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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 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 June 15, 2001
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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SEL-LEB MARKETING, INC. AND SUBSIDIARY
PAGE
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2001
(Unaudited) and December 31, 2000 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2001 and 2000 (Unaudited) 3
Condensed Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2001 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operation 9-12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
1
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
March December
ASSETS 31, 2001 31, 2000
------ -------------- ---------------
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 106,836 $ 213,920
Accounts receivable, less allowance for doubtful
accounts of $227,702 and $195,274 5,399,470 4,951,151
Inventories 10,225,458 9,798,856
Deferred tax assets, net 318,800 296,875
Prepaid expenses and other current assets 608,661 618,676
------------ ------------
Total current assets 16,659,225 15,879,478
Property and equipment, at cost, net of accumulated depreciation
and amortization of $1,169,975 and $1,123,601 322,230 328,634
Goodwill, net of accumulated amortization of $172,751 and
$ 164,136 173,017 181,632
Other assets 157,764 131,182
------------ ------------
Totals $ 17,312,236 $ 16,520,926
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable under line of credit $ 4,225,951 $ 3,404,505
Current portion of long-term debt 707,625 859,949
Accounts payable 2,673,131 2,598,964
Accrued expenses and other liabilities 466,388 472,804
------------ ------------
Total current liabilities 8,073,095 7,336,222
Long-term debt, net of current portion 866,750 928,307
------------ ------------
Total liabilities 8,939,845 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 1,895,421 1,779,427
Less receivable in connection with equity transactions (42,000) (42,000)
------------ ------------
Total stockholders' equity 8,372,391 8,256,397
------------ ------------
Totals $ 17,312,236 $ 16,520,926
============ ============
See Notes to Condensed Consolidated Financial Statements.
2
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
Net sales $ 5,013,797 $ 5,006,394
----------- -----------
Operating expenses:
Cost of sales 3,454,833 4,121,055
Selling, general and administrative expenses 1,243,691 1,028,474
----------- -----------
Totals 4,698,524 5,149,529
----------- -----------
Operating income (loss) 315,273 (143,135)
Interest expense, net of interest income of $673
and $3,500 121,779 92,937
----------- -----------
Income (loss) before income taxes 193,494 (236,072)
Provision (credit) for income taxes 77,500 (94,990)
----------- -----------
Net income (loss) $ 115,994 $ (141,082)
=========== ===========
Net earnings (loss) per share:
Basic $.05 $.(06)
=========== ===========
Diluted $.05 $.(06)
=========== ===========
Weighted average shares outstanding:
Basic 2,261,018 2,261,018
=========== ===========
Diluted 2,328,333 2,261,018
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
3
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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
Net income 115,994 115,994
--------- ------- ---------- ---------- --------- ----------
Balance, March 31, 2001 2,261,018 $22,611 $6,496,359 $1,895,421 $(42,000) $8,372,391
========= ======= ========== ========== ======== ==========
See Notes to Condensed Consolidated Financial Statements.
4
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
2001 2000
---------- ----------
Operating activities:
Net income (loss) $ 115,994 $(141,082)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 54,989 71,015
Provision for doubtful accounts 32,428 40,900
Deferred income taxes (21,925) (9,063)
Changes in operating assets and liabilities:
Accounts receivable (480,747) 173,754
Inventories (426,602) (305,584)
Prepaid expenses and other current assets 10,015 (105,432)
Other assets (26,582) 1,135
Accounts payable, accrued expenses and other
liabilities 67,751 30,622
--------- ---------
Net cash used in operating activities (674,679) (243,735)
--------- ---------
Investing activities - purchases of property and equipment (39,970) (4,764)
--------- ---------
Financing activities:
Proceeds from note payable under line of credit, net of
repayments 821,446 332,910
Repayments of long-term debt (213,881) (66,646)
Decrease in receivable in connection with equity transactions 3,000
--------- ---------
Net cash provided by financing activities 607,565 269,264
--------- ---------
Net increase (decrease) in cash and cash equivalents (107,084) 20,765
Cash and cash equivalents, beginning of period 213,920 158,032
--------- ---------
Cash and cash equivalents, end of period $ 106,836 $ 178,797
========= =========
See Notes to Condensed Consolidated Financial Statements.
5
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 March 31,
2001, their results of operations and cash flows for the three months
ended March 31, 2001 and 2000 and their changes in stockholders'
equity for the three months ended March 31, 2001. 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 three months ended
March 31, 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.
6
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 three months ended
March 31, 2001, 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:
Basic weighted average shares outstanding 2,261,018
Shares arising from assumed exercise of stock options 67,215
-----------
Diluted weighted average shares outstanding 2,328,233
===========
Since the Company had a net loss for the three months ended March 31,
2000, the assumed effects of the exercise of all of the Company's
outstanding stock options and warrants and the application of the
treasury stock method would have been anti-dilutive. Accordingly, the
basic and diluted loss per share and weighted average share amounts
are the same for that period.
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, which extend the facility to June
30, 2001, the Facility, as of March 31, 2001, consists of a revolving
line of credit, with maximum borrowings of $4,350,000 against the
Company's eligible accounts receivable and inventories, and three
term loans (see Note 4 in the 10-KSB). Borrowings under the revolving
line of credit, which totaled $4,225,951 at March 31, 2001, bear
interest, which is payable monthly, at 2.65% above the 30-day
commercial paper rate (an effective rate of 7.65% as of March 31,
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 three months ended March 31, 2001.
7
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - 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
three months ended March 31, 2001 and 2000 follows:
2001 2000
--------------- ---------------
Net sales:
Opportunity $ 2,509,160 $ 1,918,468
Cosmetics 2,504,637 3,087,926
----------- -----------
Total net sales 5,013,797 5,006,394
----------- -----------
Cost of sales:
Opportunity 1,558,731 1,631,696
Cosmetics 1,896,102 2,489,359
----------- -----------
Total cost of sales 3,454,833 4,121,055
Selling, general and administrative expenses 1,243,691 1,028,474
----------- -----------
Total operating expenses 4,698,524 5,149,529
----------- -----------
Operating income (loss) 315,273 (143,135)
Interest expense, net 121,779 92,937
----------- -----------
Income (loss) before provision (credit)
for income taxes $ 193,494 $ (236,072)
=========== ===========
* * *
8
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: Three months Ended March 31, 2001 Compared
to the Three Months Ended March 31, 2000:
The Company has two principal business segments (see Note 5 to the Company's
Condensed Consolidated Financial Statements - Unaudited): Opportunity and
Cosmetics.
MARCH 31, MARCH 31,
2001 2000 $ CHANGE
--------------------------------------------------------
Net sales:
Opportunity $ 2,509,160 $ 1,918,468 $ 590,692 (A)
Cosmetics $ 2,504,637 $ 3,087,926 $ (583,289)(B)
---------------------------------------------------------
Total net sales $ 5,013,797 $ 5,006,394 $ 7,403
---------------------------------------------------------
Cost of sales:
Opportunity $ 1,558,731 $ 1,631,696 $ (72,965) (C)
Cosmetics $ 1,896,102 $ 2,489,359 $(593,257) (D)
---------------------------------------------------------
Total cost of sales $ 3,454,833 $ 4,121,055 $(666,222)
Selling general and administrative expenses $ 1,243,691 $ 1,028,474 $ 215,217 (E)
---------------------------------------------------------
Total operating expenses $ 4,698,524 $ 5,149,529 $(451,005)
---------------------------------------------------------
Operating income (loss) $ 315,273 $ (143,135) $ 458,408
9
Interest expense, net $121,779 $ 92,937 $ 28,842(F)
-------------------------------------------------
Income (loss) before income taxes $193,494 $(236,072) $429,566
=================================================
(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 increase in this segment of our business, of approximately
$600,000, primarily resulted from the introduction during the latter part
of 2000 of a line of specially purchased merchandise, which approximated
$900,000 in the current year.
(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
fragrance line which was completely sold out during the year 2000, and in
which the first quarter of 2000 had sales of approximately $1,000,000.
(C) Cost of sales for the "Opportunity" segment of our business decreased from
approximately 85% in 2000 to 62% in 2001. This decrease resulted primarily
from significantly higher margins on the sale of a line of specially
purchased merchandise.
(D) Cost of sales for the "Cosmetic" segment of our business was approximately
81% of sales for the three months ended March 31, 2000 as compared to 76%
for the three months ended March 31, 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, insurance, professional fees, and travel and promotional
expenses. The increases during the three months ended March 31, 2001 versus
the three months ended March 31, 2000 are primarily the result of higher
costs due to more sales being made through outside sales agencies, with
resulting higher selling expenses.
(F) The increase in interest expense during the three month period ended March
31, 2001 versus the three month period ended March 31, 2000 results
primarily from additional borrowings under the credit facility to fund the
increased levels of inventory, to meet anticipated sales demands.
10
Liquidity and Capital Resources
At March 31, 2001 we had working capital of approximately $8,586,000 including
cash and cash equivalents of approximately $107,000. Cash and cash equivalents
decreased during the three months ended March 31, 2001 from approximately
$214,000 to $107,000, resulting primarily from our financing activities, more
fully discussed below.
During the three months ended March 31, 2001 we used approximately $675,000 from
operations, along with approximately $607,000 in net additional financing,
primarily to increase inventory by approximately $427,000, in order to meet
anticipated sales demands and take advantage of an opportunity to make a
significant purchase of specially priced merchandise, and, to fund the increase
in accounts receivable of approximately $481,000.
During the three months ended March 31, 2001 we used approximately $40,000 for
the acquisition of property and equipment.
As stated above, our cash and cash equivalent position of approximately $107,000
at March 31, 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. As amended, the credit facility provides for the following:
1) A revolving line of credit with maximum borrowings of $4,350,000
against the Company's eligible accounts receivable and inventories
through June 30, 2001. At March 31, 2001 we had $4,225,951 outstanding
under the revolving line of credit, representing a net increase in our
revolving line of credit of $821,446 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 $613,268 as of March 31, 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 $366,667 as of March 31, 2001.
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 $450,000 as of March 31, 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
7.65% at March 31, 2001).
11
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 March 31, 2001 $56,485 and $86,159 were outstanding under the
1997 loan and the 1999 loan, respectively.
As of June 15, 2001, the outstanding balance under the Revolving Line of Credit
was $4,262,554 and under the term loans, including the Paterson Restoration
Corporation was $1,394,170.
Pursuant to the terms of the term loans, we made principal payments of $211,234
during the three months ended March 31, 2001.
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 June 30, 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.
12
PART II OTHER INFORMATION
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
No reports on Form 8-K were filed by the registrant during the three month
period ended March 31, 2001.
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.
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
As both duly authorized officer of
the registrant and as principal
financial officer of registrant.
/s/ George Fischer
-------------------------
George Fischer
Controller
June 18, 2001
13