<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, 2000
[ ] 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)
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: 2,261,018 shares of common stock as
of August 10, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Report of Independent Public Accountants 2
Condensed Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2000 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis or Plan of Operation 12-14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Sel-Leb Marketing, Inc. and Subsidiary
We have reviewed the accompanying condensed consolidated balance sheet of
SEL-LEB MARKETING, INC. AND SUBSIDIARY as of June 30, 2000, and the related
condensed consolidated statements of operations for the six and three months
ended June 30, 2000 and changes in stockholders' equity and cash flows for the
six months ended June 30, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review of the condensed consolidated financial statements referred
to above, we are not aware of any material modifications that should be made to
the accompanying condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended which are not
presented herein, and in our report dated March 24, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
The accompanying condensed consolidated statements of operations for the six and
three months ended June 30, 1999 and cash flows for the six months ended June
30, 1999 were not audited or reviewed by us and, accordingly, we do not express
an opinion or any other form of assurance on them.
J.H. Cohn LLP
Roseland, New Jersey
August 9, 2000
2
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
June December
ASSETS 30, 2000 31, 1999
------ -------------- --------------
(Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 102,296 $ 158,032
Accounts receivable, less allowance for doubtful
accounts of $265,637 and $230,918 4,826,788 5,702,343
Inventories 10,371,831 8,331,838
Deferred tax assets 281,760 288,195
Prepaid expenses and other current assets 741,850 534,309
-------------- --------------
Total current assets 16,324,525 15,014,717
Property and equipment, at cost, net of accumulated
depreciation and amortization of $983,765 and $858,882 443,195 547,376
Goodwill, net of accumulated amortization of $146,906
and $129,676 198,862 216,092
Other assets 101,090 113,498
-------------- --------------
Totals $ 17,067,672 $ 15,891,683
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 3,524,614 $ 2,948,356
Current portion of long-term debt 262,725 262,888
Accounts payable 2,869,596 2,279,635
Accrued expenses and other liabilities 1,079,989 1,053,667
-------------- --------------
Total current liabilities 7,736,924 6,544,546
Long-term debt, net of current portion 1,054,862 1,188,101
-------------- --------------
Total liabilities 8,791,786 7,732,647
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued - -
Common stock, $.01 par value; 40,000,000 shares
authorized; 2,261,018 shares issued and outstanding 22,611 22,611
Additional paid-in capital 6,496,359 6,496,359
Retained earnings 1,798,916 1,685,066
Less receivable in connection with equity transactions (42,000) (45,000)
-------------- --------------
Total stockholders' equity 8,275,886 8,159,036
-------------- --------------
Totals $ 17,067,672 $ 15,891,683
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Net sales $ 10,027,566 $ 9,488,805
-------------- --------------
Operating expenses:
Cost of sales 7,621,393 6,435,019
Selling, general and administrative expenses 2,028,479 2,319,140
-------------- --------------
Totals 9,649,872 8,754,159
-------------- --------------
Operating income 377,694 734,646
Interest expense 187,944 147,851
-------------- --------------
Income before provision for income taxes 189,750 586,795
Provision for income taxes 75,900 229,900
-------------- --------------
Net income $ 113,850 $ 356,895
============== ==============
Net earnings per share:
Basic $.05 $.16
==== ====
Diluted $.05 $.15
==== ====
Weighted average shares outstanding:
Basic 2,261,018 2,214,294
========= =========
Diluted 2,422,026 2,403,414
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Net sales $4,995,872 $5,017,490
-------------- --------------
Operating expenses:
Cost of sales 3,500,338 3,355,352
Selling, general and administrative expenses 974,705 1,184,505
-------------- --------------
Totals 4,475,043 4,539,857
-------------- --------------
Operating income 520,829 477,633
Interest expense 95,007 86,184
-------------- --------------
Income before provision for income taxes 425,822 391,449
Provision for income taxes 170,890 155,000
-------------- --------------
Net income $ 254,932 $ 236,449
============== ==============
Net earnings per share:
Basic $.11 $.11
==== ====
Diluted $.11 $.10
==== ====
Weighted average shares outstanding:
Basic 2,261,018 2,250,424
========= =========
Diluted 2,393,478 2,457,304
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Receivable in
Common Stock Additional Connection Total
-------------------- Paid-in Retained with Equity Stockholders'
Shares Amount Capital Earnings Transactions Equity
---------- -------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 2,261,018 $22,611 $6,496,359 $1,685,066 $(45,000) $8,159,036
Partial payment of balance
receivable 3,000 3,000
Net income 113,850 113,850
---------- -------- -------------- ------------ ------------- -------------
Balance, June 30, 2000 2,261,018 $22,611 $6,496,359 $1,798,916 $(42,000) $8,275,886
========== ======== ============== ============ ============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 113,850 $ 356,895
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 144,383 134,870
Allowance for doubtful accounts 34,719 66,452
Deferred income taxes 6,435 (40,360)
Changes in operating assets and liabilities:
Accounts receivable 840,836 (1,092,148)
Inventories (2,039,993) (1,279,174)
Prepaid expenses and other current assets (207,541) (76,752)
Other assets 10,138 26,836
Accounts payable, accrued expenses and other
liabilities 616,283 1,104,498
----------- -----------
Net cash used in operating activities (480,890) (798,883)
----------- -----------
Investing activities - purchases of property and equipment (20,702) (152,877)
----------- -----------
Financing activities:
Proceeds from notes payable to bank - net 576,258 613,810
Repayments of long-term debt (133,402) (78,252)
Net proceeds from exercise of warrants and stock options 57,108
Decrease in receivable in connection with equity transactions 3,000
----------- -----------
Net cash provided by financing activities 445,856 592,666
----------- -----------
Net decrease in cash and cash equivalents (55,736) (359,094)
Cash and cash equivalents, beginning of period 158,032 504,060
----------- -----------
Cash and cash equivalents, end of period $ 102,296 $ 144,966
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and basis of presentation:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of Sel-Leb Marketing,
Inc. ("Sel-Leb") and its 80%-owned subsidiary, Ales Signature,
Ltd. ("Ales"), as of June 30, 2000, their results of operations
for the six and three months ended June 30, 2000 and 1999, their
changes in stockholders' equity for the six months ended June
30, 2000 and their cash flows for the six months ended June 30,
2000 and 1999. Sel-Leb and Ales are referred to together herein
as the "Company." Information included in the condensed
consolidated balance sheet as of December 31, 1999 has been
derived from the audited consolidated balance sheet included in
the Company's Form 10-KSB for the year ended December 31, 1999
(the "10-KSB") previously filed with the Securities and Exchange
Commission (the "SEC"). Pursuant to rules and regulations of the
SEC, certain information and disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
from these consolidated financial statements unless significant
changes have taken place since the end of the most recent fiscal
year. Accordingly, these unaudited condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements, notes to consolidated
financial statements and the other information in the 10-KSB.
The consolidated results of operations for the six and three
months ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
Note 2 - Stock split:
The numbers of common shares and the per share amounts set forth
herein have been retroactively adjusted, where appropriate, for
a 2-for-1 split effected on December 7, 1999.
Note 3 - Earnings per share:
As further explained in Note 1 in the 10-KSB, the Company has
adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("FAS 128"), which
require the presentation of "basic" earnings (loss) per common
share and, if appropriate, "diluted" earnings per common share.
Basic earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding during each period. The calculation of diluted
earnings per share is similar to that of basic earnings per
share, except that the denominator is increased to include the
number of additional common shares that would have been
outstanding if all potentially dilutive common shares, such as
those issuable upon the exercise of stock options and warrants,
were issued during the period.
8
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Earnings per share (concluded):
In computing diluted earnings per share, the assumed exercise of
all of the Company's outstanding stock options and warrants,
adjusted for the application of the treasury stock method, would
have increased the weighted average number of common shares
outstanding as shown in the table below:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding 2,261,018 2,214,294 2,261,018 2,250,424
Shares arising from assumed
exercise of:
Stock options 119,315 142,750 104,367 156,878
Warrants 41,693 46,370 28,093 50,002
--------- --------- --------- ---------
Diluted weighted average shares
outstanding 2,422,026 2,403,414 2,393,478 2,457,304
========= ========= ========= =========
</TABLE>
Note 4 - Note payable to bank:
As further explained in Note 4 in the 10-KSB, during December
1998 the Company entered into a loan agreement pursuant to which
Merrill Lynch Business Financial Services, Inc. ("Merrill
Lynch") is providing the Company with a credit facility,
including a revolving line of credit for borrowings against the
Company's eligible accounts receivable and inventories.
Borrowings under the revolving line of credit, which totaled
$3,524,624 at June 30, 2000, bear interest, which is payable
monthly, at 2.65% above the 30-day commercial paper rate (an
effective rate of 9.25% as of June 30, 2000). Pursuant to an
amendment to the loan agreement, maximum borrowings under the
revolving line of credit will be $3,800,000 during the period
from July 1, 2000 through August 2, 2000 and $4,550,000 during
the period from August 3, 2000 through October 31, 2000, the
date the loan agreement is due to expire.
Note 5 - Stock options and warrants:
Stock option plans and warrants:
Descriptions of the Company's stock option plans and other
information related to stock options and warrants are
included in Note 6 in the 10-KSB. Certain information
related to options and warrants outstanding at June 30, 2000
and changes in options and warrants outstanding during the
six months ended June 30, 2000 are summarized below.
9
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Stock options and warrants (concluded):
Shares subject to options:
A summary of the status of the Company's shares subject to
options as of June 30, 2000 and changes during the six
months then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Shares Average
or Exercise
Price Price
-------- --------
<S> <C> <C>
Outstanding, at January 1, 2000 563,910 $2.44
Granted 5,000 3.00
Canceled (26,376) (3.18)
--------
Outstanding, at June 30, 2000 542,534 $2.41
======= =====
Options exercisable, at June 30, 2000 381,374 $2.73
======= =====
Weighted average fair value of options
granted during the six months
ended June 30, 2000 $2.78
=====
</TABLE>
Shares subject to warrants:
At June 30, 2000, the Company had warrants outstanding for
the purchase of 86,622 shares of common stock that are
exercisable through April 15, 2001 at $1.25 per share. There
were no changes in the number or the terms of outstanding
warrants during the six months ended June 30, 2000.
Shares reserved for issuance:
At June 30, 2000, shares of common stock were reserved for
the following:
<TABLE>
<S> <C>
Exercise of outstanding stock options 542,534
-------
Exercise of stock options available for grant:
Option Plan 206,788
Directors' Plan 52,500
--------
Total 259,288
--------
Exercise of warrants 86,622
--------
Total 888,444
========
</TABLE>
10
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6- Segment information:
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company reports segment sales and
gross margins in the same format reviewed by the Company's
management (the "management approach"). The Company has two
reportable segments: "Opportunity" and "Cosmetics". The
Opportunity segment is comprised of the operations connected
with the acquisition, sale and distribution of name-brand and
off-brand products which are purchased from close-out,
overstocked and/or change-of-packaging brand name items. The
Cosmetics segment is comprised of the acquisition, sale and
distribution of all other products, including "celebrity
endorsed" cosmetics and health and beauty aid products and
designer and all other fragrances.
Net sales, cost of sales and other related segment information
for the six months ended June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Net sales:
Opportunity $ 4,517,243 $ 4,702,325
Cosmetics 5,510,323 4,786,480
-------------- --------------
Total net sales 10,027,566 9,488,805
-------------- --------------
Cost of sales:
Opportunity 3,153,171 3,883,187
Cosmetics 4,468,222 2,551,832
-------------- --------------
Total cost of sales 7,621,393 6,435,019
Selling, general and administrative expenses 2,028,479 2,319,140
-------------- --------------
Total operating expenses 9,649,872 8,754,159
-------------- --------------
Operating income 377,694 734,646
Interest expense, net 187,944 147,851
-------------- --------------
Income before provision for income taxes $ 189,750 $ 586,795
============== ==============
</TABLE>
* * *
11
<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
Consolidated Financial Statements of the Company and related notes thereto. This
Quarterly Report on Form 10-QSB contains certain forward-looking statements,
including statements concerning the adequacy of the Company's sources of cash to
finance its current and future operations. 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 operation of the Company's website, 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. In addition, quarterly
results in the Company's two business segments do not necessarily indicate
trends in the Company's overall business operations, due to the timing of
special purchases, special sales and large sales to any one particular customer.
Consolidated Results of Operations: Three and Six Months Ended June 30, 2000
Compared to the Corresponding Period Ended June 30, 1999.
The Company has two principal business segments (see Note 6 to the Company's
condensed consolidated financial statements): Opportunity and Cosmetics.
Net sales for the three months ended June 30, 2000 were $4,995,872 compared to
$5,017,490 for the three months ended June 30, 1999. For the six month period
ended June 30, 2000, net sales were $10,027,566 compared to $9,488,805 for the
corresponding period in 1999, representing an increase of 5.7%. The increase in
net sales for the six months ended June 30, 2000 resulted primarily from the
Company's sales growth in the Cosmetic Segment of its operations. The
Opportunity sales decreased to $4,517,243 for the six months ended June 30,
2000, from $4,702,325 for the same period in 1999, representing a decrease of
3.9%. The Opportunity sales decreased to $2,598,774 for the second quarter ended
June 30, 2000 from $2,851,571 for the same period in 1999 representing a
decrease of 8.9%. Cosmetic sales for the six months ended June 30, 2000
increased to $5,510,323 from $4,786,480 in 1999, representing an increase of
15.1%. The Cosmetic sales increased for the second quarter of 2000 from 1999 to
$2,397,098 from $2,165,919 in 1999, representing an increase of 10.7% for the
period.
The cost of sales increased to $3,500,338 for the three-month period in 2000
from $3,355,352 for the same period in 1999. For the six-month period ended June
30, 2000 and 1999, cost of sales were $7,621,393 and $6,435,019 respectively.
The cost of goods sold for the three month and six month period ended June 30,
2000, as a percentage of sales, was 70.1% for the three months and 76.0% for the
six months, compared to 66.9% for the three months and 67.8% for the six months
in 1999. The Cosmetic lines cost of sales increased to $4,468,303 for the six
months in 2000 from $2,551,832 in 1999 increasing the cost of sales percentages
to 81.1% from $53.3% in this period. For the second quarter of 2000, Cosmetics
cost of sales also increased, to $1,978,946 in 2000 from $1,062,951 in 1999,
with a resulting cost of sales percentage of 81.7% in 2000 from 49.1% in 1999.
The Opportunity lines cost of sales decreased to $3,153,171 for the six months
of 2000 from $3,883,187 in 1999, which represented a decreased cost of sales
percentage of 69.8% in 2000 from 82.6% in 1999. For the second quarter of 2000,
the opportunity division improved its profit margins as well, with 2000 cost of
sales of $1,521,475 from $2,292,401 in 1999 representing a decreased cost of
sales percentage of 58.5% in 2000 from 80.4% for the second quarter of 1999.
The Company's overall higher cost of sales for the six months ended June 30,
2000 versus 1999 reflects the Company's decision in the first quarter of 2000 to
sell certain inventory at lower than usual margins to customers with whom the
Company is hopeful of doing significant business in the near future, and the
Company's decision in the first quarter to reduce inventory of slow moving items
by selling them at reduced margins. During the second quarter of 2000 compared
to the first quarter of 2000 the Company's cost of sales decreased to 70.1% from
82.3% because of significantly higher gross margins from a special purchase and
sale, in the second quarter, of items in the Opportunity segment of the
Company's business.
Selling, general and administrative ("SG&A") expenses decreased to $974,705 for
the three month period ended June 30, 2000 from $1,184,505 for the comparable
period in 1999. SG&A expenses for the six-month period ended June 30, 2000
decreased to $2,028,479 in 2000 from $2,319,140 in 1999. The decreases are
primarily the results of management's continuing efforts at monitoring and
controlling these costs. Generally, the principal components of the Company's
SG&A expenses are payroll, rent, commission, insurance, legal, accounting and
other fees paid to third parties and travel and promotional expenses.
Interest expense increased to $187,944 from $147,851 for the six months ended
June 30, 2000 from June 30, 1999. Interest expense for the three months ended
June 30, 2000 and June 30, 1999 were $95,007 and $86,184 respectively. These
increases resulted from increases in interest rates as well as increased
borrowings under the Company's operating line of credit and additional long term
loans obtained by the
12
<PAGE>
Company.
As a result of increases in net sales of $538,761 offset by increases in
operating expenses of $895,713, the operating income decreased from $734,646 for
the six months ended June 30, 1999 to $377,694 for the six months ended June 30,
2000.
Operating income increased to $520,829 for the three months ended June 30, 2000
from $477,633 for the three months ended June 30, 1999, primarily as a result of
overall lower operating expenses.
As a result of the Company's having recorded a lower operating income for the
six month period ended June 30, 2000 as compared to the same period in 1999, the
Company's provision for income taxes decreased from $229,900 to
$75,900.
As a result of the above-mentioned factors, the Company's net income decreased
by $243,045 to $113,850 for the six month period ended June 30, 2000, from
$356,895 for the comparable period in 1999. For the three-month period ended
June 30, 2000 net income increased by $18,483 to $254,932 from $236,449 for the
same period in 1999.
Liquidity and Capital Resources
At June 30, 2000 the Company had working capital of $8,587,601 including cash
and cash equivalents in the amount of $102,296. The Company's principal cash
requirements are for the acquisition of inventory and the financing of
receivables. Receivables decreased from $5,702,343 at December 31, 1999 to
$4,826,788 at June 30, 2000, representing a decrease of $875,555, primarily due
to tighter credit terms being imposed by the Company on its customers, as well
as the Company's improved internal monitoring and credit procedures. Inventory
increased from $8,331,838 at December 31, 1999 to $10,371,831 at June 30, 2000,
representing an increase of $2,039,993 primarily as a result of significant
special purchases at favorable prices, and in anticipation of increased sales
volume in the third and fourth quarters of 2000.
During December 1998, the Company entered into a new credit facility
("Facility") with Merrill Lynch Business Financial Services, Inc. ("Merrill
Lynch") which replaced the Company's previous arrangement with Summit Bank. The
Facility initially consisted of both a revolving line of credit and a $900,000
term loan, which is payable in monthly installments through January 2006, at
which time the unpaid balance is due. The revolving line of credit provided for
maximum borrowings of $3,300,000 (see note 4 to the Company's audited
consolidated financial statements) against the Company's eligible accounts
receivable and inventories, through October 31, 2000. On April 20, 1999, the
company obtained a temporary line of credit increase with Merrill Lynch
increasing the Facility to a maximum borrowing of $3,800,000. the increase was
effective through October 31, 1999, at which time the maximum line was to revert
back to $3,300,000. Effective as of October 31, 1999, the Company and Merrill
Lynch further amended the
13
<PAGE>
Facility to increase the revolving credit line to $3,800,000, and provide for an
additional term loan of $500,000, which is to be repaid in 60 monthly
installments, with interest at 2.65% above the 30 day commercial paper rate,
through October 31, 2004, at which time the unpaid balance is due. Effective
August 3, 2000, the Company obtained a line of credit increase with Merrill
Lynch increasing the Facility to a maximum borrowing of $4,550,000. The increase
is effective through October 31, 2000, the expiration date of the revolving line
of credit.
Outstanding borrowings under the facility are secured by substantially all of
the Company's assets. Funds available under the Facility were used to replace
the previous loans with Summit Bank as well as provide funds for the working
capital needs of the Company. As of June 30, 2000, the outstanding balance under
the Revolving Line of credit was $3,524,614 and under the term loans, including
the Paterson Restoration Corporation, described below, was $1,317,581. As of
August 10, 2000, the outstanding balance under the Revolving Line of credit was
$4,217,762 and under the term loans, including the Paterson Restoration
corporation was $1,284,760. The Facility contains certain restrictive covenants,
which, among other things, require the maintenance of certain financial ratios
and limitations on future indebtedness.
On September 26, 1997, in connection with the previous relocation of its office
and warehouse facilities to Paterson, New Jersey, the Company borrowed $100,000
from the Paterson Restoration Corporation. The loan, which bears interest at 6%
per annum, provides for monthly payment of principal and interest in the amount
of $1,461 through October 1, 2004. On December 28, 1999, in connection with the
expansion of its business in Paterson, New Jersey, the Company borrowed an
additional $100,000 from the Paterson Restoration Corporation. The loan, which
bears interest at 6% per annum, provides for monthly payments of principal and
interest in the amount of $1,461 through December 1, 2006. Each of these loans
is secured by a second priority lien on all new machinery and equipment
purchased by the Company. The proceeds of each of the loans were used for the
purchase of fixed assets.
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. 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 Facility, which expires on October
31, 2000, and the term loans under the Facility, 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, or at all, on commercially reasonable terms. The
Company's inability to obtain such additional financing could have a material
adverse effect on the Company's liquidity. The Company believes that
it will be able to extend the current Facility at or prior to the time of its
scheduled expiration, although there can be no assurances of such.
During the year ended December 31, 1999, we completed our Year 2000 assessment.
The costs of such assessment were not significant. In addition, we have
experienced no problems in the operations of our business as a result of Year
2000 effect on our computer systems, or those of our customers or vendors.
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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 30, 2000. At the Annual Meeting, the shareholders of the Company
voted upon the election of eight directors (Proposal No. 1), with all eight
nominees being elected. The votes cast with respect to the election of directors
are set forth below. No other directors term of office continued after the
Annual Meeting.
The votes were cast as follows:
PROPOSAL NO. 1
NUMBER OF VOTES NUMBER OF VOTES
NAME FOR WITHHELD
---- --- --------
Harold Markowitz 1,374,572 34,066
Paul Sharp 1,376,448 32,190
Jan S. Mirsky 1,404,572 4,066
Jorge Lazaro 1,404,448 4,190
Jack Koegel 1,400,572 8,066
Stanley R. Goodman 1,399,872 8,766
Edward C. Ross 1,398,448 10,190
L. Douglas Bailey 1,399,448 9,190
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Item 6 Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Letter Agreement dated August 3, 2000 by and
between Merrill Lynch Business Financial Services,
Inc.("MLBFS") and Sel-Leb Marketing, Inc., amending
the WCMA and Term loan and Security agreement with
MLBFS.
10.2 Letter Agreement dated August 3, 2000 by and
between Merrill Lynch Business Financial Services,
Inc.("MLBFS") and Sel-Leb Marketing, Inc., amending
the Term loan and Security agreement with MLBFS.
27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed by the registrant
during the six month period ended June 30, 2000.
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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
Dated: August 14, 2000 as both duly authorized officer of the
registrant and as principal financial
officer of registrant.
17
