<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from................to .................
Commission file number 1-13856
Sel-Leb Marketing, Inc.
(Exact name of small business issuer as
specified in its charter)
New York 11-3180295
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1435 51st Street, North Bergen, NJ 07047
(Address of principal executive offices)
201-864-3316
(Issuer's telephone number)
(Former Name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s)), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,440,000 shares of common stock as
of May 14, 1996.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SEL-LEB MARKETING, INC.
TABLE OF CONTENTS
Page No.
Part I Financial Information
Item 1. Financial Statements
Balance sheet at December 31, 1995 1
Balance sheet at March 31, 1996 2
Statement of Operations for the three months 3
ending March 31, 1996 and 1995
Statement of Cash Flows for the three months
ending March 31, 1996 and 1995 4
Statement of Shareholder's Equity at March 31,
1996. 5
Notes to Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis or Plan
Of Operation 9- 10
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
<TABLE>
SEL-LEB MARKETING, INC.
AUDITED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 832,970
Accounts receivable - net 2,175,813
Inventory - net 2,470,086
Prepaid expenses and other
current assets 353,557
Deferred income tax asset,
net of valuation allowance 52,000
----------
Total current assets 5,884,426
Property and equipment - net 270,703
Goodwill 280,823
Other assets 3,611
----------
Total assets $6,439,563
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and accrued expenses $1,021,307
Due to others 38,245
Income taxes payable 269,525
----------
Total current liabilities 1,329,077
Long-term debt related
parties 469,000
----------
Total liabilities 1,798,077
----------
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 7,440,000 shares (Note 1) 74,400
Additional paid-in capital 4,136,563
Retained earnings 430,523
----------
Shareholders' Equity 4,641,486
----------
Total Liabilities and Shareholders' Equity $6,439,563
----------
----------
</TABLE>
See notes to financial statements
1
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED BALANCE SHEET
MARCH 31, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 72,388
Accounts receivable - net 2,260,823
Inventory - net 3,289,298
Prepaid expenses and other
current assets 175,866
Deferred income tax asset,
net of valuation allowance 52,000
------------
Total current assets 5,850,375
Property and equipment - net 316,872
Goodwill 273,741
Other assets 3,611
------------
Total assets $6,444,599
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $1,413,456
Due to others 20,245
Income taxes payable 231,968
----------
Total current liabilities 1,665,669
----------
Total liabilities 1,665,669
----------
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 7,440,000 shares (Note 1) 74,400
Additional paid-in capital 4,183,464
Retained earnings 521,066
----------
Shareholders' equity 4,778,930
----------
Total Liabilities and Shareholders' equity $6,444,599
----------
----------
</TABLE>
See notes to financial statements
2
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
--------- ---------
1996 1995
---- ----
(Note 1)
<S> <C> <C>
Revenue:
Net Sales $3,070,765 $2,354,848
Operating Expenses:
Cost of sales 2,283,866 1,777,363
Selling, general and administrative expenses 645,511 432,887
---------- ----------
Total operating expenses 2,929,377 2,210,250
Operating income 141,388 144,598
Interest income 9,902 0
Interest expense (12,243) (37,953)
---------- ----------
Income before provision for
income taxes 139,048 106,645
Provision for income taxes (Note 4) 48,505 14,000
---------- ----------
Net income $ 90,543 $ 92,645
---------- ----------
---------- ----------
Proforma information (unaudited)
Net income (Note 4) $ 90,543 $ 49,100
---------- ----------
---------- ----------
Primary earnings per share $0.01 $0.01
---------- ---------
---------- ---------
Fully diluted earnings per share $0.01 $0.01
---------- ---------
---------- ---------
</TABLE>
See notes to financial statements
3
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
---- ----
(Note 1)
<S> <C> <C>
Cash flow from operating activities:
Net Income $90,543 $92,645
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Imputed interest on noninterest bearing loans 0 4,225
Depreciation 25,126 425
Changes in operating assets and liabilities:
(Increase) in accounts receivable (85,010) 146,926
(Increase) in inventories (819,212) (244,687)
Increase in due from affiliates 0 (28,226)
(Increase) decrease in prepaid expenses and
other current assets 177,691 32,141
Increase in accounts payable and accrued expenses 354,593 (21,969)
(Decrease) in due to affiliates (18,000) 118,315
--------- -------
Net cash provided by (used in) operating
activities ($274,269) $ 99,795
-------- ---------
Cash flow from investing activities:
Net (advances to) repayments from affiliates (64,213) 60,000
--------- ---------
Cash flow from financing activities:
Net proceeds from notes to bank 0 150,000
Net repayment of long term debt
to related parties (422,099) 0
Deferred offering costs paid from IPO 0 (43,250)
--------- ---------
Net cash provided by (used in) financing
activities ($422,099) $106,750
---------- --------
Net increase (decrease) in cash ($760,582) $266,545
---------- --------
---------- --------
Cash at beginning of period $832,970 $179,536
---------- --------
---------- --------
Cash at end of period $ 72,388 $476,081
---------- --------
---------- --------
</TABLE>
See notes to financial statements
4
<PAGE>
SEL-LEB MARKETING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 7,440,000 $74,400 $4,136,563 $430,523 $4,641,486
Discount in connection
with repayment of
related party debt --- 46,901 --- 46,901
Net income --- --- 90,543 90,543
--------- ------- ---------- -------- ----------
Balance at March 31, 1996 7,440,000 $74,400 $4,183,464 $521,066 $4,778,930
--------- ------- ---------- -------- ----------
--------- ------- ---------- -------- ----------
</TABLE>
See notes to financial statements
5
<PAGE>
SEL-LEB MARKETING, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(The information pertaining to the three month periods ending March 31,
1995 and 1996 are unaudited)
1. BASIS OF PRESENTATION, EVENTS, AND INITIAL PUBLIC OFFERING
The financial statements of Sel-Leb Marketing, Inc., ("the Company")
included herein have been prepared pursuant to Generally Accepted
Accounting Principles and have not been examined by independent public
accountants. In the opinion of management all adjustments which are of
a normal recurring nature necessary to present fairly the results of
operation have been made. Pursuant to Securities and Exchange Commission
("SEC") rules and regulations, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from these statements unless significant changes
have taken place since the end of the most recent fiscal year. The
disclosures contained herein should be read in conjunction with the
financial statements and notes included in the Company's Form 10-KSB
filed with the SEC on March 31, 1996. The results of operations for the
three month period ended March 31, 1996 are not necessarily indicative of
the results to be expected for the full year.
The Company completed in July 1995 its initial public offering ("IPO")
of 920,000 units, each unit consisting of one share of common stock and
one warrant entitling the holder to purchase one share of common stock
at an exercise price of $6.00 per share. The warrants will be
exercisable for a three year period commencing July 13, 1996. The
Company used a portion of the net proceeds of the IPO to repay bank and
bridge loans outstanding as of the date of the IPO.
On January 4, 1995, the Company increased its authorized number of
shares to 10,000,000 shares of common stock, effected a 17,760.8 for 1
stock split and changed the par value of its common stock from no par to
$.01 par. On May 18, 1995, the Company effected a .810706 reverse stock
split. In February 1996, the Company increased its authorized number of
shares to 40,000,000 shares of common stock and consummated a 3 for 1
stock split, which was effected as a share distribution pursuant to which
each holder of a share of common stock received two additional shares
for each share held. The increase in authorized shares and the stock
splits have been given
6
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
retroactive effect in the accompanying financial statements.
On May 18, 1995, the Company and Linette Cosmetics, Inc. ("Linette"),
two companies with the same ownership interests, merged, with the
Company as the surviving corporation. In addition, certain shareholders
of the Company contributed their 60% interest in Lea Cosmetics, Inc.
("Lea") to the Company in connection with the IPO. The Company purchased
the remaining 40% interest in Lea immediately prior to consummation of its
IPO and Lea was subsequently merged into the Company in August 1995. The
purchase price for the 40% interest in Lea consisted of 180,000 shares
of common stock, 90,000 of which were issued in January 1996 upon Lea's
achieving certain sales volume for 1995.
The merger of Linette with and into the Company and the contribution of
the 60% interest in Lea to the Company, have been reported at historical
cost in a manner similar to a pooling of interests. The purchase of the
40% interest in Lea by the Company has been accounted for as a purchase.
The accompanying unaudited statement of operations for the three month
period ended March 31, 1995 presents the results of operation of the
Company as if these transactions had occured on January 1, 1995.
2. EARNINGS PER SHARE
Earnings per share amounts are computed based on the weighted average
numbers of shares actually outstanding plus the shares that would be
outstanding assuming exercise of dilutive stock options and warrants,
all of which are considered to be common stock equivalents. The number
of shares that would be issued from the exercise of stock options and
warrants has been reduced by the number of shares that could have been
purchased from the proceeds of such exercise at the average market price
of the Company's stock.
Pursuant to the modified treasury stock method, the number of shares
purchased has been limited to 20% of the outstanding shares and the
balance of funds has been hypothetically invested in U.S. government
securities or commercial paper with appropriate recognition of any
income tax effect.
For the three months ended March 31, 1996, the number of shares used in
the computation of primary earnings per share and fully dilutive
earnings per share were 13,977,189 and 14,154,955, respectively. For the
comparable period in 1995 the number of shares used for both
calculations amounted to 4,969,089.
3. ACQUISITION
In July 1995, the Company purchased the 40% interest in Lea in a business
combination accounted for as a purchase. The purchase price was 180,000
shares of newly issued, unregistered shares of the Company's common stock,
90,000 of which were issued in January 1996 upon Lea's achieving certain
sales volume for 1995. The accompanying financial
7
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
statements reflect the issuance of these shares of common stock as if
they were issued on December 31, 1995. The fair value of the assets
acquired, including approximately $281,000 allocated to goodwill, which
is being amortized over 10 years, amounted to approximately $384,000 and
liabilities assumed amounted to approximately $101,000. Amortization
expense related to goodwill and charged to operations amounted to $7,082
for the three months ended March 31, 1996.
The Company reviews the carrying value of goodwill for impairment
periodically and whenever events or changes in circumstances indicate
that the amount may not be recoverable. The review for recoverability
includes an estimate by the Company of the future undiscounted cash
flows expected to result from the use of the assets acquired and their
eventual disposition. An impairment will be recognized if the carrying
value of the assets exceeds the estimated future undiscounted cash flows
of those assets.
4. PROVISION FOR INCOME TAX
The provision for income tax for the three month period ended March 31,
1996 and the pro forma provisions for the three month period ended March
31, 1995 reflects the Company's earnings taxed for Federal and certain
State income tax purposes at the statutory rates. Prior to the merger of
Linette with and into the Company, the Company was treated as an S
Corporation, with its earnings taxed for federal and certain state
income tax purposes directly to its shareholders.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction
with the Financial Statements of the company and related notes thereto.
RESULTS OF OPERATIONS: THREE MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO THE
CORRESPONDING PERIOD ENDING MARCH 31, 1995
Net sales for the three months ended March 31, 1996 were $3,070,765
compared to $2,354,848 for the three months ended March 31, 1995, representing
an increase of 30%. This increase in net sales resulted from increases in both
the sales of the Company's own proprietary brand name line of beauty aids and
cosmetics and sales of opportunity distribution merchandise.
Cost of sales increased from $1,777,363 for the three month period in 1995
to $2,283,866 for the same period in 1996. However, the cost of goods sold
decreased as a percentage of sales from 75.5% in 1995 to 74.4% in 1996,
reflecting increased sales of the Company's proprietary brand name line of
beauty aids and cosmetics which products generally have a higher profit
margin than other merchandise sold by the Company.
Selling, general and administrative ("SG&A") expenses increased from
$432,887 in 1995 to $645,511 in 1996. The principal components of SG&A are
payroll, rent, commissions, insurance, legal, accounting and other fees paid to
third parties and travel and promotional expenses. The increase in SG&A expenses
in 1996 resulted primarily from the increased payroll and travel incurred by
the Company in connection with its growth and its status as a public company.
As a result of the increase in the cost of sales and the increase in SG&A
expenses, total operating expenses increased from $2,210,250 in 1995 to
$2,929,377 in 1996.
As a result of the increase in operating expenses, operating income
decreased from $144,598 in 1995 to $141,388 in 1996. The increase in interest
income of $9,902 in 1996 compared to $-0- in 1995 and the decrease in interest
expense from $37,953 in 1995 to $12,243 in 1996 resulted in an increase in
income before provision for income tax of $106,645 in 1995 to $139,048 in
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used working capital to pay long term debt to related parties
in the amount of $422,099. The Company received a discount of $46,901 on the
outstanding balance and increased additional paid in capital by a corresponding
amount. The Company also used cash to take advantage of buying opportunities
that management believes will be profitable in subsequent quarters. The payment
to related parties, together, with the increase in inventory of $819,212 during
the period, resulted in
9
<PAGE>
decreases in cash from $832,970 as of December 31, 1995 to $72,388 on March 31,
1996 and an increase in accounts payable and accrued expenses of $354,593 for
the period.
On November 6, 1995, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with United Jersey Bank (the "Lender")
pursuant to which it obtained a revolving line of credit for general working
capital purposes in an aggregate principal amount up to $2,000,000, subject to
a borrowing base limitation. The line of credit bears interest at fluctuating
rates per annum based on the "Prevailing Base Rate" (as defined in the Loan
Agreement) of the Lender. As of May 13, 1996, the Company has outstanding
$170,000 under this line of credit. The Company had no borrowings under such
line of credit as of March 31, 1996. Any funds borrowed by the Company under
the Loan Agreement are secured primarily by the inventory and receivables
of the Company. The Loan Agreement terminates on May 31, 1996. Although the
Company is negotiating to renew this Agreement beyond May 31, 1996, there can
be no assurance that the Loan Agreement will be renewed at such time.
At March 31, 1996, the Company had working capital of $4,184,706.
The Company anticipates that its working capital condition, together with
anticipated cash flow from the Company's operations, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. In the
event the Company's plans change (due to unanticipated expenses or
difficulties or otherwise), or if the working capital and projected cash flow
otherwise prove insufficient to fund operations, the Company could be
required to seek additional financing sooner than currently anticipated.
Except for the Loan Agreement, which expires on May 31, 1996, the Company has
no current arrangements with respect to, or sources of, additional financing.
Accordingly, there can be no assurance that additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. The Company's inability to obtain such additional financing could have
a material adverse effect on the Company's long-term liquidity and on the
proposed business expansion plans of the Company.
10
<PAGE>
PART II OTHER INFORMATION
Item 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS
On February 28, 1996, the Company held a special meeting of its
shareholders for the purpose of voting on a proposal (the "Proposal") to
amend the Company's Certificate of Incorporation in order to increase the
number of authorized shares of capital stock of the Company from 10,000,000
shares of common stock to 40,000,000 shares of common stock. Subsequently
the Company declared a 3 for 1 stock split which was effected as a share
distribution pursuant to which each holder of common stock received two
additional shares for each share held (the "Share Distribution"). The
Proposal was approved by the affirmative vote of shareholders holding
5,929,500 of the 7,440,000 shares of common stock outstanding (as adjusted to
reflect the Share Distribution). No shareholders voted against the proposal,
and there were no abstentions.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11. Statement re computation of earnings (not required because the
relevant computation can be clearly determined from material
contained in the financial statements).
27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant.
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized .
SEL-LEB MARKETING, INC.
/s/ Jan S. Mirsky
-------------------------------------------------
Jan S. Mirsky
Executive Vice President - Finance and
Chief Operating Officer
Dated: May 14, 1996 as both duly authorized officer of the registrant
and as principal financial officer of registrant.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 72,388
<SECURITIES> 0
<RECEIVABLES> 2,360,823
<ALLOWANCES> 100,000
<INVENTORY> 3,289,298
<CURRENT-ASSETS> 5,850,375
<PP&E> 387,098
<DEPRECIATION> 70,226
<TOTAL-ASSETS> 6,444,599
<CURRENT-LIABILITIES> 1,665,669
<BONDS> 0
0
0
<COMMON> 74,400
<OTHER-SE> 4,704,530
<TOTAL-LIABILITY-AND-EQUITY> 6,444,599
<SALES> 3,070,765
<TOTAL-REVENUES> 3,080,667
<CGS> 2,283,866
<TOTAL-COSTS> 2,283,866
<OTHER-EXPENSES> 657,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,243
<INCOME-PRETAX> 139,048
<INCOME-TAX> 48,505
<INCOME-CONTINUING> 90,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,543
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
