<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _______________to________________
Commission file number 0-11969
SELVAC CORPORATION
______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 22-2408186
______________________________________________________________________________
(State or other jurisdiction of I.R.S. Employer
incorporation of organization) identification No.)
221 Boston Post Road, Suite 490, Marlboro, Massachusetts, 01752
______________________________________________________________________________
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number (508) 481-9495
_____________________________________________________________________________
Former name, former address and former fiscal year, if changed
since last report
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of February 29, 1996
14,242,526 shares of common stock, $.01 par value
_____________________________________________________________________________
Page 1 of 16 pages
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SELVAC CORPORATION
Index
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Condensed consolidated balance sheet as
of February 29, 1996 3
Condensed consolidated statements of
operations for the nine and three months
ended February 29, 1996 and February 28, 1995 4-5
Condensed consolidated statements of
cash flows for the nine months ended
February 29, 1996 and February 28, 1995 6-7
Notes to condensed consolidated financial
statements 8-10
Item 2. Management's discussion and analysis of
financial condition and results of operations 11-13
PART II. OTHER INFORMATION 14
Signature 15
Exhibit 11 Statement Re: Computation of net income
per common share 16
* * * *
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PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
SELVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
FEBRUARY 29, 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 844,975
Accounts receivable, net of allowance for doubtful
accounts of $95,125 590,628
Finished goods inventories 502,284
Current portion of Note receivable, CDF Acquisition Corp. 102,250
Other current assets 41,042
Total current assets 2,081,179
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $706,896 40,503
PATENTS AND PATENT RIGHTS, net of accumulated amortization
of $847,725 113,430
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, net
of accumulated amortization of $194,550 28,294
NOTES RECEIVABLE, net of current portion:
CDF Acquisition Corp. 147,948
Classy Lady by Mehl of Puerto Rico, Inc. 300,000
OTHER ASSETS
Investment in non-marketable securities 750,000
Marketable securities, available for sale 45,080
Other 6,960
$ 3,513,394
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 181,793
Accrued expenses 50,613
Other current liabilities 22,800
Total current liabilities 255,206
COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)
STOCKHOLDERS' EQUITY:
Serial preferred stock, $10 par value,
authorized-200,000 shares:
Series A, 12% cumulative convertible;
Issued and outstanding-17,000 shares 170,000
1985 Series, 12% cumulative convertible;
Issued and outstanding-16,500 shares 165,000
Common stock, $.01 par value, 20,000,000 shares
authorized, 16,717,485 shares issued 167,175
Additional paid-in capital 9,168,638
Accumulated deficit (5,460,681)
Unrealized gain - marketable securities 3,655
4,213,787
Treasury stock, at cost, 2,474,959 common shares (955,599)
Total stockholders' 3,258,188
$ 3,513,394
See notes to condensed consolidated financial statements.
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SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
REVENUES:
Net sales $1,596,312 $ 1,931,659
Franchise revenue, net of related costs 0 5,577
1,596,312 1,937,236
COST OF SALES 950,698 1,110,414
GROSS MARGIN 645,614 826,822
OPERATING EXPENSES:
Selling, general and administrative 935,183 674,069
Loss on sale of property and equipment 0 20,361
935,183 694,430
(289,569) 132,392
OTHER INCOME:
Investment income 87,767 95,330
Other (Note 9) 72,728 0
INCOME (LOSS) BEFORE INCOME TAXES (129,074) 227,722
RECOVERY OF INCOME TAXES 0 55,114
NET INCOME (LOSS) $ (129,074) $ 282,836
NET INCOME (LOSS) PER COMMON SHARE (Note 8) $ (.01) $ .02
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (159,224) $ 239,186
WEIGHTED AVERAGED NUMBER OF COMMON SHARES
OUTSTANDING DURING PERIOD 13,937,595 14,457,937
See notes to condensed consolidated financial statements.
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SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
REVENUES:
Net sales $ 530,210 $ 402,491
COST OF SALES 325,069 223,966
GROSS MARGIN 205,141 178,525
OPERATING EXPENSES:
Selling, general and administrative 423,117 200,658
Loss on sale of property and equipment 0 10,260
423,117 210,918
(217,976) (32,393)
OTHER INCOME:
Investment income 55,422 34,930
Other (Note 9) 72,728 0
NET INCOME (LOSS) $ (89,826) $ 2,537
NET LOSS PER COMMON SHARE (Note 8) $ (.01) $ .00
LOSS APPLICABLE TO COMMON STOCK $ (99,876) $ (12,013)
WEIGHTED AVERAGED NUMBER OF COMMON SHARES
OUTSTANDING DURING PERIOD 14,114,735 14,251,043
See notes to condensed consolidated financial statements.
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SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(129,074) $ 282,836
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss on sale of equipment 0 20,361
Depreciation and amortization 193,831 125,564
Deferred tax recovery 0 (55,114)
Marketable securities received as payment of
preferred stock dividends (41,425) 0
Changes in operating assets and liabilities:
Accounts receivable 40,969 112,108
Inventories 33,671 (415,735)
Other operating assets (17,197) (2,894)
Accounts payable 97,572 (9,328)
Accrued expenses (7,850) (47,717)
Net cash provided by operating activities 170,497 10,081
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 0 350,000
Notes receivable repayments 171,500 61,300
Increase in notes receivable (300,000) 0
Property and equipment acquisitions (580) (11,856)
Other 0 5,819
Net cash provided (used) by investing
activities (129,080) 405,263
CASH FLOWS FROM FINANCING ACTIVITIES:
Note repayment 0 (140,000)
Preferred stock dividends (36,900) (42,000)
Proceeds from issuance of common stock, net of
registration costs 209,250 0
Treasury stock acquisitions (2,301) (187,260)
Net cash provided (used) by financing
activities 170,049 (369,260)
CASH USED BY DISCONTINUED OPERATIONS 0 (142,330)
INCREASE (DECREASE) IN CASH FOR THE PERIOD 211,466 (96,246)
CASH, beginning of period 633,509 337,863
CASH, end of period $ 844,975 $ 241,617
See notes to condensed consolidated financial statements.
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SELVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Marketable securities received in payment of:
Accounts receivable $ 0 $ 35,984
Preferred stock dividends $ 41,425
Receipt of non-marketable securities as payment of
note receivable $750,000
Receipt of stock into treasury in payment of note
receivable $ 37,500
Conversion of preferred stock into common stock $150,000
See notes to condensed consolidated financial statements.
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SELVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine and three
months ended February 29, 1996 are not necessarily indicative of the results
that may be expected for the year ending May 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended May 31, 1995.
The 1995 financial statements presented have been reclassified to conform
with the 1996 presentation.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 1995 Selvac Corporation and
Subsidiaries Annual Report on form 10-KSB for the year ended May 31, 1995.
2. CONTINGENCIES:
Since January 1990, the Company has been engaged in an ongoing dispute
with the United States Food and Drug Administration (FDA) regarding the
marketing status for Finally Free Hair Remover for personal (non-professional)
use. In June 1991, the Company agreed not to manufacture, process, pack,
label, promote, advertise, distribute, or sell Finally Free Hair Remover
unless it received marketing authorization from the FDA. Subsequently, the
Company received approval to export this product to Canada.
In July 1994, the FDA determined that Finally Free shall be considered a
Class III device under the Food, Drug and Cosmetic Act and accordingly, will
require premarket approval before it is sold, manufactured or distributed in
the U.S. Management is evaluating alternatives for the Company to satisfy FDA
regulatory requirements with minimal incremental cost.
As of February 29, 1996 the carrying value of intangible assets relating
to the Domestic Finally Free product, consisting primarily of patents, is
$74,000.
3. PENDING MERGER:
In October 1995, the Company signed a non-binding letter of intent and
pursuant to an agreement dated January 1, 1996 (as amended and restated on
February 15, 1996) entered into a contract to acquire Classy Lady by Mehl of
Puerto Rico, Inc. (CLM), a privately held corporation. Under the terms of the
contract, CLM will be merged into and with a wholly owned subsidiary of the
Company. In exchange for all of their stock in CLM, its former stockholders
will receive 15M shares of the Company's common stock. In addition, certain
of the former shareholders of CLM will be entitled to earn-out incentives
allowing them to receive up to 10M additional common shares contingent
(contingent shares) upon achieving designated milestones for the organization
and financing of joint ventures for the development of laser hair removal
systems. As of February 29, 1996, CLM had accomplished the first of these
milestones entitling certain of its former shareholders to 2M of the
contingent shares, assuming consummation of the merger.
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SELVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PENDING MERGER: (continued)
It is expected that events required to satisfy the conditions for the
issuance of an additional 3M shares will be accomplished shortly after
consummation of the merger.
CLM, which prior to January 1996 was not an operating entity, owns
exclusive license rights to certain multiple hair removal and laser hair
removal processes for which patents have been obtained or are presently
pending. CLM and Laser Industries LTD, (Laser Industries) a publicly held
corporation, have signed an agreement to form a joint venture that will
develop and market laser hair removal systems. Under the terms of the
contract, CLM will not be required to contribute financial resources to this
joint venture.
4. INCOME TAXES:
The Company recognized an increase in its deferred tax asset valuation
allowance of approximately $40,000 and $57,000 respectively, for the three and
nine months ended February 29, 1996.
For the nine months ended February 28, 1995, the Company recognized a
reduction in its deferred tax asset valuation allowance of approximately
$155,000.
5. NOTES RECEIVABLE:
CDF Acquisition Corp.
In June 1995, the Company renegotiated its note receivable from CDF
Acquisition Corp. Under the terms of the new agreement, the remaining
principal balance of $150,000 at February 29, 1996, is to be paid in
installments of $50,000 in December 1996, 1997 and June 1998. Interest on the
unamortized principal balance, at 9% through June 1996 and 7% thereafter, is
payable with each principal installment. Interest accrued prior to the
refinancing, is payable at $50,000 in December 1996 and $47,948 in December
1997.
Classy Lady by Mehl of Puerto Rico
During the quarterly period ended February 29, 1996, in contemplation of
the merger discussed in Note 3, the Company advanced $300,000 to Classy Lady.
The advances are evidenced by promissory notes which bear interest at 6%. At
February 29, 1996, the outstanding principal balance under these notes was
payable on various dates from March 7, 1996 through April 30, 1996.
On March 28, 1996, the above notes receivable from Classy Lady along with
notes issued in March 1996 for $200,000 in aggregate, were consolidated into a
$500,000 note payable, on June 26, 1996, with interest at 6%.
6. CHANGE IN ACCOUNTING ESTIMATE:
Effective September 1, 1995, the Company reduced the estimated useful
lives used in calculating depreciation and amortization of certain intangible
assets and equipment. Estimated useful lives of certain molds used in the
production of the Company's principal product lines have been reduced in
anticipation of discontinuance of specific product designs prior to the date
originally anticipated. The estimated useful life of the excess of cost over
the fair value of assets acquired from the Company's acquisition of Mehl
International Corporation in 1985 have been reduced based on expectations that
the use of certain trademarks and trade names will be discontinued at an
earlier date than originally foreseen. The effected assets will continue to
be depreciated using the straight line method over the estimated remaining
useful lives, as adjusted.
Depreciation and amortization expense included in selling, general and
administrative expenses was approximately $65,000 and $38,000 higher for the
nine
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SELVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. CHANGE IN ACCOUNTING ESTIMATE: (Continued)
and three months ended February 29, 1996, respectively, than that which
would have been calculated prior to the change in accounting estimate. As a
result, loss before income taxes was increased by $65,000 and $38,000 for the
nine and three months ended February 29, 1996, respectively. In addition, net
loss per common share for the three months ended February 29, 1996 increased
by $.01. Loss per common share for the nine months ended February 29, 1996 was
not effected.
The following reflects those assets effected by the change in
accounting estimate:
Original Adjusted
Estimated Estimated
Useful Useful
Cost Life Life
Production molds, included in
machinery and equipment:
Finally Free $146,000 5 years 3 years
Finally Firm 63,000 5 years 2.25 years
Excess of cost over fair value
of assets acquired $ 73,000 40 years 11 years
7. INVESTMENT IN MARKETABLE AND NON-MARKETABLE SECURITIES:
In July 1995, the Company received 75,000 shares of $10 par value, 12%
cumulative preferred stock of Roadrunner Video Group, Inc. (Roadrunner), in
satisfaction of a $750,000 note payable by Roadrunner to the Company. The
Roadrunner preferred stock is a restricted security (not registered for public
sale), each preferred share is convertible into 10 shares of Roadrunner common
stock.
In December 1995, the Company accepted 24,368 shares of Roadrunner
restricted common stock valued at $41,425 as payment of Roadrunner preferred
stock dividend. The securities are classified as "available for sale
securities" and reported at fair value. An unrealized gain of $3,655 has been
charged to stockholders' equity during the period.
The terms of contractual agreements between Roadrunner and the Company,
require that Roadrunner register, for public sale, the aforementioned 24,368
restricted common shares and a sufficient number of common shares to satisfy
the Company's preferred stock conversion rights. The closing bid quotation
for Roadrunner common stock on February 29, 1996 was $1.875.
8. EARNINGS PER SHARE:
The weighted average number of common shares outstanding during the
periods has been used in the calculation of earnings per share. The exercise
of common stock warrants and conversion of convertible securities would have
an antidilutive effect on earnings per share and therefore, they have not been
considered in earnings per share calculations.
9. OTHER INCOME:
In January 1996, the Company received insurance proceeds of $172,000 in
connection with the theft of certain inventory being carried at $99,000. The
difference between the insurance proceeds and the carrying value of the
inventory, has been recorded as other income.
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
Pending Merger:
The Company is presently dependent upon sales of one product in limited
markets. Efforts have been made to pursue investment opportunities which will
enable the Company to expand or diversify its market. In this regard, on
October 11, 1995, the Company signed a non-binding letter of intent and
pursuant to an agreement dated January 1, 1996 (as amended and restated on
February 15, 1996) entered into a contract to acquire Classy Lady by Mehl of
Puerto Rico, Inc. (Classy Lady), a privately held corporation. Under the
terms of the contract, Classy Lady will be merged into and with a wholly owned
subsidiary of the Company. In exchange for all of their stock in Classy Lady,
its former stockholders will receive 15,000,000 shares of the Company's common
stock. In addition, certain of the former shareholders of Classy Lady will be
entitled to earn-out incentives allowing them to receive up to 10,000,000
additional common shares contingent (contingent shares) upon achieving
designated milestones for the organization and financing of joint ventures for
the development of laser hair removal systems. As of February 29, 1996,
Classy Lady had accomplished the first of these milestones entitling its
former shareholders to 2,000,000 of the contingent shares, assuming
consummation of the merger. It is expected that events required to satisfy
the conditions for the issuance of an additional 3,000,000 shares will be
accomplished shortly after consummation of the merger.
Classy Lady, which prior to January 1996 was not an operating entity,
owns exclusive license rights to certain multiple hair removal and laser hair
removal processes for which patents have been obtained or are presently
pending. Classy Lady and Laser Industries LTD, (Laser Industries) a publicly
held corporation, have signed an agreement to form a joint venture that will
develop and market laser hair removal systems. Under the terms of the
contract, Classy Lady will not be required to contribute financial resources
to this joint venture.
Costs directly associated with the Classy Lady merger (the merger) are
not expected to have a significant impact on the Company's cash flow. The need
for additional resources is expected in order to develop and market products
which exploit the Classy Lady processes. The Company intends to use its
current cash funds and future funds derived from operations, note receivable
collections and/or stock issuance upon the exercise of warrants in order to
fund costs relevant to the development and marketing of the Classy Lady
processes. Assuming consummation of the merger, management anticipates the
need for additional funds of $5,000,000 to launch the first phase of
deployment of the Classy Lady processes. It is expected that these funds will
be raised through a private or public equity offering within the next six
months. In the interim, it is anticipated that funds generated by the
Company's existing operations will be advanced to fund the Classy Lady start
up.
Classy Lady's operations are not expected to generate revenues for the
next six months. Monthly overhead for these operations during its initial six
to ten months is anticipated at $100,000 to $125,000. As of March 29, 1996,
$500,000 in aggregate, had been advanced by the Company to Classy Lady to fund
its operations.
Current Year Liquidity Matters:
For the nine months ended February 29, 1996, the Company's cash balance
increased $211,000. Funds provided by operations, the exercise of warrants and
stock options, and note payments received from CDF Acquisition Corp. (CDF)
were used to advance funds to Classy Lady in anticipation of the pending
merger.
In June 1995, the Company renegotiated the repayment terms of its note
receivable from CDF. Under the terms of the original agreement, the entire
principal plus accrued interest, at the prime rate, was payable in May 1996.
Under the terms of the new agreement, in June 1995, the Company received
$112,500 in cash and 200,000 shares of its own common stock valued at $37,500
as payment towards the CDF note receivable. In December 1995, the Company
received an additional
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES: (continued)
payment of $59,000 ($50,000 principal and $9,000 interest). The remaining
principal and accrued interest balances are to be paid on an installment basis
through June 1998. Interest on the unpaid principal balance is at 9% through
June 1996 and 7% thereafter.
In July 1995, Roadrunner Video Enterprises, Inc. was acquired by
Roadrunner Video Group, Inc. (collectively referred to as "Roadrunner"),
formerly known as Business Data Group, a publicly traded entity. In
satisfaction of Roadrunner's $750,000 note payable to the Company, Roadrunner
issued 75,000 shares of $10 par value, 12% preferred stock to the Company.
Each share of preferred stock is convertible into 10 shares of Roadrunner
common stock through June 2000.
Although the preferred stock is a restricted security (not registered for
public trading) Roadrunner is obligated to register, for public 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 second quarter of calendar year 1996. When and if
the registration has been completed, intentions are to evaluate the merit of
retaining all or part of the preferred stock.
In December 1995, the Company agreed to accept 24,368 shares of
Roadrunner restricted common stock in payment of $41,000 preferred stock
dividends. The Company also received registration rights with this stock and
anticipates that it too will be registered for public sale by the second
quarter of calendar year 1996.
In December 1995, the Company filed a post-effective amendment to Form
S-1 with the Securities and Exchange Commission, to register for public sale,
881,218 shares of its common stock, issuable at $1.25 per share, upon the
exercise of outstanding common stock purchase warrants.
As of February 29, 1996, the Company had issued 146,000 shares of common
stock upon the exercise of stock purchase warrants. In addition, in September
1995, the Company issued 75,000 shares of its common stock at $.41 per share
upon the exercise of nonqualified stock options. Proceeds from the issuance
of common stock pertaining to the warrants and stock options, net of costs
related to the aforementioned registration, was $209,000. There can be no
assurance that all or any of the remaining warrant holders will exercise their
rights under the warrants.
The Company does not expect any significant capital expenditures
associated with its Finally Free or Finally Firm products in the immediate
future. However, the Company anticipates approximately $35,000 of additional
expenditures related to marketing for Raywatch products for the remainder of
the current fiscal year. Treasury stock acquisitions are not anticipated in
the near future
RESULTS OF OPERATIONS:
Sales for the nine months ended February 29, 1996 decreased $335,000 or
17% as compared to the corresponding period of the previous year. This was
due to a decrease in sales volume resulting from lower orders of Finally Free
products, primarily in Canada, along with price reductions necessitated by
increased competition.
Sales for the three months ended February 29, 1996 increased $128,000 or
32% as compared to the corresponding period of the previous year. This was
primarily due to increased sales volume in Japan.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: (continued)
Gross margin as a percentage of sales decreased by 2.4% and 5.7%
respectively, for the nine and three months ended February 29, 1996. Current
year sales, particularly those for the second and third fiscal quarters
included a greater percentage to markets where the Company has less favorable
pricing arrangements. Additionally, second quarter 1995 revenues included
approximately $43,000 of promotional sales of Finally Firm products sold at
little or no margin. The effect of these factors was offset to some degree by
improved vendor pricing and warehousing efficiency.
During the second quarter of the current fiscal year, the Company began
marketing efforts for Raywatch, a wrist or clip-on watch that contains
features which assist its wearer in measuring and monitoring exposure to ultra
violet light. The Company is presently a non-exclusive, U.S. retail
distributor for this product. Negotiations will be considered for expanded
distribution arrangements and markets based on evaluation of initial results.
Costs related to the initial marketing of this product through the third
fiscal quarter were $65,000 with additional costs of $35,000 expected during
fiscal 1996. Raywatch sales to date have not been significant.
Selling, general and administrative expenses for the nine and three
months ended February 29, 1996, increased by $261,000 and $222,000
respectively, as compared to the corresponding periods of the previous year.
Increase depreciation and amortization costs as a result of changes in the
estimated useful lives of certain intangible assets and equipment and the
aforementioned marketing costs related to the Raywatch product contributed to
the increase. In addition, legal, accounting and other professional fees for
the nine and three months ended February 29, 1996 increased by $81,000 and
$85,000, respectively. These increases were primarily attributed to costs
related to the Classy Lady merger. Bad debt expense for the nine months ended
February 29, 1996, was approximately $70,000 higher than for the corresponding
period of the prior year, resulting form a reassessment of the collectability
of an accounts receivable balance from the Company's Australian distributor.
In January 1996, the Company received $172,000 insurance proceeds in
connection with the theft of certain inventory being carried at $99,000. The
amount by which the insurance proceeds exceed the carrying basis, has been
reflected as other income for the nine and three months ended February 29,
1996.
No provision for income tax recovery has been provided for the nine and
three months ended February 29, 1996, due to the uncertainty concerning the
Company's ability to utilize the future tax benefits of net operating losses
generated during this period. For the nine months ended February 28, 1995,
the Company recognized a recovery of income taxes of $55,000. A provision for
current income taxes of $100,000 for the period was offset by a reduction in
the Company's deferred tax asset valuation allowance. The valuation allowance
reduction was a result of a change in judgement whereby it was determined to
be more likely than not that the Company would be able to utilize a portion of
its net operating loss carryforwards.
The Company continues to be dependent on the sales of one product,
Finally Free, which accounted for 96% of sales for the nine months ended
February 29, 1996. Efforts to establish markets for Finally Firm have
continued. It is presently too early for management to draw conclusions as to
the results of these efforts.
Assuming consummation of the Classy Lady acquisition and related Laser
Industries joint venture, future direction of the Company's efforts will
include those related to the development and marketing of products which
exploit Classy Lady's licensed processes. Under the terms of the contract
between the Company and Classy Lady, management of Classy Lady and their
appointees are to comprise a majority of the Company's Board of Directors
subsequent to the acquisition.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibit is included herein:
Exhibit 11: Statement re: computation of net income per common
share
(b) Reports on Form 8-K:
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELVAC CORPORATION
DATE: April 10, 1996 BY: Allan Borkowski
Allan Borkowski
Chairman of the Board and
Chief Financial Officer
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SELVAC CORPORATION
(11) Statement Re: Computation of New Income Per Common Share
(Unaudited)
Computation of average number of shares outstanding used in determining primary
and fully diluted earnings per share:
<TABLE>
<CAPTION
NINE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average number of shares
outstanding 13,937,595 14,457,937 14,114,735 14,251,043
Assumed exercise of common stock
warrants and certain stock
options based on average market
value (*) 0 0 0 0
Weighted average number of shares
used in primary per share
computations 13,937,595 14,457,937 14,114,735 14,251,043
FULLY DILUTED:
Weighted average number of shares
sued in fully diluted per share
computation * * * * .
PRIMARY:
Net income (loss) $(129,074) $ 282,836 $ (89,826) $ 2,537
Paid and cumulative undeclared
preferred stock dividends (30,150) (43,650) (10,050 (14,550)
Net income (loss) applicable
to common stock $(159,224) $ 239,186 $ (99,876) $ (12,013)
Net income (loss) per share $ (.01) $ .02 $ (.01) $ .00
FULLY DILUTED:
Net income (loss) per share * * * * .
<FN>
* The exercise of common stock warrants and conversion of convertible securities would have an
antidilutive effect on earnings per share and therefore, they have not been considered in earnings per
share calculations.
</FN>
-16-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT INCLUDED IN PART I, ITEM 1 OF
THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED
FEBRUARY 29 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 844,975
<SECURITIES> 0
<RECEIVABLES> 685,753
<ALLOWANCES> 95,125
<INVENTORY> 502,284
<CURRENT-ASSETS> 2,081,179
<PP&E> 747,399
<DEPRECIATION> 706,896
<TOTAL-ASSETS> 3,513,396
<CURRENT-LIABILITIES> 255,206
<BONDS> 0
<COMMON> 167,175
0
335,000
<OTHER-SE> 2,756,013
<TOTAL-LIABILITY-AND-EQUITY> 3,513,396
<SALES> 1,596,312
<TOTAL-REVENUES> 1,756,807
<CGS> 950,698
<TOTAL-COSTS> 950,698
<OTHER-EXPENSES> 935,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (129,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129,074)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> .00
</TABLE>
