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, 2001
[ ] 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 OF (I.R.S. EMPLOYER
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 13, 2001
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
SEL-LEB MARKETING, INC. AND SUBSIDIARY
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2001 (Unaudited)
and December 31, 2000 2
Condensed Consolidated Statements of Income
Six Months Ended June 30, 2001 and 2000 (Unaudited) 3
Condensed Consolidated Statements of Income
Three Months Ended June 30, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2001 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis or Plan of Operation 10-13
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
June December
ASSETS 30, 2001 31, 2000
------ -------------- ---------------
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 8,133 $ 213,920
Accounts receivable, less allowance for doubtful
accounts of $229,100 and $195,274 5,414,684 4,951,151
Inventories 11,048,344 9,798,856
Deferred tax assets, net 332,490 296,875
Prepaid expenses and other current assets 834,600 618,676
----------- ----------
Total current assets 17,638,251 15,879,478
Property and equipment, at cost, net of accumulated depre-
ciation and amortization of $1,190,431 and $1,123,601 274,366 328,634
Goodwill, net of accumulated amortization of $181,366 and $164,136 164,402 181,632
Other assets 156,629 131,182
----------- -----------
Totals $18,233,648 $16,520,926
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable under line of credit $ 4,283,663 $ 3,404,505
Current portion of long-term debt 556,240 859,949
Accounts payable 3,082,959 2,598,964
Accrued expenses and other liabilities 1,006,639 472,804
----------- ----------
Total current liabilities 8,929,501 7,336,222
Long-term debt, net of current portion 799,980 928,307
----------- ----------
Total liabilities 9,729,481 8,264,529
----------- ----------
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 2,024,197 1,779,427
Less receivable in connection with equity transactions (39,000) (42,000)
----------- ----------
Total stockholders' equity 8,504,167 8,256,397
----------- ---------
Totals $18,233,648 $16,520,926
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
2
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ -------------
Net sales $ 9,562,246 $ 10,027,566
------------ ------------
Operating expenses:
Cost of sales 6,923,062 7,621,393
Selling, general and administrative expenses 2,284,788 2,028,479
------------ ------------
Totals 9,207,850 9,649,872
------------ ------------
Operating income 354,396 377,694
------------ ------------
Other income (expense):
Interest expense, net of interest income of $673
and $22,199 (226,446) (187,944)
Income from litigation settlement 280,000
------------ ------------
Totals 53,554 (187,944)
------------ ------------
Income before income taxes 407,950 189,750
Provision for income taxes 163,180 75,900
------------ ------------
Net income $ 244,770 $ 113,850
============ ============
Net earnings per share:
Basic $ .11 $ .05
============ ============
Diluted $ .11 $ .05
============ ============
Weighted average shares outstanding:
Basic 2,261,018 2,261,018
============ ============
Diluted 2,318,633 2,422,026
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
Net sales $ 4,548,449 $ 4,995,872
----------- -----------
Operating expenses:
Cost of sales 3,468,229 3,500,338
Selling, general and administrative expenses 1,041,097 974,705
----------- -----------
Totals 4,509,326 4,475,043
----------- -----------
Operating income 39,123 520,829
----------- -----------
Other income (expense):
Interest expense, net of interest income of $18,699
in 2000 (104,667) (95,007)
Income from litigation settlement 280,000
----------- -----------
Totals 175,333 (95,007)
----------- -----------
Income before income taxes 214,456 425,822
Provision for income taxes 85,680 170,890
----------- -----------
Net income $ 128,776 $ 254,932
=========== ===========
Net earnings per share:
Basic $ .06 $ .11
=========== ===========
Diluted $ .06 $ .11
=========== ===========
Weighted average shares outstanding:
Basic 2,261,018 2,261,018
=========== ===========
Diluted 2,302,977 2,393,478
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
Receivable in
Common Stock Additional Connection Total
---------------------- Paid-in Retained with Equity Stockholders'
Shares Amount Capital Earnings Transactions Equity
--------- ------- ---------- ---------- -------------- ------------
Balance, January 1, 2001 2,261,018 $22,611 $6,496,359 $1,779,427 $(42,000) $8,256,397
Decrease in receivable in
connection with equity
transaction 3,000 3,000
Net income 244,770 244,770
--------- ------- ---------- ---------- -------- ----------
Balance, June 30, 2001 2,261,018 $22,611 $6,496,359 $2,024,197 $(39,000) $8,504,167
========= ======= ========== ========== ======== ==========
See Notes to Condensed Consolidated Financial Statements.
5
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
---------- ----------
Operating activities:
Net income $ 244,770 $ 113,850
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 116,735 144,383
Provision for doubtful accounts 33,826 34,719
Deferred income taxes (35,615) 6,435
Changes in operating assets and liabilities:
Accounts receivable (497,359) 840,836
Inventories (1,249,488) (2,039,993)
Prepaid expenses and other current assets (215,924) (207,541)
Other assets (25,447) 10,138
Accounts payable, accrued expenses and other
liabilities 1,017,830 616,283
----------- -----------
Net cash used in operating activities (610,672) (480,890)
----------- -----------
Investing activities - purchases of property and equipment (45,237) (20,702)
----------- -----------
Financing activities:
Proceeds from note payable under line of credit, net
of repayments 879,158 576,258
Repayments of long-term debt (432,036) (133,402)
Decrease in receivable in connection with equity transactions 3,000 3,000
----------- -----------
Net cash provided by financing activities 450,122 445,856
----------- -----------
Net decrease in cash and cash equivalents (205,787) (55,736)
Cash and cash equivalents, beginning of period 213,920 158,032
----------- -----------
Cash and cash equivalents, end of period $ 8,133 $ 102,296
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
6
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, 2001, their
results of operations for the six and three months ended June 30, 2001 and
2000, their changes in stockholders' equity for the six months ended June
30, 2001 and their cash flows for the six months ended June 30, 2001 and
2000. Sel-Leb and Ales are referred to together herein as the "Company."
Information included in the condensed consolidated balance sheet as of
December 31, 2000 has been derived from the audited consolidated balance
sheet included in the Company's Form 10-KSB for the year ended December 31,
2000 (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 accounting principles generally
accepted in the United States of America 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, 2001 are not necessarily indicative of the results to be expected
for the full year ending December 31, 2001.
Note 2 - Earnings (loss) 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.
7
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Earnings (loss) per share (concluded):
In computing diluted earnings per share for the six and three months ended
June 30, 2001 and 2000, 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:
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------- -------------------------
2001 2000 2001 2000
---------- ------------ ------------ ---------
Basic weighted average shares
outstanding 2,261,018 2,261,018 2,261,018 2,261,018
Shares arising from assumed
exercise of:
Stock options 57,615 119,315 41,959 104,367
Warrants 41,693 28,093
--------- --------- --------- ----------
Diluted weighted average shares
outstanding 2,318,633 2,422,026 2,302,977 2,393,478
========= ========= ========= =========
Note 3 - Note payable under revolving line of credit:
As further explained in Note 3 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 (the "Facility"). Based on the latest
amendments to the loan agreement as of June 30, 2001, the Facility consists
of a revolving line of credit for borrowings against the Company's eligible
accounts receivable and inventories through October 31, 2001, and three
term loans (see Note 4 in the 10-KSB). As of June 30, 2001, the maximum
amount the Company could borrow under the line of credit was $4,300,000.
Maximum borrowings will decrease by $50,000 at the end of each month from
July 31, 2001 through September 30, 2001. Borrowings under the revolving
line of credit, which totaled $4,283,663 at June 30, 2001, bear interest,
which is payable monthly, at 2.65% above the 30-day commercial paper rate
(an effective rate of 6.38% as of June 30, 2001). Outstanding borrowings
under the Facility are secured by substantially all of the Company's
assets.
Note 4 - Stock options and warrants:
Descriptions of the Company's stock option plans and other information
related to stock options and warrants are included in Note 5 in the 10-KSB.
No options or warrants were granted, exercised or cancelled during the six
and three months ended June 30, 2001.
8
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Litigation settlement:
On May 30, 2001, the Company entered into an agreement to settle a legal
action it had brought against one of its licensors for an alleged breach of
contract. The accompanying condensed consolidated statements of income for
the six and three months ended June 30, 2001 include the Company's income
from the litigation settlement which totaled $280,000.
Note 6 - Segment information:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). Pursuant to the provisions of SFAS 131, the
Company is reporting 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 manufacturers, wholesalers or retailers as a
result of close-outs, overstocks and/or changes in the packaging of brand
name items. The Cosmetics segment is comprised of the acquisition, sale and
distribution of all other products, including "celebrity endorsed" and
"tie-in" 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
and three months ended June 30, 2001 and 2000 follows:
Six Months Three Months
Ended June 30, Ended June 30,
------------------------- ------------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Net sales:
Opportunity $4,196,761 $ 4,517,243 $1,687,601 $2,598,775
Cosmetics 5,365,485 5,510,323 2,860,848 2,397,097
----------- ---------- ---------- ---------
Total net sales 9,562,246 10,027,566 4,548,449 4,995,872
----------- ---------- ---------- ---------
Cost of sales:
Opportunity 2,635,784 3,153,171 1,077,053 1,521,475
Cosmetics 4,287,278 4,468,222 2,391,176 1,978,863
----------- ---------- ---------- ---------
Total cost of sales 6,923,062 7,621,393 3,468,229 3,500,338
Selling, general and administrative
expenses 2,284,788 2,028,479 1,041,097 974,705
----------- ---------- ---------- ---------
Total operating expenses 9,207,850 9,649,872 4,509,326 4,475,043
----------- ---------- ---------- ---------
Operating income 354,396 377,694 39,123 520,829
Other income (expense):
Interest expense, net (226,446) (187,944) (104,667) (95,007)
Income from litigation settlement 280,000 280,000
----------- ---------- ---------- ---------
Income before income taxes $ 407,950 $ 189,750 $ 214,456 $ 425,822
=========== =========== =========== =========
* * *
9
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
Condensed 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 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: Six months Ended June 30, 2001 Compared to
the Six Months Ended June 30, 2000:
The Company has two principal business segments (see Note 6 to the Company's
Condensed Consolidated Financial Statements - Unaudited): Opportunity and
Cosmetics.
June 30, June 30,
2001 2000 $ Change
----------- ---------- ----------
Net sales:
Opportunity $4,196,761 $ 4,517,243 $ (320,482)(A)
Cosmetics $5,365,485 $ 5,510,323 $ (144,838)(B)
--------------------------------------------
Total net sales $9,562,246 $10,027,566 $ (465,320)
--------------------------------------------
Cost of sales:
Opportunity $2,635,784 $ 3,153,171 $ (517,387)(C)
Cosmetics $4,287,278 $ 4,468,222 $ (180,944)(D)
--------------------------------------------
Total cost of sales $6,923,062 $ 7,621,393 $ (698,331)
Selling general and administrative expenses $2,284,788 $ 2,028,479 $ 256,309 (E)
--------------------------------------------
Total operating expenses $9,207,850 $ 9,649,872 $ (442,022)
--------------------------------------------
Operating income $ 354,396 $ 377,694 $ (23,298)
Other income $ 280,000 $ 0 $ 280,000 (F)
Interest expense, net $ (226,446) $ (187,944) $ (38,502)(G)
--------------------------------------------
Income before income taxes $ 407,950 $ 189,750 $ 218,200
============================================
(A) The "Opportunity" segment of our business is comprised of the acquisition,
sale and distribution of name-brand and off-brand products which are
purchased from either manufacturers, wholesalers, or retailers as a result
of close-outs, overstocks and/or change-of-packaging of name-brand items.
The net decrease in this segment of our business, of approximately
$320,000, primarily resulted from a conscious decision to restrict sales,
because of the Company's perception that there were severe credit issues
with certain of our customers. This was partially offset by the
introduction during the second quarter of 2000 of a line of specially
purchased merchandise, which increased this segment's overall sales during
the first quarter of 2001.
(B) The "Cosmetic" segment of our business is comprised of the acquisition,
sale and distribution of all other products, including "celebrity endorsed"
and "tie-in" cosmetics and health and beauty aid products and designer and
all other fragrances. This segment increased in certain components of the
category as a result of increased sales in the electronic media portion of
the business, as well as the successful continued introduction of new
products and development of new customers. However, this increase did not
offset the reduction in sales versus the same period last year for a
specialty fragrance line which was completely sold out during the year
2000, which, in the first six months of 2000, had sales of approximately
$1,200,000.
10
(C) Cost of sales for the "Opportunity" segment of our business decreased from
approximately 70% in 2000 to 63% in 2001. This decrease resulted primarily
from significantly higher margins on the sale of a line of specially
purchased merchandise, which was introduced during the second quarter of
2000.
(D) Cost of sales for the "Cosmetic" segment of our business was approximately
81% of sales for the six months ended June 30, 2000 as compared to 80% for
the six months ended June 30, 2001. The increase in margins for this
segment resulted primarily from the increased sales in the electronic media
portion of our business, which generally yields a higher gross profit
margin.
(E) Selling general and administrative expenses consist principally of payroll,
rent, commissions, royalties, insurance, professional fees, and travel and
promotional expenses. The increase during the six months ended June 30,
2001 versus the six months ended June 30, 2000 is primarily the result of
higher costs due to more sales being made through outside sales agencies
and the electronic media, which has higher selling expenses associated with
it.
(F) Other income represents proceeds from the settlement of a legal action
brought against one of the Company's licensors for an alleged breach of
contract.
(G) The increase in interest expense during the six month period ended June 30,
2001 versus the six month period ended June 30, 2000 results primarily from
additional borrowings under the credit facility to fund the increased
levels of inventory, to meet anticipated sales demands.
Consolidated Results of Operations: Three months Ended June 30, 2001 Compared to
the Three Months Ended June 30, 2000:
The Company has two principal business segments (see Note 6 to the Company's
Condensed Consolidated Financial Statements - Unaudited): Opportunity and
Cosmetics.
June 30, June 30,
2001 2000 $ Change
---------- ----------- -----------
Net sales:
Opportunity $1,687,601 $2,598,775 $ (911,174) (A)
Cosmetics $2,860,848 $2,397,097 $ 463,751 (B)
-------------------------------------------
Total net sales $4,548,449 $4,995,872 $ (447,423)
-------------------------------------------
Cost of sales:
Opportunity $1,077,053 $1,521,475 $ (444,422) (C)
Cosmetics $2,391,176 $1,978,863 $ 412,313 (D)
-------------------------------------------
Total cost of sales $3,468,229 $3,500,338 $ (32,109)
Selling general and administrative expenses $1,041,097 $ 974,705 $ 66,392 (E)
-------------------------------------------
Total operating expenses $4,509,326 $4,475,043 $ 34,283
-------------------------------------------
Operating income $ 39,123 $ 520,829 $ (481,706)
Other income $ 280,000 $ 0 $ 280,000 (F)
Interest expense, net $ (104,667) $ (95,007) $ (9,660) (G)
-------------------------------------------
Income before income taxes $ 214,456 $ 425,822 $ (211,366)
===========================================
(A) The "Opportunity" segment of our business is comprised of the acquisition,
sale and distribution of name-brand and off-brand products which are
purchased from either manufacturers, wholesalers, or retailers as a result
of close-outs, overstocks and/or change-of-packaging of name-brand items.
The net decrease in this segment of our business, of approximately $911,000
resulted primarily from a conscious decision to restrict sales, because of
the Company's perception that there were severe credit issues with certain
of our accounts, coupled with lower sales of the new line of specially
purchased merchandise versus the same period in 2000.
(B) The "Cosmetic" segment of our business is comprised of the acquisition,
sale and distribution of all other products, including "celebrity endorsed"
and "tie-in" cosmetics and health and beauty aid products and designer and
all other fragrances. This segment increased in certain components of the
category as a result of increased
11
sales in the electronic media portion of the business, as well as the
successful continued introduction of new products and development of new
customers.
(C) Cost of sales for the "Opportunity" segment of our business increased from
approximately 59% in 2000 to 64% in 2001. This increase resulted primarily
from lower sales on the sale of a line of specially purchased merchandise,
which yield significantly higher margins, versus the same period in 2000.
(D) Cost of sales for the "Cosmetic" segment of our business was approximately
82% of sales for the three months ended June 30, 2000 as compared to 84%
for the three months ended June 30, 2001. The decrease in margins for this
segment resulted primarily from the Company's decision to provide sales at
lower than usual margins to customers with whom the Company is hopeful of
doing significant business in the future. This decrease was partially
offset by increased sales in the electronic media portion of our business,
which generally yields a higher gross profit margin.
(E) Selling general and administrative expenses consist principally of payroll,
rent, commissions, insurance, royalties, professional fees, and travel and
promotional expenses. The increase during the three months ended June 30,
2001 versus the three months ended June 30, 2000 are primarily the result
of higher costs due to more sales being made through outside sales agencies
and the electronic media, which has higher selling expenses associated with
it.
(F) Other income represents proceeds from the settlement of a legal action
brought against one of the Company's licensors for an alleged breach of
contract.
(G) The increase in interest expense during the three month period ended June
30, 2001 versus the three month period ended June 30, 2000 results
primarily from additional borrowings under the credit facility to fund the
increased levels of inventory, to meet anticipated sales demands.
Liquidity and Capital Resources
At June 30, 2001 we had working capital of approximately $8,709,000 including
cash and cash equivalents of approximately $8,000. Cash and cash equivalents
decreased during the three months ended June 30, 2001 from approximately
$214,000 to $8,000, resulting primarily from our financing activities, more
fully discussed below.
During the six months ended June 30, 2001 we used approximately $611,000 in our
operations, primarily to increase inventory by approximately $1,249,000, in
order to meet anticipated sales demands, and, to fund the increase in accounts
receivable of approximately $497,000. These increases were partially offset by
operating profits of approximately $245,000 and an increase in accounts payable,
accrued expenses and other liabilities of approximately $1,018,000.
During the six months ended June 30, 2001 we used approximately $45,000 for the
acquisition of property and equipment, and received approximately $450,000 from
our financing activities.
Our cash and cash equivalent position of approximately $8,000 at June 30, 2001
result primarily from our various financing activities. In December, 1998 we
entered into a credit facility ("Facility") with Merrill Lynch Business
Financial Services, Inc. ("Merrill Lynch"), as more fully described in Notes 3
and 4 to the annual report which has been previously filed on Form 10-KSB, and
in Note 3 of the Condensed Consolidated Financial Statements at June 30, 2001.
As amended, the credit facility provides for the following:
1) A revolving line of credit with maximum borrowings of $4,300,000
against the Company's eligible accounts receivable and inventories
through October 31, 2001. Maximum borrowings will decrease by $50,000
at the end of each month from July 31, 2001, through September 30,
2001. At June 30, 2001 we had $4,283,663 outstanding under the
revolving line of credit, representing a net increase in our revolving
line of credit of $879,158 from December 31, 2000.
2) A $900,000 term loan originated in December 1998 payable in monthly
installments of $10,714 plus interest through January 2006. This term
loan had an outstanding balance of $581,126 as of June 30, 2001.
3) A $500,000 term loan originated in October 1999 payable in monthly
installments of $8,333 plus interest through November 2004. This term
loan had an outstanding balance of $341,668 as of June 30, 2001.
12
4) A $600,000 term loan originated in December 2000 payable in monthly
installments of $50,000 plus interest through December 2001. This term
loan had an outstanding balance of $300,000 as of June 30, 2001.
Each of the aforementioned loans with Merrill Lynch require interest to be paid
monthly at 2.65% above the 30-day commercial paper rate (an effective rate of
6.38 % at June 30, 2001).
In addition to the Merrill Lynch credit facility, on September 26, 1997 the
Paterson Restoration Corporation provided us with a $100,000 term loan, which
bears interest at 6% and provides for monthly installments in the amount of
$1,461 through October 1, 2004. On December 28, 1999 the Paterson Restoration
Corporation provided us with an additional $100,000 term loan, which bears
interest at 6% and provides for monthly installments of $1,461 through January
1, 2007. As of June 30, 2001 $52,932 and $83,050 were outstanding under the 1997
loan and the 1999 loan, respectively.
Pursuant to the terms of the term loans, we made principal payments of $432,036
during the six months ended June 30, 2001.
As of August 13, 2001, the outstanding balance under the Revolving Line of
Credit was $4,098,486 and under the term loans, including the Paterson
Restoration Corporation was $1,284,930.
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 are 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 October 31, 2001, 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 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 assurance of such.
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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 July 25, 2001. At the Annual Meeting, the shareholders of the Company
voted upon the election of directors (Proposal No. 1), with seven 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.
In addition, at the Annual Meting, the shareholders of the Company authorized a
proposal to amend the Company's Certificate of Incorporation to effect a reverse
stock split of the Company's common stock of not greater than 1 for 8 (Proposal
No. 2).
The votes were cast as follows:
PROPOSAL NO. 1
NUMBER OF VOTES NUMBER OF VOTES
NAME FOR WITHHELD
----- --------------- ---------------
Harold Markowitz 2,159,024 39,023
Paul Sharp 2,159,024 39,023
Jorge Lazaro 2,159,024 39,023
Jack Koegel 2,153,373 44,674
Stanley R. Goodman 2,153,473 44,574
Edward C. Ross 2,153,473 44,574
L. Douglas Bailey 2,153,373 44,674
PROPOSAL NO. 2
NUMBER OF VOTES NUMBER OF VOTES
FOR AGAINST ABSTENTIONS
--------------- --------------- -----------
2,141,751 54,746 1,550
ITEM 5. OTHER INFORMATION
On July 22, 2001, Jan S. Mirsky, Executive Vice President - Finance and a
Director of the Company, passed away. The Company is currently seeking to fill
the vacancy in the position of principal financial officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Extension of Temporary Increase and Renewal for the WCMA Line of Credit
B. Reports on Form 8-K
On May 2, 2001 the registrant filed a current report on Form 8-K in which the
Company reported, pursuant to item 5 thereof, that it had issued a press
release announcing the potential delisting of the registrant's securities from
Nasdaq.
On May 29, 2001 the registrant filed a current report on Form 8-K in which the
Company reported, pursuant to item 5 thereof, that it had issued a press release
announcing the potential delisting of the registrant's securities from Nasdaq.
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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/ Jack Koegel
_____________________________________
Jack Koegel
Vice Chairman and Chief Operating Officer
As duly authorized officer of the registrant
/s/ George Fischer
_____________________________________
George Fischer
Controller
As chief accounting officer of the registrant
August 14, 2001
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