<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 June 30, 1997
[ ] 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.)
495 River Street, Paterson, NJ 07524
(Address of principal executive offices)
973-225-9880
(Issuer's telephone number)
1435 51st Street, North Bergen, NJ 07047
(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: 8,707,227 shares of common
stock as of August 13, 1997.
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 (Unaudited)
Balance sheet at December 31, 1996 (Audited) 1
Balance sheet at June 30, 1997 2
Statements of Income for the three months 3
ended June 30, 1997 and 1996
Statements of Income for the six months 4
ended June 30, 1997 and 1996
Statements of Cash Flows for the six months 5
ended June 30, 1997 and 1996
Statement of Shareholders' Equity at June 30, 6
1997.
Notes to Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12 - 13
Signatures 13
<PAGE>
SEL-LEB MARKETING, INC.
BALANCE SHEET
(AUDITED)
DECEMBER 31, 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 129,538
Accounts receivable - net 3,247,812
Inventory 3,746,124
Due from officer 23,274
Prepaid expenses and other current assets 304,797
Deferred income tax asset, net of valuation allowance 95,000
-----------
Total current assets 7,546,545
Property and equipment - net 356,251
Goodwill (Note 3) 252,063
Other assets 60,125
-----------
Total assets $8,214,984
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 1,420,609
Loan payable - bank (Note 5) 300,000
Due to affiliate 64,398
Income taxes payable 186,522
-----------
Total current liabilities 1,971,529
-----------
Shareholders' Equity:
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 8,268,477 shares (Note 1) 82,685
Additional paid-in capital 5,632,512
Retained earnings 588,258
Less: receivable in connection with equity transactions (60,000)
-----------
Total Shareholders' Equity 6,243,455
-----------
Total Liabilities and Shareholders' Equity $8,214,984
-----------
-----------
See Notes to Financial Statements
1
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SEL-LEB MARKETING, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
ASSETS
Current Assets:
Cash and cash equivalents 371,361
Accounts receivable - net 4,202,719
Inventory 5,269,274
Due from officer 23,796
Prepaid expenses and other current assets 555,726
Deferred income tax asset, net of valuation allowance 95,000
-----------
Total current assets 10,517,876
Property and equipment - net 503,583
Goodwill (Note 3) 237,899
Other assets 106,754
-----------
Total assets $11,366,112
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 2,946,768
Loan payable - bank (Note 5) 1,245,000
Income taxes payable 29,419
-----------
-----------
Total current liabilities 4,221,187
-----------
Shareholders' Equity:
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 8,707,227 shares (Note 1) 87,072
Additional paid-in capital 6,361,164
Retained earnings 749,689
Less: receivable in connection with equity transactions (53,000)
-----------
Total Shareholders' equity 7,144,925
-----------
Total Liabilities and Shareholders' Equity $11,366,112
-----------
-----------
See Notes to Financial Statements
2
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SEL-LEB MARKETING, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
(Note 1)
JUNE 30, JUNE 30,
-------- --------
1997 1996
----
<S> <C> <C>
Revenue:
Net Sales $4,423,616 $3,339,281
Operating Expenses:
Cost of sales 3,194,082 2,493,772
Selling, general and administrative expenses 1,219,303 667,533
--------- ---------
Total operating expenses 4,413,385 3,161,305
--------- ---------
Operating income 10,231 177,976
Interest income 1,199 318
Interest expense (20,728) (1,745)
--------- ---------
Income (loss) before provision for/(benefit of)
income taxes (9,298) 176,549
Provision for/(benefit of) income taxes (Note 4) (12,931) 75,916
--------- ---------
Net income $ 3,633 $ 100,633
--------- ---------
--------- ---------
Earnings per share $ .00
---------
---------
Primary earnings per share $ .02
---------
---------
Fully diluted earnings per share $ .01
---------
---------
</TABLE>
See Notes to Financial Statements
3
<PAGE>
SEL-LEB MARKETING, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
(Note 1)
JUNE 30, JUNE 30,
------- --------
1997 1996
<S> <C> <C>
Revenue:
Net Sales $8,622,406 $6,410,046
Operating Expenses:
Cost of sales 6,111,919 4,780,609
Selling, general and administrative expenses 2,225,054 1,309,422
--------- ---------
Total operating expenses 8,336,973 6,090,031
--------- ---------
Operating income 285,433 320,015
Interest income 1,926 10,221
Interest expense (34,168) (13,987)
Other income 1,259 -
--------- ---------
Income before provision for
income taxes 254,450 316,249
Provision for income taxes (Note 4) 93,019 125,072
--------- ---------
Net income $ 161,431 $ 191,177
--------- ---------
--------- ---------
Earnings per share $ .02
---------
---------
Primary earnings per share $ 0.03
---------
---------
Fully diluted earnings per share $ 0.01
---------
---------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
SEL-LEB MARKETING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
1997 1996
---- ----
(Note 1)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 161,431 $191,177
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 100,670 57,015
Changes in operating assets and liabilities:
(Increase) in accounts receivable (954,907) (320,394)
(Increase) in due from affiliates - (50,000)
(Increase) in inventories (1,523,150) (572,002)
(Increase) in due from officers (522) -
(Increase) decrease in prepaid expenses and
other current assets (250,929) 109,772
(Increase) in other assets (46,629) -
Increase in accounts payable, accrued expenses and
income taxes payable 1,304,658 111,671
(Decrease) in due to affiliates - (34,243)
---------- ---------
Net cash used in operating
activities ($1,209,378) ($507,004)
---------- ---------
Cash flow from investing activities:
Expenditures for capital equipment (233,838) (91,604)
---------- ---------
Cash flow from financing activities:
Net proceeds from notes to bank 945,000 225,000
Net repayment of long term debt
to related parties - (422,099)
Net proceeds from exercise of warrants and stock options 733,039 -
Decrease in receivable in connection with equity transactions 7,000 -
---------- ---------
Net cash provided by (used in) financing
activities 1,685,039 (197,099)
---------- ---------
Net increase (decrease) in cash 241,823 (795,707)
---------- ---------
---------- ---------
Cash at beginning of period 129,538 832,970
---------- ---------
---------- ---------
Cash at end of period $ 371,361 $ 37,263
---------- ---------
---------- ---------
</TABLE>
See Notes to Financial Statements
5
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SEL-LEB MARKETING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Receivable in
Additional Connection
Common Shares Paid In Retained With Equity Shareholders'
Shares Amount Capital Earnings Transactions Equity
------ ------ ---------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 8,268,477 $82,685 $5,632,512 $588,258 ($60,000) $6,243,455
1996
Net proceeds from exercise
of warrants 293,250 $2,932 $435,546 --- --- $438,478
Net proceeds from exercise
of stock options 145,500 $1,455 $293,106 --- --- $294,561
Payment of receivables in
connection with equity
transaction --- --- --- --- $7,000 $7,000
Net income --- --- --- $161,431 --- $161,431
--------- ------- ---------- -------- ---------- -----------
Balance at June 30, 1997 8,707,227 $87,072 $6,361,164 $749,689 ($53,000) $7,144,925
--------- ------- ---------- -------- ---------- -----------
--------- ------- ---------- -------- ---------- -----------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
SEL-LEB MARKETING, INC
NOTES TO FINANCIAL STATEMENTS
(The information pertaining to the six month periods ended June 30, 1997
and 1996 are unaudited)
1. Basis of Presentation
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 for the fiscal
year ended December 31, 1996. The results of operations for the six month
period ended June 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
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 and six months ended June 30, 1997, the number of shares
used in the computation of primary earnings per share and fully diluted
earnings per share was 13,881,863 and 13,883,398, respectively, for both
calculations. For the comparable periods in 1996 the number of shares
used for both calculations were 13,976,911 and 14,275,994, respectively.
7
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SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
3. Acquisition
In July 1995, the Company, which held a 60% interest in Lea Cosmetics,
Inc. ("Lea"), purchased the remaining 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 at the time of the purchase and 90,000 of which
were issued in January 1996 upon Lea's achieving certain sales volume for
1995. The fair value of the assets acquired, including approximately
$283,000 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 $14,163 for the six months ended June 30,
1997 and June 30, 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/(benefit of) income tax for the three and six month
periods ended June 30, 1997 and for the three and six month periods ended
June 30, 1996 reflects the Company's earnings taxed for federal and certain
state income tax purposes at statutory rates. For the three month periods
ended June 30, 1997 and June 30, 1996 the amounts included were ($12,931)
and $75,916, respectively, and for the six month periods ended June 30,
1997 and June 30, 1996 the amounts included were $93,019 and $125,072,
respectively.
5. Line of Credit
The Company had a line of credit with a bank which terminated July 31,
1997, which provided for borrowings not to exceed the lesser of $2,000,000
or prescribed levels of eligible accounts receivable and inventory, as
defined. Borrowings under this line of credit bore interest at the bank's
prevailing base rate (8.25% at June 30, 1997 and December 31, 1996), as
defined in the agreement. As of June 30, 1997 and December 31, 1996,
$1,245,000 and $300,000, respectively, were outstanding under the line of
credit. The loan was collateralized by substantially all of the assets of
the Company. The fair value of the loan payable approximates the carrying
amount due to the short-term nature of the instrument. The Company is
presently negotiating an extension of its line of credit,
8
<PAGE>
however, there can be no assurance that the Loan Agreement will be renewed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------
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.
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements. Actual results could differ materially from those projected in
the forward-looking statements due to a number of factors, including but
not limited to general trends in the retail industry, the ability of the
Company to successfully implement its expansion plans, consumer acceptance
of any products developed and sold by the Company, the ability of the
Company to develop its "celebrity" product business and other factors set
forth herein or in reports and other documents filed by the Company with
the SEC.
RESULTS OF OPERATIONS: THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997
COMPARED TO THE CORRESPONDING PERIODS ENDED JUNE 30, 1996
Net sales for the three months ended June 30, 1997 were $4,423,616
compared to $3,339,281 for the three months ended June 30, 1996,
representing an increase of 32%. For the six month period ended June 30,
1997, net sales were $8,622,406 compared to $6,410,046 for
the corresponding period in 1996, representing an increase of 35%. 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 merchandise acquired in connection with the Company's
opportunistic purchasing business.
Cost of sales increased from $2,493,772 for the three month period in
1996 to $3,194,082 for the same period in 1997. For the six month period
ended June 30, 1997 and 1996 cost of sales were $6,111,919 and $4,780,609,
respectively. The cost of goods sold for the six month period ended
June 30, as a percentage of sales was 71% in 1997 versus 75% in 1996. The
decrease was primarily related to changes in the mix of product sales, with
a larger percentage of sales being represented by higher gross margin
items. There can be no assurances that this trend will continue.
Selling, general and administrative ("SG&A") expenses increased from
$667,533 for the three month period ended June 30, 1996 to $1,219,303 for
the comparable period in 1997. SG&A for the six month period ending June
30th was $1,309,422 in 1996 and $2,225,054 in 1997. 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 1997 over 1996 resulted
primarily from increased payroll for staffing of the Company's new
warehouse, related warehouse costs, moving costs and increased promotional
expenses related to the development of new product lines.
Total operating expenses increased from $3,161,305 in 1996 to
$4,413,385 in 1997
9
<PAGE>
for the three month period, and $6,090,031 in 1996 to $8,336,973 in 1997
for the six month period.
As a result of the increase in total operating expenses, operating
income decreased for the three month period from $177,976 in 1996 to
$10,231 in 1997.
As a result of the increase in total operating expenses, operating income
decreased for the six month period from $320,015 in 1996 to $285,433 in
1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, an aggregate of 438,750 shares of
common stock were issued by the Company upon the exercise of warrants and
options resulting in net proceeds to the Company of $733,039. In addition,
during the first half of 1997, the Company borrowed an additional $945,000
under its revolving line of credit described below. The proceeds resulting
from the option and warrant exercises and the additional borrowings were
used by the Company primarily for the purchase of additional inventory,
consisting primarily of the Company's brand name lines of beauty aids and
cosmetics.
At June 30, 1997, the Company had working capital of $6,296,689 and
cash and cash equivalents of $371,361.
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 bore interest
at fluctuating rates per annum based on the "Prevailing Base Rate" (as
defined in the Loan Agreement) of the Lender. The Company had $1,245,000
of borrowings under such line of credit as of June 30, 1997. The Loan
Agreement terminated on July 31, 1997. Since such termination, the Company
has borrowed funds from the lender pursuant to an informal, non-binding
arrangement on the same terms as the Loan Agreement. The Company is
presently negotiating to formalize the terms of such arrangement and
currently anticipates that a renewal of the Loan Agreement will be
consummated on or about August 14, 1997. However, there can be no
assurance that the Loan Agreement will be renewed or, if renewed, the
timing thereof. As of August 11, 1997, the Company had outstanding
$995,000 under this line of credit. Any funds borrowed by the Company are
secured primarily by the inventory and receivables of the Company.
The Company anticipates that its working capital, 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 provided
that the Company is able to renew the Loan Agreement as described above.
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, or the renewal of the
Loan Agreement is not obtained, the Company could be required to seek
additional financing sooner than currently anticipated.
10
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Except for any renewal of the Loan Agreement, as to which there can be
no assurance, 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.
11
<PAGE>
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders of the Company (the
"Annual Meeting") was held on May 29, 1997. At the Annual Meeting, the
shareholders of the Company voted upon the election of nine directors, with all
nine nominees being elected. The votes cast with respect to the election of
directors are set forth below. No other director's term of office continued
after the Annual Meeting.
NUMBER OF VOTES NUMBER OF VOTES
NAME FOR WITHHELD
--------------- ---------------
Harold Markowitz 7,889,513 76,555
Paul Sharp 7,899,613 66,455
Jan S. Mirsky 7,899,613 66,455
Jorge Lazaro 7,899,113 66,955
Jack Koegel 7,899,613 66,455
Stanley R. Goodman 7,895,113 70,955
Edward C. Ross 7,899,113 66,955
L. Douglas Bailey 7,899,613 66,455
Carl A. Bellini 7,899,613 66,455
In addition, at the Annual Meeting, the shareholders of the Company
voted upon a proposal to amend the 1995 Stock Option Plan of the Company to
(a) increase by 500,000 shares the number of shares of the Company's Common
Stock available for options to be granted under the Plan and (b) limit the
total number of shares for which options may be granted to any one optionee
in any year to 150,000 shares. The proposal was approved by the shareholders
of the Company, with 4,618,700 shares voted in favor of the proposal, 194,490
voting against the proposal and 34,150 shares abstaining.
Item 2 Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
10.1 Second Amendment to Loan and Security Agreement dated as of
May 31, 1997 between Registrant and United Jersey Bank.
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
12
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B. Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 1997.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, 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: August 13, 1997 as both duly authorized officer of the registrant
and as principal financial officer of registrant.
13
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This second Amendment to Loan and Security Agreement (the
"Amendment") dated as of May 30, 1997 by and between SUMMIT BANK (f/k/a
UNITED JERSEY BANK), a state banking association organized and existing under
the laws of the State of New Jersey (the "Lender") with an office at 210
Main Street, Hackensack, New Jersey 07602 and SEL-LEB MARKETING, INC., a New
York corporation ("Borrower") having a principal place of business located
at 1435 51st Street, North Bergen, New Jersey 07047.
WHEREAS, on November 6, 1995, the Lender provided a certain credit
facility (the "Loan") to Borrower pursuant to the terms and conditions of a
certain Loan and Security Agreement dated as of November 6, 1995 (the
"Original Loan Agreement") as amended by that certain First Amendment to
Loan and Security Agreement dated as of May 31, 1996 (the "First
Amendment") (the Original Loan Agreement as amended by the First Amendment
shall hereinafter be referred to as the "Loan Agreement") as evidenced by a
certain Line of Credit Note dated November 6, 1995 in the principal amount of
Two Million ($2,000,000.00) Dollars (the "Original Line of Credit Note"),
as modified by that certain First Modification of Line of Credit Note dated
as of May 31, 1996 (the "First Line of Credit Note Modification") (the
Original Line of Credit Note as modified by the First Line of Credit Note
Modification shall hereinafter be referred to as the "Line of Credit Note");
WHEREAS, the Borrower has requested that the Lender extend the Line of
Credit Loan Termination Date; and
<PAGE>
WHEREAS, the Lender is willing to extend the Line of Credit Loan
Termination Date subject to the terms and conditions set forth within this
Amendment.
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants contained herein, the parties hereto agree as follows:
1. All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them pursuant to the Loan Agreement and
the Line of Credit Note. Notwithstanding anything to the contrary contained
in either the Loan Agreement or the Line of Credit Note, the terms of this
Amendment shall control.
2. Section 1.1(y) of the Loan Agreement is hereby stricken and replaced
with the following:
"(y) "Line of Credit Loan Termination Date" shall mean July 31,
1997."
3. The reference to the "Line of Credit Note" in Section 1.1(aa) of
the Loan Agreement shall be deemed to refer to the Line of Credit Note as
modified by that certain Second Modification of Line of Credit Note attached
hereto as Exhibit A and by this reference made a part hereof as if fully set
forth herein.
4. The reference to "Loan Documents" in Section 1.1(bb) of the Loan
Agreement shall be deemed to include the Amendment and the Second
Modification of Line of Credit Note.
5. The Borrower acknowledges and agrees that: (a) as of May 29, 1997
the unpaid principal balance of the Line of Credit Note is Eight Hundred
Twenty Five Thousand ($825,000.00) Dollars; (b) the obligation of the
Borrower to repay the Line of Credit Note is
-2-
<PAGE>
absolute and unconditional and is not subject to any defense, counterclaim,
set-off, right of recoupment, abatement or other claim or determination, and
(c) the Line of Credit Note is and shall be governed by the terms and
provisions of the Loan Agreement, and as set forth in this Amendment.
6. The Lender and the Borrower hereby agree and consent to the terms
and provisions of this Amendment and the transactions contemplated hereby.
7. The Borrower shall pay all of the Lender's reasonable costs and
expenses incurred in connection with the preparation, execution and delivery
of this Amendment, including, without limitation, reasonable legal fees and
disbursements of Lender's counsel.
8. Except as expressly otherwise provided herein, the terms of the Loan
Agreement shall remain in full force and effect and are incorporated herein
by reference. In the event of a conflict between the terms of this Amendment
and the Loan Agreement, the terms of this Amendment shall control.
9. The Borrower acknowledges that the Lender has no obligation to make
any further amendments to the Loan Agreement or any other agreement executed
in connection therewith, including but not limited to this Amendment and the
Line of Credit Note.
10. This Amendment shall be construed in accordance with, and shall be
governed by, the laws of the State of New Jersey. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Second Amendment to
Loan and Security Agreement to be executed by their proper and duly
authorized officers as of the date first set forth above.
SUMMIT BANK
By: /s/ Richard Mady, V.P.
------------------------------------
RICHARD MADY, Vice President
ATTEST: SEL-LEB MARKETING, INC.
/s/ Jorge Lazaro By: /s/ Jan Mirsky
- ----------------------------- ------------------------------------
JORGE LAZARO, Secretary JAN MIRSKY, Executive Vice President
of Finance
-4-
<PAGE>
EXHIBIT A
SECOND MODIFICATION OF LINE OF CREDIT NOTE
________ This Second Modification of Line of Credit Note ("Modification")
dated as of May 30, 1997 by and between SUMMIT BANK (f/k/a UNITED JERSEY
BANK), a state banking association (the "Lender") with an office at 210 Main
Street, Hackensack, New Jersey 08602 and SEL-LEB MARKETING, INC., a New York
corporation ("Borrower") having a principal place of business located at 1435
51st Street, North Bergen, New Jersey 07047.
WHEREAS, on November 6, 1995, the Lender provided a certain credit
facility (the "Loan") to Borrower pursuant to the terms and conditions of a
certain Loan and Security Agreement dated as of November 6, 1995 (the
"Original Loan Agreement") as amended by that certain First Amendment to Loan
and Security Agreement dated as of May 31, 1996 (the "First Amendment") (the
Original Loan Agreement as amended by the First Amendment shall hereinafter
be referred to as the "Loan Agreement") as evidenced by a certain Line of
Credit Note dated November 6, 1995 in the principal amount of Two Million
($2,000,000.00) Dollars (the "Original Line of Credit Note"), as modified by
that certain First Modification of Line of Credit Note dated as of May 31,
1996 (the "First Line of Credit Note Modification") (the Original Line of
Credit Note as modified by the First Line of Credit Note Modification shall
hereinafter be referred to as the "Line of Credit Note");
WHEREAS, pursuant to the terms and conditions of the Loan Agreement and
the Line of Credit Note, the entire balance of all
<PAGE>
principal and interest under the Loan becomes due and payable on May 31, 1997;
WHEREAS, the Borrower has requested that the Lender extend the maturity
date of the Loan; and
WHEREAS, in accordance with the terms of the Loan Agreement, the
Borrower and Lender have agreed to modify and change certain terms,
conditions and provisions of the Line of Credit Note.
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Subsection 3(b) of the Line of Credit Note shall be stricken and
replaced with the following:
"(b) Payor shall make a final payment of the entire unpaid principal
balance and all accrued interest under this Line of Credit Note and
all other costs, expenses and charges of any nature whatsoever due
or assessable hereunder on July 31, 1997."
2. The Line of Credit Note, and all the terms, provisions and
conditions therein, is hereby ratified and restated in its entirety and
shall remain in full force and effect, except as modified by this
Modification, and in the event of any inconsistency between the Line of
Credit Note and the Line of Credit Note as modified by this Modification,
then the Line of Credit Note as modified by this modification shall govern.
3. From and as of the date hereof, the Line of Credit Note shall be
deemed to refer to the Line of Credit Note, as modified by this Modification.
4. This Modification shall be construed in accordance with, and shall
be governed by, the laws of the State of New Jersey.
-2-
<PAGE>
5. This Modification shall be binding upon Lender and Borrower and
their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Modification of Line of Credit Note as of the day and year first above
written.
SUMMIT BANK
BY: /s/ R. Mady
-----------------------------
RICHARD MADY, Vice President
ATTEST SEL-LEB MARKETING, INC.
/s/ Jorge Lazaro BY: /s/ J.S. Mirsky
- -------------------------- -----------------------------
JORGE LAZARO, Secretary JAN MIRSKY, Executive Vice
President of Finance
-3-
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 371,361
<SECURITIES> 0
<RECEIVABLES> 4,422,719
<ALLOWANCES> 220,000
<INVENTORY> 5,269,274
<CURRENT-ASSETS> 10,517,876
<PP&E> 604,253
<DEPRECIATION> 100,670
<TOTAL-ASSETS> 11,366,112
<CURRENT-LIABILITIES> 4,221,187
<BONDS> 0
0
0
<COMMON> 87,072
<OTHER-SE> 7,057,853
<TOTAL-LIABILITY-AND-EQUITY> 11,366,112
<SALES> 8,622,406
<TOTAL-REVENUES> 8,625,590
<CGS> 6,106,329
<TOTAL-COSTS> 6,106,329
<OTHER-EXPENSES> 2,264,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,169
<INCOME-PRETAX> 254,755
<INCOME-TAX> 93,324
<INCOME-CONTINUING> 161,431
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<NET-INCOME> 161,431
<EPS-PRIMARY> .02
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