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                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549
                                    --------------
                                           
                                     FORM 10-KSB
                                           
                   [X]  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
                                           
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                           
                                          OR
                                           
                 [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM ___________________ TO ______________.
                            COMMISSION FILE NUMBER 1-13856
                                           
                               SEL-LEB MARKETING, INC.
                 (EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
                                           
                                           
             NEW YORK                                   11-3180295
     (State of incorporation)               (I.R.S. Employer Identification No.)

1435 51 STREET, NORTH BERGEN, NEW JERSEY                   07047
(Address of principal executive offices)                 (Zip Code)

           ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (201) 864-3316

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                                        Name of each exchange on
         Title of each class                               Which registered   
         -------------------                            ----------------------

     Common Stock, $.01 par value                       Boston Stock Exchange

Redeemable Warrant to Purchase Common Stock             Boston Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                             Common Stock, $.01 par value
                                   (Title of Class)
                                           
                     Redeemable Warrant to Purchase Common Stock
                                   (Title of Class)

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 reports), and (2) has been
subject to such filing requirements for the past 90 days.          Yes X   No   
                                                                       --     --

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB.  [X]

The issuer's revenues for its most recent fiscal year were $13,522,746.

The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1997 was approximately $25,326,500.  On such date, the
closing price of the issuer's common stock was $5.50 per share.  Solely for the
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the issuer that beneficially own more than 10% of
the issuer's voting stock have been excluded, except such shares, if any, with
respect to which such directors and officers disclaim beneficial ownership. 
Such exclusion should not be deemed a determination or admission by the issuer
that such individuals are, in fact, affiliates of the registrant.

The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on April 10, 1997 was 8,678,827.

                         DOCUMENTS INCORPORATED BY REFERENCE:
                                           
Portions of the Company's Proxy Statement in connection with its Annual Meeting
scheduled to be held on May 29, 1997 are incorporated in Part III.  The
Company's Proxy Statement will be filed within 120 days after December 31, 1996.


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                               SEL-LEB MARKETING, INC.
                             Annual Report on Form 10-KSB
                     For the Fiscal Year Ended December 31, 1996


                                  TABLE OF CONTENTS
                                  -----------------


                                                                            Page
                                                                            ----

PART I

 Item 1.   Description of Business                                            3
 Item 2.   Description of Property                                           12
 Item 3.   Legal Proceedings                                                 13
 Item 4.   Submission of Matters to a Vote of Security Holders               13

PART II

 Item 5.   Market for Common Equity and Related Stockholder Matters          14
 Item 6.   Management's Discussion and Analysis or Plan of Operation         15
 Item 7.   Financial Statements                                              18
 Item 8.   Changes in and Disagreements with Accountants on 
           Accounting and Financial Disclosure                               18
PART III

 Item 9.   Directors, Executive Officers, Promoters and Control Persons; 
           Compliance with Section 16(a) of the Exchange Act                 19
 Item 10.  Executive Compensation                                            19
 Item 11.  Security Ownership of Certain Beneficial Owners and Management    19
 Item 12.  Certain Relationships and Related Transactions                    19
 Item 13.  Exhibits and Reports on Form 8-K                                  20


                                          2

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                                        PART I


ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

     Sel-Leb Marketing, Inc. (the "Company") is primarily engaged in the
distribution and marketing of consumer merchandise to retail sellers such as
mass merchandisers, discount chain stores and food, drug and electronic
retailers.  The Company's business presently consists of the following
activities: (i) developing, marketing and selling the Company's own proprietary
brands of budget-line health, beauty aid and cosmetic products, which are
manufactured for the Company by contract manufacturers, (ii) opportunistic
purchasing and secondary sourcing (I.E., distributing merchandise on a wholesale
basis outside of normal distribution channels to retail merchants) of a broad
range of name-brand and off-brand products such as health and beauty aids,
cosmetics, fragrances, kitchen items and other household items,
(iii) representing manufacturers and distributors as a sales agent, on a
commission basis, in connection with the sale to mass merchandise retailers of
merchandise manufactured and distributed by such third parties and
(iv) developing, marketing and selling, or otherwise facilitating the
development marketing or sale of products to be promoted by celebrity
spokespersons and sold to mass merchandise retailers, as well as products which
will "tie in" to specific television shows and be sold by the Company either on
television in connection with those shows, with the intent to thereafter sell
such products to mass merchandise retailers, or directly to mass merchandise
retailers.  The Company's strategy is to capitalize on increased consumer demand
for value and convenience resulting from the increased acceptance by consumers
of mass merchandisers, electronic retailers and other mass marketing retail
outlets, as well as on the popularity of consumer products endorsed by celebrity
spokespersons. 

     The Company, which was incorporated under the laws of the State of New York
in September 1993, consummated in July 1995 an initial public offering (the
"IPO") of units (the "Units"), each Unit consisting of one share of common
stock, par value $.01 per share ("Common Stock"), and one redeemable warrant to
purchase one share of Common Stock (the "Warrants").  Immediately following the
issuance of the Units in the IPO, the Common Stock and Warrants became
separately tradeable and transferable.  On May 18, 1995, Linette Cosmetics, Inc.
("Linette Cosmetics"), a corporation founded in 1985 by Harold Markowitz, the
Chairman of the Board of the Company, and Jorge Lazaro, the Executive Vice
President and Secretary of the Company, was merged with and into the Company,
with the Company as the surviving corporation (the "Linette Merger").  Prior to
the Linette Merger, all of the outstanding capital stock of Linette Cosmetics
was owned by Mr. Markowitz, Mr. Lazaro and Paul Sharp, the President and Chief
Executive Officer of the Company, who together comprised the shareholders of the
Company until the IPO.  In addition, immediately prior to the consummation of
the IPO, each of Messrs. Markowitz, Sharp and Lazaro contributed to the Company
his 20% equity interest in Lea Cosmetics, Inc. ("Lea Cosmetics") and the Company
acquired from the remaining shareholder his 40% equity interest in Lea Cosmetics
(the "Lea Acquisition").  As a result, Lea Cosmetics became a wholly-owned
subsidiary of the Company and, on August 3, 1995, Lea Cosmetics was merged with
and into the Company, with the Company as the surviving corporation.


                                          3

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     SALE OF PROPRIETARY BRAND NAME PRODUCTS.  The Company is also currently
engaged in the development, marketing and sale of its own proprietary brand name
budget-line health, beauty aid and cosmetic products.  The Company's beauty aid
and cosmetic products include budget-line lipsticks, lip pencils, nail polishes
and eye pencils, which are manufactured in a variety of colors and are sold
under the Linette-Registered Trademark-, Vea-Registered Trademark-,
Zia-Registered Trademark- and Loud Music-TM- brand names to retail chains and
other mass merchandisers located throughout the United States.  All of the
Company's proprietary beauty aid and cosmetic products and all packaging
therefor are manufactured and supplied by third parties in accordance with the
Company's specifications.  The Company purchases all materials for these
products (including raw materials and packaging) through individually placed
purchase orders to various suppliers. The Company has credit arrangements with
such suppliers that allow it to purchase merchandise on credit with payment
generally due 30 days after purchase.  To date, the Company has not experienced
any shortages of or difficulties in obtaining the raw materials used in its
products or the materials used for the packaging of its products.  Furthermore,
the Company believes that alternate sources of supply for such materials are
readily available and that the loss of any one of its suppliers would not have a
material adverse effect.  The Company believes that it has good relationships
with the suppliers of raw materials and packaging for its proprietary products. 

     Typically, all materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered directly by the suppliers to the
Company's contract manufacturers, which are engaged by the Company to provide
filling and packaging services and perform quality control and, in certain
cases, distribute the finished products and, if necessary, warehouse the
products.  During the fiscal year ended December 31, 1996, one such contract
manufacturer -- LPD Packaging, Inc. -- accounted for approximately 95% of the
Company's filling and packaging services.  All products are manufactured
pursuant to the Company's specifications on a purchase order basis.  Although
the Company believes that its contract manufacturers have the capacity to
produce volumes of the Company's products sufficient to meet the Company's
foreseeable needs, there can be no assurance of such.  Furthermore, although the
Company believes that it has a good relationship with its contract manufacturers
and that the Company will continue to obtain its finished beauty aid and
cosmetic products from such manufacturers in the foreseeable future, the Company
does not have written contracts with its manufacturers and there can therefore
be no assurance of such.  In the event the Company were to experience
difficulties with or the loss of services of its present manufacturers, the
Company believes that it would be able to retain the services of other
manufacturers; however, there can be no assurance that such services could be
retained on a timely basis or on terms as favorable as those with its present
manufacturers. 

     As part of the Company's strategy of taking advantage of the growth in mass
merchandising and value retailing, the Company will seek to continue introducing
its own brand name products, thereby providing the Company with a supply of
products and making the Company less reliant on third party and/or opportunistic
sources of merchandise.  The Company may also seek to acquire rights to
additional proprietary product lines through licensing or other arrangements,
although there can be no assurance of such.

     OPPORTUNISTIC PURCHASING AND SECONDARY SOURCING ACTIVITIES.  The Company
acts as a secondary sourcer of a broad range of name-brand and off-brand
merchandise, including health and beauty aids, cosmetics, fragrances, kitchen
items and other household products.  The Company acquires its merchandise in
negotiated purchases either directly from consumer goods manufacturers or from
wholesalers, retailers, financially distressed businesses, duty-free
distributors and other secondary sources located both in the United States and,
to a limited extent, in Europe, and sells the merchandise to retail chains and
other mass merchandisers located throughout the United States and, more
recently, in Canada.  


                                          4

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During the year ended December 31, 1996, the Company purchased merchandise from
over 50 different suppliers and sold the merchandise to over 30 different
retailers, including, among others, BJ's Wholesale Club, McCrory's Stores,
Wal-Mart Stores, Bill's Dollar Stores and Hills Department Stores, which
accounted for approximately 36%, 10%, 8%, 7% and 5%, respectively, of the
Company's net sales in 1996.  The Company believes that its longstanding
relationships with many of its suppliers and customers are important to the
secondary sourcing activities of the Company, and that its relationship with its
suppliers and customers are good.

     In connection with its distribution activities, the Company has the ability
to repackage merchandise acquired by it or to provide other value-added services
at the request of a customer.  For example, if the Company were to acquire
merchandise which had been packaged by the manufacturer as a four-pack item
(I.E., four items to the package), the Company could, if requested by the
customer, repackage the item as a ten-pack item prior to delivery of the
merchandise to the customer.  Likewise, at a customer's request, the Company has
the ability to package several different items together to create a gift or
bonus package.  The Company believes that its ability to provide such
value-added services allows it to service the ongoing needs of its customers and
to enhance its sales and customer relations. 

     Because the Company focuses on the opportunistic acquisition of merchandise
(other than designer fragrances) such as purchases of closed-out, overstocked
and/or change-of-packaging brand name items, the Company is generally able to
purchase such merchandise at a discount below wholesale cost.  The Company then
sells the merchandise to discount retailers and other mass merchandisers who
seek to purchase products at discount prices in order to supplement their normal
inventory purchases or for special promotions. The merchandise is sold at prices
that are above the Company's cost, although at prices that are still generally
below wholesale.  Although the Company typically purchases merchandise before it
has located customers for such merchandise, it has sold substantially all
merchandise acquired by it in each of the last three fiscal years.

     The Company purchases the name-brand and off-brand merchandise which it
sells to retailers from over 50 suppliers, including consumer goods
manufacturers, wholesalers, retailers, financially distressed businesses,
duty-free distributors and other secondary sources.  The Company is continually
seeking to locate new sources of merchandise.  Generally, the Company will be
contacted by a manufacturer or other supplier when such supplier has excess
merchandise that is available for resale through the secondary market;
alternatively, the Company will also contact a supplier if it becomes aware that
the supplier has merchandise which it desires to sell. Although certain
suppliers may have provided a majority or all of a particular type of product or
particular category of merchandise, no supplier accounted for more than 10% of
the Company's total merchandise purchases for the year ended December 31, 1996
other than Stealth International, which accounted for approximately 14% of such
total purchases.  During the year ended December 31, 1996, substantially all of
the Company's secondary sourcing merchandise was purchased from domestic
suppliers, with the remainder being purchased from suppliers located in Europe.
The Company believes that the loss of any one of its suppliers would not have a
material adverse effect on the Company and that alternative sources of
merchandise are readily available in all existing product categories as well as
additional product categories. 

     All merchandise is purchased by the Company from its suppliers through
individually placed purchase orders.  The Company does not have any contractual
relationships with any of its suppliers and depends, instead, on its ongoing
relationships and prior dealings with such suppliers to obtain merchandise at
favorable prices when it becomes available to secondary suppliers.  The Company
believes that such ongoing relationships with its suppliers have resulted from
its prior dealings with such suppliers, 


                                          5

<PAGE>

in many cases over a period of years, and its reliability and strength as a
customer. Several of the Company's principals have been involved in the
opportunistic purchasing business for more than 20 years and have developed many
on-going contacts with suppliers. 

     Currently, all purchasing and pricing decisions with respect to the
Company's opportunistic purchasing activities are made by Messrs. Markowitz,
Sharp and Lazaro, who locate sources of merchandise and determine whether any
given product will be suitable for wholesale distribution to mass merchandise
retailers or other customers.  Generally, the Company believes that it has the
ability to sell all merchandise that is acquired by it.  The Company has credit
arrangements with substantially all of its existing suppliers, thereby allowing
the Company to purchase merchandise on account.  Generally, such credit
arrangements allow the Company to purchase merchandise with payment generally
due 30 days after the purchase. 

     The Company also acts as a wholesale distributor of prestige, designer
fragrances.  Historically, manufacturers of such fragrances have sold their
products primarily to leading department stores.  As a result, mass
merchandisers have traditionally only been able to obtain such items from
secondary sources such as the Company.  Typically, the Company purchases these
fragrances from other secondary sources such as export and import companies,
duty-free distributors and department stores which are liquidating their excess
inventory.  Unlike other merchandise which is acquired by the Company at prices
that are significantly below wholesale, the Company purchases the prestige
fragrances at above-wholesale prices (although still well below their normal
retail price).  The Company, in turn, sells such items to mass merchandisers.
The Company believes that sales of such fragrances will continue to constitute a
portion of its sales, although there can be no assurance of such. 

     The Company believes that a portion of the prestige fragrances purchased by
it may include trademarked products manufactured in foreign countries and
trademarked products manufactured in the United States that may have been sold
to foreign distributors.  From time to time, United States trademark owners and
their licensees and trade associations have initiated litigation or
administrative agency proceedings seeking to halt the importation into the
United States of such foreign manufactured or previously exported trademarked
products.  Although the Company is not currently the subject of any such legal
or administrative actions, and is not aware of any such threatened legal or
administrative actions, there can be no assurance that the Company's business
activities will not become the subject of such actions in the future, or that
future judicial, legislative or administrative agency action will not limit or
eliminate some or all of the secondary sources of supply of prestige fragrances
used by the Company.  However, the Company believes that any future limitation
on or elimination of its sources of supply for prestige fragrances for sale to
its customers would not have a material adverse effect on the Company, although
there can be no assurance of such.


     COMMISSION SALES.  In addition to establishing its own sources of
merchandise, the Company also acts as a sales agent for other manufacturers and
distributors of merchandise which is sold in the mass merchandise market. In
September 1994, the Company entered into a five-year agreement with Clyde
Duneier, Inc. ("Duneier"), a manufacturer and distributor of fine jewelry,
pursuant to which the Company acts as the exclusive sales agent for Duneier for
a specified account, in consideration for which the Company is paid a fixed
annual fee and royalty payments on net sales over certain specified amounts. 
The Company has also entered into an informal arrangement with Knowlton
Cosmetics, Ltd. ("Knowlton"), a Canadian manufacturer and distributor of bath
items, pursuant to which the Company acts as a sales agent for Knowlton for
certain specified accounts, in consideration for which the Company 


                                          6

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is paid a commission on net sales to such accounts.  The Company currently
anticipates that, in light of its present plans to develop and sell more of its
proprietary brand name products, the Company may not enter into any additional
arrangements pursuant to which it would sell, on a commission basis, products
that are manufactured and distributed by third parties.  In addition, there can
be no guaranty that the Company's agreement with Duneier will be renewed upon
the expiration of such agreement in September 1999 or that its arrangement with
Knowlton will be continued or formalized.

     DEVELOPMENT OF "CELEBRITY-ENDORSED" PRODUCTS.  The Company believes that
the increasing popularity of consumer products endorsed by celebrities may
provide significant future opportunities for the Company.  Accordingly, the
Company is seeking to develop products for promotion by celebrity spokespersons,
which products will be sold by the Company to mass merchandising and electronic
retailers.  In this connection, the Company will seek to enter into agreements
with celebrities for whom it believes it will be able to successfully develop
products which will have consumer appeal. 

     In 1996, the Company entered into an arrangement with Regis Philbin,
co-host of the television program LIVE WITH REGIS AND KATHIE LEE, and Beau
Brummel, a leading New York City clothier, involving a line of menswear
accessories to be promoted by Mr. Philbin.  Pursuant to such arrangement, the
Company provided a portion of the financing required in connection with Mr.
Philbin's live television appearances on QVC Network in December 1996 and March
1997.  The Company is seeking to formalize and extend the terms of its
arrangement with such parties.  In addition, the Company has previously
developed a line of products endorsed by best-selling author Jackie Collins
which were sold on Home Shopping Network in 1994 and 1995, and, in 1996, the
Company sold directly into the traditional retail market a line of "Jackie
Collins Wild-Registered Trademark-" fragrances.  There can be no assurance that
the Company will be able to market additional amounts of celebrity-endorsed
products in the future, that it will be able to successfully participate in the
development and/or promotion of any other products for Mr. Philbin, Ms. Collins
or any other celebrities, that the Company will be able to retain the services
of any celebrities in the future or that the Company will be able to
successfully develop and/or promote any products for any celebrities.  There can
be no assurance that any such products so developed for Mr. Philbin, Ms. Collins
or any other celebrities will meet with consumer acceptance or generate any
significant revenues.

     In October 1996, the Company entered into an agreement with Viacom Consumer
Products, Inc. ("VCP") pursuant to which VCP has granted to the Company a
license to use the designs, trademarks, service marks, logos, visual
representations, characters and characterizations of the television series
CLUELESS-Registered Trademark- in connection with the manufacture and
distribution in the United States of a CLUELESS-Registered Trademark- line of
cosmetics (including, among others, nail care products, lip stick products,
cologne fragrances, mass market gift sets, signature gift sets and children's
gift sets).  Pursuant to the agreement, the Company has the exclusive right to
sell such items in mass market stores, grocery stores, drug stores, beauty
outlets, discount chain stores and wholesale clubs, and the non-exclusive right
to sell such items in toy stores and department stores; provided, however, that
under certain conditions (including failure to make a timely royalty payment or
failure to meet certain sales targets), the Company's exclusive rights shall
become non-exclusive.  The Company is required under the agreement to pay to VCP
a specified royalty fee on all items sold by the Company pursuant to the
agreement, and has paid to VCP a non-returnable advance of $90,000 (subject to
reduction in the event certain episodes of the show are not picked up for
broadcast) to be applied against the Company's royalty payments.  In addition,
the Company shall be required to pay to VCP on March 31, 1998 a guarantee of
$225,000, less the amount of the non-returnable advance paid by the Company to
VCP and the aggregate amount of royalties paid by the Company to VCP through
such date.  Furthermore, the Company is also  required under the agreement to
spend a designated amount each year on advertising for the CLUELESS-Registered
Trademark- cosmetics line.  The agreement commenced 


                                          7

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on October 15, 1996 and will continue, subject to certain conditions, until
October 31, 1999; provided, however, that in the event the Company shall have
met certain royalty targets during the initial term, the Company shall have the
right to extend the agreement for an additional two-year period, subject to
payment of an additional advance and an additional guarantee; and provided
further that, in the event CLUELESS-Registered Trademark- is not picked up for
broadcast under certain circumstances, the Company shall have the option to
terminate the agreement.  As of the date hereof, the Company has commenced
manufacturing a line of CLUELESS-Registered Trademark- lipsticks, nail polishes
and mascaras, which line was launched in March 1997.  However, there can be no
assurance that these products will meet with consumer acceptance or that the
CLUELESS-Registered Trademark- show will continue to be broadcast during the
anticipated term of the agreement.

     In January 1997, the Company entered into an agreement with Bell Abbott 
Haussmann Inc. ("BAHI") pursuant to which the Company has been granted the 
exclusive right to use the trademark "Jabot-Registered Trademark-" in 
connection with the production, marketing and distribution of certain 
cosmetic and fragrance items (including, without limitation, perfumes, 
colognes, toilet water, talcum powder, bath gels and personal deodorants) in 
the United States and Canada, and has also been granted the exclusive right 
to use the trademark "Jabot for the Young and the Restless 
Generation-Registered Trademark-" in connection with the marketing and 
distribution of such items in Canada.  The "Jabot-Registered Trademark-" and 
"Jabot for the Young and the Restless Generation-Registered Trademark-" marks 
were inspired by the fictional name of a cosmetics company featured on a 
leading daytime television drama.  Pursuant to the agreement, the Company has 
the right to sell the cosmetic and fragrance items through various retail 
distribution channels, including mass merchandisers, retail stores, 
catalogues, electronic media, direct response advertising, mail order, 
telemarketing and other similar retail channels.  The Company is required 
under the agreement to pay to BAHI a specified royalty fee on all items sold 
by the Company pursuant to the agreement, and has paid to BAHI a 
nonrefundable $10,000 advance to be applied against the Company's royalty 
payments.  The agreement is for a term of five years commencing March 31, 
1997, and shall be automatically extended for an additional term of five 
years and a second additional term of ten years, in each case subject to 
certain minimum royalty payments having been met during the preceding term, 
and thereafter to subsequent additional terms of five years unless either 
party does not wish to extend the term of the agreement.  As of the date 
hereof, the Company has developed a line of "Jabot-Registered Trademark-" and 
"Jabot for the Young and the Restless Generation-Registered Trademark-" 
products which the Company currently anticipates will be launched of 1997.  
There can be no assurance that the Company will be successful in selling such 
products or that any such products developed by the Company will meet with 
consumer acceptance.

     In September 1996, the Company entered into an arrangement with ACI, Inc.
("ACI"), a developer and marketer of cosmetic products, relating to the
distribution and marketing of products endorsed by celebrity spokespersons
through electronic media and other retail channels.  Pursuant to this
arrangement, the Company will provide the financing required in connection with
developing, marketing and distributing the products to be promoted by such
celebrities and sold in the retail market.  All profits and losses resulting
from the sale of such products are to be divided equally between the Company and
ACI.  The Company has begun to develop products under this arrangement.

     To date, all merchandise sold by the Company in connection with the "Jackie
Collins" line of products has been purchased by the Company from third-party
manufacturers and distributors, both in the United States and abroad.  In
addition, the Company currently anticipates that all products developed by it as
television program "tie-in" products (including, without limitation, the
"Jabot-Registered Trademark-" and "Jabot for the Young and the Restless
Generation-Registered Trademark-" line of products to be marketed by the Company
pursuant to its agreement with BAHI and the CLUELESS-Registered Trademark- line
of products marketed by the Company pursuant to its agreement with VCP), as well
as other celebrity-endorsed products, if any, developed by the Company, 


                                          8

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will be purchased from third-party manufacturers.  Typically, the Company
develops or will develop the design of the celebrity-endorsed products in
conjunction with the celebrity who is to promote such products, and the design
of any television "tie-in" products in conjunction with BAHI or VCP, as the case
may be.  Once the product has been developed in accordance with applicable
design and quality specifications, the Company will arrange for the manufacture
of the product by a third-party manufacturer according to the Company's design
specifications.  The Company does not enter into long-term contracts with its
third-party manufacturers, but instead purchases (and currently anticipates that
it will in the future continue to purchase) merchandise through individually
placed purchase orders.  Accordingly, the Company is dependent on the ability of
its manufacturers to meet applicable design and quality specifications. 
Although the Company believes that, in the event it were to experience
difficulties with or the loss of services of any of such manufacturers, it would
be able to engage other manufacturers who could be retained by the Company and
meet its production requirements on a timely basis, there can be no assurance of
such.  The loss of any of such manufacturers, or any significant delays in
obtaining other manufacturers in the event of any such loss, could have an
adverse effect on the Company's business and results of operations.  

     Although the Company is seeking to develop the "celebrity-endorsed" product
area of its business, including by marketing and distributing in the traditional
retail market merchandise which is originally offered for sale on television or
by developing products to be promoted by celebrities and sold directly in such
traditional markets, there can be no assurance that the Company will be
successful in its endeavors.  To date, the Company has not generated a
significant amount of revenues from such celebrity products, and there can be no
assurance that it will be able to successfully develop any such products or that
any such products developed by the Company will meet with consumer acceptance.
In addition, except as described above, as of the date hereof the Company has no
agreements, understandings or commitments related to such plan of development.

INVENTORY

     Merchandise acquired by the Company for resale to its mass market customers
is either shipped by the supplier to the Company's warehouse facility, which is
currently located in North Bergen, New Jersey, or is shipped by the supplier
directly to a customer from whom the Company has received a purchase order.  The
Company utilizes its North Bergen facility for the centralized receipt of goods
from suppliers, as well as the storage of inventory and the shipment of
inventory to its customers.  In addition, value-added services such as
repackaging of goods are also performed at this facility.

     Typically, all materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered directly to the Company's
contract manufacturers, which provide filling and packaging services and perform
quality control and, in certain cases, distribute the finished products and, if
necessary, warehouse the products.  The Company currently anticipates that,
following the Company's planned May 1997 relocation to new office and warehouse
facilities, the Company will perform the distribution activities and warehousing
of finished products previously performed by the Company's contract
manufacturers.

     The Company has recently uncovered the theft of certain of its inventory
from its North Bergen, New Jersey premises.  The Company is currently in the
process of investigating this matter, and has retained the services of an
investigator to assist the Company in determining the manner in which such theft
occurred and the amount of inventory in question.  In addition, the Company is
currently reviewing its inventory security and control procedures in order to
determine any changes which must be made in 


                                          9

<PAGE>

order to prevent future theft.  Based on information known to the Company to
date, the Company believes that the theft was committed by a limited number of
warehouse employees of the Company and occurred in the fourth quarter of 1996. 
In addition, although the Company has not yet determined the amount of inventory
involved, the Company currently believes that the amount will be at least
$50,000 but is not expected to exceed $125,000.  The loss of such inventory
during the year ended December 31, 1996 had an adverse effect on the results of
operations of the Company for the fiscal year ended December 31, 1996.  Although
the Company has filed a notice of claim with its insurance carrier with respect
to this matter, the Company's current insurance policy provides coverage for
employee theft for only up to $100,000 per incident, with a $10,000 deductible. 
There can be no assurance that the Company will be successful in its claim under
such insurance policy, or that the amount collected by the Company thereunder
will satisfy the full amount of its losses.

COMPETITION

     The areas of business in which the Company engages are highly competitive
businesses.  The secondary sourcing business is characterized by intense
competition, both in the products sold and in the retaining of relationships
with suppliers and customers.  With respect to its ability to obtain
merchandise, the Company competes with other secondary sources, as well as with
wholesale distributors and retailers.  The Company believes that its ability to
purchase a broad array of merchandise at competitive prices is critical to its
success.  With respect to sales to its customers, the Company competes with
other secondary suppliers of merchandise, as well as with manufacturers who sell
directly to retail merchandisers.  In addition, with respect to products sold
under the Company's Linette-Registered Trademark-, Vea-Registered Trademark-,
Zia-Registered Trademark- and Loud Music-TM- brand names, the Company competes
with other manufacturers at the retail store level for shelf space and
promotional space.  Many of the Company's existing or potential competitors are
well established companies and have or will have substantially greater
financial, marketing and other resources than the Company.  The Company believes
that it competes on the basis of value, product assortment and availability,
service to customers and reputation, as well as on the basis of its
long-standing and well-established relationships with both its suppliers and
customers.  Although the Company believes that it will be able to compete
effectively on the basis of such factors, there can be no assurance of such.

     In connection with its "celebrity-endorsed" products business, the Company
competes or will compete with manufacturers and marketing organizations that
seek out celebrities to endorse products and assist in marketing programs for
their merchandise.  In addition, the Company believes that virtually all
celebrities have agents who can negotiate directly with retailers in order to
secure marketing contracts on their behalf.  The Company believes that it
competes on the basis of its ability to design products which are consistent
with the celebrities' respective preferences and characters and to provide such
products to retailers at competitive prices.  Furthermore, although the Company
is not aware of any other entities which currently manufacture, market or
develop television "tie-in" products to be sold on television during the airing
of the related program, the Company believes that any such products developed by
the Company will compete with other products sold in the electronic retailing
market (including through television infomercials and interactive television
shopping networks), and that these products, as well as the CLUELESS-Registered
Trademark- line of cosmetics to be sold by the Company, will compete with other
products sold in the traditional retail market which relate to characters or
themes of television shows or movies.  The Company believes that it will compete
on the basis of the unique nature of such television "tie-in" products, as well
as on its ability to provide such products at competitive prices.


                                          10

<PAGE>

TRADEMARK AND SERVICEMARK PROTECTION

     Products developed by the Company are sold under the Linette-Registered
Trademark-, Vea-Registered Trademark-, Zia-Registered Trademark- and Jackie
Collins Wild-Registered Trademark- trademarks and the "Loud Music-TM-" mark. 
The Company has registered the Linette-Registered Trademark-, Vea-Registered
Trademark-, Zia-Registered Trademark- and Jackie Collins Wild-Registered
Trademark- trademarks with the United States Patent and Trademark Office (the
"Trademark Office").  However, there can be no assurance that these marks do not
or will not violate the proprietary rights of others, that such marks would be
upheld if challenged or that the Company would not be prevented from using its
trademarks.  The Company has also applied to the Trademark Office for the
registration of the trademark "Loud Music," the trademark under which the
Company sells certain proprietary cosmetics products.  There can be no assurance
that registration of such trademark will be granted by the Trademark Office.  In
addition, the Company has also applied to the Trademark Office to register
certain other trademarks which it intends to use in the future in connection
with its own proprietary brand name products, and intends to register other
brand names chosen by the Company for its own line of products.  However, there
can be no assurance that the Company will be able to register any such marks. 

     Pursuant to the Company's agreement with VCP, the Company has been granted
a license to use the designs, trademarks, service marks, logos, visual
representations, characters and characterizations of the television series
CLUELESS-Registered Trademark- in connection with the manufacture and
distribution in the United States of a CLUELESS-Registered Trademark- line of
cosmetics (including, among others, nail care products, lip stick products,
cologne fragrances, mass market gift sets, signature gift sets and children's
gift sets).  In addition, pursuant to the Company's agreement with BAHI, the
Company has been granted the exclusive right to use the trademark
"Jabot-Registered Trademark-" in connection with the production, marketing and
distribution of certain cosmetic and fragrance items (including, without
limitation, perfumes, colognes, toilet water, talcum powder, bath gels and
personal deodorants) in the United States and Canada, and has also been granted
the exclusive right to use the trademark "Jabot for the Young and the Restless
Generation-Registered Trademark-" in connection with the marketing and
distribution of such items in Canada.

PERSONNEL

     The Company currently employs 17 full-time employees and approximately 25
part-time employees (the exact number of which fluctuates from time to time
based on the Company's needs), who are hired by the Company primarily to
repackage products and perform other similar services.  All of the Company's
full-time employees are paid on a salaried basis.  None of the Company's
employees are covered by any collective bargaining agreements.  Management
believes that its employee relations are good. 

INSURANCE

     To date, no material product liability claims have been made against the
Company; however, as a distributor of merchandise, including health and beauty
aids, cosmetics, fragrances and household items, the Company could be exposed to
possible liability claims from others for personal injury or property damage due
to design or manufacturing defects or otherwise.  The Company maintains a
product liability insurance policy that has a $1,000,000 per occurrence limit
and a $2,000,000 aggregate limit, and a $3,000,000 umbrella liability insurance
policy to cover claims in excess of the limits of its product liability
insurance.  In addition, the Company believes that the suppliers from whom it
purchases such merchandise, including the manufacturers thereof, maintain
adequate levels of product liability insurance.  


                                          11

<PAGE>

The Company also maintains other insurance, including insurance relating to
property and personal injury, which the Company believes is similar to that
maintained by comparable businesses and in amounts which the Company currently
considers adequate.  The Company believes that its insurance coverage, including
without limitation its product liability coverage, is adequate in light of prior
experience and future expectations. Nevertheless, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect on the Company. 


ITEM 2.   DESCRIPTION OF PROPERTY.

     The Company's principal executive offices are currently located at 1435 51
Street, North Bergen, New Jersey, 07047.  Such premises include approximately
18,000 square feet of office and warehouse space, and are leased on a
month-to-month basis at a monthly rent of $5,833.  The Company also leases
approximately 10,000 square feet of storage space in Middletown, New York from
LPD Packaging, Inc., one of the contract manufacturers of certain of the
Company's beauty aid and cosmetic products, which space the Company uses to
warehouse materials and finished products.  Pursuant to the Company's written
agreement with such lessor, the Company leased such space during the period from
October 1995 to December 1995 at an annual rate of $30,000 and will continue to
lease the space during the three-year period commencing January 1, 1996 at an
annual rent of $35,000. In addition, the Company leases approximately 500 square
feet of office space located in Milford, Massachusetts on a month-to-month basis
at a monthly rent of $700.  The Company also leases public warehouse space from
time to time on an as-needed basis for the storage of inventory. 

     The Company is currently in the process of moving its executive offices and
warehouse space to a new location in New Jersey.  Commencing on or about May 1,
1997, the Company's principal executive offices will be located at 495 River
Street, Paterson, New Jersey, 07524, which premises include approximately 50,500
square feet of office and warehouse space.  The lease is for a period of five
years commencing April 1, 1997, at a monthly rent of $8,310 in the first two
years, $16,476 in the third year and $20,643 in the fourth and fifth years.  In
addition, the Company is required under the lease to purchase certain machinery
and equipment from the lessor at a cost of $110,000, of which $33,333 is payable
as of April 1, 1997 and the remainder of which is payable in two installments
through April 1, 1998.  The Company is also obligated to reimburse the lessor in
the third, fourth and fifth years of the lease for the Company's proportionate
share of any increases in real estate taxes and assessments over the amount of
such taxes and assessments during calendar year 1997.

     The Company believes that the space afforded by its properties will be
adequate for the current needs of its business and that, following the Company's
relocation to the Paterson, New Jersey facilities, the Company will generally no
longer be required to lease public warehouse space.


                                          12

<PAGE>

ITEM 3.   LEGAL PROCEEDINGS.

     In December, 1995, the Company, Mr. Markowitz and Mr. Mirsky were named as
defendants-in-counterclaim in an action brought in the Supreme Court of the
State of New York, County of New York, entitled GERSTEN, SAVAGE, KAPLOWITZ &
CURTIN, LLP V. PETER Z. ROSNER AND HINDALENE ROSNER (95/126559).  The
counterclaims alleged, among other things, that Mr. Rosner had acted as a
"finder" in connection with the Company's IPO and that he had entered into an
oral agreement with the Company and the underwriter engaged by the Company in
the IPO pursuant to which he would be compensated for his services out of the
proceeds of the IPO and would receive warrants to purchase Common Stock.  In
January 1996, all counterclaims asserted against the Company, Mr. Markowitz and
Mr. Mirsky were dismissed by the court.

     In February 1997, the Company and Paramount Pictures Corporation, an
affiliate of VCP ("Paramount"), were named as defendants in an action brought in
the United States District Court for the Southern District of California
entitled SASSABY, INC. V. PARAMOUNT PICTURES CORPORATION AND SEL-LEB MARKETING,
INC. (No. 97CV0197S (JFS)).  The plaintiff in this action, a manufacturer of a
line of cosmetic products which are marketed under the trademark "Jane"-TM-, has
recently commenced marketing a type of makeup known as concealer under the name
"Clueless."   Plaintiff alleges that the marketing and sale of the CLUELESS line
of cosmetics by the Company constitutes trademark infringement and unfair
competition, and seeks to enjoin the Company from using the CLUELESS mark. 
Plaintiff also seeks damages in an unspecified amount.  Pursuant to the
Company's agreement with VCP, Paramount (on behalf of VCP) is assuming the
defense of this action on behalf of the Company, and the Company shall be
entitled to be indemnified by VCP for any losses suffered by it as a result of
this action.  The Company has been advised by Paramount that it believes that
plaintiff's claims are without merit and will be vigorously defended by
Paramount.

     Except for proceedings in the normal course of business and the proceeding
described above, the Company is not a party to or involved in any pending legal
proceedings.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     The Company did not submit any matters to the vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1996.


                                          13

<PAGE>

                                       PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     A.   MARKET INFORMATION.

     The shares of Common Stock of the Company commenced trading on the Nasdaq
Small Capitalization Market under the symbol "SELB" on July 13, 1995.  The range
of high and low reported closing sales prices for the Common Stock as reported
by Nasdaq since the commencement of trading were as follows:

                                                       HIGH           LOW
                                                       ----           ---
FISCAL YEAR 1995(1)
-------------------

Quarter Ended:

     July 13, 1995 to September 30, 1995              $3.17         $2.71

     December 31, 1995                                $5.50         $2.81

FISCAL YEAR 1996(1)
-------------------

Quarter Ended:                                                      

     March 31, 1996                                   $5.375        $4.50

     June 30, 1996                                    $8.250        $6.00

     September 30, 1996                               $7.750        $5.625

     December 31, 1996                                $7.625        $5.125


____________________
(1)  All share prices prior to February 29, 1996 have been adjusted to give
     effect to a three-for-one stock split which was effected by the Company in
     the form of a share distribution on February 29, 1996 (the "Share
     Distribution").  Pursuant to the Share Distribution, each holder of record
     of Common Stock on February 2, 1996 received two additional shares of
     Common Stock for each share held on such date.


     The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

     B.   HOLDERS.

     On March 31, 1997, as reported by the Company's transfer agent, shares of
Common Stock were held by 16 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.


                                          14

<PAGE>

     C.   DIVIDENDS.

     Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations for federal and certain state income tax purposes.  As a
result, earnings of such companies during such period were taxed directly to
Harold Markowitz, the Chairman of the Board of the Company, Paul Sharp, the
President and Chief Executive Officer of the Company, and Jorge Lazaro, the
Executive Vice President and Secretary of the Company, who comprised all of the
shareholders of the Company and Linette Cosmetics during such period, rather
than to the Company or Linette Cosmetics, as the case may be.  On May 17, 1995,
the Company declared a distribution payable to such shareholders in an amount
equal to the taxes payable on the earnings of the Company during the period from
the date of its formation on September 21, 1993 (and, in the case of Linette
Cosmetics, from January 1, 1994) to the date of the consummation of the Linette
Merger (the "S Corporation Distribution"), such distribution to be payable
following the consummation of the IPO after the amount thereof had been
determined.  In September and October of 1995, the Company paid the S
Corporation Distribution to Messrs. Markowitz, Sharp and Lazaro in an aggregate
amount of approximately $156,250.

     Other than the S Corporation Distribution, the Company has not declared or
paid a cash dividend on its Common Stock since its inception.  The payment by
the Company of dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, if any, its capital
requirements and financial condition, as well as other relevant factors.  The
Board of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain earnings, if any, for use in the Company's
business operations.


ITEM 6.   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 Financial Statements of the Company and related notes thereto.


RESULTS OF OPERATIONS

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

     Net sales for the fiscal year ended December 31, 1996 were $13,318,088
compared to $11,286,114 for the fiscal year ended December 31, 1995,
representing an increase of 18%.  This increase in net sales resulted primarily
from increased sales of the Company's own proprietary brand name line of beauty
aids and cosmetics.

     Income from commissions increased from $194,021 in fiscal year 1995 to
$204,658 in fiscal year 1996.

     Cost of sales increased from $8,868,566 in 1995 to $10,601,237 in 1996. 
The cost of goods sold increased as a percentage of sales from 78.6% in 1995 to
79.6% in 1996.  The Company has recently uncovered the theft of certain of its
inventory from its North Bergen, New Jersey premises.  Based on information
known to the Company to date, the Company believes that the theft was committed
by a limited number of warehouse employees of the Company and occurred in the
fourth quarter of 1996.  Although the Company has not yet determined the amount
of inventory involved, the Company currently 


                                          15

<PAGE>

anticipates that the amount will be at least $50,000, but is not expected to
exceed $125,000.  This loss had an adverse effect on cost of goods sold for
1996.

     Selling, general and administrative ("SG&A") expenses increased from
$2,016,412 in 1995 to $2,631,839 in 1996.  The principal components of SG&A
generally are payroll, rent, commissions, insurance, legal, accounting and other
fees paid to third parties and travel and promotional expenses.  The increase in
SG&A expenses in 1996 resulted primarily from costs incurred in connection with
the development of new product lines, including the Company's
"Clueless-Registered Trademark-," "Loud Music-TM-," "Jabot-Registered
Trademark-" and "Jabot for the Young and Restless Generation-Registered
Trademark-" lines, increased payroll and rent expenses resulting from the
Company's having hired additional employees to manage its increased cosmetics
business and having leased additional warehouse space to store materials used in
producing its cosmetic products, increased travel expenses incurred in
connection with sales activities and an increase in the allowance for doubtful
accounts relating to certain past-due receivables of the Company.

     As a result of the increase in the cost of sales and the increase in the
SG&A expenses, total operating expenses increased from $10,884,978 in 1995 to
$13,233,076 in 1996.

     As a result of the increase in the Company's operating expenses, operating
income decreased from $595,157 in 1995 to $289,670 in 1996.

     Other income was $2,540 for 1996 compared to $101,489 for the year 1995. 
Other income in 1995 was primarily comprised of proceeds of approximately
$49,000 resulting from the settlement of an insurance claim and restitution by a
former employee in the amount of $52,000.

     The provision for income taxes was $118,000 in 1996, compared to $234,000
in 1995.  The provision for income taxes in 1995 reflects taxes owed by the
Company with respect to earnings of the Company during the period following the
termination of its status as an S Corporation.


LIQUIDITY AND CAPITAL RESOURCES

     During 1995, the Company completed the IPO, in which it sold an aggregate
(after giving effect to the Share Distribution) of 2,760,000 units (the
"Units"), with each unit consisting of one share of Common Stock and one
redeemable warrant to purchase one share of Common Stock (a "Warrant"), at a
price of $1.67 per Unit for gross proceeds of $4,600,000.

     After deducting fees and expenses of the IPO of approximately $1,274,000,
the net proceeds of the IPO were used to repay $850,000 of loans outstanding
under the Company's then existing borrowing arrangement with a bank and a
$250,000 note (the "Bridge Note") which had been issued to a bridge investor
(the "Bridge Investor") in connection with certain bridge financing secured by
the Company.  The remaining $2,226,000 was added to working capital.

     In connection with the Company's IPO, the balance of loans to the Company
by related parties, which was $769,000 at such time, was reduced by $300,000. 
The debt of $300,000 was converted into conversion units (equivalent to the
Units sold in the IPO) at the rate of $1.67 per conversion unit for an aggregate
of 180,000 conversion units (after giving effect to the Share Distribution). 
The remaining $469,000 was scheduled to be repaid by the Company with interest
at an annual rate of 8% on January 20, 1997 out of available working capital, if
available, on such terms as were to be determined by the 


                                          16

<PAGE>

board of directors of the Company.  On March 21, 1996, the Company repaid such
remaining balance at a discount of $46,900 and increased additional paid-in
capital by a corresponding amount.

     Prior to the consummation of the Linette Merger, the Company and Linette
Cosmetics were treated as S Corporations.  As a result, earnings of such
companies during such period were taxed for federal and certain state income tax
purposes directly to the shareholders of the companies.  On May 17, 1995, the
Company declared the S Corporation Distribution payable to the shareholders of
such companies prior to the Linette Merger in an amount equal to the taxes
payable on earnings of the Company during the period of its S Corporation
status, which distribution was payable following the consummation of the IPO
after the amount thereof had been determined.  In September and October of 1995,
the Company paid S Corporation Distributions in the aggregate amount of
approximately $156,250.

     In May 1995, the Company borrowed, for working capital purposes and to pay
a portion of the expenses of the IPO, an aggregate of $250,000 (the "Bridge
Financing") from the Bridge Investor, an accredited investor unaffiliated with
the Company or any of its executives or directors.  In connection with the
Bridge Financing, the Company issued to the Bridge Investor (i) the Bridge Note,
which bore interest at the rate of 8% per annum and was due and payable on the
earlier of the consummation of the IPO or November 23, 1995 and (ii) 3,000,000
warrants (the "Bridge Warrants"), each of which was exercisable until November
23, 1995 and entitled the holder thereof to purchase one share of Common Stock
for $2.00 (after giving effect to the Share Distribution).  Upon the
consummation of the IPO, each Bridge Warrant automatically converted into a
warrant having the same terms as the Warrants.  The Company used a portion of
the proceeds of the IPO to repay the entire principal amount of the Bridge Note,
plus accrued interest thereon.

     On November 6, 1995, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with United Jersey Bank (the "Lender") pursuant to which
it obtained a revolving line of credit for general working capital purposes in
an aggregate principal amount up to $2,000,000, subject to a borrowing base
limitation.  The line of credit bears interest at fluctuating rates per annum
based on the "Prevailing Base Rate" (as defined in the Loan Agreement) of the
Lender.  As of April 8, 1997, the outstanding balance under this line of credit
was $750,000.  Any funds borrowed by the Company under the Loan Agreement are
secured primarily by the inventory and receivables of the Company.  The Loan
Agreement terminates on May 31, 1997.  Although the Company anticipates that it
will renew the Loan Agreement upon its termination, there can be no assurance
that the Loan Agreement will be renewed at such time.

     During the fiscal year ended December 31, 1996, Warrants to purchase
813,477 shares of Common Stock were exercised, resulting in net proceeds to the
Company of $1,372,333.  Subsequent to December 31, 1996, an aggregate of 383,768
shares of Common Stock were issued by the Company upon the exercise of Warrants,
options and warrants held by an affiliate of the Company, resulting in net
proceeds to the Company of $623,077.

     At December 31, 1996, the Company had working capital of $5,575,016 and
cash and short-term investments of $129,538.
  
     The Company believes that, based upon the Company's existing cash balances,
including cash generated from the exercise of outstanding options and Warrants,
anticipated cash flow from the Company's operations, anticipated growth and the
availability of additional funds under the Loan Agreement, the Company will be
able to satisfy the Company's cash requirements for at least twelve 


                                          17

<PAGE>

months.  In the event the Company's plans change (due to unanticipated expenses
or difficulties or otherwise), or if the Company's existing cash balances and
projected cash flow otherwise prove insufficient to fund operations, the Company
could be required to seek additional financing sooner than currently
anticipated.  Except for the Loan Agreement, which expires on May 31, 1997, the
Company has no current arrangements with respect to, or sources of, additional
financing.  Accordingly, there can be no assurance that additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all.  The Company's inability to obtain such additional financing could
have a material adverse effect on the Company's long-term liquidity and on the
proposed business expansion plans of the Company.


CAUTIONARY STATEMENT

     This Annual Report on Form 10-KSB 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 as a result of various factors,
including but not limited to general trends in the retail industry, the ability
of the Company to successfully implement its expansion plans, consumer
acceptance of any products developed and sold by the Company, and the ability of
the Company to develop its "celebrity" product business.


ITEM 7.   FINANCIAL STATEMENTS

     The financial statements of the Company are set forth in a separate section
of this Annual Report on Form 10-KSB.  See "Item 13. Exhibits and Reports on
Form 8-K" and the Index to Financial Statements on page F-1 of this Annual
Report on Form 10-KSB.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.


                                          18

<PAGE>

                                       PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     See the section captioned "Election of Directors" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
May 29, 1997, which section is incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION

     See the section captioned "Executive Compensation" included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to be
held on May 29, 1997, which section is incorporated herein by reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on May 29, 1997, which section is incorporated herein by reference.

     (b)  SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS


     See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on May 29, 1997, which section is incorporated herein by reference.

     (c)  CHANGES IN CONTROL

     The Company knows of no contractual arrangements which may, at a subsequent
date, result in a change of control of the Company.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See the section captioned "Certain Transactions" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held May
29, 1997, which section is incorporated herein by reference.


                                          19

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS

     (1)  The financial statements of the Company and the report thereon listed
     on the Index to Financial Statements on page F-1 hereof are being filed as
     part of this Annual Report on Form 10-KSB.

     (2)  The following exhibits are being filed as part of this Annual Report
     on Form 10-KSB:

     1.1     Underwriting Agreement dated July 13, 1995 between the Company and
             Duke & Co., Inc. (incorporated by reference to Exhibit 10.1 to the
             Company's Quarterly Report on Form 10-QSB for the quarterly period
             ended September 30, 1995).

     2.1     Agreement and Plan of Merger of Lea Cosmetics, Inc. into the
             Company dated July 31, 1995, together with Certificate of Merger
             filed with the Secretary of State of the State of Delaware on
             August 3, 1995 (incorporated by reference to Exhibit 2.1 to the
             Company's Annual Report on Form 10-KSB for the fiscal year ended
             December 31, 1995).

     3.1     Certificate of Incorporation of the Company, as amended
             (incorporated by reference to Exhibit 3.1 to the Company's Annual
             Report on Form 10-KSB for the fiscal year ended December 31, 1995).

     3.2     Amended and Restated By-Laws of the Company (incorporated by
             reference to Exhibit 3.2 to the Company's Quarterly Report on Form
             10-QSB for the quarterly period ended June 30, 1995).

     4.1     Form of Certificate for Common Stock (incorporated by reference to
             Exhibit 4.1 to Amendment No. 2 to the Company's Registration
             Statement on Form SB-2 (Registration No. 33-88134), as filed with
             the Securities and Exchange Commission on June 28, 1995 ("Amendment
             No. 2")).

     4.2     Warrant Agreement dated as of July 20, 1995 between the Company,
             Continental Stock Transfer & Trust Company and Duke & Co., Inc.
             (incorporated by reference to Exhibit 4.1 to the Company's
             Quarterly Report on Form 10-QSB for the quarterly period ended June
             30, 1995).

     4.3     Form of Warrant Certificate (incorporated by reference to Exhibit
             4.3 to Amendment No. 2).

     4.4     Underwriter's Warrant dated July 20, 1995, issued by the Company to
             Duke & Co., Inc. (incorporated by reference to Exhibit 4.2 to the
             Company's Quarterly Report on Form 10-QSB for the quarterly period
             ended June 30, 1995).

     4.5     Warrant and Registration Agreement dated as of July 20, 1995
             between the Company and Jan Mirsky (incorporated by reference to
             Exhibit 4.5 to the Company's Annual Report on Form 10-KSB for the
             fiscal year ended December 31, 1995).


                                          20

<PAGE>

     4.6     Registration Rights Agreement dated as of May 19, 1995 between the
             Company and Wellington Corporation N.V. (incorporated by reference
             to Exhibit 4.7 to Amendment No. 1 to the Company's Registration
             Statement on Form SB-2 (Registration No. 33-88134), as filed with
             the Securities and Exchange Commission on May 24, 1995 ("Amendment
             No. 1")).

     4.7     1995 Stock Option Plan of the Registrant (incorporated by reference
             to Exhibit 4.3 to the Company's Quarterly Report on Form 10-QSB for
             the period ended June 30, 1995).

     4.8     1995 Nonemployee Directors' Stock Option Plan of the Registrant
             (incorporated by reference to Exhibit 10.3 to the Company's
             Quarterly Report on Form 10-QSB for the period ended June 30,
             1995).

     4.9     Form of Stock Option Agreements under the 1995 Stock Option Plan
             (incorporated by reference to Exhibit 4.3 to the Company's
             Registration Statement on Form S-8, as filed with the Commission on
             January 10, 1997).

     4.10    Form of Stock Option Agreement under the 1995 Nonemployee
             Directors' Stock Option Plan (incorporated by reference to Exhibit
             4.4 to the Company's Registration Statement on Form S-8, as filed
             with the Commission on January 10, 1997).

     10.1    Agreement dated November 1, 1993 between Chances, Inc. and Linette
             Cosmetics, Inc., together with Assignment of Contract by Linette
             Cosmetics, Inc. to the Company and letter dated May 9, 1995
             (incorporated by reference to Exhibit 10.1 to Amendment No. 1).

     10.1(A) Agreement dated July 19, 1995 by and between Chances, Inc. and the
             Company (incorporated by reference to Exhibit 10.1(A) to the
             Company's Annual Report on Form 10-KSB for the fiscal year ended
             December 31, 1995).

     10.2    Agreement dated January 1, 1994 between Carlton Varney and the
             Company (incorporated by reference to Exhibit 10.2 to Amendment No.
             1).

     10.3    Product Promotion Agreement dated August 23, 1994 between American
             Pop, Inc. and the Company (incorporated by reference to Exhibit
             10.3 to Amendment No. 1).

     10.4    Product Promotion Agreement dated December 1994 between Linda
             Levinson and the Company (incorporated by reference to Exhibit
             10.4(A) to Amendment No. 1).

     10.5    Product Promotion Agreement dated August 1994 between Eden Ventures
             Corporation and the Company (incorporated by reference to Exhibit
             10.4(B) to Amendment No. 1).

     10.6    Product Promotion Agreement dated March 1995 between Best Buddies
             International, Inc. and the Company (incorporated by reference to
             Exhibit 10.12 to Amendment No. 1).

     10.7    Agreement dated September 1994 between Clyde Duneier, Inc. and
             Linette Cosmetics, Inc. (incorporated by reference to Exhibit 10.5
             to Amendment No. 1).


                                          21

<PAGE>

     10.8    Agreement dated October 25, 1993 between Tri-Star Products, Inc.
             and Linette Cosmetics, Inc. (incorporated by reference to Exhibit
             10.6 to Amendment No. 1).

     10.9    Agreement dated April 1995 between River Products, Inc. and the
             Company (incorporated by reference to Exhibit 10.13 to Amendment
             No. 1).

     10.10   Financial Advisory and Investment Banking Agreement, dated as of
             July 20, 1995, between the Company and Duke & Co., Inc.
             (incorporated by reference to Exhibit 10.4 to the Company's
             Quarterly Report on Form 10-QSB for the quarterly period ended June
             30, 1995).

     10.11   Letter Agreement dated September 10, 1992 between Linette
             Cosmetics, Inc. and H. Howlin International, Inc. (incorporated by
             reference to Exhibit 10.11 to Amendment No. 1).

     10.12   1995 Stock Option Plan of the Company (incorporated by reference to
             Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB for
             the quarterly period ended June 30, 1995).

     10.13   1995 Nonemployee Directors' Stock Option Plan (incorporated by
             reference to Exhibit 10.3 to the Company's Quarterly Report on Form
             10-QSB for the quarterly period ended June 30, 1995).

     10.14   Stock Purchase Agreement dated May 18, 1995 between the Company and
             Larry H. Pallini (incorporated by reference to Exhibit 10.14 to
             Amendment No. 1).

     10.15   Employment Agreement dated as of June 30, 1995 between the Company
             and Harold Markowitz (incorporated by reference to Exhibit 10.7 to
             the Company's Quarterly Report on Form 10-QSB for the quarterly
             period ended June 30, 1995).

     10.16   Employment Agreement dated as of June 30, 1995 between the Company
             and Paul Sharp (incorporated by reference to Exhibit 10.8 to the
             Company's Quarterly Report on Form 10-QSB for the quarterly period
             ended June 30, 1995).

     10.17   Employment Agreement dated as of June 30, 1995 between the Company
             and Jan Mirsky (incorporated by reference to Exhibit 10.9 to the
             Company's Quarterly Report on Form 10-QSB for the quarterly period
             ended June 30, 1995).

     10.18   Employment Agreement dated as of June 30, 1995 between the Company
             and Jorge Lazaro (incorporated by reference to Exhibit 10.10 to the
             Company's Quarterly Report on Form 10-QSB for the quarterly period
             ended June 30, 1995).

     10.19   Employment Agreement dated as of September 27, 1995 between the
             Company and Jack Koegel (incorporated by reference to Exhibit 10.19
             to the Company's Annual Report on Form 10-KSB for the fiscal year
             ended December 31, 1995).

     10.20   Subscription Agreement executed May 19, 1995 by Wellington
             Corporation N.V. (incorporated by reference to Exhibit 10.20 to
             Amendment No. 2).


                                          22

<PAGE>

     10.21   Agreement dated as of July 8, 1995 between Larry H. Pallini and the
             Company (incorporated by reference to Exhibit 10.21 to the
             Company's Annual Report on Form 10-KSB for the fiscal year ended
             December 31, 1995).

     10.22   Contribution Agreement dated as of July 13, 1996 by and among the
             Company and Harold Markowitz, Paul Sharp and Jorge Lazaro
             (incorporated by reference to Exhibit 10.13 to the Company's
             Quarterly Report on Form 10-QSB for the quarterly period ended
             September 30, 1995).

     10.23   Debt Conversion Agreement dated as of July 13, 1995 by and among
             the Company, Harold Markowitz, Paul Sharp and Jorge Lazaro
             (incorporated by reference to Exhibit 10.14 to the Company's
             Quarterly Report on Form 10-QSB for the quarterly period ended
             September 30, 1995).

     10.24   Loan and Security Agreement dated as of November 6, 1995 by and
             between United Jersey Bank and the Company (incorporated by
             reference to Exhibit 10.15 to the Company's Quarterly Report on
             Form 10-QSB for the quarterly period ended September 30, 1995).

     10.25   Trademark License Agreement dated January 28, 1997 between Bell
             Abbott Haussmann Inc. and the Company.

     10.26   Letter Agreement between the Company and LPD Packaging, Inc
             (incorporated by reference to Exhibit 10.26 to the Company's Annual
             Report on Form 10-KSB for the fiscal year ended December 31, 1995).

     10.27   Merchandising License Agreement dated as of October 16, 1996
             between Viacom Consumer Products, Inc. and the Company.

     10.28   Lease dated as of February 5, 1997 between Bascom Corp. and the
             Company.

     11.1    Statement re: computation of per share earnings (not required
             because the relevant computation can be clearly determined from
             material contained in the financial statements).

     23      Consent of Goldstein Golub Kessler & Company, P.C.

     27      Financial Data Schedule.

     (b)  REPORTS ON FORM 8-K

             The Company did not file any Reports on Form 8-K during the fiscal
     year ended December 31, 1996.


                                          23

<PAGE>

                                      SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                             SEL-LEB MARKETING, INC.
                                             (Registrant)


                                             By:  /s/ Harold Markowitz
                                                ----------------------------
                                                Harold Markowitz
                                                Chairman of the Board


                                             Date:  April 15, 1997


     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.


         NAME                           TITLE                         DATE
         ----                           -----                         ----


 /s/ Harold Markowitz
-----------------------
  Harold Markowitz       Chairman of the Board and Director       April 15, 1997

 /s/ Paul Sharp
-----------------------
  Paul Sharp             President, Chief Executive Officer and   April 15, 1997
                         Director 
                         (principal executive officer)

 /s/ Jan S. Mirsky                                                              
-----------------------
  Jan S. Mirsky          Executive Vice President - Finance,      April 15, 1997
                         Chief Operating Officer and Director
                         (principal financial and accounting 
                         officer)

 /s/ Jack Koegel                                                                
-----------------------
  Jack Koegel            Vice Chairman of the Board and           April 15, 1997
                         Director

 /s/ Jorge Lazaro                                                               
-----------------------
  Jorge Lazaro           Executive Vice President, Secretary and  April 15, 1997
                         Director


                                          24

<PAGE>

 /s/ Stanley R. Goodman                                                         
-----------------------
  Stanley R. Goodman     Director                                 April 15, 1997

 /s/ Edward C. Ross                                                             
-----------------------
  Edward C. Ross         Director                                 April 15, 1997

 /s/ L. Douglas Bailey                                                          
-----------------------
  L. Douglas Bailey      Director                                 April 15, 1997


                                          25

<PAGE>

                                                         SEL-LEB MARKETING, INC.
                                                   INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                            F-2


FINANCIAL STATEMENTS:

   Balance Sheet                                                        F-3
   Statement of Income                                                  F-4
   Statement of Shareholders' Equity                                 F-5 - F-6
   Statement of Cash Flows                                              F-7
   Notes to Financial Statements                                     F-8 - F-17


                                                                             F-1


<PAGE>



INDEPENDENT AUDITOR'S REPORT




The Board of Directors
Sel-Leb Marketing, Inc.


We have audited the accompanying balance sheet of Sel-Leb Marketing, Inc. as of
December 31, 1996 and the related statements of income, shareholders' equity,
and cash flows for each of the two years in the period ended December 31, 1996. 
These financial statements are the responsibility of the Company's management. 
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects,  the financial position of Sel-Leb Marketing, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.




GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York

March 23, 1997

                                                                             F-2


<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                                   BALANCE SHEET
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

DECEMBER 31, 1996
--------------------------------------------------------------------------------

ASSETS (Note 6)

Current Assets:
  Cash and cash equivalents (Note 1)                                $  129,538
  Accounts receivable, less allowance for doubtful 
   accounts of $275,000                                              3,247,812
  Inventory (Note 1)                                                 3,746,124
  Due from officer                                                      23,274
  Prepaid expenses and other current assets                            304,797
  Deferred income tax asset, net of valuation allowance 
   (Note 10)                                                            95,000
--------------------------------------------------------------------------------
    TOTAL CURRENT ASSETS                                             7,546,545

Property and Equipment - at cost, net of accumulated 
depreciation and amortization (Notes 1 and 3)                          356,251

Goodwill (Note 2)                                                      252,063

Other Assets                                                            60,125
--------------------------------------------------------------------------------
    TOTAL ASSETS                                                    $8,214,984
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses (Note 4)                    $1,420,609
  Loan payable - bank (Note 6)                                         300,000
  Due to affiliate (Note 9)                                             64,398
  Income taxes payable (Note 10)                                       186,522
--------------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                                        1,971,529
--------------------------------------------------------------------------------

Commitments and Contingency (Notes 5, 6 and 12)

Shareholders' Equity (Notes 7 and 8):
  Common stock - $.01 par value; authorized 40,000,000 
   shares, issued and outstanding 8,268,477 shares                      82,685
  Additional paid-in capital                                         5,632,512
  Retained earnings                                                    588,258
  Less receivable in connection with equity transactions               (60,000)
--------------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                                       6,243,455
--------------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                      $8,214,984
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                               See Notes to Financial Statements

                                                                             F-3


<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                             STATEMENT OF INCOME
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                     1996          1995
--------------------------------------------------------------------------------

Revenue:
  Net sales (Notes 1 and 11)                         $13,318,088   $11,286,114
  Commission income (Note 1)                             204,658       194,021
--------------------------------------------------------------------------------
Total revenue                                         13,522,746    11,480,135
--------------------------------------------------------------------------------

Operating expenses:
  Cost of sales (Note 9)                              10,601,237     8,868,566
  Selling, general and administrative expenses
   (Notes 1 and 5)                                     2,631,839     2,016,412
--------------------------------------------------------------------------------
Total operating expenses                              13,233,076    10,884,978
--------------------------------------------------------------------------------

Operating income                                         289,670       595,157

Interest expense, net of interest income of $11,755 
 and $34,972, respectively (Note 9)                      (16,475)      (83,809)

Other income                                               2,540       101,489
--------------------------------------------------------------------------------

Income before provision for income taxes and minority
 interest in earnings of subsidiary                      275,735       612,837

Provision for income taxes (Note 10)                    (118,000)     (234,000)
--------------------------------------------------------------------------------

Income before minority interest in earnings of 
 subsidiary                                              157,735       378,837

Minority interest in earnings of subsidiary (Note 1)           -       (39,414)
--------------------------------------------------------------------------------
Net income                                           $   157,735   $   339,423
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Earnings per share                                   $       .02
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Pro forma information (unaudited) (Notes 1 and 13):
  Net income                                                       $   341,423
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

  Primary earnings per share                                       $       .05
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

  Fully diluted earnings per share                                 $       .04
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------



                                               See Notes to Financial Statements

                                                                             F-4


<PAGE>

<TABLE>
<CAPTION>

 

                                                                                          SEL-LEB MARKETING, INC.

                                                                                STATEMENT OF SHAREHOLDERS' EQUITY

Years ended December 31, 1996 and 1995
------------------------------------------------------------------------------------------------------------------

                                                                                      Receivable
                                                             Additional             in Connection
                                          Common Stock         Paid-In    Retained   with Equity    Shareholders'
                                      Shares        Amount     Capital    Earnings   Transactions       Equity
------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>        <C>        <C>          <C>             <C>
Balance at January 1, 1995            4,320,000     $ 1,000    $ 87,799   $ 346,455    $(23,000)       $  412,254

Adjustment of par value                    -         42,200     (42,200)       -           -                 -   

Capital contribution of imputed 
 interest on noninterest-bearing
 loans (Note 9)                            -           -          4,225        -           -                4,225

Collection of receivable                   -           -           -           -         21,000            21,000

Issuance of stock warrants (Note 8)        -           -         10,000        -           -               10,000

Adjustment resulting from 
 termination of S Corporation
 status (Note 7)                           -           -        255,355    (255,355)       -                 -   

Issuance of common stock in
 connection with acquisition of
 subsidiary (Notes 1 and 2)             180,000       1,800     380,575        -          2,000           384,375

Conversion of long-term debt into
 common shares (Note 9)                 180,000       1,800     298,200        -           -              300,000

Net proceeds from sale of stock
 (Note 7)                             2,760,000      27,600   3,298,852        -           -            3,326,452

                                                                     (continued)



</TABLE>



                                               See Notes to Financial Statements

                                                                             F-4


<PAGE>

<TABLE>
<CAPTION>

 
                                                                                          SEL-LEB MARKETING, INC.

                                                                                STATEMENT OF SHAREHOLDERS' EQUITY

Years ended December 31, 1996 and 1995
------------------------------------------------------------------------------------------------------------------

                                                                                      Receivable
                                                             Additional             in Connection
                                          Common Stock         Paid-In    Retained   with Equity    Shareholders'
                                      Shares        Amount     Capital    Earnings   Transactions       Equity
------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>        <C>        <C>          <C>             <C>

Distribution to shareholders 
 (Note 10)                                 -           -     $ (156,243)       -           -          $  (156,243)

 Net income                                -           -           -      $ 339,423        -              339,423 
------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995          7,440,000     $74,400   4,136,563     430,523        -            4,641,486

Net proceeds from exercise of stock
 warrants (Note 8)                      813,477       8,135   1,424,198        -       $(60,000)        1,372,333

Proceeds from exercise of stock
 options (Note 8)                        15,000         150      24,850        -           -               25,000

Discounts on loans payable to
 shareholders (Note 9)                     -           -         46,901        -           -               46,901

Net income                                 -           -           -        157,735        -              157,735
------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996          8,268,477     $82,685  $5,632,512   $ 588,258    $(60,000)       $6,243,455
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------


                                                                                 See Notes to Financial Statements

                                                                                                               F-6

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                          SEL-LEB MARKETING, INC.

                                                                                          STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------

Year ended December 31,                                                                    1996              1995
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>        
Cash flows from operating activities:
  Net income                                                                         $  157,735        $  339,423
  Adjustments to reconcile net income to net cash used in operating activities:
    Depreciation and amortization                                                       136,128            25,947
    Deferred income tax benefit                                                         (43,000)          (52,000)
    Allowance for doubtful accounts                                                     175,000            40,000
    Imputed interest contributed to capital                                                -                4,225
    Interest expense related to issuance of warrants                                       -               10,000
    Minority interest in earnings of subsidiary                                            -               39,414
    Changes in operating assets and liabilities:
      Increase in accounts receivable                                                (1,246,999)         (400,026)
      Increase in inventory                                                          (1,276,038)       (1,301,391)
      (Increase) decrease in prepaid expenses and other current assets                   48,760          (220,491)
      Increase in other assets                                                          (56,514)             -   
      Increase (decrease) in accounts payable and accrued expenses                      479,367          (310,669)
      Decrease in due to affiliate                                                      (53,912)          (56,630)
      Increase (decrease) in income taxes payable                                       (83,003)          183,877
-----------------------------------------------------------------------------------------------------------------
      Net cash used in operating activities                                          (1,762,476)       (1,698,321)
-----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Repayments from affiliates                                                               -              122,510
  Purchase of property and equipment                                                   (192,916)         (275,515)
  Amounts due from officer                                                              (23,274)             -   
-----------------------------------------------------------------------------------------------------------------
      Net cash used in investing activities                                            (216,190)         (153,005)
-----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Net proceeds from loan payable - bank                                                 300,000              -   
  Net repayments of notes payable - bank                                                   -             (800,000)
  Repayment of long-term debt to related parties                                       (422,099)             -   
  Net proceeds from sale of stock and warrants                                             -            3,440,003
  Net proceeds from exercise of stock warrants                                        1,372,333              -   
  Proceeds from exercise of stock options                                                25,000              -   
  Distributions to shareholders                                                            -             (156,243)
  Collection of receivable in connection with sale of common stock purchase warrant        -               21,000
-----------------------------------------------------------------------------------------------------------------
      Net cash provided by financing activities                                       1,275,234         2,504,760
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                   (703,432)          653,434
Cash and cash equivalents at beginning of year                                          832,970           179,536
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                             $  129,538        $  832,970
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------

Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                                                          $  31,357        $  112,568
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
    Income taxes                                                                     $  244,003         $  16,475
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------


</TABLE>


Supplemental schedule of noncash investing and financing activities:

 In May 1995, the Company issued warrants to purchase 3,000,000 shares of the
 Company's common stock and charged operations for $10,000 of interest expense
 (Notes 7 and 8).

 In December 1995, the Company issued 180,000 shares of the Company's common
 stock, valued at $384,375, in connection with the 40% acquisition of Lea (Note
 2).

 In July 1995, shareholders converted $300,000 of long-term debt into 180,000
 shares of the Company's common stock and warrants to purchase 180,000 shares
 of the Company's common stock.

 In March 1996, the Company received a $46,901 discount on its notes payable to
 shareholders.


                                               See Notes to Financial Statements

                                                                             F-7


<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


1.  ORGANIZATION,  Sel-Leb Marketing, Inc. (Sel-Leb) was incorporated under the
    PRESENTATION,  laws of the State of New York on September 21, 1993.  On May
    PRINCIPAL      18, 1995, Linette Cosmetics, Inc. (Linette), a company
    BUSINESS       having the same ownership as Sel-Leb, merged with and into
    ACTIVITY AND   Sel-Leb.  On July 13, 1995, the shareholders of Sel-Leb
    SIGNIFICANT    contributed their 60% interest in Lea Cosmetics, Inc. (Lea)
    ACCOUNTING     to Sel-Leb and Sel-Leb purchased the remaining 40% interest
    POLICIES:      (the 40% Interest) (see Note 2).  As a result, Lea became a
                   wholly owned subsidiary of Sel-Leb and was subsequently
                   merged with and into Sel-Leb.  The merger of Linette with
                   and into Sel-Leb and the contribution of the 60% interest in
                   Lea to Sel-Leb, have been reported at historical cost in a
                   manner similar to a pooling of interests.  The purchase of
                   the 40% Interest in Lea by Sel-Leb has been accounted for as
                   a purchase.  All significant intercompany transactions and
                   balances among Sel-Leb, Linette and Lea (collectively the
                   Company) through the dates of the mergers and the
                   acquisition of the 40% Interest have been eliminated.       

                   The statement of income for the Company for the year ended
                   December 31, 1995 includes the results of operations of
                   Sel-Leb and Linette for the 12 months ended December 31,
                   1995 and the results of operations of Lea for the 15 months
                   ended December 31, 1995.  The results of operations for Lea
                   for the 3-month period from October 1, 1994 to December 31,
                   1994, included in the statement of income for 1995, were not
                   material.

                   The Company is a secondary sourcer (distributing merchandise
                   on a wholesale basis outside normal distribution channels to
                   retail merchants) of a broad range of name-brand and
                   off-brand merchandise.  The Company also packages and
                   wholesales beauty aid and cosmetic products.  In addition,
                   the Company develops marketing programs to sell consumers
                   products through television home-shopping networks and other
                   electronic media by using celebrity spokespersons.  Revenue
                   from marketing programs for the years ended December 31,
                   1996 and 1995 were not significant.

                   The preparation of financial statements in conformity with
                   generally accepted accounting principles requires the use of
                   estimates by management affecting the reported amounts of
                   assets and liabilities and revenue and expenses and the
                   disclosure of contingent assets and liabilities.  Actual
                   results could differ from those estimates.

                   Inventory, consisting primarily of finished goods, is stated
                   at the lower of cost, determined by the first-in, first-out
                   method, or market.

                   Depreciation of property and equipment is provided for by
                   the straight-line method over the estimated useful lives of
                   the related assets.  Amortization of leasehold improvements
                   is provided for over the term of the lease.

                   Sales revenue is recognized on the date the merchandise is
                   shipped.

                   Commission income is recognized upon the sale of the related
                   product.

                   Product development costs are expensed as incurred.  Such
                   costs amounted to $134,204 for the year ended December 31,
                   1996.


                                                                             F-8

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   Advertising costs are charged to operations when incurred. 
                   Advertising costs for the years ended December 31, 1996 and
                   1995 amounted to approximately $27,000 and $12,000,
                   respectively.

                   Cash equivalents consist of money market accounts.

                   The fair value of the amount due from officers approximates
                   the carrying amount due to its short-term nature.

                   Pro forma earnings per share for 1995 are computed based on
                   the weighted average number of shares actually outstanding
                   plus the shares that would be outstanding assuming the
                   exercise of dilutive stock options and warrants, all of
                   which are considered common stock equivalents, using the
                   modified treasury stock method.  For the pro forma fully
                   diluted computation for 1995, the weighted average number of
                   shares outstanding includes the number of shares that would
                   be issued from the exercise of stock options and warrants
                   reduced by the number of shares which would have been
                   purchased from the proceeds of such exercise at the market
                   price of the Company's common stock on December 31, 1995,
                   because those prices were higher than the average market
                   prices during the year.  A similar computation was not made
                   for 1996 earnings per share because the average market price
                   for the year was higher than the price at December 31, 1996
                   and because the effect of including the stock options and
                   warrants would be to increase earnings per share.  For the
                   year ended December 31, 1995, the number of shares used in
                   the computation of pro forma primary earnings per share and
                   pro forma fully diluted earnings per share were 8,429,726
                   and 8,491,491, respectively.  For the year ended December
                   31, 1996, the number of shares used in the computation of
                   earnings per share was 7,659,359.

                   The Company maintains cash in bank accounts which, at times,
                   may exceed federally insured limits.  The Company has not
                   experienced any losses on these accounts.

                   Additionally in 1996, the Company elected to continue to
                   measure compensation cost using Accounting Principles Board
                   (APB) Opinion No. 25 as is permitted by SFAS No. 123,
                   ACCOUNTING FOR STOCK-BASED COMPENSATION, and has elected to
                   comply with other provisions and the disclosure requirements
                   of SFAS No. 123 (see Note 8).

2.  ACQUISITION:   In July 1995, Sel-Leb purchased the 40% Interest in Lea in a
                   business combination accounted for as a purchase.  The
                   purchase price was 180,000 shares of newly issued,
                   unregistered shares of Sel-Leb's common stock, 90,000 of
                   which were issued at the time of purchase and 90,000 of
                   which were issued in January 1996.  The accompanying
                   financial statements reflect the issuance of these shares of
                   common stock as if they were issued on December 31, 1995. 
                   The fair value of the assets acquired, including
                   approximately $283,000 allocated to goodwill, which is being
                   amortized over 10 years, amounted to approximately $384,000
                   and liabilities assumed amounted to approximately $101,000. 
                   Amortization of goodwill charged to operations in the years
                   ended December 31, 1996 and 1995 amounted to $28,760 and
                   $2,445, respectively.

                   At each balance sheet date the Company evaluates the period
                   of amortization of goodwill.  The factors used in evaluating
                   the period of amortization include:  (i) 
                                                                             F-9


<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   current operating results, (ii) projected future operating
                   results, and (iii) any other material factors that affect
                   the continuity of the business.

3.  PROPERTY AND   Property and equipment, at cost, consists of the following:
    EQUIPMENT:   

                                                                       Estimated
                                                                     Useful Life
                   -------------------------------------------------------------
                   Machinery and equipment        $221,184          5 to 7 years
                   Display fixtures                220,896          2 to 3 years
                   Computer equipment               43,354          3 to 5 years
                   Leasehold improvements           22,545              10 years
                   -------------------------------------------------------------
                                                   507,979
                   Less accumulated depreciation
                     and amortization              151,728
                   -------------------------------------------------------------
                                                  $356,251
                   -------------------------------------------------------------
                   -------------------------------------------------------------


4.  ACCOUNTS       Accounts payable and accrued expenses consist of the 
    PAYABLE AND    following:
    ACCRUED    
    EXPENSES:      Trade accounts payable                             $1,306,133
                   Accrued professional fees                              75,552
                   Accrued commissions                                    18,972
                   Accrued payroll                                        19,952
                   -------------------------------------------------------------
                                                                      $1,420,609
                   -------------------------------------------------------------
                   -------------------------------------------------------------

5.  COMMITMENTS:   In 1996, the Company entered into a new noncancelable
                   operating lease for office and warehouse facilities
                   commencing April 1, 1997 and expiring March 31, 2002.  In
                   connection with the lease, the Company is required to
                   purchase machinery and equipment from the lessor amounting
                   to $110,000.  The lease also requires payments for real
                   estate taxes and other operating costs.  The Company leases
                   warehouse and production facilities from one of its contract
                   manufacturers under a noncancelable operating lease which
                   expires December 31, 1998.

                   The future minimum rental payments under the leases are as
                   follows:
                        
                   Year ending December 31,
                             1997                                     $  148,000
                             1998                                        185,000
                             1999                                        223,000
                             2000                                        286,000
                             2001                                        298,000
                             2002                                         75,000
                   -------------------------------------------------------------
                                                                      $1,215,000
                   -------------------------------------------------------------
                   -------------------------------------------------------------


                                                                            F-10

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   The Company leases additional offices and warehouse
                   facilities on a month-to-month basis.
                        
                   Rent expense for the years ended December 31, 1996 and 1995
                   amounted to approximately $141,000 and $74,000,
                   respectively.
                        
                   The Company has entered into employment agreements with five
                   officers which expire at various times through July 2000.
                        
                   The aggregate minimum commitment for future salaries is as
                   follows:
                        
                   Year ending December 31,
                             1997                                     $  590,000
                             1998                                        450,000
                             1999                                        375,000
                             2000                                        188,000
                   -------------------------------------------------------------
                                                                      $1,603,000
                   -------------------------------------------------------------
                   -------------------------------------------------------------
                        
                   The Company has various promotional agreements whereby it
                   pays royalty fees to celebrities based upon a percentage of
                   net sales attributable to the celebrities' appearances.
                        
                   The Company has a license agreement to sell certain cosmetic
                   products under the licensor's trademark.  The agreement
                   expires on October 31, 1999 and the Company has the option
                   to extend the agreement for an additional two years upon the
                   achievement of certain sales volume.  The agreement requires
                   the Company to make royalty payments of 10% of licensed
                   sales, as defined.  The Company is required to pay a minimum
                   royalty of $225,000 by March 31, 1998, $90,000 of which was
                   prepaid by December 31, 1996, and to commit to minimum
                   advertising expenditures of $50,000 per year through the
                   expiration of the agreement.  As of December 31, 1996, the
                   Company had not yet sold any merchandise under this
                   agreement.
                        
                        
6.LINE OF CREDIT:  The Company has a line of credit with a bank expiring May
                   31, 1997 which provides for borrowings not to exceed the
                   lesser of $2,000,000 or prescribed levels of eligible
                   accounts receivable and inventory, as defined.  Borrowings
                   under the line of credit bear interest at the bank's
                   prevailing base rate (8.25% at December 31, 1996), as
                   defined in the agreement.  As of December 31, 1996, $300,000
                   was outstanding under the line of credit.  The loan is
                   collateralized by substantially all of the assets of the
                   Company.  The fair value of the loan payable approximates
                   the carrying amount due to the short-term nature of the
                   instrument.  


                                                                            F-11

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

7.  SHAREHOLDERS'  Accumulated earnings during the period in which the Company
    EQUITY:        was an S Corporation (see Note 10) have been included in the
                   accompanying financial statements as additional paid-in
                   capital.

                   On January 4, 1995, the Company increased its authorized
                   number of shares to 10,000,000 shares of common stock,
                   effected a 17,760.8-for-1 stock split and changed the par
                   value of its common stock from no par to $.01 par.  On May
                   18, 1995, the Company effected a .810706 reverse stock
                   split.  In February 1996, the Company increased its
                   authorized number of shares to 40,000,000 shares of common
                   stock and effected a 3-for-1 stock split.  The increase in
                   authorized shares and the stock splits have been given
                   retroactive effect in the accompanying financial statements.

                   On July 13, 1995, the Company completed its initial public
                   offering (IPO) of 2,760,000 shares of the Company's common
                   stock and 2,760,000 warrants.  Each warrant entitles the
                   holder to purchase one share of the Company's common stock
                   at an exercise price of $2.00 per share.  The net proceeds
                   to the Company were approximately $3,326,000 after deducting
                   underwriters' commissions and expenses of the offering which
                   totaled approximately $1,274,000.

8.  OPTIONS AND    The Company has a Stock Option Plan (the Option Plan) in
    WARRANTS:      which 1,350,000 common shares have been reserved for future
                   issuance.  The Option Plan provides for the issuance of
                   incentive stock options and nonincentive stock options for
                   the sale of shares of common stock to employees of the
                   Company at a price not less than the fair market value of
                   the shares on the date of the option grant, provided that
                   the exercise price of any incentive stock option granted to
                   an employee owning more than 10% of the outstanding common
                   shares of the Company may not be less than 110% of the fair
                   market value of the shares on the date of the incentive
                   stock option grant.  The term of each option and the manner
                   of exercise are determined by the board of directors. 
                   Employees are fully vested in the options 3 years after the
                   date of grant and the options are exercisable up to 10 years
                   after the date of grant.

                   In addition, the Company has a Nonemployee Directors' Stock
                   Option Plan (the Directors' Plan) in which 300,000 common
                   shares have been reserved for future issuance.  The
                   Directors' Plan provides for the sale of shares of common
                   stock to nonemployee directors of the Company at a price not
                   less than the fair market value of the shares on the date of
                   the option grant.  The term of each option and the manner of
                   exercise is determined by the board of directors, but in no
                   case can the options be exercisable 10 years beyond the date
                   of grant.  Upon election to the board of directors, and
                   after each re-election, each nonemployee director is granted
                   an option to purchase 5,000 common shares exercisable upon
                   the date of grant.  


                                                                            F-12

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   A summary of the status of the Company's options as of
                   December 31, 1996 and 1995, and changes during the years
                   then ended is presented below:

<TABLE>
<CAPTION>

                                                         1996                 1995
                   ------------------------------------------------------------------------
                                                             Weighted-            Weighted-
                                                              Average              Average
                                                              Exercise             Exercise
                                                    Shares     Price     Shares     Price
                   ------------------------------------------------------------------------
                  <S>                            <C>          <C>     <C>            <C>
                   Outstanding at beginning
                    of year                       1,114,500    $2.06       -           -
                   Granted                          169,000     6.00   1,380,000      $1.98
                   Canceled                         (50,000)    4.33    (265,500)      1.67
                   Exercised                        (15,000)    1.67       -           -
                   ------------------------------------------------------------------------
                    Outstanding at end of year    1,218,500     2.52   1,114,500       2.06
                   ------------------------------------------------------------------------
                   ------------------------------------------------------------------------
                   Options exercisable at
                    year-end                        609,500              323,625
                   ------------------------------------------------------------------------
                   ------------------------------------------------------------------------
                   Weighted-average fair
                    value of options granted
                    during the year              $     2.69           $      .88
                   ------------------------------------------------------------------------
                   ------------------------------------------------------------------------

                   The following table summarizes information about fixed stock
                   options outstanding at December 31, 1996:

<CAPTION>

                                                    Options Outstanding               Options Exercisable
                                         ------------------------------------------------------------------
                                           Number         Weighted-                   Number
                                         Outstanding       Average      Weighted-   Exercisable   Weighted-
                                             at           Remaining      Average        at         Average 
                      Range of           December 31,    Contractual    Exercise    December 31,   Exercise
                   Exercise Prices          1996            Life          Price        1996         Price
                   ----------------------------------------------------------------------------------------
                  <S>                   <C>                <C>           <C>         <C>           <C>
                   $1.67                   694,500          8.5           $1.67       369,750       $1.67
                   $2.75                   375,000          8.75           2.75       187,500        2.75
                   $5.63 - $7.00           149,000          9.84           5.91        52,250        6.13
                   ----------------------------------------------------------------------------------------
                   $1.67 - $7.00         1,218,500          8.74          $2.52       609,500       $2.38
                   ----------------------------------------------------------------------------------------
                   ----------------------------------------------------------------------------------------

</TABLE>

                   The Company has elected, in accordance with the provisions
                   of SFAS No. 123, to apply the current accounting rules under
                   APB Opinion No. 25 and related interpretations in accounting
                   for its stock options and, accordingly, has presented the
                   disclosure-only information as required by SFAS No. 123.  If
                   the Company had elected to recognize compensation cost based
                   on the fair value of the options granted at the grant date
                   as prescribed by SFAS No. 123, the Company's net 


                                                                            F-13

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   income and earnings per common share for the years ended
                   December 31, 1996 and 1995 would approximate the pro forma
                   amounts indicated in the table below.

<TABLE>
<CAPTION>

                   Year ended December 31,                                      1996      1995
                   ---------------------------------------------------------------------------
                  <S>                                                     <C>        <C>
                   Net income - as reported in 1996 and pro forma
                    (see Note 13) in 1995                                  $ 157,735  $341,423
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Net income (loss) - pro forma                           $(106,211) $132,359
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Pro forma primary earnings per share - as reported
                    (see Note 13)                                                     $    .05
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Pro forma fully diluted earnings per share - as reported
                    (see Note 13)                                                     $    .04
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Pro forma primary earnings per share - pro forma                   $    .02
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Pro forma fully diluted earnings per share - pro forma             $    .02
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Earnings per share - as reported                          $    .02
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------
                   Earnings (loss) per share - pro forma                     $   (.01)
                   ---------------------------------------------------------------------------
                   ---------------------------------------------------------------------------

</TABLE>

                   The fair value of each option grant is estimated on the date
                   of grant using the Black-Scholes option-pricing model with
                   the following weighted-average assumptions used for the
                   years ended December 31, 1996 and 1995:  expected volatility
                   of 40.0%; risk-free interest rate of 6.3%; expected lives of
                   5 years; and no expected dividends.
                        
                   At December 31, 1996, the Company has outstanding warrants
                   to purchase 490,689 shares of the Company's common stock by
                   an officer of the Company.  The warrants are exercisable
                   through March 21, 2000 at an aggregate exercise price of
                   $315,000.
                        
                   In May 1995, the Company borrowed $250,000 from an investor,
                   which was subsequently repaid out of the proceeds of the IPO
                   (see Note 7).  In connection with this financing, the
                   Company issued the investor 3,000,000 warrants, each of
                   which entitles the holder to purchase 1 share of common
                   stock at a price of $2.00 per share, exercisable for a
                   3-year period commencing July 13, 1996.  Upon issuance of
                   the warrants the Company charged operations for $10,000 and
                   increased additional paid-in capital by a corresponding
                   amount.
                   
                   Upon consummation of the Company's IPO (see Note 7), the
                   Company sold warrants (the Underwriter Warrants) to purchase
                   up to 240,000 units at an exercise price of $2.50 per unit
                   to the underwriter and its designees for an 


                                                                            F-14

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   aggregate of $10.00.  Each unit consisted of one share of
                   common stock and a warrant entitling the holder to purchase
                   one share of common stock at an exercise price of $2.00 per
                   share.  In August 1996, the Underwriter Warrants were
                   exercised.
                        
                   During the year ended December 31, 1996, warrants to
                   purchase 813,477 shares  of common stock were exercised. 
                   Net proceeds to the Company amounted to  $1,372,333.
                        
                   At December 31, 1996, common stock was reserved for the
                   following reasons:
                        
                   Exercise of common stock options        1,218,500
                   Exercise of common stock warrants       6,097,212
                   -------------------------------------------------------------
                   Subsequent to December 31, 1996, 383,768 additional shares
                   of common stock were issued upon the exercise of warrants
                   and options for $623,077 of proceeds.
                   
                        
9.  RELATED PARTY  Prior to the IPO, the Company had loans payable to its
    TRANSACTIONS:  shareholders and/or entities owned by such shareholders
                   amounting to $769,000 of which $169,000 was noninterest-
                   bearing.  Interest on that amount was imputed, charged to
                   operations and treated as a contribution to capital in 1995. 
                   Immediately prior to the IPO, $300,000 of such loans was
                   converted into 180,000 conversion units, each unit
                   consisting of 1 share of common stock and 1 warrant
                   entitling the holder to purchase 1 share of common stock at
                   an exercise price of $2.00 per share.  The balance of
                   $469,000 was repaid in March 1996.  The Company received a
                   discount of $46,901 on the outstanding balance and increased
                   additional paid-in capital by a corresponding amount.
                   Interest expense for the years ended December 31, 1996 and
                   1995 amounted to $8,070 and $49,602, respectively.          

                   At December 31, 1994, the Company had goods on consignment
                   from a company which is 50% owned by a shareholder of the
                   Company.  In 1995, the Company purchased the consigned
                   inventory from this company.  Purchases from this company
                   amounted to $69,768 for the year ended December 31, 1995. 
                   At December 31, 1996, the amount due to this company was
                   $64,398.


10. INCOME TAXES:  The shareholders of Sel-Leb and Linette had consented that
                   each company be taxed as a small business corporation (S
                   Corporation) under the provisions of the federal income tax
                   laws.  On May 18, 1995, the merger of Linette with and into
                   Sel-Leb (see Note 1) terminated the S Corporation status of
                   both entities.  The Company distributed $156,243 to these
                   shareholders following the consummation of the Company's IPO
                   (see Note 7).  This amount represented the taxes payable on
                   the earnings of Sel-Leb from its inception through the date
                   its S Corporation status was terminated and on the earnings
                   of Linette from January 1, 1994 through the date its S
                   Corporation status was terminated.


                                                                            F-15

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                   Deferred income tax asset consists of the following:

                   Capital loss carryforward                         $ 84,000 
                   Allowance for bad debts                             95,000 
                   ----------------------------------------------------------
                                                                      179,000 
                   Valuation allowance                                (84,000)
                   ----------------------------------------------------------
                         Net deferred income tax asset               $ 95,000 
                   ----------------------------------------------------------
                   ----------------------------------------------------------
                   The provision for income taxes consists of the following:
                        
                   Year ended December 31,                     1996      1995
                   ----------------------------------------------------------
                        
                   Federal income taxes:
                     Current                               $170,000  $222,000
                     Deferred                               (43,000)  (40,000)
                   ----------------------------------------------------------
                         Total federal income taxes         127,000   182,000
                   ----------------------------------------------------------
                        
                   State income taxes:
                     Current                                 (9,000)   64,000
                     Deferred                                  -      (12,000)
                   ----------------------------------------------------------
                         Total state income taxes            (9,000)   52,000
                   ----------------------------------------------------------
                         Total provision for income taxes  $118,000  $234,000
                   ----------------------------------------------------------
                   ----------------------------------------------------------
                   
                   The provision for income taxes differs from the amount
                   computed using the federal statutory rate of 34% as a result
                   of the following:
                        
                   Year ended December 31,                     1996      1995
                   ----------------------------------------------------------
                        
                   Tax at federal statutory rate                 34%       34%
                   Flow-through of S Corporation taxable income
                    to shareholders                               -         1
                   State income taxes, net of federal income 
                    tax effect                                    2         7
                   Effect of permanent differences                7         -
                   Other items, net                               -        (4)
                   ----------------------------------------------------------
                                                                 43%       38%
                   ----------------------------------------------------------
                   ----------------------------------------------------------
                        
                        
11.  SIGNIFICANT   During the year ended December 31, 1996, approximately 36% 
     CUSTOMERS:    and 10% of the  Company's sales were to two customers. 
                   During the year ended December 31, 1995, approximately 26%
                   and 11% of the Company's sales were to two customers.  As of
                   December 31, 1996, approximately 39% of accounts receivable
                   are due from one customer.










                                                                            F-16

<PAGE>

                                                         SEL-LEB MARKETING, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

12. LITIGATION:    The Company is involved in various claims and lawsuits
                   incidental to its business.  Management believes that the
                   probable resolution of such contingencies will not
                   materially affect the financial position or results of
                   operations of the Company.


13. PRO FORMA      The pro forma net income in the accompanying statement of
    FINANCIAL      income for the year ended December 31, 1995 includes a pro
    INFORMATION    forma adjustment for income taxes on a C Corporation basis
    (unaudited):   as indicated below:                                       

                   Income before provision for income taxes and minority
                   interest in earnings of subsidiary before pro forma
                   adjustment for income taxes                       $612,837
                   ----------------------------------------------------------
                   Pro forma provision for income taxes:
                    Federal                                           180,000
                    State                                              52,000
                   ----------------------------------------------------------
                                                                      232,000
                   ----------------------------------------------------------
                   Income before minority interest in earnings 
                     of subsidiary                                    380,837
                   Minority interest in earnings of subsidiary        (39,414)
                   ----------------------------------------------------------
                       Pro forma net income                          $341,423
                   ----------------------------------------------------------
                   ----------------------------------------------------------

                   The pro forma provision for income taxes differs from the
                   amount of pro forma income tax determined by applying the
                   applicable federal statutory rates primarily because of the
                   effect of state and local taxes.


                                                                            F-17