrunner), which requires quarterly
principal payments of $62,500 and monthly interest payments at prime plus 1% on
the outstanding principal balance. In July 1995, Roadrunner was acquired by
Business Data Group, Inc. (BDG) a publicly traded entity. In accordance with
the terms of an agreement between Roadrunner and the Company, the note was
satisfied with BDG issuing 75,000 shares of $10 par value, 12% preferred stock
to the Company. Each share of preferred stock is convertible into 10 shares of
BDG common stock through June 2000.
Although the preferred stock will be a restricted security (not registered for
public sale) Roadrunner is obligated to register, for public sale, a sufficient
number of common shares to satisfy conversion rights attached to the preferred
shares. Management of Roadrunner anticipates the completion of such
registration by the fourth quarter of calendar year 1995 or the first quarter
of calendar year 1996.
<PAGE> 8
The Company acquired 802,300 shares of treasury stock at an aggregate cost of
$229,000 during the current fiscal year. Future treasury stock acquisitions
are anticipated provided there are no unexpected price fluctuations or
alternative need for funds.
The Company is presently dependent upon sales of one product in limited
markets. Current liquid assets and anticipated note receivable installment
payments are considered to be sufficient to meet the cash flow requirements of
existing operations. However, management intends to pursue investment
opportunities which will enable the Company to diversify. It is expected that
the initial cost of any such significant investment and funds needed for the
operations of an acquired entity, would be financed primarily with long-term
debt or equity. Presently, there are no specific plans concerning any such
investment.
Marketing costs associated with introducing the Finally Firm product to Taiwan
on a test market basis are to be borne by the distributor. No significant
capital expenditures were required.
<PAGE> 9
SELVAC CORPORATION AND SUBSIDIARY
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AND INDEPENDENT AUDITORS' REPORT
YEARS ENDED MAY 31, 1995 AND 1994
C O N T E N T S
PAGE
INDEPENDENT AUDITORS' REPORTS F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5-6
Notes to Consolidated Financial Statements F-7-16
<PAGE> 10
PART IV
ITEM 9. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K:
(a) The following documents are filed as part of this report:
1. and 2. Consolidated Financial Statements and Independent Auditor's
Report
These documents are listed in Item 7 and are included on
Pages F-1 through F-16.
3. Exhibits (Note)
(a) Exhibit 3. Articles of Incorporation and By Laws,
incorporated by reference from Form S-1
dated August 26, 1983
(b) Exhibit 4. Instruments defining the rights of
security holders, incorporated by
reference from Form S-1 dated
August 26, 1983
(c) Exhibit 11. Statement re: Computation of per
share earnings, page F-17-18.
(d) Exhibit 13. Reports to security holders See Forms
10-Q filed during the year ended
May 31, 1995
(e) Exhibit 21. Subsidiary of the Registrant, herein at
page F-19
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of its year ended May 31, 1995.
(Note) All exhibits not listed were not applicable.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Selvac Corporation
(Registrant)
By: Allan Borkowski .
Allan Borkowski, Chairman of the Board
of Directors and Chief Financial Officer
Dated: 1996
<PAGE> 12
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors
of Selvac Corporation:
We have audited the accompanying consolidated balance sheet of Selvac
Corporation and subsidiary as of May 31, 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows, for
each of the years in the two year period ended May 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Companies as of May 31, 1995,
and results of their operations and their cash flows for each of the years in
the two year period ended May 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, on June 28,
1991, the Company entered into a consent decree with the Food and Drug
Administration (FDA). The Company has agreed not to manufacture, process,
advertise or distribute its principal product within the United States unless
and until premarket approval as a Class III device under the Food, Drug and
Cosmetic Act, has been received from the FDA. The Company has begun to
explore its options in this regard. However, there can be no assurance that
action will be taken concerning premarket approval and that if they are, they
will be successful. Accordingly, the accompanying consolidated financial
statements do not reflect any adjustments which may result upon resolution of
this matter.
Bond, Andiola & Company
Raritan, New Jersey
July 13, 1995
<PAGE> 13
SELVAC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MAY 31, 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 633,509
Accounts receivable, net of allowance for doubtful
accounts of $229,941 631,597
Inventories 535,955
Notes receivable, current portion 200,000
Other current assets 36,581
Total current assets 2,037,642
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $633,241 113,578
PATENTS AND PATENT RIGHTS, net of accumulated amortization
of $793,631 167,524
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, net of
accumulated amortization of $143,211 79,633
NOTES RECEIVABLE, net of current portion:
Related parties 245,833
Other 750,000
OTHER ASSETS 22,332
$ 3,416,542
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 84,221
Accrued expenses 58,813
Other current liabilities 22,450
Total current liabilities 165,484
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Serial preferred stock, $10 par value, authorized-200,000
shares:
Series A, 12% cumulative convertible;
Issued and outstanding-24,000 shares 240,000
1985 Series, 12% cumulative convertible;
Issued and outstanding-24,500 shares 245,000
Common stock, $.01 par value, authorized-20,000,000 shares:
Issued shares-16,256,485 162,565
Additional paid-in capital 8,813,998
Accumulated deficit (5,294,707)
4,166,856
Treasury stock, at cost, 2,263,359 common shares (915,798)
Total stockholders' equity 3,251,058
$ 3,416,542
See notes to consolidated financial statements.
F-2
<PAGE> 14
SELVAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,
1995 1994
REVENUES:
Net sales $ 2,744,620 $ 2,922,400
Franchise income, net of related costs
$2,813 in 1994 0 30,220
2,744,620 2,952,620
COST OF SALES 1,562,898 1,666,132
GROSS MARGIN 1,181,722 1,286,488
OPERATING EXPENSES:
Selling, general and administrative 1,087,462 1,302,011
Charge for inventory write downs 0 237,178
Loss on sale of property and equipment 20,361 0
Loss on sale of marketable securities 7,822 0
1,115,645 1,539,189
66,077 (252,701)
INTEREST INCOME 126,537 29,460
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 192,614 (223,241)
PROVISION FOR INCOME TAXES 48,386 36,794
INCOME (LOSS) FROM CONTINUING OPERATIONS 144,228 (260,035)
DISCONTINUED OPERATIONS:
Operating loss 0 (580,209)
Loss on disposal, including provision of
$100,000 for operating losses during
phase-out period and net of recovery of
income taxes of $12,500 0 (1,084,721)
Net loss from discontinued operations 0 (1,664,930)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 144,228 (1,924,965)
CHANGE IN ACCOUNTING PRINCIPLE - cumulative
effect to June 1, 1993 of application of
Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" 0 35,886
NET INCOME (LOSS) $ 144,228 $(1,889,079)
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ .01 $ (.02)
Discontinued operations .00 (.11)
NET INCOME (LOSS) $ .01 $ (.13)
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 86,028 $(1,947,279)
See notes to consolidated financial statements.
F-3
<PAGE> 15
SELVAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL TREASURY
PREFERRED STOCK STOCK ISSUED PAID-IN ACCUMULATED STOCK
SERIES A 1985 SERIES SHARES AMOUNT CAPITAL DEFICIT AT COST
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended May 31, 1994:
Balance, May 31, 1993 $240,000 $245,000 16,256,485 $162,565 $8,813,998 $(3,433,456) $(418,749)
Cash dividends on preferred
stock:
Series A (28,800)
1985 Series (29,400)
Purchase of treasury stock (268,469)
Net loss (1,889,079)
Balance, end of year 240,000 245,000 16,256,485 162,565 8,813,998 (5,380,735) (687,218)
Year ended May 31, 1995:
Cash dividends on preferred
stock:
Series A (28,800)
1985 Series (29,400)
Purchase of treasury stock (228,580)
Net income 144,228
Balance, end of year $240,000 $245,000 16,256,485 $162,565 $8,813,998 $(5,294,707) $(915,798)
See notes to consolidated financial statements.
F-4
</TABLE>
<PAGE> 16
SELVAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 144,228 $(260,035)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss on sale of property and equipment 20,361 0
Loss on sale of marketable securities 7,822 0
Depreciation and amortization 172,104 251,378
Deferred taxes 48,386 (44,886)
Charge for inventory write downs 0 237,178
Provision for bad debts 163,660 122,793
Changes in operating assets and liabilities:
Accounts receivable 123,362 13,172
Inventories (103,904) (97,015)
Other operating assets 50,448 25,951
Accounts payable (365,882) 60,613
Accrued expenses (88,430) 71,291
Other operating liabilities 2,400 7,800
Net cash provided by operating activities 174,555 388,240
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 350,000 0
Proceeds from sale of property and equipment 6,900 0
Proceeds from sale of marketable securities 29,256 0
Property and equipment acquisitions (11,856) (62,500)
Notes receivable repayments 319,300 1,339
Net cash provided (used) by investing
activities 693,600 (61,161)
CASH USED BY FINANCING ACTIVITIES:
Note repayment (140,000) 0
Preferred stock dividends (58,200) (58,200)
Treasury stock acquisitions (228,580) (268,469)
Net cash used by financing activities (426,780) (326,669)
CASH USED BY DISCONTINUED OPERATIONS (145,727) (263,962)
INCREASE (DECREASE) IN CASH FOR THE YEAR 295,648 (263,552)
CASH, beginning of year 337,861 601,413
CASH, end of year $ 633,509 $ 337,861
See notes to consolidated financial statements.
F-5
<PAGE> 17
SELVAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
1995 1994
SUPPLEMENTAL SCHEDULES OF NON-CASH ACTIVITIES:
Marketable securities received in payment
of accounts receivable $ 35,984 $ 0
Proceeds on sale of discontinued operations
financed by the Company $ 0 $1,410,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payments during the year for:
Income taxes $ 0 $ 39,124
Interest $ 0 $ 27,178
CASH FLOWS FROM DISCONTINUED OPERATIONS ARE
COMPRISED AS FOLLOWS:
Cash provided (used) by:
Operating activities $ (145,727) $ (242,201)
Investing activities 0 (161,761)
Financing activities 0 140,000
$ (145,727) $( 263,962)
See notes to consolidated financial statements.
F-6
<PAGE> 18
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business of Company:
Selvac Corporation (the Company) is engaged in the sale and distribution of
appliances and machines utilizing a patented hair removal system. Until May
31, 1994 Video Knights, Inc. (VKI), its wholly owned subsidiary, had owned and
operated unique concept-based home entertainment centers which rented and sold
videotapes, laser discs, video games and audio books. Additionally, VKI is
authorized to sell Franchises in several Mid-Atlantic states. As disclosed in
Note 4, substantially all operations of Video Knights, Inc. were discontinued
effective June 1, 1994.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Video Knights, Inc. All material intercompany
balances and transactions have been eliminated.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment:
Property and equipment are recorded at cost. The Company uses the straight
line method of providing for depreciation and amortization for financial
reporting purposes and accelerated methods for tax purposes. Repair and
maintenance expenditures are charged to income as incurred.
Patents and Patent Rights:
The patents and patent rights are recorded at cost and are amortized on the
straight-line method over their remaining lives, at the date of acquisition,
which vary from six to seventeen years.
Excess of Cost Over Fair Value of Assets Acquired:
The excess of the cost over the fair value of net assets at the date of
acquisition of acquired businesses is being amortized on the straight-line
method over a periods ranging from ten to forty years.
Deferred Franchise Costs:
Deferred franchise costs are recorded at cost and amortized on the straight
line method over a period of ten years.
Income Taxes:
In accordance with FASB 109, deferred income taxes are recorded to reflect the
tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
The tax benefit related to operating loss and tax credit carryforwards are
recognized if management believes, based on available evidence, that it is
more likely than not that they will be realized.
F-7
<PAGE> 19
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents include money
market funds and other liquid investments maturing within 90 days of the
balance sheet date.
Concentration of Credit Risk:
During the normal course of business, the Company maintains cash balances in
excess of FDIC insurance coverage limits. At May 31, 1995 cash funds in
excess of such insurance coverage limits were $236,000. The Company has not
experienced any losses related to these investments.
At May 31, 1995 four separate wholesale customers accounted for 36%, 26%, 16%
and 10% respectively of the Company's total accounts receivable balance.
Although the Company does not require collateral, and payment terms offered in
certain circumstances by the Company are for periods in excess of those
general provided typical business situations, reserves for potential credit
losses are maintained and such losses have been within management's
expectations.
2. CONTINGENCIES:
Litigation:
Since January 1990, the Company has been engaged in an ongoing dispute with
the United States Food and Drug Administrative (FDA) regarding the marketing
status of Finally Free Hair Remover for personal (non-professional) use.
On June 28, 1991, the United States District Court for the Eastern District of
Pennsylvania approved a settlement agreement between the Company and FDA.
Pursuant to the settlement agreement, the Company denied the allegations of
the complaint but agreed, among other things, that the Company would not
manufacture, process, pack, label, promote, advertise, distribute, or sell
Finally Free Hair Remover unless and until it received marketing authorization
from FDA. On December 6, 1991, FDA requested that the Company provide
additional information for its 510(k) filing as a part of the marketing
authorization process.
In February 1992, the Company received approval from the FDA, to export
Finally Free Hair Remover to Canada. Since this date, the Company has
modified inventories of this product which was manufactured for sale in U.S.
markets to enable them to be sold internationally. The carrying value of
intangibles, principally patents relating to the domestic Finally Free product
as of May 31, 1995, is $167,000.
In July 1994, the FDA determined that Finally Free shall be considered a Class
III device under the Food, Drug and Cosmetic Act and accordingly, will require
premarket approval before it is sold, manufactured or distributed in the U.S.
Discussions have taken place between management and a major U.S. Corporation
in the personal care appliance industry concerning the pursuit of required FDA
approval in this regard. These discussions are in their preliminary stage and
there can be no certainty that such actions will be taken, or if they are,
that they will be successful.
F-8
<PAGE> 20
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CONTINGENCIES: (Continued)
Litigation: (Continued)
In March 1991, the Company initiated an action relating to several ongoing
royalty issues with the licenser of its radio frequency epilation technology
whereby the licenser has asserted the Company underpaid its obligations under
certain royalty agreements. The Company's counsel believes that a favorable
outcome is likely. The action is pending in Federal District Court, Boston,
Massachusetts.
Insurance Claim:
On April 20, 1995 the Company filed a $172,800 claim with its insurance
company in connection with the alleged theft of Finally Free inventory from a
bonded warehouse. At May 31, 1995, merchandise subject to this claim is
carried in inventory at $99,000.
3. CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES:
For the year ended May 31, 1994 the Company adopted the asset and liability
method of accounting for income taxes as required by Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes" which is effective for years beginning
after December 15, 1992. Prior years' financial statements have not been
restated. The cumulative effect of the accounting change increased net income
for the year ended May 31, 1994 by $35,886. The effect on earnings per common
share was less than $.01.
The Company previously used the deferred method of accounting for income
taxes.
4. DISCONTINUED OPERATIONS:
Effective at the close of business on May 31, 1994, the Company sold
substantially all of the assets of VKI (the Business) to Roadrunner Video
Enterprises, Inc. (Roadrunner) for $350,000 cash and $1,060,000 in promissory
notes. The operating results of the Business have been reported as
"discontinued operations" and include:
1994
Net Sales $1,732,403
Loss before income tax $ (580,209)
Net operating loss $ (580,209)
Included in the calculation of the loss on disposal of the business are cost
associated with disposal of the Business of $100,000, professional fees
related to the sale of $20,000 and a write down for declines in value of
intangible assets directly attributed to the disposition of $167,000.
The sales price had been contingent upon average per store gross revenues (for
each of the five video retail locations sold) during the year ended September
30, 1995 being within a specified range. During the year ended May 31, 1995,
in consideration of the Company granting Roadrunner an extension of time for
making principal payments, Roadrunner has agreed to waive the sales contract
price contingency.
F-9
<PAGE> 21
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVENTORIES:
At May 31, 1995, inventories consist entirely of personal care appliance
finished goods.
6. PROPERTY AND EQUIPMENT:
Property and equipment is comprised as follows:
ESTIMATED USEFUL
LIFE IN YEARS
Machinery and equipment $ 677,257 3 - 7
Furniture and fixtures 69,562 7
746,819
Less: Accumulated depreciation
and amortization (633,241)
$ 113,578
Depreciation and amortization of property and equipment was $93,534 in 1995
and $497,890 ($166,540 - continuing operations and $331,350 - discontinued
operations) in 1994.
7. ACCRUED EXPENSES:
Accrued expenses consist of the following:
Professional fees $ 11,333
Severance 10,000
Royalties 30,022
Other 7,458
$ 58,813
8. STOCKHOLDERS' EQUITY:
Preferred Stock:
$10 Par Value Series A
12% Cumulative Convertible Preferred Stock
Each share of Series A stock can be converted into 16 shares of common stock
by the holder thereof. At any time, the Company may redeem these shares at
par, plus any unpaid dividends, and the holders may convert to common shares
within 30 days of notice of redemption. The dividends are payable
semiannually.
F-10
<PAGE> 22
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY: (Continued)
$10 Par Value 1985 Series
12% Cumulative Convertible Preferred Stock
The Company sold 75 units at a price of $10,000 per unit. Each unit consists
of 1,000 shares of $10 par value 1985 Series, 12% cumulative preferred stock
(each share convertible into 16 shares of common stock) and three-year
warrants to purchase 16,000 shares of common stock at $1 per share. All the
warrants have been exercised. At any time, the Company may redeem these
preferred shares at par, plus any unpaid dividends, and the holders may
convert to common shares within 30 days of notice of redemption. The
dividends are payable semiannually.
Common Stock:
As of May 31, 1995, warrants to purchase 881,218 common shares of $1.25 per
share were outstanding. The expiration date of these common stock warrants,
as extended, is December 7, 1996.
The Company has reserved 1,732,218 shares of common stock for conversion of
preferred stock, warrants and stock option plan.
Stock Options:
Under the terms of the Company's stock option plan, incentive options to
purchase common shares may be granted to employees at a price to be fixed by
the Board of Directors or Stock Option Committee, but not less than the fair
value on the date of grant (110% of fair value if the optionee owns or would
own 10% of the outstanding shares if the options were exercised).
Nonqualified options may be granted at prices less than fair value. Incentive
options have a duration of seven years from the date granted.
QUALIFIED NONQUALIFIED
Year granted 1985-1988 1983-1989
Option price per share $.41 - $1.44 $.41 - $1.44
Year Ended May 31, 1994:
Balance outstanding, beginning of year 270,000 75,000
Options canceled and expired (270,000) 0
Balance outstanding, end of year 0 75,000
Year Ended May 31, 1995:
Options canceled and expired 0
Balance outstanding and excercisable,
end of year 0 75,000
F-11
<PAGE> 23
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. NOTES RECEIVABLE:
Notes receivable are comprised as follows:
Note receivable, CDF Acquisition Corp. (CDF), principal
balance of $350,000 plus accrued interest of $95,833 (1) $ 445,833
Notes receivable Roadrunner, collateralized by the
VKI assets sold (Note 4):
Due in quarterly installments of $62,500 plus
interest at prime plus 1%, through June 1998 (2) 750,000
Other unsecured interest free demand note 40,500
1,236,333
Less current portion 200,000
1,036,333
Less allowance for bad debt 40,500
$ 995,833
(1) A current director of the Company and a former officer and director are
stockholders in CDF. The note receivable from CDF was obtained as
consideration when the Company sold the stock of its former wholly owned
subsidiary Beauty Resources, Inc. (BRI) to CDF in May 1991. In June 1995, the
note was renegotiated and the Company received $112,500 in cash and 200,000
shares of its own common stock, valued at $37,500, which are to be applied
towards the outstanding principal balance. Under the new agreement, the
remaining outstanding principal balance is payable in four installments of
$50,000 in December 1995, 1996, 1997 and June 1998. Accrued interest of
$95,833 at May 31, 1995, plus additional interest at 9% through June and 7%
thereafter is payable at $50,000 in December 1996 with the remaining
outstanding balance due in December 1997. The note receivable has been
classified under the terms of the new agreement on the May 31, 1995 balance
sheet.
(2) Under the terms of a contractual agreement between VKI and Roadrunner, VKI
has the option to exchange the Roadrunner note for a specified equity position
in Roadrunner, should Roadrunner's stock become registered for public trading
or should Roadrunner become a subsidiary of a publicly traded corporation.
Under the terms of the agreement, in such circumstances, Roadrunner shall be
obligated to register, for public trading, any common shares issued to VKI.
Additionally, Roadrunner is obligated to register for public trading
sufficient common shares to be reserved for issuance to VKI in satisfaction of
any conversion rights attached to senior equity securities issued to VKI. In
June 1995, Roadrunner signed a letter of intent whereby Roadrunner is to be
acquired as a wholly owned subsidiary of a publicly traded Company. A July
1995 closing is anticipated. Should this acquisition be consummated
management's intention is to exercise VKI's Option. The note receivable from
Roadrunner has been classified as a non-current asset on the Company's May 31,
1995 balance sheet.
F-12
<PAGE> 24
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS:
Royalties:
The Company has entered into agreements which provide for royalty payments
based on a percentage of net sales or units sold of its principal products.
Royalty expense under the agreements for fiscal years ended May 31, 1995 and
1994 was $101,000 and $89,000, respectively.
Operating Leases:
The Company leases office, retail sales and warehouse facilities and equipment
under non-cancelable operating leases, ranging from six months to ten years.
Renewal options included in retail sales facilities leases range from three to
seven years.
Under the terms of the agreement between the Company and Roadrunner (Note 4),
the Company has agreed to assign to Roadrunner all of its tenants rights under
the lease agreements for facilities used in its discontinued operations. At
May 31, 1995, assignment to Roadrunner of primary responsibility for
fulfilling the leasing obligation had been approved by landlords for two of
the leases. While negotiations are underway toward obtaining approval of such
assignment by the other various landlords, Roadrunner is leasing these
premises on a month-to-month basis from the Company. No amounts have been
provided for in the loss on discontinued operations for future rents due under
these leases.
Future annual minimum lease payments under non-cancelable operating leases in
effect at May 31, 1995, including those assigned to Roadrunner, are:
Year Ending May 31,
1996 $ 349,181
1997 357,833
1998 248,541
1999 251,079
2000 258,060
Thereafter 362,680
$1,827,374
Facilities rent expense for the years ended May 31, 1995 and 1994, was $76,947
and $522,023 ($69,617 - continuing operations and $452,406 - discontinued
operations) respectively, including rent to Optivest (Note 14).
11. NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share is computed based on net income (loss) for
the period after providing for preferred stock dividend requirements. The
number of shares used in the computation is the weighted average number of
common shares and, when their effect would be dilutive, common equivalent
shares outstanding during the period. Weighted average number of shares
during the periods are 14,345,234 in 1995 and 15,189,614 in 1994.
F-13
<PAGE> 25
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES:
For the year ended May 31, 1994 as a result of a Massachusetts tax audit, the
Company was assessed additional Massachusetts corporate income taxes of
$39,124 and related interest of $27,178 for the fiscal years ending May 31,
1988, 1989 and 1990. These amounts have been included in the statement of
operations for the year ended May 31, 1994.
The components of the provision for income taxes from continuing
operations are as follows:
YEAR ENDED MAY 31,
1995 1994
Current:
Federal $ 0 $ 0
State 0 36,794
$ 0 $36,794
Deferred:
Federal $34,000 $ 0
State 14,386 0
$48,386 $ $ 0
The following is a summary of the tax effects of the significant temporary
differences which comprise the Company's deferred tax asset at May 31, 1995:
Bad debt reserve $ 116,290
Depreciation 12,000
Amortization of intangibles (88,320)
Tax credit carryforwards 66,000
Loss carryforwards 1,518,940
Other 39,240
Valuation allowance (1,664,150)
Total Asset $ 0
As of May 31, 1995, the Company had federal net operating losses (NOL) and
tax credit carryforwards, for income tax purposes, available as follows:
INVESTMENT RESEARCH AND
FISCAL YEAR OF FEDERAL TAX DEVELOPMENT
EXPIRATION NOL CREDITS TAX CREDITS
1997-2001 $ 0 $ 81,000 $ 21,000
2006 2,150,000 0 0
2007 238,000 0 0
2008 105,000 0 0
2009 1,286,000 0 0
$3,779,000 $ 81,000 $ 21,000
Tax credits are subject to a statutory reduction of up to 35% in accordance
with Tax Reform Act of 1986.
F-14
<PAGE> 26
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES: (Continued)
The net operating losses may generate tax benefits of $1,518,940 which has been
offset by a valuation allowance because of the uncertainty of ultimate
realization. The Company's total valuation allowance decreased by $97,800
during the year ended May 31, 1995 principally due to the current year use of
net operating losses. The aggregate valuation allowance increased by $816,000
during the year ended May 31, 1994 principally due to additional net operating
losses.
A reconciliation of the statutory U.S. Federal income tax rate and the
effective income tax rate for the years ended May 31, 1995 and 1994 is as
follows:
1995 1994
Statutory Federal income tax rate 34.0% (34.0%)
Increases (decreases) resulting from:
State income taxes, net of Federal tax benefit 4.9 10.9
Amortization of intangible assets 12.5 25.3
Non-deductible life insurance expense 3.0 3.3
Increase (decrease) in federal deferred
tax valuation allowance (32.0) 13.4
Other 2.7 (2.4)
Effective tax rate 25.1% 16.5%
13. SALES TO SIGNIFICANT CUSTOMERS AND EXPORT SALES:
For the year ended May 31, 1995 and 1994, the Company had sales to two major
international customers accounting for 86% and 93% of consolidated net sales
from continuing operations, respectively. One of these customers accounted for
76% and 68% of net sales in 1995 and 1994, respectively.
Consolidated sales from continuing operations in 1995 and 1994 were to foreign
customers comprised as follows:
1995 1994
Foreign Sales:
Japan $2,089,842 $1,845,757
Spain 271,304 411,676
Other Foreign Sales 371,557 639,250
Total Foreign Sales 2,732,703 2,896,683
Domestic Sales 11,917 25,717
$2,744,620 $2,922,400
All foreign sales with the exception of sales to Canada, which accounted for
6.7% and 3.9% of consolidated sales for 1995 and 1994 respectively, are
denominated in U.S. dollars. Any substantial decrease in sales to the
Company's distributor in Japan could have a severe detrimental impact on
the Company's operations and financial condition.
14. RELATED PARTY TRANSACTIONS:
At May 31, 1994, 850,000 shares (6.1% of the Company's outstanding common
stock) were owned by Optivest Technologies Corp. Additionally, several
officers and directors of the Company are also officers and directors of
Optivest. During the year ended May 31, 1995, the Company repaid $140,000
borrowed from Optivest in fiscal 1994 under a promissory note agreement.
F-15
<PAGE> 27
SELVAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. RELATED PARTY TRANSACTIONS: : (Continued)
Additionally, the Company had leased a retail sales facility and leases an
administrative facility from Optivest, on a month-to-month basis, and Optivest
is the lessee in the lease agreement for one of the rental facilities used by
the Company in its discontinued operations (Note 4). Rent to Optivest for use
of administrative facilities was $30,000 for 1995 and 1994. Rent expense under
the lease agreement in which Optivest is the lessee, was $151,000 in 1994.
Interest income on the CDF note receivable (Note 9) was $25,000 in 1995 and
$21,000 in 1994.
F-16
<PAGE> 28
SELVAC CORPORATION AND SUBSIDIARY
(11) STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Computation of average number of shares outstanding used in determining primary
and fully diluted earnings per share:
YEAR ENDED MAY 31,
1995 1994
PRIMARY:
Weighted average number of shares
outstanding 14,345,234 15,189,614
Assumed exercise of common stock
warrants and certain stock options
based on average market value 0 0
Weighted average number of shares used
in primary per share computations 14,345,234 15,189,614
FULLY DILUTED:
Weighted average number of shares
outstanding 14,345,234 15,189,614
Assumed conversion of Series A
cumulative convertible stock 0 0
Assumed conversion of 1985 Series
cumulative convertible stock 0 0
Assumed exercise of common stock
warrants and certain options
based on higher of average or
closing market price 0 0
Weighted average number of shares
used in fully diluted per share
computations 14,345,234 15,189,614
F-17
<PAGE> 29
SELVAC CORPORATION AND SUBSIDIARY
(11) STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
YEAR ENDED MAY 31,
1995 1994
Weighted average number of shares outstanding:
Primary 14,345,234 15,189,614
Fully diluted 14,345,234 15,189,614
Primary:
Net income (loss) $ 144,228 $(1,889,079)
Paid and cumulative undeclared preferred
stock dividends (58,200) (58,200)
$ 86,028 $(1,947,279)
Net income (loss) per share $ .01 $ (.13)
For the above years, earnings per share, assuming full dilution, has not been
presented since the effect would be antidiluting.
F-18
<PAGE> 30
SELVAC CORPORATION AND SUBSIDIARY
(21) STATEMENT RE: SUBSIDIARY OF THE REGISTRANT
1. VIDEO KNIGHTS, INC.
INCORPORATED IN: NEW JERSEY
F-19
