<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                     FOR THE FISCAL YEAR ENDED MAY 31, 1997

[ ]   TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                         Commission file number 0-11969
                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)

          DELAWARE                                               22-2408186
(State or other jurisdiction  of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

                               4127 N.W. 27th Lane
                           Gainesville, Florida 32606
                    (Address or principal executive offices)

       Registrant's telephone number, including area code: (352) 373-2565

        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

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 the most recent fiscal year.    $3,594,899

The approximate aggregate market value of the voting stock of the Registrant
held by nonaffiliates of the Registrant as of August 22, 1997 (based upon the
closing sale prices as reported by the Nasdaq Stock Market, Inc.) was
approximately $60,711,771.

The number of shares outstanding of the Registrant's class of common stock, as
of August 22, 1997 is 43,993,301.
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                                     PART I

ITEM 1. BUSINESS

A. OVERVIEW

Mehl/Biophile International Corporation (the "Company") is a technology transfer
company presently concentrating on patented hair removal and cosmetic
dermatological products . The Company also makes early stage investments in core
technologies and companies that management believes are strategic to the
Company's business. The Company's initial focus is on removal of unwanted hair
through use of cosmetic lasers and consumable multiple hair removal systems.

The Company's short term goals focus on removal of unwanted hair in revenue
sharing licenses with physicians worldwide. The Company's medium term focus will
be to license other laser cosmetic applications to the Company's licensed
partners for treatment of skin resurfacing, wrinkles, leg veins, pigmented
lesions, port wine stains and other cosmetic procedures. In addition, the
Company desires to become the dominant company with both professional laser hair
removal as well as consumer hair removal technologies on a worldwide basis,
providing multiple options for consumers. Longer term goals involve industrial
laser applications and other related technologies.

HISTORICAL DEVELOPMENT

The Company, formerly Selvac Corporation ("Selvac"), is the result of the merger
on June 4, 1996 of Classy Lady by Mehl of Puerto Rico, Inc., a privately-held
Puerto Rico company ("Classy Lady"), with a subsidiary of Selvac (the "Merger").
In consideration for the Merger, the Company issued an aggregate of 25,000,000
shares of Common Stock, $.01 par value per share, to the shareholders of Classy
Lady. As a result of the Merger, the former Classy Lady shareholders owned a
majority of the outstanding Common Stock of the Company, thereby resulting in a
change of control of the Company.

In exchange for the issuance of the shares of the Company issued pursuant to the
Merger, the Company obtained all of the stock of Classy Lady, which owns the
exclusive licensing rights granted to Classy Lady by Dr. Nardo Zaias for a laser
hair removal technology and by Thomas L. Mehl, Sr. for a radio frequency and
direct current multiple hair removal technology. Upon completion of the Merger,
all of the assets and liabilities of Classy Lady became the property of the
Company's wholly owned subsidiary (now named Mehl Technologies, Inc.), and the
separate corporate existence of Classy Lady ceased.

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, (i) the name of the Company was
changed to MEHL/Biophile International Corporation, (ii) Thomas L. Mehl, Sr.
("Mehl"), the president and a principal shareholder of Classy Lady, was elected
as Chairman of the Board of Directors, President and Chief Executive Officer of
the Company, and (iii) the Board of Directors of the Company was expanded to
seven members, five of whom were designated by Mehl.

On June 4, 1996 the Company completed the purchase of capital stock representing
in the aggregate of 81% interest in SLS (Wales) Limited, a privately held Welsh
company which has been renamed SLS Biophile Limited ("SLS"), engaged in
developing, manufacturing and selling lasers for dermatologic use, including
hair removal. The consideration for the acquisition of the SLS shares consisted
of a cash payment of 1,255,000 pounds sterling (approximately $1.9 million) and
the issuance of 25,044 shares of the Company's Common Stock. The consideration
paid was based upon arms-length negotiations between the Company and the holders
of the SLS shares. SLS holds patents pending, invented by Marc Clement, Ph.D,
which are compatible with the Zaias patent exclusively licensed to the Company's
wholly owned subsidiary in the field of laser depilation. SLS has been
developing and clinically evaluating laser


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depilation technology since 1993 and presently manufactures its CHROMOS 694
"long pulse" ruby laser depilation system.

On March 13, 1997 the Company completed the purchase of capital stock
representing in the aggregate of 75% interest in Integrated Technologies
Research Limited, a privately held Welsh company which will be renamed ITR
Biophile Limited ("ITR"). ITR engages in the research and development of
software and related hardware in the following areas: 1) laser scanning systems,
2) laser marking systems, 3) adaptive "Smart Card" read/write technologies, and
4) other highly sophisticated related technological areas. ITR was the
originator of the present scanning system and smart card technologies utilized
in the CHROMOS 694 Ruby Laser. The shareholders of ITR received 250,000 shares
of the common stock of the Company for the 75% interest in ITR.

Prior to the Merger and the SLS and ITR acquisitions, the Company's principal
activities consisted of the manufacturing and distribution of the Finally Free
hair removal system.

LASER TECHNOLOGY

In December 1995, Classy Lady entered into a License Agreement with Dr. Nardo
Zaias (the "Zaias License") pursuant to which Dr. Zaias granted to Classy Lady
an exclusive license to make, use and sell products incorporating the laser
method of hair removal invented by Dr. Zaias and which is represented by U.S.
Patent No. 5,059,192 dated October 22, 1991 (the "Zaias Patent").

The Zaias Patent is directed to a method of hair depilation using a laser to
substantially destroy hair follicles. The method uses a pulse of laser energy of
a wavelength that is readily absorbed by melanin, a pigment found within the
hair in the papilla at the base of the hair follicle and the stem cells. The
laser energy is applied substantially vertical over the hair follicle opening,
and has a radiant exposure dose of sufficient energy and duration to damage the
papilla to prevent hair regrowth while avoiding scarring surrounding skin.

In consideration for granting the exclusive license, Classy Lady agreed to issue
Dr. Zaias 5,000 shares of Classy Lady Common Stock, pay to Dr. Zaias $100,000
prior to June 3, 1996 and pay to Dr. Zaias a royalty of $1,000 on each laser
placed in the United States in connection with the laser hair removal invention
covered by the above patent. Classy Lady also agreed to pay Dr. Zaias a minimum
royalty of $50,000 per year.

The Zaias Patent is compatible with the SLS patents pending, invented by Marc
Clement, Ph.D. in the field of laser depilation. SLS designs, develops,
manufactures and distributes opto-electronic based solutions to problems in
healthcare and industry. Its core discipline is that of opto-electronics, the
application of light to solve problems. SLS has developed several highly complex
machines for healthcare applications which contain advanced hardware and
software control systems, and sophisticated thermal, mechanical and optical
design. SLS believes that these technologies may be utilized for other
industrial sectors.

SLS has focused primarily on the application of lasers in plastic surgery,
dermatology and cosmetic applications. Its current focus is the area of hair
depilation, the removal of unwanted body hair. SLS was formed in 1992 to
complete the management buy-out in May 1992 of Shanning Laser Systems Limited
("Shanning"). After its acquisition by the Company in June 1996, SLS changed its
name to SLS Biophile Limited in August 1996.


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Shanning entered the healthcare market in 1988, when it developed its SIRIUS
range of carbon dioxide lasers. The product range was successful and received
numerous design awards including the Prince of Wales Award for Innovation. In
August of 1990, at the request of the United Kingdom's Secretary of State for
Health, Shanning developed a dye laser to treat vascular lesions, known as the
CHROMOS 585, which was fully developed and tested by the first quarter of 1992.
The CHROMOS 585 has full approval for sale in the European markets and SLS has
sold 68 CHROMOS 585 lasers to date. Dye lasers utilize complex chemicals in a
liquid state as the laser medium. Dye lasers are considered one of the most
complex laser technologies, incorporating sophisticated mechanical, optical and
chemical design, together with the advanced hardware and software demand. The
CHROMOS 585 is covered by two United Kingdom patents pending protecting the
concept of using the sharp pulse and multiple beam thermolysis. These patents
pending provide coverage in all countries which are party to the Patent
Convention Treaty ("PCT").

In 1992 SLS decided to develop technology capable of depilation. In 1993,
following extensive mathematical and computer modeling, system design and
clinical trials, SLS filed its first laser depilation patent, which is
compatible with the Zaias Patent exclusively licensed to the Company.

SLS has been developing and clinically evaluating laser depilation technology
since 1993 and presently manufactures its CHROMOS 694 "long-pulse" ruby laser
depilation system. The CHROMOS 694 long pulse ruby laser is designed to remove
unwanted hair on any part of the body using a relatively pain free process. This
is undertaken over a course of treatments and initial tests suggest permanency
can be achieved. Laser energy is deposited in hair and then converted to thermal
energy, i.e. heat. The optical parameters of the laser (wavelengths, energy,
energy density and, importantly, pulse duration) have been carefully selected to
destroy, in a controlled manner, the stem cells which control hair growth. SLS
has filed a patent to protect the concept of illuminating tissue with a range of
wavelengths which penetrate the surface of the skin and target the melanin in
the hair deep beneath the surface. Protection is throughout the PCT and other
countries. The Company believes that the SLS patent, if granted, will give the
Company a very strong commercial position in this substantial market.

The Company was informed in May, 1997 that the patent application had been
accepted by the New Zealand Patent Office and that the application would proceed
to grant in August 1997.

SLS has entered into an exclusive manufacturing agreement to provide the CHROMOS
694 ruby laser and has granted an exclusive license to market the CHROMOS 694
ruby laser to the Company. The Company has granted a sublicense to market the
CHROMOS 694 ruby laser to its wholly owned subsidiary, Mehl Group Marketing,
Inc. ("MGMI"), a Puerto Rico corporation formed on November 15, 1996. MGMI was
formed to market and distribute the CHROMOS 694 ruby laser. In addition, the
Company's wholly owned subsidiary, Mehl Technologies, Inc., has granted a
license to market products incorporating the laser method of hair removal
invented by Dr. Zaias to MGMI. MGMI enters into licensing arrangements with
physicians, clinics and hospitals in exchange for coordinating all aspects of
marketing, deployment, training and service for the CHROMOS 694 ruby lasers.

The Company intends to significantly expand its development, manufacturing and
deployment of laser systems throughout the world. The Company, either directly
or through its subsidiaries, intends to continue distributing its products
through licensing arrangements with physicians, clinics and hospitals which will
provide ongoing revenues to the Company and the opportunity to provide new
technology developed by SLS to its licensees. As of May 31, 1997 MGMI had 31
lasers under licensing agreements worldwide. These lasers generated $816,000 of
total revenue during the fourth quarter of 1997, of which MGMI's portion was
$228,000. As of August 7, 1997, MGMI had placed an additional 32 lasers under
licensing agreements, including 18 lasers in the United States. In addition, as
of August 7, 1997 MGMI had a backlog of 27 lasers to place under signed
licensing agreements with installation scheduled upon completion of appropriate
training sessions, including 24 lasers for installation in the United States. As
of August 7, 1997, the Company had in excess of 2,000 applications for potential
licensing agreements.


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The method utilized by the Company's laser hair removal technologies differs
from other techniques for hair removal in both convenience and simplicity. It
offers an alternative to the sometimes painful and time consuming process of
electrolysis which reportedly accounts for over $1 billion in revenues annually.
Unlike other techniques, the Company's method using the CHROMOS 694 laser does
not require pre-treatments such as waxing or the use of messy lotions. The
Company believes that physicians who are seeking alternative sources of revenue
due to the cost containment policies of managed care organizations provide a
market opportunity for the Company's products. The Company is forming alliances
with physicians in licensing arrangements whereby the physicians will oversee
the provision of hair removal services in doctors offices, clinics and hospitals
while the Company will employ marketing strategies to increase awareness about
this service and its available locations. The Company believes that its
arrangements with physicians providing wide access to consumers coupled with the
simplicity of the method will allow for expansion of the hair removal market.

CONSUMER PRODUCTS

      FINALLY FREE

Prior to the Merger and subsequent acquisitions, the Company's principal
activities consisted of the manufacturing and distribution of the Finally Free
hair removal system.

On April 22, 1985, the Company acquired all of the outstanding capital stock of
(a) The Mehl International Corporation ("MIC") 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


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made, and royalty payments of 2% of net Finally Free Hair Remover ("Finally
Free") worldwide sales collections were, until November 1996, made to the stock
holders of MIC. As part of the acquisition, the Company was assigned the rights
to an exclusive Licensing Agreement with Thomas L. Mehl, Sr., 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, which
expired in November 1996. All royalties are based on net unit sales. Royalty
expense paid to the shareholders of MIC under the agreements for fiscal years
ended May 31, 1997, 1996, 1995, was approximately $92,345, $39,000 and $53,000,
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. MIC was the owner of the Finally Free hair removal appliance
described below.
                                         
The Company entered the personal care appliance business in 1985 with its
acquisition of MIC and Nutrolysis, which were merged into the Company in 1988.
MIC 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 and 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.

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. Production of the Finally Free is through a single
manufacturer in the United Kingdom. The Company filed a 510(k) application for
the Finally Free product on July 17, 1997. Currently, the Company is awaiting a
response from the FDA.

Total consumer products sales, entirely export sales, amounted to $2,087,909,
$2,351,945 and $2,744,620 in 1997, 1996 and 1995, respectively. Finally Free
sales represented 98%, 97% and 99% of total consumer products sales in 1997,
1996 and 1995 respectively. The 1997 export sales were $1,796,000 to Japan and
$166,000 to Europe. The 1996 export sales were $2,083,000 to Japan and $184,000
to Europe. The 1995 export sales were $2,090,000 to Japan and $322,000 to
Europe.

Sales to major customers as a percentage of total sales for the Company's
consumer products division were as follows:

<TABLE>
<CAPTION>
                              1997        1996        1995
                              ----        ----        ----
<S>                            <C>         <C>         <C>
      Ikeda Corporation        86%         89%         76%
      Impromedia S.L.                                  10%
</TABLE>

Although the Company anticipates that income from laser hair removal
technologies will comprise the principal source of the Company's revenues, at
present any substantial decrease in sales to Ikeda Corporation would have a
significant detrimental impact on the Company's operations and financial
condition.

The consumer products division has elected not to manufacture its products
directly. The Company owns molds from which the plastic parts are produced as
well as some of the production equipment and uses one primary vendor for the
actual assembly work. This vendor is not 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 the current
supplier.


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The sales order backlog for the consumer products division at any point in time
is negligible. Orders are shipped from inventory as received and are based upon
purchase orders.

      CLASSY LADY

In December 1995, Classy Lady also entered into a License Agreement with Thomas
L. Mehl, Sr. ("Mehl License") pursuant to which Mr. Mehl granted to Classy Lady
an exclusive license to make, use and sell the following products:

      -     a method and system for the removal of multiple hairs invented by
            Mr. Mehl represented by U.S. Patent No. 5,470,332 dated November 28,
            1995 ("Mehl Patent");

      -     a consumer radio frequency hair removal tweezer device invented by
            Mr. Mehl and represented by U.S. Patent No. 5,049,149 dated November
            17, 1991; and

      -     a consumer hair removal conductive solution to be used to provide
            for improved conductivity when used in conjunction with the tweezer
            device which was invented by Mr. Mehl and is represented by U.S.
            Patent No. 5,364,394 on November 15, 1994.

The Mehl Patent is directed to devices for multiple hair removal using radio
frequency and direct current. The Mehl Patent describes several embodiments,
including a multi-layer device. The multi-layer device is comprised of a
non-conductive adhesive wax layer, a structural layer, and a conductive adhesive
layer between the non-conductive and structural layers. In use, the device is
pressed against the skin surface with the non-conductive layer in contact with
the skin. Hair to be removed extends through the non-conductive layer and
contacts the conductive layer. The conductive layer is connected to a power
source, which is turned on for a predetermined time period. The hairs serve as
paths by which power is transmitted to the root areas of the hairs, which are
thereby damaged. The non-conductive layer guards against discomfort when the
device is in use. The adhesive layers adhere to the treated hairs to thereafter
facilitate their removal from the skin.

The hair removal system licensed by Classy Lady from Thomas L. Mehl, Sr. has
also received patent protection in the European Community and a Canadian patent
for such system was granted in February 1996. These patent rights are also
exclusively licensed by Classy Lady together with the U.S. patents described
above. Patent applications are pending in approximately 50 additional foreign
countries.

In consideration for the grant of the exclusive license, Classy Lady agreed to
pay Mehl a royalty of 5% of the wholesale price of all products covered by the
above patents sold by Classy Lady or its distributors worldwide. Under the Mehl
License, Classy Lady agreed to pay Mehl a minimum annual royalty of $50,000. 10%
of all royalty payments due to Mehl are to be paid to Classy Lady's patent law
firm of Schlesinger, Arkwright & Garvey (SA&G") until the aggregate of such
payments to SA&G reaches $1 Million.

Mr. Mehl and Dr. Zaias have each agreed to share with the other a portion of the
royalty revenues derived from the License Agreements described above.
Accordingly, 25% of all payments to be made to Mr. Mehl under his license
agreement are to be paid to Dr. Zaias until such time as Dr. Zaias notifies
Classy Lady that Mr. Mehl is no longer obligated to make such payments and 50%
of all royalty payments due to Dr. Zaias are to be paid to Mr. Mehl.

The Company is currently in the process of developing the consumer multiple hair
removal patch for commercial introduction.


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      FINALLY FIRM

After several unsuccessful marketing attempts for the Finally Firm Facial Toning
System ("Finally Firm"), the Company discontinued this product line during 1997.
Sales of Finally Firm accounted for less than 5% of total revenues for each of
the past three years.

LIL JOINT VENTURE

On December 19, 1995, Classy Lady executed a Joint Venture Formation Agreement
with Laser Industries ("LIL"), an Israeli corporation engaged in the development
and sale of lasers for medical purposes. Under the terms of this agreement,
Classy Lady and LIL formed a new corporation, Sharplan 2000, Inc. ("Sharplan"),
owned 50% by Classy Lady and 50% by LIL but having all directors appointed by
LIL. The purpose of the joint venture is to obtain FDA approval for the
marketing of the laser hair removal invention covered by the Zaias patent and to
develop, market and sell products and services derived therefrom. Classy Lady
agreed to contribute a sublicense of the Zaias License to Sharplan and agreed
that it will issue no more than one other sublicense of the Zaias License. In
June 1996, LIL announced that it had filed a 510(k) application with the FDA for
clearance to market through Sharplan Lasers, Inc., a separate subsidiary of LIL,
the EpiTouch ruby laser in the United States for hair removal. On March 7, 1997
the FDA granted clearance for Sharplan Lasers, Inc. to market the EpiTouch ruby
laser in the United States for hair removal.

 On December 5, 1996, the Company commenced an arbitration with the American
Arbitration Association in New York, New York to terminate the joint venture.
The Company is basing this action on a dispute concerning the nature of
technological and financial contributions to be made to the joint venture by LIL
and an additional dispute concerning whether LIL utilized technology within the
joint venture which was in fact developed by SLS prior to the purchase by the
Company of a controlling interest in SLS in June, 1996. See "Item 3. Legal
Proceedings."

COMPETITION

      MARKET

It is estimated that approximately 80 million women in the United States use
alternative methods of hair removal. The market may be divided into three
different hair removal categories based upon the length of time for reappearance
of hair. Short term methods may employ shaving, chemical depilation liquids and
creams, which are low cost but require frequent use. Moderate term methods, i.e.
plucking or waxing, may last several weeks but may cost more and be painful. The
most common method used for long term hair removal is electrolysis. This
technique requires a needle-like probe to be inserted into each individual hair
follicle to deliver an electric pulse of energy, which can be a painful,
time-consuming and costly process.


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Re-treatments may be required as permanent hair removal may be achieved in as
few as 40% of disabled hair follicles after the first treatment. Given this
situation, electrolysis typically is limited to small body area locations. The
American Electrology Association estimates that in the United States
approximately one million people per year use electrolysis and that the market
generates approximately $1 billion annually. The Company believes the market for
removal of unwanted hair may substantially increase with the introduction of a
less painful, more efficient process for hair removal.

      LASER TECHNOLOGY

The Company is aware of at least two other companies in the United States
engaged in laser hair removal, Thermolase Corporation ("Thermolase") and Palomar
Medical Technologies, Inc. ("Palomar"). Thermolase has received 510(k) clearance
form the FDA to market services using its laser technologies. Palomar has
received 510(k) clearance for its Epilaser(TM) technology for dermatological
uses, but not including use of the laser hair removal application, and the
Company is not aware of Palomar's current plans to commercialize its laser hair
removal technology. Both Thermolase and Palomar are substantially larger than
the Company in terms of financial, marketing and research and development
resources. The Company believes, however, that its technology is superior to
that of both Thermolase and Palomar in terms of effectiveness, reduced pain and
permanency. The Company further believes it has extremely strong patent rights
under the Zaias Patent and the SLS patent pending which will substantially
increase its ability to compete with these companies.

The Company's laser hair removal technology will also be competitive with
conventional hair removal providers such as electrolysis and other temporary
hair removal products such as waxes, creams and depilatories.

      CONSUMER PRODUCTS

The Company's consumable multiple hair removal patch and Finally Free tweezers
will also compete with laser hair removal technologies and conventional hair
removal methods. The Company believes that its multiple hair removal method,
when commercially developed, will offer substantial advantages in terms of ease
of use and permanency to enable the Company to compete effectively in the hair
removal market. The Company believes that its consumer multiple hair removal
patch and Finally Free tweezer will complement and expand the Company's share of
the depilation market.

UNITED STATES GOVERNMENT REGULATION

      LASER TECHNOLOGY

As with any manufacturer of medical devices, the testing, manufacture and sale
of the Company's products are subject to regulation by numerous governmental
authorities, principally the United States Food and Drug Administration ("FDA")
and corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug and Cosmetic Act ("FDCA"), and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, distribution and promotion of medical devices. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has the authority to request recall,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

In the United States, medical devices are classified into one of three classes
(i.e. class I, II, or III) on the basis of the controls deemed necessary by the
FDA to reasonably ensure their safety and effectiveness. Class I devices are
subject to general controls (e.g. labeling, premarket notification and adherence
to good manufacturing practices ("GMP")) and class II devices are subject to
general and specific controls (e.g. performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, class


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III devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g. life-sustaining, life-supporting and
implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices). 

Before a new device can be introduced in the market in the United States, the
manufacturer must generally obtain FDA clearance or approval through either
clearance of a notification filed under section 510(k) of the FDCA or approval
of a premarket approval ("PMA") application. A PMA application must be filed if
a proposed device is not substantially equivalent to a legally marketed class I
or class II device, or if it is a class III device for which the FDA has called
for PMA's. A PMA application must be supported by valid scientific evidence to
demonstrate the safety and effectiveness of the device, typically including the
results of clinical trials, bench tests and laboratory and animal studies. The
PMA process can be expensive, uncertain and lengthy, and a number of devices for
which FDA approval has been sought by other companies have never been approved
for marketing.

A 510(k) clearance will be granted if the submitted information establishes that
the proposed device is "substantially equivalent" to a legally marketed class I
or class II medical device or a class III medical device for which the FDA has
not called for PMAs. The FDA has recently required more rigorous demonstration
of substantial equivalence than it has done in the past, including in some cases
requiring submission of clinical data. For some devices, the FDA may determine
that the proposed device is not substantially equivalent to a predicate device,
or that additional information (i.e. more scientific data) is needed before a
substantial equivalence determination can be made. It generally takes from four
to twelve months from submission to obtain 510(k) premarket clearance, but it
may take longer. A not substantially equivalent determination, or a request for
additional information could prevent or delay the market introduction of new
products that fall into this category. Modifications or enhancements of devices
that have been cleared through the 510(k) process that could significantly
affect safety or effectiveness, or that constitute a major change in the
intended use of the device, will require new 510(k) submissions.

If human clinical trials of a device are required, whether for a 510(k)
submission or a PMA, and the device presents a significant risk, the sponsor of
the trial ( usually the manufacturer or the distributor of the device) will be
required to file an investigational device exemption ("IDE") application prior
to commencing human trials. The IDE application assures the safety and adequacy
of the clinical trial and therefore must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRB"), human clinical trials may begin at a specific number of investigational
sites with a specific number of patients, as approved by the FDA. If the device
presents an insignificant risk to the patient, a sponsor may begin the clinical
trial after obtaining approval for the study by one or more appropriate IRBs
without the need for FDA approval. Submission of an IDE application does not
give assurance that the FDA will approve the IDE application and, if it is
approved, there can be no assurance that the FDA will determine that the data
derived from these studies support the safety and efficacy of the device or
warrant the continuation of clinical studies.

Manufacturers of medical devices for marketing in the United States are required
to adhere to applicable regulations setting forth detailed Good Manufacturing
Practices ("GMP") requirements, which include testing, control and documentation
requirements. They must register their facilities with the FDA so that the
agency can perform periodic inspections and quality audits. Manufacturers must
also comply with Medical Device Reporting ("MDR") requirements that a firm
report to the FDA any incident in which its products may have caused or
contributed to a death or serious injury, or in which its products malfunctioned
and, if the malfunction were to recur, whether it would be likely to cause or
contribute to a death or serious injury. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.

In May 1996, The Company applied for 510(k) clearance for the CHROMOS 694
depilation laser system distributed by SLS. On March 13, 1997 the Company
received marketing clearance from the FDA to market the CHROMOS 694 depilation
laser system in the United States. The FDA decision was based


                                       10
<PAGE>   11
upon safety and efficacy data from two European studies, one Danish and one
English, involving a total of 200 patients with nearly 250 skin sites tested. As
part of those studies it was noted that, after an average of two treatments,
approximately 80% of facial hair did not return after a period of 190 days.
Although a minority of patients reported minor temporary itch, swelling or
redness, no serious adverse effects were reported.

      CONSUMER PRODUCTS

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, in which 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 clearance
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, the Company 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 or distributed in the U.S. The Company filed a 510(k)
application for the Finally Free product on July 17, 1997. Currently, the
Company is awaiting a response from the FDA.

EUROPEAN COMMUNITY REGULATION

      LASER TECHNOLOGY

Sales of the Company's products in Europe are subject to voluntary standards and
regulations, including directives adopted by the European Community. A key
voluntary standard provides, among other things, that the Company comply by 1998
with International Standard ISO 9001 ( European Standard EN 29001) entitled
"Model for Quality Assurance in Design, Development, Production, Installation
and Servicing." In August 1997, SLS obtained ISO 9001 registration.

In addition, since January 1, 1996, in order to receive Community European
Marking ("CE Marking"), laser manufacturers must comply with the Electro
Magnetic Compatibility ("EMC") standards. All of the Company's current products
meet the EMC standards, and thus have been cleared for CE Marking.

Commencing in June, 1998, laser manufacturers who market their products in the
European Community will be required to comply with the Medical Devices Directive
("MDD"). The Company expects to meet the requirements in early 1998.

      CONSUMER PRODUCTS

Regulatory approval to market the electronic components employed by the Classy
Lady hair removal system licensed from Thomas L. Mehl, Sr. was granted in
September 1993 by the German Verband Deutscher Electrotechniker ("VDE") which
enables such products to be marketed and sold in the European Community. The
Company believes that no further VDE or other regulatory approvals are required
in the European Community to market the Company's products which are used with
such electronic components. Accordingly, the Company believes it can currently
market its multiple hair removal products in the European Community under its
existing VDE license.

RESEARCH AND DEVELOPMENT

Research and development expense was $2,265,984 in 1997 compared to virtually no
research and development expense for 1996.


                                       11
<PAGE>   12
EMPLOYEES

The company employed 89 total employees and 81 full-time employees at May 31,
1997.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company utilizes the following facilities:

<TABLE>
<CAPTION>
                                     Square        Owned/     Lease
Location                             Footage       Leased     Expires           Use
--------                             -------       ------     -------           ---
<S>                                  <C>           <C>        <C>              <C>
4127 NW 27th Lane                    4,150         Leased     10/31/98         Office
Gainesville, FL

4140 NW 27th Lane                    1,175         Leased     12/30/97         Office
Gainesville, FL

2127 NW 43rd Street                  1,092         Leased     06/30/98         Office
Gainesville, FL

100 Alexandria Blvd                  1,120         Leased     10/31/97         Clinic/Office
Oviedo, FL

401 Hackensack Ave                   1,500         Leased     05/31/00         Office
Hackensack, NJ

270 Munoz Rivera Ave                   450         Leased     03/30/98         Office
Hato Rey, PR

221 Boston Post Rd                   2,500         Leased     09/30/97         Office
Marlboro, MA

Heol Rhosyn, Dafen Park             10,000         Leased     05/31/17         Factory/Office
Llanelli, Wales

Heol Aur, Dafen Park                 5,000         Leased     08/31/97         Warehouse
Llanelli, Wales

Tawe Business Village                  600         Leased     03/22/01         Office
Swansea, Wales
</TABLE>

The Company believes its current facilities are in good operating condition and
repair and are sufficient to meet the short-term needs of the Company.

ITEM 3.  LEGAL PROCEEDINGS

The Company holds an exclusive license with Thomas L. Mehl, Sr. for certain
enumerated patents as well as Mehl's new inventions in the hair removal field. A
dispute arose as to the Company's compliance with the terms of that license and
as to the termination of the license. On March 20, 1991, the Company filed a
complaint in the Federal District Court in Massachusetts (Civil Action No.
91-10868-Z) against Mr. Mehl. After consummation of the Merger, each of Mehl and
the Company entered into full settlement and release on June 14, 1996 with
respect to the litigation and dismissed all claims against each other. Neither
party was or will be paid any money or other consideration from the other in
connection with such settlement


                                       12
<PAGE>   13
and release.

On December 5, 1996 the Company commenced an arbitration with the American
Arbitration Association in New York, New York to terminate a joint venture with
Laser Industries Limited ("Laser"). The joint venture was formed in December,
1995, when Laser and Classy Lady executed a Joint Venture Formation Agreement to
exploit patented laser hair removal technology exclusively licensed to Classy
Lady. Under the terms of the agreement, Classy Lady and Laser formed a new
corporation, Sharplan 2000, Inc. ("Sharplan"), owned 50% by Classy Lady and 50%
by Laser but managed exclusively by Laser and having a majority of directors
appointed by Laser. The Company commenced the arbitration to terminate the
license granted to Sharplan and unwind the joint venture. The Company is basing
this action on a dispute concerning the nature of technological and financial
contributions to be made to the joint venture by Laser and an additional dispute
concerning whether Laser utilized technology within the joint venture which was
in fact developed by SLS prior to the purchase by the Company of a controlling
interest in SLS in June, 1996.

On December 23, 1996, Laser asserted two counterclaims in the arbitration
proceedings, claiming that the Company has breached an alleged fiduciary duty
owed to Laser and Sharplan and seeking a declaration that the Company may not
grant a sublicense of certain patent rights to SLS. The Company has filed a
response to these counterclaims requesting dismissal on the grounds that neither
claim is arbitrable. On April 7, 1997, LIL filed an amendment to its original
counterclaim to permanently enjoin the Company and SLS from selling lasers for
hair removal in the United States.

In a separate action filed in England in October, 1996, SLS commenced an action
against Laser, a laser manufacturer Spectron Laser Systems Limited ("Spectron")
and related parties, for orders preventing Laser from using SLS's technology and
stopping Spectron from supplying SLS's technology to Laser.

In March, 1997, the Company filed suit against Palomar Medical Technologies,
Inc. ("Palomar") and its subsidiaries, Spectrum Medical Technologies, Inc.,
Spectrum Financial Services, LLC, and a New Jersey dermatologist for patent
infringement and unfair competition. The suit was filed in the United States
District Court for the District of New Jersey and alleges that the defendants
infringe on the patented method of laser hair removal owned by Dr. Nardo Zaias
and exclusively licensed to the Company and that the defendants have improperly
marketed laser hair removal products before receiving FDA approval. The Company
is seeking monetary damages and injunctive relief to restrain Palomar from
marketing its laser hair removal products in the United States. While management
is confident that the actions brought against the above defendants are
well-founded the litigation is only in its initial stages. In March, 1997,
Palomar served the Company with a lawsuit it filed in the United States District
Court in Massachusetts seeking to declare the patent embodying the laser hair
removal technology exclusively licensed to the Company to be declared invalid.
Further amendments to this action have also been sought by Palomar. The Company
has moved to dismiss the Massachusetts action and counsel for Palomar has agreed
to its dismissal. It is likely however that the assertion of invalidity will be
raised in the Company's New Jersey action against Palomar. Management of the
Company is confident that the validity of its patent will be upheld.

On August 11, 1997, the Federal District Court in New Jersey rejected Palomar's
attempt to prevent the Company from pursuing unfair competition claims under New
Jersey law relating to allegations of improper promotions of Palomar's
Epilaser(TM) for hair removal usage.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS:

None


                                       13
<PAGE>   14
                                     PART II

ITEM 5.  MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:


The Company's Common Stock has been traded over-the-counter since December 6,
1983 and is currently listed for quotation on the Small Cap Market of the Nasdaq
Stock Market, Inc. under the symbol MEHL, and the bid prices are reported on the
Nasdaq Stock Market, Inc.'s Small Cap Market.


<TABLE>
<CAPTION>
                                         COMMON STOCK             WARRANTS*
          PERIOD                        HIGH        LOW        HIGH        LOW
          ------                        ----        ---        ----        ---
<S>                                   <C>         <C>          <C>       <C>
Year Ended May 31, 1997

  Quarter Ended May 31, 1997          5 17/32     2 21/32
  Quarter Ended February 28, 1997     4 7/8       2 3/16         5/8        5/8
  Quarter Ended November 30, 1996     4 13/16     2 3/8        2 3/4        3/4
  Quarter Ended August 31, 1996       9 11/16     3 7/16       3 1/8      3 1/8

Year Ended May 31, 1996

 Quarter Ended May 31, 1996          10           2 1/8        7 3/4      1 1/4
 Quarter Ended February 29, 1996     2 7/8        1 3/16       1 7/16       5/8
  Quarter Ended November 30, 1995    1 15/16        3/16
  Quarter Ended August 31, 1995        7/32         3/16
</TABLE>

*     All outstanding warrants expired on December 27, 1996. Due to the decline
            of the market value of the common stock, there were no available
            quoted bid prices for periods prior to the quarter ending February
            29, 1996, based upon the assumption that warrants will not be
            exercised or purchased for the periods presented.

The source for the price quotes of the Common Stock is as reported by the
National Association of Securities Dealers and does not include retail mark-ups,
mark-downs, commissions or other adjustments and does not represent actual
transactions.

As of August 6, 1997, there were approximately 5,400 holders of the Company's
common shares.

The Company has never paid any common stock cash dividends, and no common stock
dividends are anticipated at the present time.


                                       14
<PAGE>   15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:

GENERAL OPERATING COMMENTS

During the year, the Company has gone from being essentially a single consumer
product company with declining sales to a multifaceted technology company
engaged in laser hair removal on a global basis. This change has necessitated an
increase in administrative employees, legal expenses, patent fees and travel
expense. Additionally, the Company is increasing its sales and marketing
capabilities in order to support the global introduction of the hair removal
lasers. At the same time the Company has commenced a program to license its
lasers to revenue sharing partners wherein physicians will oversee the hair
removal services. The licensing program began internationally in October 1996
but could not begin in the United States until marketing clearance was received
from the Food and Drug Administration. The market clearance was received March
13, 1997. Under these licensing arrangements, the Company will provide its
partners with the use of a laser, training and maintenance and will receive a
percentage of the gross revenue generated by the laser hair removal treatments.

The Company has had significant losses to date and expects these losses to
continue for the near future. Therefore, the Company must continue to secure
additional financing to commercialize its current laser hair removal plan and
fund ongoing operations. The Company continues to investigate several financing
alternatives, including strategic partnerships, bank financing, private debt and
equity financing and other sources. The Company believes it will be successful
in obtaining additional financing in order to fund current operations in the
future.

ACQUISITIONS

On June 4, 1996, Classy Lady merged with and into a subsidiary of the Company.
The Merger has been accounted for as a non-monetary exchange. In consideration
for the Merger, the Company issued an aggregate of 25,000,000 shares of Common
Stock, $.01 par value per share, to the shareholders of Classy Lady. As a result
of the Merger, the former Classy Lady shareholders own a majority of the
outstanding Common Stock of the Company, thereby resulting in a change of
control of the Company.

On June 4, 1996, in a transaction accounted for as a purchase, the Company
completed the purchase of capital stock representing in the aggregate of 81%
interest in SLS (Wales) Limited, a privately held Welsh company which has been
renamed SLS BiophileLimited ("SLS"), engaged in developing, manufacturing and
selling lasers for dermatologic use, including hair removal. The consideration
for the acquisition of the SLS shares consisted of a cash payment of 1,255,000
pounds sterling (approximately $1.9 million) and the issuance of 25,044 shares
of the Company's Common Stock.

On March 13, 1997, in a transaction accounted for as a purchase, the Company
completed the purchase of capital stock representing in the aggregate of 75%
interest in Integrated Technologies Research (Wales) Limited, a privately held
Welsh company which will be renamed ITR Biophile Limited ("ITR").The
shareholders of ITR received 250,000 shares of the common stock of the Company
for the 75% interest in ITR.

RESULTS OF OPERATIONS


                                       15
<PAGE>   16
Total net sales in 1997 were $3,594,899, an increase of 52.85% from the
$2,351,945 in 1996. Net sales for the consumer products division were
$2,087,909, a decrease of 11.23% from the $2,351,945 in 1996. All of the
increase in total net sales can be attributed to the Merger, the acquisitions of
SLS and ITR and the resulting licensing agreements with physicians for the
CHROMOS 694 laser. The decrease in net sales for the consumer products division
is due to a decline in sales to its major customer.

The total gross margin percentage decreased to 31.14% in 1997 from 43.42% in
1996. The gross margin percentage for the consumer products division decreased
to 36.92% in 1997 from 43.42% in 1996. The total 1997 decrease resulted from the
replacement of lasers originally sold by SLS prior to being acquired by the
Company and price reductions in the consumer products division necessitated by
increased competition. The Company does not anticipate any future charges to
income for the replacement of lasers sold by SLS prior to the acquisition.

Selling, general and administrative expense for 1997 was $11,670,241 compared to
$1,586,300 in 1996. Selling, general and administrative expense in 1997 for the
consumer products division was $921,074 compared to $1,586,300 in 1996. The
increased selling, general and administrative was due to the merger with Classy
Lady and the acquisitions of SLS and ITR, which required the Company to increase
its expenditures on administrative staff, legal expense, patent fees, travel,
and increased depreciation and amortization which does not present a meaningful
comparison to the prior period. The decreased expense in the consumer products
division resulted from the establishment of separate administrative
headquarters.

Charges for inventory write-downs increased to $219,940 in 1997 from $186,675 in
1996. This increase was the result of a complete write-off of a discontinued
product line of the
Company's consumer products division.

Research and development costs for 1997 were $2,265,984 compared to virtually no
costs for the corresponding period in 1996. This is a result of a change in the
Company's strategy from a consumer products orientation to a technology company
that will continue to incur research and development costs in order to insure
that it maintains technological superiority in its market.

Investment income for the year ended May 31, 1997 was $446,887 compared to
investment income of $120,700 for the corresponding period in 1996. The
increased income can be attributed to the investment of funds from the Series C
and Series D preferred stock placements until needed for operational cash flow.

Other expenses of $737,921 in 1997, compared to other income of $72,728 can be
attributed to the complete write down of the Company's investment of $750,000 in
preferred and $39,000 common stock of Roadrunner Video Enterprises, Inc. in
1997. Other income in 1996 is attributable to the amount by which insurance
proceeds exceeded the cost basis of inventory in connection with the insurance
claim for the theft of this inventory.

Net loss for 1997 was $13,349,455 compared to a net loss of $1,623,872 in 1996.
The increased loss resulted from the factors discussed above.

No provision for income tax recovery has been provided for 1997 or 1996 due to
the uncertainty concerning the Company's ability to utilize the future tax
benefits of net operating losses generated during those periods.

FINANCIAL CONDITION

At May 31, 1997 the Company's cash balance of $4,689,307 represented a decrease
of $5,149,691 from the $9,838,998 at May 31, 1996.

Cash was used to finance the Company's operations, preferred stock dividend
payments, the purchase of equipment (primarily for the production of lasers to
be placed under licensing agreements), notes payable


                                       16
<PAGE>   17
repayments and advances to prospective acquisition candidates. The cash used was
offset by a private placement of convertible preferred stock which generated
$10,000,000, proceeds from the sale of marketable securities and notes
receivable repayments.

Management anticipates increased production of the SLS laser products and a
corresponding increase in its inventory. Production facilities in Wales are
considered adequate to meet short term production needs. The Company will
continue to utilize its resources to finance the expected increase in production
and inventory and may be looking to finance the growth through other means of
financing.

The Company completed a loan agreement with Clearwater Fund IV, LLC allowing the
Company to borrow up to $7 million to be used in connection with the manufacture
and delivery of laser hair removal systems and for general working capital
purposes. The loan bears interest at 15% per annum payable in arrears on a
monthly basis and is due on January 15, 1998. Although the Company anticipates
that income from laser hair removal technologies will continue to increase,
currently the Company is not generating sufficient revenue from operations to
provide the facility to repay the loan. The Company must secure additional
financing to enable it to repay the loan and carry out its near and mid-range
plans. The Company plans to achieve its objectives through either private or
public offering of equity or debt. The Company is also investigating long term
financing for the purchase and subsequent placement of its lasers

During the past year 7,769 shares of the Company's 5% cumulative convertible,
Series C preferred shares were converted into 2,562,621 of common shares. In
addition, the holders of the remaining convertible debentures exercised their
right to convert and the Company issued 261,583 shares of its common stock and
retired the debt and related accrued interest. Also, warrants to purchase
236,496 shares of common shares were exercised, resulting in gross proceeds to
the Company of $295,620.

SUBSEQUENT FINANCING

On August 5, 1997, the Company completed a loan agreement with Clearwater Fund
IV, LLC ("Clearwater"), allowing the Company to borrow up to $7 million to be
used in connection with the manufacture and delivery of laser hair removal
systems and for general working capital purposes. The loan is executable in two
steps, with $4 million borrowed upon execution of the loan documents and the
remaining $3 million to be borrowed at any time after the Company has delivered
fifty (50) lasers under effective license agreements with a third party
physician, clinic or hospital. To qualify these lasers must have been delivered
after July 15, 1997. The loan bears interest at 15% per annum payable in arrears
on a monthly basis and is due on January 15, 1998. The loan is secured by all of
the Company's assets and approval must be obtained from Clearwater for all
expenditures made with the loan proceeds. As additional consideration for the
loan, the Company agreed to issue common stock purchase warrants according to
the following schedule:

<TABLE>
<CAPTION>
         Date                Shares            Price           Expiration
         ----                ------            -----           ----------
<S>                        <C>                 <C>         <C>
       08/05/97              750,000           $2.50       08/05/02
       Date of second        750,000           $2.50       5 years from date of
       borrowing                                           second borrowing
       10/02/97            1,000,000           $2.50       07/15/02
       12/02/97              500,000           $2.50       07/15/02
</TABLE>

Included as part of the loan agreement, the Company agreed to exchange all 2,231
shares of $1,000 stated value Series C, 5% cumulative preferred stock and all
10,000 shares of $1,000 stated value Series D, 5% cumulative convertible
preferred stock for 12,231 shares of $1,000 stated value Series E, 5% cumulative
convertible preferred stock.

Each share of Series E stock is convertible into common stock of the Company at
80% of the average market price on the five trading days prior to conversion
with no minimum conversion price, but in no event shall the


                                       17
<PAGE>   18
conversion price be greater than $3.125. The Company agreed to file a
registration statement covering the public sale of the shares of common stock
receivable upon conversion of the Series E stock and the holders agreed not to
sell or transfer any such shares on or before February 28, 1998. Dividends are
to be paid quarterly beginning August 31, 1997.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-KSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21B of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward looking statements. Factors that might cause such
a difference include those discussed below.

The Company's future results of operations initially depend to a substantial
degree on the ability of the Company to license parties worldwide to utilize the
CHROMOS 694 Ruby Laser manufactured by SLS and for such licenses to successfully
sell hair removal services utilizing this product. The ability of such licensees
to market such services will in part depend on the public's acceptance of the
use of lasers to remove hair, as to which there can be no assurance, and the
strength of the Company's competitors. The Company's existing or potential
competitors have or may have substantially greater research and development
capabilities, clinical, manufacturing, regulatory and marketing experience and
financial and managerial resources than the Company. The Company may be required
to find alternative means for marketing and selling its laser hair removal
services, and thereby experience substantial delays and costs. No assurance can
be given that the Company would be able to find an acceptable alternative means
of marketing and selling its laser hair removal systems, or if such an
alternative means was found, that it would be successful.

ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT:

                          YEARS ENDED MAY 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
INDEPENDENT AUDITORS' REPORT                                                F-1

CONSOLIDATED FINANCIAL STATEMENTS:

      Consolidated Balance Sheet                                            F-4

      Consolidated Statements of Operations                                 F-5

      Consolidated Statements of Changes in Stockholders' Equity            F-6

      Consolidated Statements of Cash Flows                                 F-7

      Notes to Consolidated Financial Statements                            F-9
</TABLE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:

On June 23, 1997 the Company dismissed Bond, Andiola & Company as the Company's
independent accountants and engaged Joseph Decosimo and Company as the Company's
independent accountants. During the year ended May 31, 1997, the Company had no
disagreements with its accountants on accounting and financial disclosure.

                                       PART III


                                       18
<PAGE>   19
ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS:

<TABLE>
<CAPTION>
Name                          Age         Since       Position with the Company
----                          ---         -----       -------------------------
<S>                           <C>         <C>         <C>
Thomas L. Mehl, Sr.           59          1996        Chairman of the Board, President
                                                      and Chief Executive Officer

Nardo Zaias                   65          1996        Director

AnnMarie Mehl                 55          1996        Director and Secretary

Pichit Suvanprakorn           55          1996        Director

Antonius H. Clemens           68          1996        Director

Robert Marc Clement           43          1996        Director

Paul W. Hartloff, Jr.         64          1989        Director

Timothy J. Chapple            38          1997        Chief Financial Officer

Robert Figliozzi              59          1997        Executive Vice President
</TABLE>

Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his or her successor is duly elected by
the stockholders. Officers are elected by, and serve at the discretion of the
Board of Directors. No director receives any compensation for services as a
director other than reimbursement of expenses for attendance of meetings of the
Board.

Thomas L. Mehl, Sr. and AnnMarie Mehl are husband and wife.

The background of each director and executive officer is as follows:

Thomas L. Mehl, Sr. has been a successful inventor and entrepreneur in the
health and beauty field for the past thirty years. From January, 1991 to the
present, Mr. Mehl has been working on filing for new patents in the United
States and abroad for several inventions in the health and beauty field. In the
field of hair depilation for the consumer, Mr. Mehl was granted three patents
which have been licensed exclusively to the Company and has additional patent
applications in the field of hair depilation pending.

From March 1991 to 1993, Mr. Mehl was the principal of His or Her Products by
Mehl, Inc. a private Florida corporation started by Mr. Mehl to assist him in
the research and development of his new technologies in the skincare field. From
January 1992 to 1994, Mr. Mehl was the principal of Classy Lady by Mehl, Inc., a
private Florida corporation started by Mr. Mehl to assist him in the research
and development of his consumer hair removal technology. From February 1993 to
the present, Mr. Mehl has been President and Chairman of M.C.M. Group, Inc., a
private Florida corporation, which works primarily with inventors and
entrepreneurs in the area of marketing, consulting and manufacturing of new
technology and products. From November 1993 to the present, Mr. Mehl has been
President and Chairman of His or Her Products of Puerto Rico, Inc., a private
Puerto Rico corporation, which has developed and is marketing a hand-held steam
facial product.

Nardo Zaias, M.D. is a well known dermatologist specializing in diseases of the
skin and skin cancer. From 1991 to the present, Dr. Zaias has maintained a
private medical practice at the Greater Miami Skin & Laser Center located in
Miami Beach, Florida. Dr. Zaias has published over fifty research papers to his
credit including his report on "Hair Root Damage with Mehl Method of Depilation"
and has served on three FDA Advisory Committees. Dr. Zaias is also the inventor
of a patented laser hair depilation invention, United States Patent No.
5,059,192 issued on October 11, 1991, which was licensed exclusively to the
Company.

AnnMarie Mehl is wife of Thomas L. Mehl, Sr. and has twenty years experience in
both the professional and consumer hair depilation fields working with Mr.
Mehl's patented hair removal method and products.


                                       19
<PAGE>   20
Mrs. Mehl worked with Mr. Mehl in their chain of beauty salons located within
Britts Department Stores from 1965-1974, served from 1977 to 1981 as an officer
of NU-Trolysis, Inc. which originally manufactured and marketed Mr. Mehl's
original professional hair removal products, and served from 1983 to 1985 as an
officer of Mehl International, Inc. which developed the permanent hair removal
device. From 1991 to the present, Mrs. Mehl worked closely with both Mr. Mehl
and Dr. Zaias in testing the new consumer hair removal products.

Pichit Suvanprakorn is the President of Biophile Corporation, a manufacturer and
medical service company in Bangkok, Thailand. Biophile owns and operates
hospitals, dermatological clinics and a pharmaceutical company and has extensive
real estate holdings and development activities.

Antonius H. (Tom) Clemens, MScEE, has managed science based business, product
innovation and marketing with multinational corporations, including Miles
Laboratories/Bayer Corp. (22 years) and British Oxygen Corporation. Since 1991
Mr. Clemens has, as an independent consultant, provided engineering and
marketing expertise for the product and business development of medical devices
and high quality consumer appliances. He holds more than 30 patents and is the
inventor of many medical diagnostic and therapeutic methods and devices,
including non-invasive Blood Pressure Monitoring, Blood Glucose Monitoring,
Artificial Pancreas, Nucleic Acid Probes, Nuclear Medical Systems and Safety
Needles. From 1992 to present, Mr. Clemens has also worked as a consultant for
His or Her Products by Mehl of Puerto Rico, Inc. on Mr. Mehl's hand-held steam
facial product. From 1993 to June 4, 1996, Mr. Clemens worked as a consultant
for Classy Lady by Mehl of Puerto Rico, Inc. on Mr. Mehl's patented consumer
hair removal inventions.

Robert Marc Clement, Ph.D., is a laser physicist and the inventor of the CHROMOS
694 laser depilation system manufactured by SLS. From 1986 to June 4, 1996,
Professor Clement served as the Technical Director of SLS. On June 4, 1996,
Professor Clement became Chairman of SLS. Professor Clement has been the Dean of
Faculty at the Swansea Institute of Higher Education ("Swansea Institute")
located in Swansea, Wales since 1988. As the Dean of Faculty of the Swansea
Institute, Professor Clement helped to secure the financing to establish the
Product Development Centre ("PDC") in 1994 within the institute to supply
industry with high quality design and product engineering services to support
the growth of existing companies and the development of new ones. Through
Professor Clement's efforts, the PDC has been supported financially by the Welsh
Development Agency and the Welsh Office. Professor Clement has received numerous
awards for innovation and has distinguished himself as a leader in laser based
technology both in the United Kingdom and abroad.

Paul W. Hartloff, Jr., an attorney, served as Secretary of the Company from 1993
through June 1996. Until June 1996, for more than the past five years, he has
been engaged in the full time practice of law as a senior partner of the law
firm of Schramm Raddue and since June 1996 has been a senior partner of the law
firm of Jarvis, Hartloff & Simon, LLP. Mr. Hartloff is a director of the Circon
Corporation.

Timothy J. Chapple has served as Chief Financial Officer of the Company since
June 1997. From February 1997 to June 1997, he served as Managing Director of
SLS. In August 1996, Mr. Chapple became Finance Director of SLS, a position he
continues to hold. From January 1994 to July 1996, he was a partner of Pannell
Kerr Foster, an accounting and consulting firm. From 1990 to  December 1993, he
was a partner of Solomon Hare, an accounting firm.

Robert J. Figliozzi has served as Executive Vice President of the Company since
March 1997. From August 1994 to March 1997, he was Vice President of World Fuel
Corporation, an aviation and fueling services corporation listed on the New
York Stock Exchange. From 1991 to June 1993, he was Senior Managing Director
and Director of Research of Stamford Securities Corporation, a brokerage firm
and member of the New York Stock Exchange.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and directors of the Company and persons who own more than ten percent
of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Such executive officers,
directors, and greater than ten-percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely on the review of the copies of such forms furnished to the Company
and other information which has been made available to the Company, the Company
believes that during the year ended May 31, 1997, the following directors failed
to file on a timely basis a required Form 3 reporting their status as directors
of the Company and their initial statement of beneficial ownership of securities
of the Company: Thomas L. Mehl, Sr., AnnMarie Mehl, Nardo Zaias, Pichit
Suvanprakorn, Marc Clement and Anton H. Clemens. All of such persons became
directors of the Company on June 4, 1996 and filed Form 3 Initial


                                       20
<PAGE>   21
Statement of Beneficial Ownership of Securities on July 18, 1996. In addition,
Clearwater Fund IV, LLC failed to file on a timely basis a required Form 3
reporting their status as beneficial owners of more than ten percent of the
Company's Common Stock. The required Form 3 was filed August 27, 1997.

The following individuals failed during such year to file on a timely basis a
Form 4 reporting changes in beneficial ownership of securities: Thomas L. Mehl,
Sr. and AnnMarie Mehl failed to file two such reports on a timely basis during
the year ended May 31, 1997 involving a total of three transactions. Nardo Zaias
failed to file one such report on a timely basis involving one transaction.

ITEM 10.  EXECUTIVE COMPENSATION

The following tables set forth information with respect to the Chief Executive
Officer and the other most highly compensated personnel of the Company as to
whom the total annual salary and bonus for the year ended May 31, 1997, exceeded
$100,000.


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       Annual Compensation                           Long-Term Compensation
                                                            Other        Other
                                            Annual          Annual       Stock     Options/LTIP    LTIP        All Other
     Name and                  Salary        Bonus       Compensation   Award(s)     SAR's         Payouts    Compensation
Principal Position              ($)           ($)            ($)           ($)        (#)           ($)            ($)
--------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>            <C>         <C>            <C>        <C>
Thomas L. Mehl, Sr             189,009            --           --          --            --          --             --
President and Chief
 Executive Officer

Raymond J. Wilson               45,039       136,500        1,846          --       300,000          --             --
Chief Financial Officer

Robert J. Figliozzi             11,042        91,000           --          --       500,000          --             --
Executive Vice President

Martin Kass                    101,153            --           --          --            --          --             --
Advisor to the President

Timothy Chapple                100,606            --       29,781          --            --          --             --
Managing Director - SLS

Allan Borkowski                150,000            --           --          --            --          --             --
Former Director
</TABLE>

The Company entered into an Employment Agreement with Raymond J. Wilson
effective January 20, 1997 for a period of three years, continuing on a
year-to-year basis thereafter. The Employment Agreement provides for a base
salary of $165,000 per year, a signing bonus of $182,000, eligibility for an
annual bonus each year of the agreement and a stock option agreement to acquire
300,000 shares of the Company's common stock. In addition, Mr. Wilson entered
into a non-compete agreement with the Company whereby during the term of his
employment and for a period of two years after termination, he will not serve in
an executive capacity with any company involved in hair removal products,
services or systems. Mr. Wilson resigned effective June 25, 1997.


                                       21
<PAGE>   22
The Company entered into an Employment Agreement with Robert J. Figliozzi
effective March 18, 1997 for a period of three years, continuing on a
year-to-year basis thereafter. The Employment Agreement provides for a base
salary of $185,000 per year, a signing bonus of $182,000, eligibility for an
annual bonus each year of the agreement and a stock option agreement to acquire
500,000 shares of the Company's common stock. In addition, Mr. Figliozzi entered
into a non-compete agreement with the Company whereby during the term of his
employment and for a period of two years after termination, he will not serve in
an executive capacity with any company involved in hair removal products,
services or systems.

Other than reimbursement of expenses to attend meetings, the Board of Directors
does not receive any other form of compensation from the Company.


OPTIONS GRANTED DURING 1997

The following table sets forth as to each of the named executive officers
certain information with respect to options granted during the year ended May
31, 1997 as follows: (i) the number of shares of Common Stock underlying options
granted, (ii) the percentage that such options represent of all options granted
to officers and employees during the year, (iii) the exercise price and (iv) the
expiration date.

<TABLE>
<CAPTION>
                                          % of
                         Number           Total        Exercise
                         Options          Options      Price Per   Expiration
      Name               Granted          Granted       Share        Date
--------------------------------------------------------------------------------
<S>                      <C>              <C>          <C>         <C>   <C>
Raymond J. Wilson        100,000          12.50%       $2.875      01/18/07

                         100,000          12.50%       $2.875      01/18/07

                         100,000          12.50%       $2.875      01/18/07

Robert J. Figliozzi      200,000          25.00%       $2.940      04/28/07

                         150,000          18.75%       $2.940      04/28/07

                         150,000          18.75%       $2.940      04/28/07

</TABLE>

Mr. Wilson resigned effective June, 25, 1997 and his related options were
therefore canceled.

Mr. Figliozzi was originally granted options on March 18, 1997 with an exercise
price of $2.68 per share. These options were exchanged on April 28, 1997 for
options with an exercise price of $2.94 per share.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

The following table sets forth, as of August 22, 1997, the number of shares of
the Company's Common Stock owned by each director, by all directors and
officers as a group, and by any persons (including any "group" as used in
Section 13(d)(3) of the Securities Exchange Act of 1934), known by the Company
to own beneficially 5% or more of the outstanding Common Stock. Except as
otherwise indicated, the stockholders listed in the table below have sole voting
and investment powers with respect to the shares indicated.

<TABLE>
<CAPTION>
Name and Address                  Number of Shares        Percentage
of Beneficial Owner               Beneficially Owned      of Class
----------------                  ----------------        ----------
<S>                               <C>                     <C>
Thomas L. Mehl, Sr.                 8,525,000               19.38%
And AnnMarie Mehl
4020 Member of Road
Gainesville, Florida 32607

Nardo Zaias                         8,410,000               19.12%
Mount Sinai Hospital
</TABLE>


                                       22
<PAGE>   23
<TABLE>
<S>                               <C>                     <C>
4302 Alton Road
Miami Beach, Florida 33140

Pichit Suvanprakorn                 4,275,000                9.72%
Biophile Corporation
888/41-48 Mahatun Road
Ploenchit Road
Bangkok 10330, Thailand

Antonius H. Clemens                   260,400                    *
584 Schumann Drive
Madison, Wisconsin 53711

Robert Marc Clement                    25,044                    *
11 Plas Road
Phos, Pontardawe
Swansea, Wales


Paul W. Hartloff, Jr.                 147,000(1)                 *
15 West Carrillo Street
Santa Barbara, California 93102

All officers and directors         21,642,444               49.19%
as a group (seven persons)

Clearwater Fund IV, LLC             7,600,174(2)            15.36%
611 Druid Road East
Suite 200
Clearwater, FL 34616
</TABLE>

* Less than 1%

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

In consideration for the grant of the MEHL License, Classy Lady agreed to pay
      Thomas L. Mehl, Sr. a royalty of 5% of the wholesale price of all products
      covered by the Mehl patents sold by Classy Lady or its distributors
      worldwide. Classy Lady also agreed to pay Mehl a minimum annual royalty of
      $50,000. 10% of all royalty payments are to be made to Classy Lady's
      patent law firm of Schlesinger, Arkwright & Garvey ("SA&G") until the
      aggregate of such payments to SA&G reaches $1 million.


--------

1 Includes 32,000 shares held by a trust in which Mr. Hartloff has
voting power but no other beneficial interest.

2 The Company has been informed that Clearwater Fund IV Ltd is wholly owned by
Clearwater Fund IV, LLC and therefore the shares owned by Clearwater Fund IV Ltd
have been included with Clearwater Fund IV, LLC. Clearwater Fund IV Ltd owns
2,000,000 shares of Common Stock and beneficially owns 1,032,870 shares of
Common Stock issuable upon conversion of 2,231 shares of Series E 5% Cumulative
Convertible Preferred Stock. Clearwater Fund IV, LLC owns 113,600 shares of
Common Stock and beneficially owns 3,703,704 shares of Common Stock issuable
upon conversion of 8,000 shares of Series E 5% Cumulative Convertible Preferred
Stock and 750,000 shares of Common Stock upon exercise of outstanding warrants.



                                       23
<PAGE>   24
In consideration for granting the exclusive license, Classy Lady agreed to issue
      Dr. Zaias 5,000 shares of Classy Lady Common Stock, pay to Dr. Zaias
      $100,000 prior to June 3, 1996 and pay to Dr. Zaias a royalty of $1,000 on
      each laser placed in the United States in connection with the laser hair
      removal invention covered by the above patent. Classy Lady also agreed to
      pay Dr. Zaias a minimum royalty of $50,000 per year.

Mr. Mehl and Dr. Zaias have each agreed to share with the other a portion of
      the royalty revenue derived form the License Agreements described above.
      Accordingly, 25% of all payments to be made to Mr. Mehl under his license
      agreement are to be paid to Dr. Zaias until such time as Dr. Zaias
      notifies Classy Lady that Mehl is no longer obligated to make such
      payments, and 50% of all royalty payments due to Dr. Zaias are to be paid
      to Mr. Mehl.

Under the terms of the Merger agreement, in the event that the Company's
      interest in either the LIL joint venture or any other business combination
      agreement with a partner able to commercialize the Zaias Patent is sold,
      the proceeds from such sale shall be apportioned as follows:

<TABLE>
<S>                                               <C>
      All amounts up to $50 million               Payable to the Company


      Amounts in excess of $50 million            75% to the Company
      up to $100 million                          25% to Thomas L. Mehl, Sr. and
                                                  Dr. Nardo Zaias

      Amounts in excess of $100 million           50% to the Company
                                                  50% to Thomas L. Mehl, Sr. and
                                                  Dr. Nardo Zaias
</TABLE>

The Company has made advances to Marc Clement, a director of the Company, during
      1997 in the amount of $250,000. Mr. Clement has issued a promissory note
      to the Company for the repayment of the advance together with accrued
      interest at the rate of ten percent (10%) per annum, payable on demand
      until fully paid. In addition, this amount is partially secured by shares
      owned by Mr. Clement.

The Company has made advances to His or Her Products of Puerto Rico, Inc., ("His
      or Her") a Puerto Rico corporation, totaling $291,231 during 1997. Thomas
      L. Mehl, Sr. is the President, Chairman and shareholder of His or Her.
      Thomas L. Mehl, Sr. has obligated himself to the Board of Directors to
      divest himself of this outside interest and is currently considering
      alternative methods by which His or Her may become an integral part of the
      future strategic plan. The Company has fully reserved for these advances.

The Company has made advances to the M.C.M. Group, Inc., a Florida corporation,
      totaling $89,581 during 1997. Thomas L. Mehl, Sr. is the President,
      Chairman and sole shareholder of the M.C.M. Group, Inc. Thomas L. Mehl,
      Sr. has obligated himself to the Board of Directors to divest himself of
      this outside interest and is currently considering alternative methods by
      which M.C.M. Group, Inc. may become an integral part of the future
      strategic plan. The Company has fully reserved for these advances.

On July 12, 1996 the Company entered into a Letter of Intent with Anton
      H. Clemens ("Clemens"), a director of the Company, and Victor H. Haughton,
      M.D. ("Haughton"). The intent of the parties, subject to a definitive
      agreement, is to have the Company form a new subsidiary, of which Clemens
      will be president, having the exclusive worldwide license rights for the
      development,


                                       24
<PAGE>   25
      manufacturing and marketing of a new and novel retractable needle and
      catheter technology for the medical field protected by issued United
      States and International Patents and by patents pending. As consideration
      for the Company entering into the Letter of Intent, the Company agreed to
      1) pay the sum of sixty-three thousand nine hundred dollars ($63,900) to
      cover related patent fees for the intellectual property, 2) have the
      subsidiary pay Clemens and Haughton additional compensation in the form of
      license fees or other moneys to be set forth in the definitive agreement
      and 3) invest such additional funds necessary for the development,
      manufacture and marketing of the intellectual property as set forth in the
      definitive agreement. As of May 31, 1997 the Company had advanced a total
      of $28,125 in furtherance of its commitments and objectives under the
      Letter of Intent.

On July 25, 1996 the Company entered into a Letter of Intent with GKS
      Technologies, Inc. ("GKS"), a Puerto Rico corporation together with Gunnar
      K. Svanberg ("Svanberg"), a director of GKS. Svanberg holds several
      patents and patents pending worldwide for a new dental curret and curret
      sharpening machine. The intent of the parties, subject to a definitive
      agreement, is to develop, manufacture and market Svanberg's new curret
      devices within the worldwide dental market. As consideration for the
      Company entering into this Letter of Intent with Svanberg and GKS, the
      Company agreed to 1) subscribe to one hundred thousand shares (100,000) of
      GKS common stock at $.50 per share for the sum of Fifty Thousand Dollars
      ($50,000) upon the execution of the Letter of Intent and 2) invest such
      additional funds necessary for the development, manufacture and marketing
      of the Patent Applications according to the terms set forth in the
      definitive agreement. Through May 31, 1997, the Company had advanced
      $111,026, including $50,000 to be applied towards the purchase of GKS
      common stock under the terms outlined above. Thomas L. Mehl, Sr.
      personally owns twelve and one-half percent (12.5%) of GKS as a result of
      his working with Svanberg on patent applications over the past two years
      without any prior compensation. M.C.M. Group, Inc., a Florida corporation
      owned by Thomas L. Mehl, Sr., also owns twelve and one-half percent
      (12.5%) of GKS as a result of providing management and consulting services
      to GKS and Svanberg over the past two years without prior compensation.
      The Company has fully reserved for these advances.

In connection with the Loan Agreement dated as of August 5, 1997 between the
      Company and Clearwater Fund IV, LLC ("Clearwater"), Thomas L. Mehl, Sr.,
      the Company's President and Chairman, guaranteed the repayment to
      Clearwater of all amounts borrowed by the Company and pledged all of the
      shares of Common Stock of the Company owned by him as security for
      repayment of such borrowed amounts.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K:


(a)   Exhibits

      Exhibit 3.1       Restated Certificate of Incorporation of the Corporation
                        (incorporated by reference to Information Statement on
                        Schedule 14C dated October 28, 1996).

      Exhibit 3.2       Certificate of Designation of 5% Cumulative Convertible
                        Preferred Stock, Series D (incorporated by reference to
                        Registration Statement on Form S-3 dated March 31,
                        1997).

      Exhibit 3.3       Certificate of Designation of 5% Cumulative Convertible
                        Preferred Stock,Series E.

      Exhibit 3.4       By-laws of the Corporation, as amended (incorporated by
                        reference to Annual Report on Form 10-KSB for year ended
                        May 31, 1996).


                                       25
<PAGE>   26
      Exhibit 4         Form of Warrant to purchase 750,000 shares of Common
                        Stock issued to Clearwater Fund IV, LLC dated August 5,
                        1997.

      Exhibit 10.1      Second Amended and Restated Agreement and Plan of Merger
                        with Classy Lady by Mehl of Puerto Rico, Inc. dated June
                        4, 1996 (incorporated by reference to Current Report on
                        Form 8-K dated June 4, 1996).

      Exhibit 10.2      Sale and Purchase Agreement dated June 4, 1996 by and
                        among B. Mair and others, and Selvac Corporation
                        (incorporated by reference to Current Report on Form 8-K
                        dated June 4, 1996).

      Exhibit 10.3      Sale and Purchase Agreement dated June 4, 1996 by and
                        among Robert Marc Clement and Selvac Corporation
                        (incorporated by reference to Current Report on Form 8-K
                        dated June 4, 1996).

      Exhibit 10.4      Amended Exclusive License Agreement for Patented Laser 
                        Hair Removal Invention dated December 5, 1995 by and 
                        between Classy Lady by Mehl of Puerto Rico, Inc. and 
                        Nardo Zaias, M.D. (incorporated by reference to Annual 
                        Report on Form 10-KSB for year ended May 31, 1996).

      Exhibit 10.5      Exclusive License Agreement for Patented Consumer Hair
                        Removal Products dated December 5, 1995 by and between
                        Classy Lady by Mehl of Puerto Rico, Inc. and Thomas L.
                        Mehl, Sr. (incorporated by reference to Annual Report on
                        Form 10-KSB for year ended May 31, 1996).

      Exhibit 10.6      Joint Venture Formation Agreement between Laser
                        Industries Limited and Classy Lady by Mehl of Puerto
                        Rico, Inc. dated as of December 19, 1995 (incorporated
                        by reference to Annual Report on Form 10-KSB for year
                        ended May 31, 1996).

      Exhibit 10.7      Securities Purchase Agreement with GFL Performance Fund
                        Limited dated May 15, 1996 (incorporated by reference to
                        Registration Statement on Form S-3 dated July 1, 1996).

      Exhibit 10.8      Registration Rights Agreement with GFL Performance Fund
                        Limited dated May 15, 1996 (incorporated by reference to
                        Registration Statement on Form S-3 dated July 1, 1996).

      Exhibit 10.9      Securities Purchase Agreement dated as of February 28,
                        1997 by and between the Registrant and Clearwater Fund
                        IV, LLC and Clearwater Offshore Fund Ltd. (incorporated
                        by reference to Registration Statement on Form S-3 dated
                        March 31, 1996).

      Exhibit 10.10     Registration Rights Agreement dated as of May 31, 1996
                        by and between the Registrant and Clearwater Fund IV,
                        LLC and Clearwater Offshore Fund Ltd. (incorporated by
                        reference to Registration Statement on Form S-3 dated
                        March 31, 1996).

      Exhibit 10.11     1997 Incentive Plan.

      Exhibit 10.12     Loan Agreement dated August 5, 1997 with Clearwater Fund
                        IV, LLC.

      Exhibit 10.13     Sublicense Agreement dated as of March 11, 1997 between
                        Selvac Acquisition Corp. and Mehl Group Marketing, Inc.

      Exhibit 10.14     From of Sublicensing Agreement entered into by Mehl
                        Group Marketing, Inc. and providers of laser hair
                        removal services.


                                       26
<PAGE>   27
      Exhibit 10.15     Employment Agreement between the Company and Robert
                        Figliozzi dated March 18, 1997.

      Exhibit 21        Subsidiaries.

      Exhibit 23.1      Consent of Joseph Decosimo and Company.

      Exhibit 23.2      Consent of Bond, Andiola and Company.

(b)   Reports on Form 8-K

      The Company filed the following Current Report on Form 8-K during the
      first quarter of 1998:

      Current report on Form 8-K dated June 23, 1997.


                                       27
<PAGE>   28
                                   SIGNATURES

Pursuant to the requirements 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 on August 27, 1997.

                              MEHL/BIOPHILE INTERNATIONAL CORPORATION
                              (REGISTRANT)


                              BY: /S/ THOMAS L. MEHL, SR.
                                  ------------------------------------
                              THOMAS L. MEHL, SR.
                              CHAIRMAN OF THE BOARD,
                              PRESIDENT AND CHIEF EXECUTIVE OFFICER


Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
Signature and Title                                   Date
-------------------                                   ----
<S>                                                   <C>
/s/ Thomas L. Mehl, Sr.                               August 27, 1997
------------------------------
Thomas L. Mehl, Sr.
Chairman of the Board,
President and Chief Executive
Officer

/s/ Timothy Chapple                                   August 27, 1997
------------------------------
Timothy Chapple, Principal
Financial and Accounting Officer

/s/ AnnMarie Mehl                                     August 27, 1997
------------------------------
AnnMarie Mehl
Director and Secretary

/s/ Nardo Zaias                                       August 27, 1997
------------------------------
Nardo Zaias
Director

/s/ Pichit Suvanprakorn                               August 27, 1997
------------------------------
Pichit Suvanprakorn
Director

/s/ Marc Clement                                      August 27, 1997
------------------------------
Marc Clement
Director

/s/ Tom Clemens                                       August 27, 1997
------------------------------
Tom Clemens
Director


/s/ Paul W. Hartloff, Jr.                             August 27, 1997
------------------------------
Paul W. Hartloff, Jr.
Director

</TABLE>


                                       28
<PAGE>   29
                       REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Mehl/Biophile International Corporation
Gainesville, Florida

We have audited the accompanying consolidated balance sheet of Mehl/Biophile
International Corporation and subsidiaries as of May 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. 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 audit. We did
not audit the financial statements of SLS Biophile Limited, majority owned
subsidiary, which statement reflects total assets of $5,574,955 as of May 31,
1997, and total revenues of $972,777 for the year then ended. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion insofar as it relates to the amounts included for SLS Biophile Limited
is based solely on the report of the other auditors. The consolidated
statements of operations, stockholders' equity and cash flows for the year
ended May 31, 1996, were audited by other auditors whose report dated July 11,
1996, expressed an unqualified opinion on those statements.

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

In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Mehl/Biophile International
Corporation and subsidiaries as of May 31, 1997, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the company will continue as a going concern. As discussed in note 20 to the
consolidated financial statements, the company has sustained recurring losses
from operations which raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to this matter are also described
in note 20 to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                            JOSEPH DECOSIMO AND COMPANY
                            A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP

Chattanooga, Tennessee
July 10, 1997, except for note 18,
 as to which the date is August 5, 1997

                                      F-1
<PAGE>   30
                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Directors
of Mehl/Biophile International Corporation:

We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity, and cash flows of MEHL/Biophile International
Corporation (formerly Selvac Corporation) and subsidiary for the year ended May
31, 1996. 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 results of the Companies' operations and their cash
flows for the year ended May 31, 1996, in conformity with generally accepted
accounting principles.


                                            /s/ BOND, ANDIOLA & CO.

Raritan, New Jersey
July 11, 1996




                                      F-2
<PAGE>   31
                              SLS BIOPHILE LIMITED


                    Report of the auditors to the members of
                              SLS BIOPHILE LIMITED


We have audited the financial statements on pages 5 to 21.

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 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.

Opinion

In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 31 May 1997 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.



Coopers & Lybrands


Chartered Accountants and Registered Auditors
Swansea, 26 August 1997





                                      F-3
<PAGE>   32


                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  MAY 31, 1997

<TABLE>
<S>                                                                             <C>
                                      ASSETS

CURRENT ASSETS:
  Cash and equivalents                                                          $  4,689,307
  Accounts Receivable, net of allowance for doubtful accounts of $670,697            353,138
  Inventories                                                                        557,182
  Current portion of note receivable                                                 205,228
  Other current assets                                                               837,317
                                                                                ------------
      Total current assets                                                         6,642,172

PROPERTY AND EQUIPMENT, NET                                                        7,438,432

PATENTS AND PATENT RIGHTS, NET                                                     4,983,399

NOTES AND LOANS RECEIVABLE                                                           400,000

OTHER ASSETS                                                                          49,842
                                                                                ------------
                                                                                $ 19,513,845
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                              $  3,735,204
  Accrued expenses                                                                 1,512,979
                                                                                ------------
      Total current liabilities                                                    5,248,183

STOCKHOLDERS' EQUITY:
  Serial preferred stock, $10 par value, $1,000 stated value,
    authorized - 200,000 shares:
      Series C, 5% cumulative convertible;
        issued and outstanding - 2,231 shares                                      2,231,000
      Series D, 5% cumulative convertible;
        issued and outstanding - 10,000 shares                                    10,000,000
Common stock, $.01 par value, 60,000,000 shares
  authorized, 46,468,260 shares issued                                               464,683
Additional paid-in-capital                                                        25,167,212
Accumulated deficit                                                              (22,640,205)
Foreign currency translation adjustment                                               (1,429)
                                                                                ------------
                                                                                  15,221,261

Treasury stock, at cost, 2,474,959 common shares                                    (955,599)
                                                                                ------------
      Total stockholders' equity                                                  14,265,662


                                                                                $ 19,513,845
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-4
<PAGE>   33

                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                   YEAR ENDED MAY 31,
                                                 1997              1996
                                                               (AS RESTATED)
                                            ------------        -----------
<S>                                         <C>                 <C>
REVENUES                                    $  3,594,899        $ 2,351,945

COST OF REVENUES                               2,475,333          1,330,726
                                            ------------        -----------

GROSS MARGIN                                   1,119,566          1,021,219
                                            ------------        -----------

OPERATING EXPENSES:
  Selling, general and administrative         11,670,241          1,586,300
  Charge for inventory write-down                219,940            186,675
  Research and development                     2,265,984                 --
                                            ------------        -----------
  TOTAL OPERATING EXPENSES                    14,156,165          1,772,975

OPERATING LOSS                               (13,036,599)          (751,756)
                                            ------------        -----------

OTHER INCOME (EXPENSES)
  Investment income                              446,887            120,700
  Other                                         (737,921)            72,728
  Interest Expense                               (21,822)        (1,065,544)


NET LOSS                                    $(13,349,455)       $(1,623,872)

NET LOSS PER COMMON SHARE                   $       (.35)       $      (.21)

LOSS APPLICABLE TO COMMON STOCK             $(14,469,626)       $(2,896,705)
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-5
<PAGE>   34
 
                    MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>                                                                                                                 
                                                      PREFERRED STOCK
                            --------------------------------------------------------------------
                                                         
                                                         SERIES C                SERIES D               COMMON STOCK
                                         1985      --------------------     ------------------     ----------------------
                            SERIES A    SERIES     SHARES        AMOUNT     SHARES      AMOUNT       SHARES       AMOUNT
                            --------   --------   ---------   -----------   ------   -----------   -----------   --------
<S>                         <C>        <C>        <C>         <C>           <C>      <C>           <C>           <C>
Balance May 31, 1995......  $240,000   $245,000       --       $    --        --      $    --        16,256,485   $162,565
Cash dividends on
  Preferred stock.........
Treasury stock
  acquisitions............
Common stock issued:
  Conversion of preferred
    stock.................  (240,000)  (245,000)                                                       776,000      7,760
  Exercise of warrants....                                                                             584,572      5,846
  Conversion of debt......                                                                             353,459      3,534
  Debt acquisition
    costs.................                                                                              90,000        900
Private placement of
  preferred stock.........                          10,000     10,000,000                               72,000        720
Unrealized loss on
  marketable securities...
Implied dividend equal to
  intrinsic value of
  preferred stock
  conversion..............
Intrinsic value of
  debenture conversion
  features................
Net loss..................
                           --------   --------   --------    ------------  ------   ------------  ------------   -------- 
Balance May 31, 1996 
  (As Restated)...........    --         --        10,000      10,000,000     --         --         18,132,516    181,325
Cash dividends on
  preferred stock.........
Common stock issued:
  Exercise of warrants....                                                                             236,496      2,366  
  Conversion of debt......                                                                             255,973      2,560
  Debt interest...........                                                                               5,610         56
  Business acquisitions:                                                          
    Classy Lady...........                                                                          25,000,000    250,000
    SLS...................                                                                              25,044        250
    ITR...................                                                                             250,000      2,500
  Conversion of preferred
    stock.................                          (7,769)    (7,769,000)                           2,562,621     25,626
Unamortized debt costs....                                                  
Private placement of                                    
  preferred stock.........                                                  10,000    10,000,000
Unrealized loss on                                      
  marketable securities...                                                        
Implied dividend equal to                                                         
  intrinsic value of                                                              
  preferred stock                                                                 
  conversion..............                                                        
Net loss..................                                                        
Translation Adjustment....                                                        
                            --------   --------   --------    ------------  ------   ------------  ------------  --------
Balance May 31, 1997......  $  --      $  --         2,231    $ 2,231,000   10,000   $ 10,000,000    46,468,260  $464,683
                            ========   ========   ========    ============  ======   ============  ============  ========
 
<CAPTION>
                                                                                  UNREALIZED
                             ADDITIONAL                  TREASURY    TREASURY     LOSS ON
                              PAID-IN      ACCUMULATED     STOCK      STOCK      MARKETABLE   TRANSLATION
                              CAPITAL        DEFICIT      SHARES      AT COST     SECURITIES   ADJUSTMENT
                            ------------   -----------   ---------   ----------   ----------   -----------
<S>                         <C>            <C>           <C>         <C>          <C>          <C>
Balance May 31, 1995......  $  8,813,998   $(5,294,707)  2,263,359   $ (915,798)   $  --        $ --
Cash dividends on
  Preferred stock.........                     (24,000)
Treasury stock
  acquisitions............                                 211,600      (39,801)
Common stock issued:
  Conversion of preferred 
    stock.................       477,240
  Exercise of warrants....       657,869
  Conversion of debt......     2,148,442
  Debt acquisition
    costs.................       188,100
Private placement of
  preferred stock.........      (230,720)
Unrealized loss on
  marketable securities...                                                           (3,152)
Implied dividend equal to
  intrinsic value of
  preferred stock
  conversion..............     1,228,000    (1,228,000)
Intrinsic value of
  debenture conversion
  features................     1,033,000
Net loss..................                  (1,623,872)
                            ------------   -----------  ----------   ----------    --------     --------
Balance May 31, 1996 (As 
  Restated)...............    14,315,929    (8,170,579)  2,474,959     (955,599)     (3,152)      --
Cash dividends on
  preferred stock.........                    (495,171)
Common stock issued:
  Exercise of warrants....       293,254
  Conversion of debt......       747,440
  Debt interest...........        16,383
  Business acquisitions:
    Classy Lady...........        94,292
    SLS...................       198,750
    ITR...................     1,167,813
  Conversion of preferred
    stock.................     7,743,374
Unamortized debt costs....       (35,023)
Private placement of
  preferred stock.........
Unrealized loss on
  marketable securities...                                                            3,152
Implied dividend equal to
  intrinsic value of
  preferred stock
  conversion..............       625,000      (625,000)
Net loss..................                 (13,349,455)         
Translation Adjustment....                                                                        (1,429)
                            ------------   ------------  ----------  ----------    --------     --------
Balance May 31, 1997......  $ 25,167,212   $(22,640,205) $2,474,959  $ (955,599)   $ --         $ (1,429)
                            ============   ============  ==========  ==========    ========     ========
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       F-6
<PAGE>   35
                       MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                   AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 YEAR ENDED MAY 31,
                                                                                             1997                1996
                                                                                                             (AS RESTATED)
<S>                                                                                      <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                           $(13,349,455)       $ (1,623,872)
      Adjustments to reconcile net loss to net cash provided by operating
         activities:
            Provision for bad debts                                                           327,281             258,588
            Provision for obsolete inventory                                                  219,940             186,675
            Provision for notes and loans receivable                                        1,305,271                  --
            Depreciation and amortization                                                   1,010,012             308,045
            Write-off of non-marketable securities                                            792,127                  --
            Marketable securities received in payment of preferred
                  stock dividends and accounts receivable                                          --             (42,127)
            Interest paid with issuance of common stock                                            --              24,160
            Interest expense equal to intrinsic value of debt conversion features                  --           1,033,000
      Changes in operating assets and liabilities, net of effects of acquisitions:
            Accounts receivable                                                               380,885            (111,173)
            Inventories                                                                      (124,998)            (38,420)
            Other operating assets                                                           (704,760)             (8,959)
            Accounts payable                                                                2,935,003             124,155
            Accrued expenses                                                                1,047,638              23,583
            Other operating liabilities                                                       (97,832)                350
                                                                                         ------------        ------------
      Net cash provided (used) by operating activities                                     (6,258,888)            134,005

CASH FLOWS FROM INVESTING ACTIVITIES:
      Proceeds from sale of marketable securities                                             477,690                  --
      Notes receivable repayments                                                              50,000             171,500
      Increase in notes and loans receivable                                               (1,810,500)         (4,050,000)
      Property and equipment acquisitions                                                  (7,361,040)               (579)
      Purchase of held to maturity marketable securities                                           --            (473,951)
                                                                                         ------------        ------------
      Net cash used by investing activities                                                (8,643,850)         (4,353,030)
                                                                                         ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of :
            Convertible debentures                                                                 --           3,000,000
            Series C preferred stock, net of issuance costs                                        --           9,800,000
            Series D preferred stock, net of issuance costs                                10,000,000                  --
            Common stock, net of issuance costs                                               295,620             663,715
      Note repayments                                                                        (100,898)                 --
      Preferred stock dividends paid                                                         (495,171)            (36,900)
      Treasury stock acquisitions                                                                  --              (2,301)
                                                                                         ------------        ------------       
      Net cash provided by financing activities                                             9,699,551          13,424,514
                                                                                         ------------        ------------

EFFECT OF EXCHANGE RATE ON CASH                                                                53,496                  --
                                                                                         ------------        ------------


INCREASE (DECREASE)  IN CASH FOR THE YEAR                                                  (5,149,691)          9,205,489

CASH AND EQUIVALENTS, beginning of the year                                                 9,838,998             633,509

CASH AND EQUIVALENTS, end of year                                                           4,689,307           9,838,998
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-7
<PAGE>   36
                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED MAY 31,
                                                                     1997              1996
                                                                                     (AS RESTATED)
<S>                                                                <C>                <C>
SUPPLEMENTAL SCHEDULES OF NON-CASH ACTIVITIES

      EXISTING BUSINESS ACQUISITION COSTS:
            Issuance of common stock                               $ 1,713,605        $       --
            Loans and advances applied toward purchase price         1,946,380                --
                                                                   -----------        ----------


                                                                   $ 3,659,985        $       --
                                                                   -----------        ----------
      COMPONENTS OF ACQUIRED BUSINESSES,
        IN AGGREGATE, ARE AS FOLLOWS:
            Accounts receivable                                    $   546,312                --
            Inventories                                                252,737                --
            Property and equipment                                     237,177                --
            Patents and patent rights                                5,732,559                --
            Other assets                                                24,291                --
            Accounts payable and accrued expenses                   (1,125,235)               --
            Current portion of notes and loans                      (1,119,838)               --
            Long-term debt                                            (804,885)               --
            Other liabilities                                          (83,133)               --
                                                                   -----------        ----------
                                                                   $ 3,659,985        $       --
                                                                   
      NOTES, LOANS AND ADVANCES USED TO RETIRE
        DEBT OF ACQUIRED BUSINESS                                  $ 1,253,620        $       --

      ISSUANCE OF COMMON STOCK:
            Conversion of debt, net of unamortized
              issue costs                                          $   714,978        $2,250,000
            Payment of accrued interest                                 16,439            24,160
            Conversion of preferred stock                            7,769,000           485,000
            Debt and equity acquisition costs                               --           491,400
                                                                   -----------        ----------

                                                                   $ 8,500,417        $3,250,560

      MARKETABLE SECURITIES RECEIVED IN PAYMENT OF:
            Accounts receivable                                    $        --        $      702
            Preferred stock dividends                                       --            41,425
                                                                   -----------        ----------

                                                                   $        --        $   42,127

      RECEIPT OF NON-MARKETABLE SECURITIES AS
        PAYMENT OF NOTES RECEIVABLE                                $        --        $  750,000

      RECEIPT OF STOCK INTO TREASURY IN PAYMENT
        OF NOTE RECEIVABLE                                         $        --        $   37,500

      PREFERRED STOCK DIVIDEND EQUAL TO INTRINSIC VALUE
        OF BENEFICIAL CONVERSION FEATURES                          $   625,000        $1,228,000
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-8
<PAGE>   37
                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND CONSOLIDATION - The consolidated financial statements include those
      of Mehl/Biophile International Corporation and its subsidiaries (the
      "Company"). All significant intercompany accounts and transactions have
      been eliminated in consolidation. The Company operates as a two-segment
      business engaged in the sale and distribution of consumer personal care
      products and professional laser hair removal through revenue sharing
      licenses with physicians worldwide.

REVENUE RECOGNITION - Sales and related cost of goods sold for consumer products
      are recognized upon shipment to customers. Sales and related cost of goods
      sold for professional laser hair removal is recognized upon completion of
      services by revenue sharing physicians according to the terms of the
      license agreements.

CASH EQUIVALENTS - For the purposes of the Statement of Cash Flows, the Company
      considers all highly liquid instruments purchased with a maturity of 90
      days or less to be cash equivalents.

CONCENTRATION OF CREDIT RISK - During the normal course of business, the Company
      maintains cash balances in excess of FDIC insurance coverage limits. The
      Company has not experienced any losses related to these investments.

INVENTORIES - Inventories are valued at the lower of cost or market. Cost is
      determined principally on the first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
      depreciated on the straight-line method over the assets' estimated useful
      lives, ranging from 3 to 5 years. Maintenance, repairs and minor renewals
      are charged to expense as incurred. Additions, replacements and
      improvements are capitalized. Gains and losses from sales or other
      disposals of property and equipment are included in other income.

PATENT AND PATENT RIGHTS - The patents and patent rights are recorded at cost
      and are amortized on the straight-line method over periods ranging from 6
      to 17 years.

MARKETABLE SECURITIES - The Company classifies its marketable debt securities as
      "held to maturity if it has the positive intent and ability to hold the
      securities to maturity. All other marketable securities are classified as
      "available for sale". Securities classified as "available for sale" are
      carried in the financial statements at fair value. Realized gains and
      losses, determined using the first-in, first-out (FIFO) method, are
      included in earnings; unrealized holding gains and losses are reported as
      a separate component of stockholders' equity. Securities classified as
      "held to maturity" are carried at amortized cost.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash and cash
      equivalents approximates fair value because of the short maturity of these
      instruments. Based on the interest rates available for similar financial
      instruments, the fair value of notes receivable approximates carrying
      value as of May 31, 1997.

INCOME TAXES - In accordance with the Financial Accounting Standards Board's
      statement on


                                       F-9
<PAGE>   38
      Accounting for Income Taxes ("SFAS 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.

STOCK-BASED COMPENSATION - Effective June 1, 1996, the Company adopted Statement
      of Financial Accounting Standards No. 123, "Accounting for Stock-Based
      Compensation." The Company has elected to continue to account for
      stock-based compensation in accordance with Accounting Principles Board
      Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
      pro forma net income and earnings per share information has been presented
      in Note 9 as required under SFAS No. 123.

 USE OF ESTIMATES - The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates. Material estimates that are particularly susceptible to
      significant change in the near-tern relate to the determination of the
      allowance for doubtful accounts receivable and notes receivable, the
      allowance for obsolete inventory, the useful life of property and
      equipment and patents, and the deferred tax asset valuation allowance.
                         
CHANGES IN ACCOUNTING PRINCIPLES - In 1997, the Financial Accounting Standards
Board (FASB) issued the following Statements of Financial Standards:

"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities" (SFAS 125). The Company's required adoption date is June
      1, 1997.

"Earnings per Share" (SFAS 128). The Company's required adoption date is June 1,
      1997.

"Reporting Comprehensive Income" (SFAS 130). The Company's required adoption
      date is June 1, 1997.

"Disclosures about Segments of an Enterprise and Related Information" (SFAS
      131). The Company's required adoption date is June 1, 1998.

The Company anticipates the adoption of the above Statements of Financial
      Accounting Standards will not have a material impact on its results of
      operation or financial position.

2. INVENTORIES

      Inventories as of May 31, 1997 were comprised entirely of personal care
      appliance finished goods.

3. NOTES AND LOANS RECEIVABLE

      Notes and loans receivable as of May 31, 1997 was comprised of the
following:

<TABLE>
<S>                                                        <C>
      Advance to director                                  250,000
      Advance to consultant                                103,000
      CDF Acquisition Corp. ("CDF")                        100,000
      Advance on royalties                                 100,000
      Other miscellaneous advances                          52,228
                                                           -------
</TABLE>


                                       F-10
<PAGE>   39
<TABLE>
<S>                                                    <C>
                                                       $   605,228
      Less current portion:
       Advance to consultant                              (103,000)
       CDF                                                 (50,000)
       Other miscellaneous advances                        (52,228)
                                                       ------------
                                                       $  (205,228)

      Net long-term portion                            $   400,000
</TABLE>

                  Two former officers and directors of the Company 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. Under the new agreement, the remaining
      outstanding principal balance is payable in two installments of $50,000 in
      December 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.

4. OTHER CURRENT ASSETS

      Other current assets as of May 31, 1997 were comprised as follows:

<TABLE>
<S>                                                    <C>
            Tax refunds due                            $   444,018
            Prepaid tradeshow expenses                     147,800
            Prepayment of inventory                        131,250
            Interest receivable - CDF note                  50,865
            Prepaid insurance                               31,250
            Other miscellaneous                             32,134
                                                        ----------
                                                        $  837,317
</TABLE>

5.    PROPERTY AND EQUIPMENT

      Property and equipment as of May 31, 1997 was comprised as follows:

<TABLE>
<S>                                                              <C>
            Machinery and equipment                              $ 1,695,304
            Furniture and fixtures                                   374,936
            CHROMOS 694 ruby lasers                                2,124,805
            CHROMOS 694 ruby lasers in process                     4,416,128
                                                                 -----------
                                                                 $ 8,611,173

            Less accumulated depreciation and amortization        (1,172,741)
                                                                 -----------
                                                                 $ 7,438,432
</TABLE>

      Depreciation expense was $186,346 in 1997 and $108,229 in 1996.

Machinery and equipment of $687,026, furniture and fixtures of $69,562 and
      accumulated depreciation of $745,422 was attributable to the Consumer
      Products Division. Depreciation expense of $3,952 in


                                       F-11
<PAGE>   40
      1997 and $108,229 in 1996 was attributable to the Consumer Products
      Division.

All significant property and equipment purchases were related to laser
      technology.


6. PATENTS AND PATENT RIGHTS

      Patents and patent rights as of May 31, 1997 were comprised as follows:

<TABLE>
<S>                                             <C>
            Zaias patent                        $   660,000
            Mehl patents                          1,562,005
            SLS patents pending                   3,213,375
            ITR patents pending                   1,172,851
                                                -----------

                                                $ 6,608,231

            Less accumulated amortization        (1,624,832)
                                                -----------
                                                $ 4,983,399
</TABLE>

The Zaias patent pertains to the license granted to the Company by Dr. Nardo
      Zaias to make, use and sell products incorporating the laser method of
      hair removal invented by Dr. Zaias and which is represented by U.S. Patent
      No. 5,059,192 dated October 22, 1991.

The Mehl patents pertain to the license granted to the Company by Thomas L.
      Mehl, Sr. to make, use and sell the following products:

      -     a method and system for the removal of multiple hairs invented by
            Mr. Mehl represented by U.S. Patent No. 5,470,332 dated November 28,
            1995 ("Mehl Patent");

      -     a consumer radio frequency hair removal tweezer device invented by
            Mr. Mehl and represented by U.S. Patent No. 5,049,149 dated November
            17, 1991; and

      -     a consumer hair removal conductive solution to be used to provide
            for improved conductivity when used in conjunction with the tweezer
            device which was invented by Mr. Mehl and is represented by U.S.
            Patent No. 5,364,394 on November 15, 1994.

The SLS patents pending pertain to the license granted to the Company by Marc
      Clement related to patents pending which are compatible with the Zaias
      patent in the field of laser depilation.

The ITR patent pertains to the license granted to the Company for surface
      irradiation represented by U.K. Patent Application No. 9625281.2.

Amortization expense was $823,666 in 1997 and $199,816 in 1996.

Patents and patent rights of $902,005 and accumulated amortization of $847,901
      was attributable to the Consumer Products Division. Amortization expense
      of $46,734 in 1997 and $199,816 in 1996 was attributable to the Consumer
      Products Division.


                                       F-12
<PAGE>   41
 7.   ACCRUED EXPENSES

      Accrued expenses as of May 31, 1997 consist of the following:

<TABLE>
<S>                                            <C>
                  Payroll and related          $  355,674
                  Professional fees               289,370
                  Royalty                         256,097
                  Due on tradeshow booth          164,586
                  Due to director                 150,000
                  Other                           297,252
                                               ----------

                                               $1,512,979
</TABLE>

8. CONVERTIBLE DEBENTURES

During the year ended May 31, 1996, the Company issued, in aggregate $3,000,000
      in convertible debentures which bear interest at 8% per annum, were due
      March 31, 1997 and are convertible into common stock of the Company at a
      conversion price equal to the lessor of 80% of the average market price of
      the common stock, on the five trading days prior to conversion or $10.00.
      The debt agreement also provides conversion privileges to the debt holder
      for any unpaid interest amounts. As of May 31, 1996, $2,250,000 of these
      debentures and unpaid interest of $24,160 were converted into an aggregate
      of 353,459 shares of common stock. On July 19, 1996 the remaining $750,000
      of debt and unpaid interest were converted into 261,583 shares of common
      stock. The intrinsic value of the conversion feature, determined to be
      $1,033,000, was charged to paid-in-capital and interest expense for the
      year ended May 31, 1996.


9. STOCKHOLDERS' EQUITY

      PREFERRED STOCK

      $1,000 stated value Series C, 5% cumulative convertible preferred stock.

Each share of Series C stock is convertible into common stock of the Company at
      the lessor of 80% of the average market price of the common stock, for the
      five days prior to conversion, with a minimum and maximum conversion price
      of $3.00 and $7.50 respectively. The shares of common stock to be issued
      upon conversion is determined by dividing the stated value of the
      preferred shares by the conversion price. Dividends are paid quarterly.
      During the year ended May 31, 1997, $367,774 of dividends were paid on the
      Series C shares. During the year ended May 31, 1997, 7,769 Series C shares
      were converted into 2,562,621 shares of common stock. The intrinsic value
      of the conversion feature, determined to be $1,228,000, was charged to
      paid-in-capital and recorded as an implied dividend for the year ended May
      31, 1996.

In connection with the Loan Agreement dated as of August 5, 1997 between the
      Company and Clearwater Fund IV, LLC, the Company agreed to exchange all
      2,231 Series C shares for 2,231 shares of $1,000 stated value Series E, 5%
      cumulative convertible preferred stock. See Note 17 "Subsequent
      Financing."

$1,000 stated value Series D, 5% cumulative convertible preferred stock.

Each share of Series D stock is convertible into common stock of the Company at
      80% of the average market price on the five trading days prior to
      conversion but in no event shall the conversion price


                                       F-13
<PAGE>   42
      be below $4.00 or greater than the average market price on the five
      trading days prior to February 28, 1997. On March 31, 1997 the Company
      filed a registration statement covering the public sale of the shares of
      common stock receivable upon conversion of the Series D stock. The Series
      D stock may not be converted until the earlier of (i) the 120th day
      following issuance and (ii) the date on which the aforementioned
      registration statement is declared effective by the Securities and
      Exchange Commission. The purchasers of the Series D stock agreed not to
      sell or transfer the common stock received upon conversion on or before
      February 28, 1998. Dividends are paid quarterly. During the year ended May
      31, 1997, $127,397 of dividends were paid on the Series D shares. The
      intrinsic value of the conversion feature, determined to be $625,000, was
      charged to paid-in-capital and recorded as an implied dividend for the
      year ended May 31, 1997.

In connection with the Loan Agreement dated as of August 5, 1997 between the
      Company and Clearwater Fund IV, LLC, the Company agreed to exchange all
      10,000 Series D shares for 10,000 shares of $1,000 stated value Series E,
      5% cumulative convertible preferred stock. See Note 17 "Subsequent
      Financing."

      COMMON STOCK

In conjunction with the Merger, the number of $.01 par value common shares which
      the Company is authorized to issue was increased from 20,000,000 to
      60,00,000.

In addition to the common shares issued related to the Series C preferred share
      conversion, discussed above, and business acquisitions (see Note 14) the
      Company issued 261,583 common shares upon the retirement of $750,000
      convertible debenture and related accrued interest of $16,383. Unamortized
      debt issue costs of $35,022 were charged to paid in capital. Also, 236,496
      common shares were issued during the year at $1.25 per share ($295,620 in
      aggregate) upon the exercise of outstanding stock purchase warrants.

As of May 31, 1997, warrants to purchase 50,000 common shares at $4.25 per share
      were outstanding. The expiration date of these common stock warrants is
      February 28, 1998.

      STOCK OPTIONS

The terms of the Company's 1997 Incentive Plan allows for the granting of up to
      4,000,000 shares of the Company's Common Stock under (i) Incentive Stock
      Options or (ii) Non-Qualified Stock Options. 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% 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 ten years from the date granted. The plan was approved
      by the Board of Directors on March 23, 1997 and is subject to the approval
      by a majority of the votes cast by the holders of the Company's Common
      Stock at the next annual shareholders' meeting in 1997. As of August 20,
      1997, no grants have been issued under this plan

The Company entered into a Nonstatutory Stock Option Agreement with Raymond J.
      Wilson and Robert J. Figgliozzi in conjunction with their entering into
      Employment Agreements with the Company. All options granted during 1997
      were nonqualified. The following table sets forth information regarding
      the options granted during 1997:


                                       F-14
<PAGE>   43
<TABLE>
<CAPTION>
                              Number                      Exercise
                             Options    Vesting          Price Per      Expiration
                Name         Granted      Date             Share           Date
                ----         -------      ----             -----           ----
<S>                         <C>         <C>              <C>          <C>
       Raymond J. Wilson    100,000     06/04/97           $2.875       01/18/07

                            100,000     06/04/98           $2.875       01/18/07

                            100,000     06/04/99           $2.875       01/18/07

       Robert J. Figliozzi  200,000     06/04/97           $2.940       04/28/07

                            150,000     06/04/98           $2.940       04/28/07

                            150,000     06/04/99           $2.940       04/28/07
</TABLE>

      Mr. Wilson resigned effective June, 25, 1997 and his related options were
therefore canceled.

Mr. Figliozzi was originally granted options on March 18, 1997 with an
      exercise price of $2.68 per share. These options were exchanged on April
      28, 1997 for options with an exercise price of $2.94 per share.


The following schedule summarizes the activity under these Nonstatutory Stock
      Option Agreements during 1997.



                                                       NONQUALIFIED

<TABLE>
<CAPTION>
      Year granted                                          1997
<S>                                                   <C>
      Option price per share                          $2.875 - $2.94

      Balance outstanding May 31, 1996:                      0

      Granted 1997                                        800,000

      Exercised 1997                                         0

      Canceled 1997                                          0

      Balance outstanding May 31, 1997                    800,000
</TABLE>

Effective June 1, 1996, the Company adopted Statement of Financial Accounting
      Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
      As a result, the Company has elected to continue to account for
      stock-based compensation in accordance with Accounting Principles Board
      Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and
      will provide additional pro forma disclosures required by SFAS 123. The
      adoption of this standard will not have an impact on the Company's
      financial position or results of operations.

In accordance with APB 25, no compensation cost has been recognized in the
      Consolidated Statements of Operations for the Company's stock option plan.
      Had compensation cost for the Company's stock option plan been determined
      consistent with the fair value method contained in SFAS 123, the Company's
      net loss, net loss per common share and loss applicable to common stock
      for 1997 and 1996 would have been the pro forma amounts indicated below:


                                       F-15
<PAGE>   44
<TABLE>
<CAPTION>
                                                        1997             1996
<S>                                                   <C>               <C>
            NET LOSS
                  As reported                         $13,349,455       $1,623,872
                  Pro forma                           $14,096,188       $1,623,872
            NET LOSS PER COMMON SHARE
                  As reported                         $       .35       $      .21
                  Pro forma                           $       .37       $      .21
            NET LOSS APPLICABLE TO COMMON STOCK
                  As reported                         $14,469,626       $2,896,705
                  Pro forma                           $15,216,359       $2,896,705
</TABLE>

The fair value of each option grant included in the pro forma net loss shown
      above is estimated on the date of grant using the Black-Scholes
      option-pricing model with the following weighted average assumptions used
      for grants in 1997: expected volatility of 50%; risk-free interest rate of
      6.0%; and an expected life of 10 years. The compensation cost generated by
      the Black-Scholes model, may not be indicative of the future benefit, if
      any, that may be received by the option holder.

10. SALES TO SIGNIFICANT CUSTOMERS AND EXPORT SALES

The Company had sales to one major international customer accounting for 50%
      of total net sales and 86% of consumer products net sales for the year
      ended May 31, 1997 and 89% of total and consumer product net sales for the
      year ended May 31, 1996.

Approximately 100% of consolidated sales in 1997 and 1996 were to foreign
      customers, located principally in Asia and Europe. The 1997 consumer
      products export sales included $1,796,000 to Japan and $166,000 to Europe.
      The 1996 consumer products export sales included $2,083,000 to Japan and
      $184,000 to Europe. The 1997 laser technology export sales included
      $1,205,210 to Europe and $236,918 to Australia. Sales which were
      denominated in currencies other than U.S. dollars amounted to $979,000 in
      1997 and were not significant in 1996. Foreign currency transaction gains
      or losses were immaterial in either year.

Operating loss for the consumer products division was $150,252 in 1997 compared
      to an operating loss of $ 751,756 for 1996. Operating loss for laser
      technology was $12,556,734 in 1997.

11. OTHER INCOME (EXPENSE)

In November 1996, Roadrunner Video Group, Inc. ("Roadrunner") filed for
      protection under Chapter 11 of the US Bankruptcy Code. The Company
      realized losses of $789,000 during the year ended May 31, 1997 due to the
      complete write-down of its investment in preferred and common stock of
      Roadrunner.

12. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
      between the carrying amounts of assets and liabilities for financial
      reporting purposes and the tax bases of those assets and liabilities.
      Significant components of the Company's deferred tax assets are as
      follows:


                                       F-16
<PAGE>   45
<TABLE>
<CAPTION>
      Deferred tax assets
<S>                                                       <C>
            Net operating loss                            $4,720,000
            Bad debt reserve                                 253,000
            Inventory                                        153,000
            Write-off of notes receivable                    370,000
            Property and equipment                           834,000
            Amortization of patents                          195,000
                                                          ----------
                                                          $6,525,000

            Valuation allowance                            6,525,000
                                                          ----------
            Net deferred tax assets and liabilities       $        0
</TABLE>

As of May 31, 1997, the Company had net operating loss carryforwards of
      approximately $12,500,000 available to offset future taxable income which
      will expire in various years through 2012. A valuation allowance of
      $6,525,000 has been recognized primarily to offset the related deferred
      tax assets due to the uncertainty of realizing the benefit of the loss
      carryforwards.

A reconciliation of the statutory U.S. federal income tax rate and the
      effective income tax rate for the years ended May 31, 1997 and May 31,
      1996 is as follows:

<TABLE>
<CAPTION>
                                                                               1996           1997
                                                                             ------         ------
<S>                                                                           <C>            <C>
            Statutory Federal Income Tax Rate                                 (34.0%)        (34.0%)
            Increases (decreases) resulting from:
                  Increase in federal deferred tax valuation allowance         36.0%          25.7%
                                                                                                    
                  State income taxes, net of federal tax benefit               (2.0%)           --
                  Amortization of intangible assets                              --            8.3%
                                                                             ------         ------
            Effective tax rate                                                  0.0%           0.0%
</TABLE>


13.   NET LOSS PER COMMON SHARE

Net loss per common share is computed based on net 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 41,306,434 in 1997 and 14,075,207 in 1996.

14.   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, 1997 and 1996 was $228,563 and $64,000, respectively.

      OPERATING LEASES:

  
                                       F-17
<PAGE>   46

      The Company leases facilities under operating leases. At May 31, 1997,
      future annual minimum lease payments under these agreements are:

<TABLE>
<CAPTION>
            Year Ending May 31,
<S>                                             <C>
                  1998                          $   241,549
                  1999                              143,585
                  2000                              120,970
                  2001                               75,917
                  2002                               74,084
                  Thereafter                      1,111,253
                                                -----------
                  Total                         $ 1,767,358
</TABLE>


Facilities rent expense for the years ended May 31, 1997 and 1996, was $297,963
      and $55,922, respectively.

      INVENTORY:

The Company has committed to purchase inventory in the normal course of
      business. As of May 31, 1997, the Company has signed contracts requiring
      future payments of $4,095,000 once the inventory is delivered according to
      the terms of the contract. All inventory purchase commitments are expected
      to be paid during fiscal 1998.


15.   RELATED PARTY TRANSACTIONS

In consideration for the grant of the MEHL License, Classy Lady agreed to pay
      Thomas L. Mehl, Sr. a royalty of 5% of the wholesale price of all products
      covered by the Mehl patents sold by Classy Lady or its distributors
      worldwide. Classy Lady also agreed to pay Mehl a minimum annual royalty of
      $50,000. 10% of all royalty payments are to be made to Classy Lady's
      patent law firm of Schlesinger, Arkwright & Garvey ("SA&G") until the
      aggregate of such payments to SA&G reaches $1 million.

In consideration for granting the Zaias license, Classy Lady agreed to issue
      Dr. Zaias 5,000 shares of Classy Lady common stock, pay to Dr. Zaias
      $100,000 and pay to Dr. Zaias a royalty of 5% on all revenues derived by
      Classy lady in connection with the laser hair removal invention covered by
      the above patent. Classy Lady also agreed to pay to Dr. Zaias a minimum
      royalty of $50,000 per year.

Mr. Mehl and Dr. Zaias have each agreed to share with the other a portion of
      the royalty revenue derived form the License Agreements described above.
      Accordingly, 25% of all payments to be made to Mr. Mehl under his license
      agreement are to be paid to Dr. Zaias until such time as Dr. Zaias
      notifies Classy Lady that Mehl is no longer obligated to make such
      payments, and 50% of all royalty payments due to Dr. Zaias are to be paid
      to Mr. Mehl.

Under the terms of the Merger agreement, in the event that the Company's
      interest in either the LIL joint venture or any other business combination
      agreement with a partner able to commercialize the Zaias Patent is sold,
      the proceeds from such sale shall be apportioned as follows:


<TABLE>
            <S>                                   <C>  
            All amounts up to $50 million         Payable to the Company
</TABLE>

                                       F-18
<PAGE>   47
<TABLE>
            <S>                                   <C>
            Amounts in excess of $50 million      75% to the Company
            up to $100 million                    25% to Thomas L. Mehl, Sr. and
                                                  Dr. Nardo Zaias

            Amounts in excess of $100 million     50% to the Company
                                                  50% to Thomas L. Mehl, Sr. and
                                                  Dr. Nardo Zaias
</TABLE>

The Company has made advances to Marc Clement, a director of the Company,
      during 1997 in the amount of $250,000. Mr. Clement has issued a promissory
      note to the Company for the repayment of the advance together with accrued
      interest at the rate of ten percent (10%) per annum, payable on demand
      until fully paid. In addition, this amount is partially secured by shares
      owned by Mr. Clement.

The Company has made advances to His or Her Products of Puerto Rico, Inc.,
      ("His or Her") a Puerto Rico corporation, totaling $291,231 during 1997.
      Thomas L. Mehl, Sr. is the President, Chairman and shareholder of His or
      Her. Thomas L. Mehl, Sr. has obligated himself to the Board of Directors
      to divest himself of this outside interest and is currently considering
      alternative methods by which His or Her may become an integral part of the
      future strategic plan. The Company has fully reserved for these advances.

The Company has made advances to the M.C.M. Group, Inc., a Florida
      corporation, totaling $89,581 during 1997. Thomas L. Mehl, Sr. is the
      President, Chairman and sole shareholder of the M.C.M. Group, Inc. Thomas
      L. Mehl, Sr. has obligated himself to the Board of Directors to divest
      himself of this outside interest and is currently considering alternative
      methods by which M.C.M. Group, Inc. may become an integral part of the
      future strategic plan. The Company has fully reserved for these advances.

On July 12, 1996 the Company entered into a Letter of Intent with Anton H.
      Clemens ("Clemens"), a director of the Company, and Victor H. Haughton,
      M.D. ("Haughton"). The intent of the parties, subject to a definitive
      agreement, is to have the Company form a new subsidiary, of which Clemens
      will be president, having the exclusive worldwide license rights for the
      development, manufacturing and marketing of a new and novel retractable
      needle and catheter technology for the medical field protected by issued
      United States and International Patents and by patents pending. As
      consideration for the Company entering into the Letter of Intent, the
      Company agreed to 1) pay the sum of sixty-three thousand nine hundred
      dollars ($63,900) to cover related patent fees for the intellectual
      property, 2) have the subsidiary pay Clemens and Haughton additional
      compensation in the form of license fees or other moneys to be set forth
      in the definitive agreement and 3) invest such additional funds necessary
      for the development, manufacture and marketing of the intellectual
      property as set forth in the definitive agreement. As of May 31, 1997 the
      Company had advanced a total of $28,125 in furtherance of its commitments
      and objectives under the Letter of Intent.

On July 25, 1996 the Company entered into a Letter of Intent with GKS
      Technologies, Inc. ("GKS"), a Puerto Rico corporation together with Gunnar
      K. Svanberg ("Svanberg"), a director of GKS. Svanberg holds several
      patents and patents pending worldwide for a new dental curret and curret
      sharpening machine. The intent of the parties, subject to a definitive
      agreement, is to develop, manufacture and market Svanberg's new curret
      devices within the worldwide dental market. As consideration for the
      Company entering into this Letter of Intent with Svanberg and GKS, the
      Company agreed to 1) subscribe to on hundred thousand shares (100,000) of
      GKS common stock at $.50 per share for the sum of Fifty Thousand Dollars
      ($50,000) upon the execution of the Letter of Intent and 2) invest such
      additional funds necessary for the development, manufacture and marketing
      of the Patent Applications according to the terms set forth in the
      definitive agreement.


                                       F-19
<PAGE>   48
      Through May 31, 1997, the Company had advanced $111,026, including $50,000
      to be applied towards the purchase of GKS common stock under the terms
      outlined above. Thomas L. Mehl, Sr. personally owns twelve and one-half
      percent (12.5%) of GKS as a result of his working with Svanberg on patent
      applications over the past two years without any prior compensation.
      M.C.M. Group, Inc., a Florida corporation owned by Thomas L. Mehl, Sr.,
      also owns twelve and one-half percent (12.5%) of GKS as a result of
      providing management and consulting services to GKS and Svanberg over the
      past two years without prior compensation. The Company has fully reserved
      for these advances.

In connection with the Loan Agreement dated as of August 5, 1997 between the
      Company and Clearwater Fund IV, LLC ("Clearwater"), Thomas L. Mehl, Sr.,
      the Company's President and Chairman, guaranteed the repayment to
      Clearwater of all amounts borrowed by the Company and pledged all of the
      shares of Common Stock of the Company owned by him as security for
      repayment of such borrowed amounts.

16. ACQUISITIONS

On June 4, 1996, Classy Lady merged with and into a subsidiary of the
      Company. The Merger has been accounted for as a non-monetary exchange. In
      consideration for the Merger, the Company issued an aggregate of
      25,000,000 shares of Common Stock, $.01 par value per share, to the
      shareholders of Classy Lady. As a result of the Merger, the former Classy
      Lady shareholders own, in the aggregate 55.2% of the outstanding Common
      Stock of the Company, thereby resulting in a change of control of the
      Company. In addition, in contemplation of the Merger, the Company made
      advances of $850,000, in aggregate to Classy Lady.

In exchange for the issuance of the shares of the Company issued pursuant to
      the Merger, the Company obtained all of the stock of Classy Lady, which
      owns the exclusive licensing rights granted to Classy Lady by Dr. Nardo
      Zaias for a laser hair removal technology and by Thomas L. Mehl, Sr. for a
      radio frequency and direct current multiple hair removal technology.
      Valuation of the acquired patent rights, which was based on the value of
      the stock issued as it was determined to be more clearly evident, was
      $1,320,000. The acquired patent rights had no carrying value in Classy
      Lady's financial statements. Upon completion of the Merger, all of the
      assets and liabilities of Classy Lady became the property of the Company's
      wholly owned subsidiary and the separate corporate existence of Classy
      Lady ceased.

The Merger was completed in accordance with the Merger Agreement. Pursuant to
      the Merger Agreement, (I) the name of the Company was changed to
      MEHL/Biophile International Corporation, (II) Thomas L. Mehl, Sr.
      ("Mehl"), the president and a principal shareholder of Classy Lady, was
      elected as Chairman of the Board of Directors, President and Chief
      Executive Officer of the Company, and (III) the Board of Directors of the
      Company was expanded to seven members, five of whom were designated by
      Mehl.

On June 4, 1996, in a transaction accounted for as a purchase, the Company
      completed the purchase of capital stock representing in the aggregate of
      81% interest in SLS (Wales) Limited, a privately held Welsh company which
      has been renamed SLS Biophile Limited ("SLS"). SLS engages in developing,
      manufacturing and selling lasers for dermatologic use, including hair
      removal. The consideration for the acquisition of the SLS shares consisted
      of a cash payment of 1,255,000 pounds sterling (approximately $1.9
      million) and the issuance of 25,044 shares of the Company's Common Stock.
      The Company also paid approximately $1.3 million to retire SLS debt. The
      consideration paid was based upon arms-length negotiations between the
      Company and the holders of the SLS shares. SLS holds patents pending,
      invented by Marc Clement, Ph.D, which are compatible with the Zaias patent
      exclusively licensed to the Company in the field of laser depilation. SLS
      has been developing and clinically evaluating laser depilation technology
      since 1993 and presently manufactures its CHROMOS 694 "long pulse" ruby
      laser depilation system.


                                       F-20
<PAGE>   49
On March 13, 1997, in a transaction accounted for as a purchase, the Company
      completed the purchase of capital stock representing in the aggregate of
      75% interest in Integrated Technologies Research Limited, a privately held
      Welsh company which will be renamed ITR Biophile Limited ("ITR"). ITR
      engages in the research and development of software and related hardware
      in the following areas: 1) laser scanning systems, 2) laser marking
      systems, 3) adaptive "Smart Card" read/write technologies, and 4) other
      highly sophisticated related technological areas. ITR was the originator
      of the present scanning system and smart card technologies utilized in the
      CHROMOS 694 Ruby Laser. The shareholders of ITR received 250,000 shares of
      the common stock of the Company for the 75% interest in ITR.

The Company has entered into a letter of intent to purchase capital stock
      representing in the aggregate of 81% interest in Converting Laboratories,
      Inc. ("CLI"), a Wisconsin corporation. CLI is a manufacturing company
      which will produce the Bandeze and some of the other radio frequency hair
      removal products for the Company. The Company has paid to CLI a total of
      $813,000 over the past year which has been included in research and
      development expense in the current year.

Due to the fact that the SLS acquisition and the Classy Lady Merger occurred
      at approximately the beginning of 1997, proforma information is not
      presented as it does not differ materially from actual results.

The following proforma information 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, 1995:


<TABLE>
<CAPTION>
                                                  Year Ended
                                                  May 31, 1996
                                                   (Unaudited)
<S>                                               <C>
            Revenues                              $ 4,808,945

            Net loss                              $(3,497,872)

            Net loss per common share             $      (.12)

            Loss applicable to common stock       $(4,770,705)
</TABLE>

The SLS acquisition and the Classy Lady Merger contributed $979,377 and
      $527,613 to 1997 revenue respectively and $3,281,957 and 9,210,336 of net
      loss, respectively to the results for 1997.

17.   LEGAL MATTERS

The Company holds an exclusive license with Thomas L. Mehl, Sr. for certain
      enumerated patents as well as Mehl's new inventions in the hair removal
      field. A dispute arose as to the Company's compliance with the terms of
      that license and as to the termination of the license. On March 20, 1991,
      the Company filed a complaint in the Federal District Court in
      Massachusetts (Civil Action No. 91-10868-Z) against Mr. Mehl. After
      consummation of the Merger, each of Mehl and the Company entered into full
      settlement and release on June 14, 1996 with respect to the litigation and
      dismissed all claims against each other. Neither party was or will be paid
      any money or other consideration from the other in connection with such
      settlement and release.

On December 5, 1996 the Company commenced an arbitration with the American
      Arbitration Association in New York, New York to terminate a joint venture
      with Laser Industries Limited ("Laser"). The


                                       F-21

<PAGE>   50
      joint venture was formed in December, 1995, when Laser and Classy Lady
      executed a Joint Venture Formation Agreement to exploit patented laser
      hair removal technology exclusively licensed to Classy Lady. Under the
      terms of the agreement, Classy Lady and Laser formed a new corporation,
      Sharplan 2000, Inc. ("Sharplan"), owned 50% by Classy Lady and 50% by
      Laser but managed exclusively by Laser and having a majority of directors
      appointed by Laser. The Company commenced the arbitration to terminate the
      license granted to Sharplan and unwind the joint venture. The Company is
      basing this action on a dispute concerning the nature of technological and
      financial contributions to be made to the joint venture by Laser and an
      additional dispute concerning whether Laser utilized technology within the
      joint venture which was in fact developed by SLS prior to the purchase by
      the Company of a controlling interest in SLS in June, 1996.

On December 23, 1996, Laser asserted two counterclaims in the arbitration
      proceedings, claiming that the Company has breached an alleged fiduciary
      duty owed to Laser and Sharplan and seeking a declaration that the Company
      may not grant a sublicense of certain patent rights to SLS. The Company
      has filed a response to these counterclaims requesting dismissal on the
      grounds that neither claim is arbitrable. On April 7, 1997, LIL filed an
      amendment to its original counterclaim to permanently enjoin the Company
      and SLS from selling lasers for hair removal in the United States.

In a separate action filed in England in October, 1996, SLS commenced an
      action against Laser, a laser manufacturer Spectron Laser Systems Limited
      ("Spectron") and related parties, for orders preventing Laser from using
      SLS's technology and stopping Spectron from supplying SLS's technology to
      Laser.

In March, 1997, the Company filed suit against Palomar Medical Technologies,
      Inc. ("Palomar") and its subsidiaries, Spectrum Medical Technologies,
      Inc., Spectrum Financial Services, LLC, and a New Jersey dermatologist for
      patent infringement and unfair competition. The suit was filed in the
      United States District Court for the District of New Jersey and alleges
      that the defendants infringe on the patented method of laser hair removal
      owned by Dr. Nardo Zaias and exclusively licensed to the Company and that
      the defendants have improperly marketed laser hair removal products before
      receiving FDA approval. The Company is seeking monetary damages and
      injunctive relief to restrain Palomar from marketing its laser hair
      removal products in the United States. The litigation is only in its
      initial stages. In March, 1997, Palomar served the Company with a lawsuit
      it filed in the United States District Court in Massachusetts seeking to
      declare the patent embodying the laser hair removal technology exclusively
      licensed to the Company to be invalid. Further amendments to this action
      have also been sought by Palomar. The Company has moved to dismiss the
      Massachusetts action and counsel for Palomar has agreed to its dismissal.
      It is likely however that the assertion of invalidity will be raised in
      the Company's New Jersey action against Palomar.

On August 11, 1997, the Federal District Court in New Jersey rejected
      Palomar's attempt to prevent the Company from pursuing unfair competition
      claims under New Jersey law relating to allegations of improper promotions
      of Palomar's Epilaser(TM) for hair removal usage.


18. SUBSEQUENT FINANCING

On August 5, 1997, the Company completed a loan agreement with Clearwater
      Fund IV, LLC allowing the Company to borrow up to $7 million to be used in
      connection with the manufacture and delivery of laser hair removal systems
      and for general working capital purposes. The loan is executable in


                                       F-22
<PAGE>   51
      two steps, with $4 million borrowed upon execution of the loan documents
      and the remaining $3 million to be borrowed at any time after the Company
      has delivered fifty (50) lasers under effective license agreements with a
      third party physician, clinic or hospital. To qualify these lasers must
      have been delivered after July 15, 1997. The loan bears interest at 15%
      per annum payable in arrears on a monthly basis and is due on January 15,
      1998. The loan is secured by all of the Company's assets and approval must
      be obtained from Clearwater for all expenditures made with the loan
      proceeds. As additional consideration for the loan, the Company issued
      common stock purchase warrants according to the following schedule:

<TABLE>
<CAPTION>
       Date                   Shares           Price       Expiration
       ----                   ------           -----       ----------
<S>                       <C>                  <C>         <C>
       08/05/97              750,000           $2.50       08/05/02
       Date of second        750,000           $2.50       5 years from date of
       borrowing                                           second borrowing
       10/02/97            1,000,000           $2.50       07/15/02
       12/02/97              500,000           $2.50       07/15/02
</TABLE>

Included as part of the loan agreement, the Company agreed, with shareholder
      approval, to exchange all 2,231 shares of $1,000 stated value Series C, 5%
      cumulative preferred stock and all 10,000 shares of $1,000 stated value
      Series D, 5% cumulative convertible preferred stock for 12,231 shares of
      $1,000 stated value Series E, 5% cumulative convertible preferred stock.

Each  share of Series E stock is convertible into common stock of the Company at
      80% of the average market price on the five trading days prior to
      conversion but in no event shall the conversion price be greater than
      $3.125. The Company agreed to file a registration statement covering the
      public sale of the shares of common stock receivable upon conversion of
      the Series E stock and the holders agreed not to sell or transfer any such
      shares on or before February 28, 1998. Dividends are to be paid quarterly
      beginning August 31, 1997.

19.   RESTATEMENT OF FINANCIAL STATEMENTS

In May 1997, the Company was notified by the Securities and Exchange
      Commission ("SEC") that the manner with which the Company had accounted
      for its issuance of convertible preferred stock and debentures was
      inconsistent with the views of the SEC's accounting staff. In a letter to
      the Emerging Issues Task Force of the Financial Accounting Standards Board
      in March of 1997, the SEC had formalized their interpretation of the
      application of generally accepted accounting principals with regard to
      accounting for the issuance of securities with "beneficial conversion
      features".

The financial statements for 1996 have been restated to conform to the SEC
      position in this regard. As a result of the restatement, interest expense
      and preferred stock dividends increased by $1,033,000 and $1,228,000,
      respectively. Additional paid-in-capital has been increased by $2,261,000
      to reflect the intrinsic value of the beneficial conversion features of
      Series C convertible preferred stock and convertible debentures (see Notes
      8 and 9).

The Company's net loss, loss per common share and loss applicable to common
      stock for the year ended May 31, 1996, originally reported and as restated
      are as follows:


                                       F-23
<PAGE>   52
<TABLE>
<CAPTION>
                                                             Increase
                                                                   Resulting
                                                 As Originally        From                  As
                                                   Reported        Restatement           Restated
                                                   --------        -----------           --------
<S>                                               <C>              <C>                <C>
            Net loss                              $(590,872)       $(1,033,000)       $(1,623,872)

            Net loss per common share             $    (.05)       $      (.16)       $      (.21)

            Loss applicable to common stock       $(635,705)       $(2,261,000)       $(2,896,705)
</TABLE>

20.   CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

As shown in the accompanying financial statements, the Company has incurred
      substantial losses from operations and, as a result, has had to obtain
      financing to fund operations. These factors raise substantial doubt about
      the Company's ability to continue as a going concern.

The Company's future results of operations initially depend to a substantial
      degree on the ability of the Company to license parties worldwide to
      utilize the CHROMOS 694 Ruby Laser manufactured by SLS and for such
      licenses to successfully sell hair removal services utilizing this
      product. The ability of such licensees to market such services will in
      part depend on the public's acceptance of the use of lasers to remove
      hair, as to which there can be no assurance, and the strength of the
      Company's competitors. The Company's existing or potential competitors
      have or may have substantially greater research and development
      capabilities, clinical, manufacturing, regulatory and marketing experience
      and financial and managerial resources than the Company. The Company may
      be required to find alternative means for marketing and selling its laser
      hair removal services, and thereby experience substantial delays and
      costs. No assurance can be given that the Company would be able to find an
      acceptable alternative means of marketing and selling its laser hair
      removal systems, or if such an alternative means was found, that it would
      be successful.

The Company completed a loan agreement as of August 5, 1997 with Clearwater
      Fund IV, LLC allowing the Company to borrow up to $7 million to be used in
      connection with the manufacture and delivery of laser hair removal systems
      and for general working capital purposes. The loan bears interest at 15%
      per annum payable in arrears on a monthly basis and is due on January 15,
      1998. Although the Company anticipates that income from laser hair removal
      technologies will continue to increase, currently the Company is not
      generating sufficient revenue from operations to provide the facility to
      repay the loan. The Company must secure additional financing to enable it
      to repay the loan and carry out its near and mid-range plans. The Company
      plans to achieve its objectives through either private or public offering
      of equity or debt. The Company is also investigating long term financing
      for the purchase and subsequent placement of its lasers


                                       F-24
<PAGE>   53
                     MEHL/BIOPHILE INTERNATIONAL CORPORATION
                    COMPUTATION OF NET LOSS PER COMMON SHARE

<TABLE>
<CAPTION>
                                                               YEAR ENDED MAY 31
                                                             1997                1996
                                                         ------------        ------------
<S>                                                      <C>                 <C>
Weighted average number of shares outstanding:


      Primary                                              41,306,434          14,075,207

      Fully diluted                                        41,306,434          14,075,207

Primary:

      Net loss                                           $(13,349,455)       $ (1,623,872)
      Paid and cumulative undeclared preferred
        stock dividends                                      (495,171)            (44,833)
      Implied dividend equal to intrinsic value of
        preferred stock conversion feature                   (625,000)         (1,228,000)
                                                         ------------        ------------
                                                         $(14,469,626)       $ (2,896,705)

Net loss applicable to common stock                      $       (.35)       $       (.21)
</TABLE>


For the above years, earnings per share, assuming full dilution, has not been
presented since the effect would be antidiluting.


                                       F-25
<PAGE>   54
                                  Exhibit Index

<TABLE>
<S>               <C>
Exhibit 3.1       Restated Certificate of Incorporation of the Corporation
                  (incorporated by reference to Information Statement on
                  Schedule 14C dated October 28, 1996).

Exhibit 3.2       Certificate of Designation of 5% Cumulative Convertible
                  Preferred Stock, Series D (incorporated by reference to
                  Registration Statement on Form S-3 dated March 31, 1997).

Exhibit 3.3       Certificate of Designation of 5% Cumulative Convertible
                  Preferred Stock, Series E.

Exhibit 3.4       By-laws of the Corporation, as amended (incorporated by
                  reference to Annual Report on Form 10-KSB for year ended May
                  31, 1996).

Exhibit 4         Form of Warrant to purchase 750,000 shares of Common Stock
                  issued to Clearwater Fund IV, LLC dated August 5, 1997.

Exhibit 10.1      Second Amended and Restated Agreement and Plan of Merger with
                  Classy Lady by Mehl of Puerto Rico, Inc. dated June 4, 1996
                  (incorporated by reference to Current Report on Form 8-K dated
                  June 4, 1996).

Exhibit 10.2      Sale and Purchase Agreement dated June 4, 1996 by and among B.
                  Mair and others, and Selvac Corporation (incorporated by
                  reference to Current Report on Form 8-K dated June 4, 1996).

Exhibit 10.3      Sale and Purchase Agreement dated June 4, 1996 by and among
                  Robert Marc Clement and Selvac Corporation (incorporated by
                  reference to Current Report on Form 8-K dated June 4, 1996).

Exhibit 10.4      Amended Exclusive License Agreement for Patented Laser Hair
                  Removal Invention dated December 5, 1995 by and between Classy
                  Lady by Mehl of Puerto Rico, Inc. and Nardo Zaias, M.D.
                  (incorporated by reference to Annual Report on Form 10-KSB for
                  year ended May 31, 1996).

Exhibit 10.5      Exclusive License Agreement for Patented Consumer Hair Removal
                  Products dated December 5, 1995 by and between Classy Lady by
                  Mehl of Puerto Rico, Inc. and Thomas L. Mehl, Sr.
                  (incorporated by reference to Annual Report on Form 10-KSB for
                  year ended May 31, 1996).
</TABLE>
<PAGE>   55
<TABLE>
<S>               <C>
Exhibit 10.6      Joint Venture Formation Agreement between Laser Industries
                  Limited and Classy Lady by Mehl of Puerto Rico, Inc. dated as
                  of December 19, 1995 (incorporated by reference to Annual
                  Report on Form 10-KSB for year ended May 31, 1996).

Exhibit 10.7      Securities Purchase Agreement with GFL Performance Fund
                  Limited dated May 15, 1996 (incorporated by reference to
                  Registration Statement on Form S-3 dated July 1, 1996).

Exhibit 10.8      Registration Rights Agreement with GFL Performance Fund
                  Limited dated May 15, 1996 (incorporated by reference to
                  Registration Statement on Form S-3 dated July 1, 1996).

Exhibit 10.9      Securities Purchase Agreement dated as of February 28, 1997 by
                  and between the Registrant and Clearwater Fund IV, LLC and
                  Clearwater Offshore Fund Ltd. (incorporated by reference to
                  Registration Statement on Form S-3 dated March 31, 1996).

Exhibit 10.10     Registration Rights Agreement dated as of May 31, 1996 by and
                  between the Registrant and Clearwater Fund IV, LLC and
                  Clearwater Offshore Fund Ltd. (incorporated by reference to
                  Registration Statement on Form S-3 dated March 31, 1996).

Exhibit 10.11     1997 Incentive Plan.

Exhibit 10.12     Loan Agreement dated August 5, 1997 with Clearwater Fund IV,
                  LLC.

Exhibit 10.13     Licensing Agreement dated as of March 13, 1997 between Selvac
                  Acquisition Corp. and Mehl Group Marketing, Inc.

Exhibit 10.14     Form of Laser Services Agreement entered into by Mehl Group
                  Marketing, Inc. and providers of laser hair removal services.

Exhibit 10.15     Employment Agreement between the Company and Robert Figliozzi
                  dated as of March 18, 1997.

Exhibit 21        Subsidiaries of the Registrant.

Exhibit 23.1      Consent of Joseph Decosimo & Company.

Exhibit 23.2      Consent of Bond, Andiola & Company.
</TABLE>