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 September 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 November 10, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
PAGE
----
Part I - Financial Information
Item 1. Financial Statements
Report of Independent Public Accountants 2
Condensed Consolidated Balance Sheets at September 30, 2000
(Unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statement of Changes in Stockholders'
Equity Nine Months Ended September 30, 2000 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 15
Signatures 15
1
<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 September 30, 2000, and the related
condensed consolidated statements of operations for the nine and three months
ended September 30, 2000 and changes in stockholders' equity and cash flows for
the nine months ended September 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 nine
and three months ended September 30, 1999 and cash flows for the nine months
ended September 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
November 9, 2000
2
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September December
ASSETS 30, 2000 31, 1999
------ ----------- -----------
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 65,256 $ 158,032
Accounts receivable, less allowance for doubtful
accounts of $290,963 and $230,918 7,120,673 5,702,343
Inventories 10,335,418 8,331,838
Deferred tax assets 333,580 288,195
Prepaid expenses and other current assets 558,803 534,309
----------- -----------
Total current assets 18,413,730 15,014,717
Property and equipment, at cost, net of accumulated
depreciation and amortization of $1,046,165
and $858,882 400,382 547,376
Goodwill, net of accumulated amortization of
$155,521 and $129,676 190,247 216,092
Other assets 94,886 113,498
----------- -----------
Totals $19,099,245 $15,891,683
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 4,360,453 $ 2,948,356
Current portion of long-term debt 262,061 262,888
Accounts payable 3,508,831 2,279,635
Accrued expenses and other liabilities 1,293,957 1,053,667
----------- -----------
Total current liabilities 9,425,302 6,544,546
Long-term debt, net of current portion 992,314 1,188,101
----------- -----------
Total liabilities 10,417,616 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 2,204,659 1,685,066
Less receivable in connection with
equity transactions (42,000) (45,000)
----------- -----------
Total stockholders' equity 8,681,629 8,159,036
----------- -----------
Totals $19,099,245 $15,891,683
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
----------- -----------
Net sales $16,328,035 $15,682,406
----------- -----------
Operating expenses:
Cost of sales 11,834,212 10,759,341
Selling, general and administrative expenses 3,342,086 3,482,217
----------- -----------
Totals 15,176,298 14,241,558
----------- -----------
Operating income 1,151,737 1,440,848
Interest expense (313,694) (232,996)
----------- -----------
Income before provision for income taxes 838,043 1,207,852
Provision for income taxes 318,450 466,000
----------- -----------
Net income $ 519,593 $ 741,852
=========== ===========
Net earnings per share:
Basic $ .23 $ .33
=========== ===========
Diluted $ .21 $ .31
=========== ===========
Weighted average shares outstanding:
Basic 2,261,018 2,228,576
=========== ===========
Diluted 2,422,803 2,429,950
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
---------- ----------
Net sales $6,300,469 $6,243,301
---------- ----------
Operating expenses:
Cost of sales 4,212,819 4,324,322
Selling, general and administrative expenses 1,313,607 1,212,777
---------- ----------
Totals 5,526,426 5,537,099
---------- ----------
Operating income 774,043 706,202
Interest expense (125,750) (85,145)
---------- ----------
Income before provision for income taxes 648,293 621,057
Provision for income taxes 242,550 236,100
---------- ----------
Net income $ 405,743 $ 384,957
========== ==========
Net earnings per share:
Basic $ .18 $ .17
========== ==========
Diluted $ .17 $ .16
========== ==========
Weighted average shares outstanding:
Basic 2,261,018 2,256,518
========== ==========
Diluted 2,376,035 2,465,880
========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 519,593 519,593
--------- -------- ---------- ---------- -------- ----------
Balance, September 30, 2000 2,261,018 $ 22,611 $6,496,359 $2,204,659 $(42,000) $8,681,629
========= ======== ========== ========== ======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
----------- -----------
Operating activities:
Net income $ 519,593 $ 741,852
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 213,128 220,330
Allowance for doubtful accounts 85,915 104,234
Deferred income taxes (45,385) (69,475)
Changes in operating assets and liabilities:
Accounts receivable (1,504,245) (2,691,713)
Inventories (2,003,580) (1,972,483)
Prepaid expenses and other current assets (24,494) (199,036)
Other assets 18,612 27,487
Accounts payable, accrued expenses and
other liabilities 1,469,486 2,260,244
----------- -----------
Net cash used in operating activities (1,270,970) (1,578,560)
----------- -----------
Investing activities - purchases of property
and equipment (40,289) (194,337)
----------- -----------
Financing activities:
Proceeds from notes payable to bank 1,412,097 1,440,536
Repayments of long-term debt (196,614) (124,706)
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 1,218,483 1,372,938
----------- -----------
Net decrease in cash and cash equivalents (92,776) (399,959)
Cash and cash equivalents, beginning of period 158,032 504,060
----------- -----------
Cash and cash equivalents, end of period $ 65,256 $ 104,101
=========== ===========
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
September 30, 2000, their results of operations for the nine and
three months ended September 30, 2000, their changes in
stockholders' equity for the nine months ended September 30, 2000
and their cash flows for the nine months ended September 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 nine and three months
ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2000.
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:
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Basic weighted average
shares outstanding 2,261,018 2,228,576 2,261,018 2,256,518
Shares arising from
assumed exercise of:
Stock options 119,721 154,422 95,233 161,338
Warrants 42,064 46,952 19,784 48,024
--------- --------- --------- ---------
Diluted weighted average
shares outstanding 2,422,803 2,429,950 2,376,035 2,465,880
========= ========= ========= =========
Note 4 - Note payable under revolving line of credit:
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 $4,360,453 at September 30, 2000, bear
interest, which is payable monthly, at 2.65% above the 30-day
commercial paper rate (an effective rate of 9.21% as of September
30, 2000). Pursuant to amendments 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 November
30, 2000, the date the amended 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 September 30, 2000 and
changes in options and warrants outstanding during the nine
months ended September 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 September 30, 2000 and changes during the nine
months then ended is presented below:
Weighted
Shares Average
or Exercise
Price Price
------- --------
Outstanding, at January 1, 2000 563,910 $2.44
Granted 8,750 2.36
Canceled (26,902) (3.17)
-------
Outstanding, at September 30, 2000 545,758 $2.40
======= =====
Options exercisable, at September 30, 2000 397,665 $2.69
======= =====
Weighted average fair value of options
granted during the nine months
ended September 30, 2000 $2.10
=====
Shares subject to warrants:
At September 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 nine months ended September 30, 2000.
Shares reserved for issuance:
At September 30, 2000, shares of common stock were reserved
for the following:
Exercise of outstanding stock options 545,758
-------
Exercise of stock options available for grant:
Option Plan 207,314
Directors' Plan 48,750
-------
Total 256,064
-------
Exercise of warrants 86,622
-------
Total 888,444
=======
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 nine months ended September 30, 2000 and 1999 follows:
2000 1999
---------- ----------
Net sales:
Opportunity 7,194,067 $7,654,040
Cosmetics 9,133,968 8,028,366
---------- ----------
Total net sales 16,328,035 15,682,406
---------- ----------
Cost of sales:
Opportunity 4,802,928 6,226,695
Cosmetics 7,031,284 4,532,646
---------- ----------
Total cost of sales 11,834,212 10,759,341
Selling, general and administrative
expenses 3,342,086 3,482,217
---------- ----------
Total operating expenses 15,176,298 14,241,558
---------- ----------
Operating income 1,151,737 1,440,848
Interest expense, net (313,694) (232,996)
---------- ----------
Income before provision for income taxes $838,043 $1,207,852
========== ==========
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 ability of the Company to extend its financing arrangements (or
obtain satisfactory alternative financing) on favorable terms, or at all, 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, the ability of the Company to sell its specially purchased
merchandise at favorable prices, on a timely basis or at all, 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE CORRESPONDING PERIODS ENDED SEPTEMBER 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 September 30, 2000 were $6,300,469 compared
to $6,243,301 for the three months ended September 30, 1999, representing an
increase of 0.9%. The increase in net sales for the three months ended September
30, 2000 resulted primarily from the Company's sales growth in the Cosmetic
segment of its operation. The Opportunity sales decreased to $2,676,825 for the
third quarter ended September 30, 2000 versus $2,951,715 for the same period in
1999, representing a decrease of 9.3%. The Cosmetic sales increased for the
third quarter of 2000 versus 1999 to $3,623,644 versus $3,291,586 representing
an increase of 10.1% for the period, primarily due to the successful continued
introduction of new products, and development of new customers.
Primarily as a result of improved margins, the cost of sales decreased to
$4,212,819 for the three-month period in 2000 from $4,324,322 for the same
period in 1999. As a percentage of sales the cost of goods sold was 66.9% for
the three months in 2000, compared to 69.3% for the three months in 1999. The
Opportunity cost of sales for the third quarter of 2000 decreased to $1,649,757
from $2,343,509 in 1999, representing a decreased cost of sales percentage of
61.6% versus 79.4% for 1999. For the third quarter of 2000, the significant
improvement in Opportunity cost of sales was primarily the result of the sale of
specially purchased merchandise sold during the current year's period at higher
margins. For the third quarter of 2000 cosmetics cost of sales increased to
$2,563,062 versus $1,980,813 in 1999, with a resulting cost of sales percentage
of 70.7% in 2000 versus 60.2% in 1999. The increase in Cosmetic cost of sales
and percentage of cost of sales was primarily due to higher sales and, the sale
of slower moving merchandise at lower profit margins.
Selling, general and administrative ("SG&A") expenses increased to $1,313,607
for the three month period ended September 30, 2000 from $1,212,777 for the
comparable period in 1999. The increases are primarily the result of higher
costs due to more sales being made through outside sales agencies, with
resulting higher selling expenses. Generally, the principal components of
Company's SG&A expenses are payroll, rent, commissions, insurance, legal,
accounting and other fees paid to third parties and travel and promotional
expenses.
Operating income increased to $774, 043 for the three months ended September 30,
2000 from $706,202 for the three months ended September 30, 1999, primarily as a
result of improved margins, partially offset by increased SG&A expenses.
Interest expense for the three months ended September 30, 2000 and September 30,
1999 were $125,750 and $85,145 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 Company.
As a result of the above mentioned factors, the Company's net income for the
three month period ended September 30, 2000 increased to $405,743 from $384,957
for the same period in 1999.
12
<PAGE>
For the nine month period ended September 30, 2000, net sales were $16,328,035
compared to $15,682,406 for the corresponding period in 1999 representing an
increase of 4.1 %. The increase in net sales for the nine months ended September
30, 2000 resulted primarily from the Company's sales growth in the Cosmetic
segment of its operations. The Opportunity sales decreased to $7,194,067 for the
nine months ended September 30, 2000, versus $7,654,040 for the same period in
1999, representing a decrease of 6.0%. Cosmetic sales for the nine months ended
September 30, 2000 increased to $9,133,968 from $8,028,366 in 1999, representing
an increase of 13.8% primarily due to the successful continued introduction of
new products, and development of new customers.
For the nine-month period ended September 30, 2000 and 1999, cost of sales were
$11,834,212 and $10,759,341, respectively. The Company's overall higher cost of
sales for the nine months ended September 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. The cost of goods for the nine month period ended September 30, 2000,
as a percentage of sales, was 72.5% for the nine months compared to 68.6% for
the nine months in 1999. The Cosmetic cost of sales increased to $7,031,284 for
the nine months in 2000 versus $4,532,646 in 1999, increasing the cost of sales
percentage to 77.0 % from 56.5% in this period. The Opportunity cost of sales
decreased to $4,802,428 for the nine months of 2000 versus $6,226,695 in 1999,
representing a decreased cost of sales percentage of 66.8 % in 2000 versus 81.4%
in 1999.
SG&A expenses for the nine-month period ended September 30 also decreased from
$3,482,217 in 1999 to $3,342,086 in 2000. The decreases are primarily the result
of management's continuing efforts at monitoring and controlling these costs.
Generally, the principal components of Company's SG&A expenses are payroll,
rent, commissions, insurance, legal, accounting and other fees paid to third
parties and travel and promotional expenses.
As a result of increases in net sales of $645,629 offset by increases in
operating expenses of $934,740, the operating income decreased from $1,440,848
for the nine months ended September 30, 1999 to $1,151,737 for the nine months
ended September 30, 2000.
Interest expense increased to $313,694 from $232,996 for the nine months ended
September 30, 2000 versus September 30, 1999. 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 Company.
As a result of the Company's having lowering operating income for the nine month
period ended September 30, 2000 as compared to the same period in 1999, the
Company's provision for income taxes decreased from $466,000 in 1999 to $318,450
in 2000.
As a result of the above-mentioned factors, the Company's net income decreased
by $222,259 to $519,593 for the nine month period ended September 30, 2000, from
$741,852 for the comparable period in 1999.
Liquidity and Capital Resources
At September 30, 2000 the Company had working capital of $8,988,428 including
cash and cash equivalents in the amount of $65,256. The Company's principal cash
requirements are for the acquisition of inventory and the financing of
receivables. Receivables increased from $5,702,343 at December 31, 1999 to
$7,120,673 at September 30, 2000, representing an increase of $1,418,330,
primarily as a result of increased sales volume for the period ending September
30, 2000. Inventory increased from $8,331,838 at December 31, 1999 to
$10,335,418 at September 30, 2000, representing an increase of $2,003,580,
primarily as a result of significant special purchases at favorable prices, and
in anticipation of increased sales volume during the next six months.
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
13
<PAGE>
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 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 equal 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 was effective through October
31, 2000, the expiration date of the revolving line of credit. Effective October
31, 2000, the Company received an extension through November 30, 2000 of the
temporary line of credit increase, and 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 September 30, 2000, the outstanding balance
under the Revolving Line of credit was $4,360,453 and under the term loans,
including the Paterson Restoration Corporation, described below, was $1,254,375.
As of November 10, 2000, the outstanding balance under the Revolving Line of
credit was $4,373,865 and under the term loans, including the Paterson
Restoration corporation was $1,229,408. 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, assuming that the Company's
Facility is extended, or adequate alternative financing arrangements are
obtained by the Company. 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 if
the Company's Facility is not extended on satisfactory terms, the Company could
be required to seek financing sooner than currently anticipated. Except for the
Facility, which expires on November 30, 2000, and the term loans under the
Facility, the Company has no current arrangements with respect to, or sources
of, financing. Accordingly, there can be no assurance that adequate financing
will be available to the Company when needed, on commercially reasonable terms,
or at all. The company's inability to obtain adequate financing when needed
could have a material adverse effect on the Company. In addition, any equity
financing obtained by the Company could involve substantial dilution to the
interests of the Company's stockholders. The Company believes that it will be
able to extend the current Facility, 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 experienced
no problems in the operations of our business as a result of Year 2000 effect on
computer systems.
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Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Product Promotion Agreement ("Zoe Metro")
10.2 License Agreement ("Juliet")
10.3 Extension of Temporary Increase and Renewal for the WCMA
Line of Credit
27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed by the registrant
during the three month period ended September 30, 2000.
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.
November 14, 2000 /s/ Jan S. Mirsky
-----------------
Jan S. Mirsky
15
