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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, 1998

                                      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.)

        495 River Street, Paterson, New Jersey              07524
       (Address of principal executive offices)           (Zip Code)

        Issuer's telephone number, including area code: (973) 225-9880

Securities registered pursuant to Section 12(b) of the Act:  NONE

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 $17,275,423.

The aggregate market value of voting stock held by non-affiliates of the
registrant on March 24, 1999 was approximately $2,256,436. On such date, the
closing price of the issuer's common stock was $4.25 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 March 24, 1999 was 1,089,551

                     DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Company's Proxy Statement in connection with its Annual
Meeting scheduled to be held on May 27, 1999 are incorporated in Part III. The
Company's Proxy Statement will be filed within 120 days after December 31,
1998.

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                            SEL-LEB MARKETING, INC.
                         Annual Report on Form 10-KSB
                  For the Fiscal Year Ended December 31, 1998

                               Table of Contents

<TABLE>
<CAPTION>
                                                                                             Page

<S>                  <C>                                                                     <C>
     PART I

          Item 1.    Description of Business                                                    3
          Item 2.    Description of Property                                                   10
          Item 3.    Legal Proceedings                                                         10
          Item 4.    Submission of Matters to a Vote of Security Holders                       10

     PART II

          Item 5.    Market for Common Equity and Related Stockholder Matters                  11
          Item 6.    Management's Discussion and Analysis or Plan of Operation                 12
          Item 7.    Financial Statements                                                      14
          Item 8.    Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                                       15

     PART III

          Item 9.    Directors, Executive Officers, Promoters and Control Persons;
                     Compliance with Section 16(a) of the Exchange Act                         15
          Item 10.   Executive Compensation                                                    15
          Item 11.   Security Ownership of Certain Beneficial Owners and Management            15
          Item 12.   Certain Relationships and Related Transactions                            15
          Item 13.   Exhibits and Reports on Form 8-K                                          16
</TABLE>


                                     -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, and (iii) 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.

         In September 1997, the Company and RBCJJ Associates, LLC ("RBCJJ"),
an unaffiliated third party, formed Ales Signature, Ltd., a New York
corporation ("Ales"), for the purpose of acquiring from SBC Corporation, Inc.
("SBC") a line of women's cosmetic, corrective and treatment products (e.g.,
blemish creams and eye creams) sold under the Signature(Registered) name. In 
connection with such formation, the Company acquired a 90% equity interest in
Ales and RBCJJ acquired the remaining 10% equity interest in Ales. On October
23, 1997, Ales consummated the acquisition of the Signature(Registered) line,
and in  connection therewith 


                                     -3-
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acquired from SBC, for approximately $670,000, (i) all rights of SBC in and to
certain trademarks (including the Signature Solutions(Registered) mark and the
Signature Beauty Care(Registered), Giraffe(Registered), Groomer's
Secret(Registered), Lip Set(Registered) and Salon Essence(Registered) registered
trademarks) and (ii) finished products and other inventory (including works in
progress and component parts) related to the product lines bearing the acquired
trademarks. On March 31, 1998, the Company, which at that date owned a
90%-interest in Ales, entered into an agreement whereby it sold an additional
10% interest to the minority stockholder for a total consideration of $81,137,
which was paid prior to December 31, 1998. As a result of the completion of this
sale, the minority stockholder has a 20%-interest in Ales, and the Company has
an 80%-interest in Ales.

         Unless otherwise specified herein, references to the "Company" shall
refer collectively to Sel-Leb Marketing, Inc. and its subsidiary Ales
Signature, Ltd.

         Sale of Proprietary Brand Name Products. The Company is 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), Zia(Registered),  Loud Music(Trademark), Ghoul
Tools(Trademark), Quick Thang(Trademark), Loud Sticks(Trademark), Signature
Solutions(Registered) and  Signature Beauty Care(Registered) 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 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. During the fiscal year ended December 31, 1998, no
such supplier accounted for more than 10% of such purchases. 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, materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered by the suppliers to the
Company's warehouse facilities. Thereafter, the Company delivers such
materials, on an as-needed basis, to its contract manufacturers, which are
engaged by the Company to provide filling services and perform quality control
with respect to the finished products. During the fiscal year ended December
31, 1998, one such contract manufacturer C LPD Packaging, Inc. C accounted for
approximately 75% of the Company's filling services. All products are
manufactured pursuant to the Company's specifications on a purchase order
basis. Once completed, the products are delivered to the Company, which
packages the products and distributes the finished products to its customers.
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.


                                     -4-
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         As part of the Company's strategy of taking advantage of the growth
in mass merchandising and value retailing, the Company will seek to expand its
existing proprietary brand name product lines as well as continue to introduce
new 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 in the United States and, to a
very limited extent, in Europe, and sells the merchandise to retail chains and
other mass merchandisers located throughout the United States. During the year
ended December 31, 1998, 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 and Hills Department Stores, which
accounted for approximately 32% and 13%, respectively, of the Company's net
opportunistic sales in 1998. 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 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 


                                     -5-
<PAGE>

total opportunistic merchandise purchases for the year ended December 31,
1998, with the exception of U.S. Electronics Inc., which accounted for 21% of
said purchases. During the year ended December 31, 1998, 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, 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 Paul Sharp, the
Company's President and Chief Executive Officer, and Jorge Lazaro, the
Company's Executive Vice President, 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. However, in
certain cases the Company purchases merchandise with payment made upon the
receipt of goods in order to enable the Company to obtain favorable prices.

         Designer Fragrances 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, 


                                     -6-
<PAGE>

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.

         Development of "Celebrity-Endorsed" and Television "Tie-in" Products.
The Company believes that the increasing popularity of consumer products
endorsed by celebrities, as well as products which "tie-in" to specific
television shows, may provide significant future opportunities for the
Company. Accordingly, the Company is seeking to develop products for promotion
by celebrity spokespersons and television "tie-in" products, which products
would 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, as well as agreements pursuant to
which it will be able to develop television "tie-in" products which the
Company believes will have consumer appeal.

         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 (after
giving effect to any royalty payments required to be made to celebrity
spokespersons) resulting from the sale of such products are to be divided
equally between the Company and ACI. To date, the Company has provided the
financing for a line of cosmetics developed by ACI (including, without
limitation, lipsticks, blushes and other beauty products) which are being
promoted by a leading make-up artist and sold through the electronic media.
The revenues generated by the Company=s arrangement with ACI, Inc. accounted
for approximately 20% of the Company=s net sales in 1998. There can be no
assurance that any other products will be developed by ACI and financed by the
Company pursuant to this agreement or that any such products that are
developed will meet with consumer acceptance or provide significant revenues
for the Company.

         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) in connection with the manufacture and distribution in the
United States of a Clueless(Registered) 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. The agreement commenced 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. The Company currently manufactures and
sells a line of Clueless(Registered) lipsticks, nail polishes and mascaras. As
in the case of its own proprietary brand name products, the Company manufactures
the Clueless(Registered) products by acquiring the raw materials 


                                     -7-
<PAGE>

therefor from various suppliers and delivering such materials to its contract
manufacturers, which provide filling services and deliver finished products to
the Company for packaging and delivery to the Company's customers. There can
be no assurance that the Clueless(Registered) products will continue to meet
with consumer acceptance or that the Clueless(Registered) show will continue
to be broadcast during the anticipated term of the agreement.

         Although the Company is seeking to develop the "celebrity-endorsed"
and "television tie-in" 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 in connection with its
opportunistic purchasing activities for resale to its mass market customers is
generally shipped by the supplier to the Company's warehouse facility, which
is located in Paterson, New Jersey, or, in certain situations, is shipped by
the supplier directly to a customer from whom the Company has received a
purchase order. The Company utilizes its Paterson 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 raw materials purchased by the Company for its
proprietary beauty aid and cosmetic products, as well as for the products sold
under the Clueless(Registered) name, are delivered to the Company's warehouse
facility. Thereafter, the Company delivers such materials, on an as-needed
basis, to its contract manufacturers, which provide filling services and
perform quality control with respect to the finished products. Once completed,
the products are delivered to the Company, which packages the products and
distributes the finished goods from its warehouse to its customers.

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), Quick
Thang(Trademark), Loud Sticks(Trademark), Zia(Registered), Loud
Music(Trademark), Ghoul Tools(Trademark), Signature Solutions(Registered) and
Signature Beauty Care(Registered) 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 


                                     -8-
<PAGE>

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) line of cosmetics 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.

Trademark and Servicemark Protection

         Products developed by the Company are sold under the 
Linette(Registered), Zia(Registered),Quick Thang(Trademark), Loud
Sticks(Trademark), Signature Solutions(Registered) and Signature Beauty
Care(Registered) trademarks and the Loud Music(Trademark) and Ghoul
Tools(Trademark) marks. The Company has registered the Linette(Registered) and
Zia(Registered) trademarks with the United States Patent and Trademark Office
(the "Trademark Office") and, in connection with the acquisition of the product
lines from SBC, Ales acquired all of SBC's rights in and to the Signature
Solutions(Registered) mark and the Signature Beauty Care(Registered),
Giraffe(Registered), Groomer's Secret(Registered), Lip Set(Registered) and Salon
Essence(Registered) trademarks. 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 trademarks Loud Music(Trademark) and Ghoul
Tools(Trademark), the trademarks under which the Company sells certain
proprietary cosmetics products. There can be no assurance that registration of
such trademarks 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) in connection with the manufacture and distribution in
the United States of a Clueless(Registered) 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).



                                     -9-
<PAGE>

Personnel

         The Company currently employs approximately 20 full-time salaried
employees and approximately 50 hourly employees (the exact number of which
fluctuates from time to time based on the Company's needs). The terms of
employment of the Company's hourly employees are governed by a collective
bargaining agreement which commenced on September 1, 1997 and continues for a
term of five years. 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 $4,000,000
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. 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 located at 495 River
Street, Paterson, New Jersey, 07524. Such 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 (including tax) of
$13,120 in the first two years, $20,666 in the third year and $24,833 in the
fourth and fifth years. 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 is
adequate for the current needs of its business.

Item 3.Legal Proceedings

         Except for proceedings in the normal course of business, 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.


                                     -10-
<PAGE>

         The Company did not submit any matters to the vote of security
holders during the fourth quarter of the fiscal year ended December 31, 1998.

                                    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 during the fiscal years ended December 31, 1997 and 1998
were as follows:

<TABLE>
<CAPTION>

                                                                                      High                   Low
                                                                                      ----                   ---
<S>                                                                                  <C>                     <C>
Fiscal Year 1997(1)
-------------------

Quarter Ended:
         March 31, 1997...........................................                   $54.00                  $42.00
         June 30, 1997............................................                   $44.00                  $10.00
         September 30, 1997.......................................                   $22.00                   $8.00
         December 31, 1997........................................                   $20.00                   $6.00

Fiscal Year 1998
----------------

Quarter Ended:
         March 31, 1998...........................................                    $7.50                   $3.00
         June 30, 1998............................................                    $3.50                  $1.438
         September 30, 1998.......................................                    $1.50                   $.750
         December 31, 1998........................................                    $3.50                   $.875

</TABLE>

-------------------
(1)      All share prices prior to June 19, 1998 have been adjusted to give
         effect to a one-for-eight reverse stock split which was effected by
         the Company on June 19, 1998.


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


                                     -11-
<PAGE>

         B.       Holders.

         On March 24, 1999, as reported by the Company's transfer agent,
shares of Common Stock were held by 42 persons, based on the number of record
holders, including several holders who are nominees for an undetermined number
of beneficial owners.

         C.       Dividends.

         The Company did not pay any dividends during 1997 and 1998. 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 1998 Compared to Fiscal Year 1997

         Net sales for the year ended December 31, 1998 were $17,275,423
compared to $17,374,041 for the fiscal year ended December 31, 1997.

         Cost of sales increased from $13,119,941 in 1997 to $13,337,039 in
1998. In addition, the cost of goods sold as a percentage of net sales increased
from 75.5% in 1997 to 77.2% in 1998. This increase is due primarily to lower
profit margins reflecting the Company's continuing efforts in 1998 to reduce
general inventory levels and eliminate merchandise which generates lower profit
margins for the Company. In addition, senior management spent increased time on
purchases, production and inventory management which resulted in a greater
proportion of expenses being allocated to cost of sales.

         Selling, general and administrative ("SG&A") expenses decreased from
$4,052,410 in 1997 to $3,545,248 in 1998. Generally, the principal components
of the Company's SG&A expenses are payroll, rent, commission, insurance,
legal, accounting and other fees paid to third parties and travel and
promotional expenses. During 1998, the Company realigned management and
support responsibilities whereby more time of senior management was spent on
purchasing, production and inventory management. As a result of this
realignment a greater proportion of costs were allocated to production as
opposed to SG&A.

         As a result of the decrease in SG&A expenses, offset by the increase in
Cost of Sales, total operating expenses decreased from $17,172,351 in 1997 to
$16,882,287 in 1998. As a result of these decreased operating expenses,
operating income increased from approximately $201,690 in 1997 to $393,136 in
1998.




                                     -12-
<PAGE>

         The Company's net interest costs increased from $149,278 in 1997 to
$264,104 in 1998 primarily as a result of additional borrowings under the
Company's revolving line of credit and the term loan.

         The Company's provision for income taxes increased from approximately
$23,623 in 1997 to approximately $74,724 in 1998 resulting from the overall
increase in income.

         As a result of the above, the Company's net income increased by
$123,240 from approximately $27,644 in 1997 to $150,884 in 1998.

         The Company in 1998 sold an additional 10% interest to the minority
stockholder of Ales for the consideration of $81,137. As a result of the sale
the Company recognized a gain of $75,729.

         The Company has two principal segments (see note 10 to the Company's
consolidated financial statements); opportunity and cosmetics. Sales of
opportunity merchandise increased from $7,204,000 in 1997 to $7,615,130 in
1998. Sales of cosmetics decreased from $10,170,041 in 1997 to $9,660,293 in
1998. The Management does not believe that the increase or decrease indicates 
any trend or that the changes were material.

         The cost of sales of the opportunity business was approximately 89% in
1997 and 1998 reflecting lower gross profit margin on the purchase and sale of
branded merchandise other than the Company's own brands. The cost of sales of 
the cosmetic products in 1997 and 1998 was approximately 67%, reflecting higher
gross profit margins primarily on the Company's own branded products.

         Liquidity and Capital Resources

         At December 31, 1998, the Company had working capital of $7,072,503
including cash and cash equivalents in the amount of $504,060. The Company's
principal cash requirements are for the acquisition of inventory and the
financing of receivables. Receivables increased form $2,957,997 at December
31, 1997 to $3,530,312 at December 31, 1998, representing an increase of
$570,315. Inventory increased from $5,814,673 at December 31, 1997 to
$6,496,298 at December 31, 1998, representing an increase of $681,625. This
increase in receivables and inventory was financed by increased borrowings
under the Company's revolving credit arrangement and term loan described
below.

         On October 22, 1997, the Company and Ales entered into a Loan and
Security Agreement with Summit Bank which through subsequent renewals was
extended to November 30, 1998. Pursuant to such Loan Agreement, the Company and
Ales also obtained from Summit Bank a three-year, $1,000,000 term loan to
finance the acquisition by Ales of certain assets from SBC Corporation, Inc.
("SBC"), a manufacturer of cosmetics, skin care and treatment products.

         In addition, during 1997 the Company received net proceeds from the 
exercise of stock options and warrants in the amount of $735,789, which was
used for working capital purposes.

         During December 1998, the Company entered into a new credit facility
("Facility") with Merrill Lynch Business Financial Services Inc. ("Merrill
Lynch") which replaced the Company's previous arrangement with Summit Bank. The
Facility consisted of both a revolving line of credit and a $900,000 term loan
(see note 5 to the Company's consolidated financial statements ). The revolving
line of credit provides for maximum borrowings of $3,300,000 (see note 4 to the
Company's consolidated financial statements) against the Company's eligible
accounts receivable and inventories through October 31, 2000. Outstanding
borrowings under the Facility are secured by substantially all of the Company's
assets. Funds available under the loan were used to replace the previous loans
with Summit Bank as well as provide funds for the working capital needs of the
Company. As of December 31, 1998, the outstanding balance of the working capital
facility was $2,328,241 and $900,000 on the term loan. As of March 24, 1999, the
outstanding balance under the working capital facility was $2,496,513 and
$878,571 on the term loan. The Facility contains certain restrictive covenants
which, among other things, require the maintenance of certain financial ratios
and limitation on future indebtedness.

         On September 26, 1997, in connection with the previous relocation of
its office and warehouse facilities to Paterson, New Jersey, the Company
borrowed $100,000 from the Paterson Restoration Corporation. The loan, which
bears interest at 6% per annum, provides for monthly payments of principal 


                                     -13-
<PAGE>

and interest in the amount of $1,461 through October 1, 2004 and is secured by
a second priority lien on all new machinery and equipment purchased by the
Company. The proceeds of the loan were used for the purchase of fixed assets.

         The Company anticipates that its working capital, together with
anticipated cash flow from the Company's operations will be sufficient to
satisfy the Company's cash requirements for at least twelve months. In the
event the Company's plans change (due to unanticipated expenses or
difficulties or otherwise), or if the working capital and projected cash flow
otherwise prove insufficient to fund operations, the Company could be required
to seek additional financing sooner than currently anticipated. Except for the
Facility, which expires on October 31, 2000, 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.

         The Company recognized the need to assure that its operations will not
be adversely impacted by Year 2000 (Y2K) software failures. The impact on 
operations continues to be evaluated. Management has already begun to identify
the revisions needed to be made to ensure that the Company will be able to
process information beyond 1999 without disruption. New hardware and software
has been purchased and the Company's accounting programs are presently being
upgraded and revised to reduce the possibility of Y2K failure. The installation
and testing of the new programs and systems should be completed by the third
quarter 1999. The Company is assessing the Y2K status of its major suppliers to
also reduce the likelihood of Y2K failure. Y2K compliance is not anticipated to
have any material adverse effect to the Company's financial position or results
of operations.

         If the Company's computer systems fail with respect to the Y2K
Issue, the Company's internal and external reporting process could be affected
causing a material adverse effect on the business and financial condition of the
Company. In addition, there can be no assurance that the systems of the other
companies upon which the Company's systems rely will be converted or that a
failure to convert by another company would not have a material adverse effect 
on the business and financial condition 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, 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.


                                     -14-
<PAGE>

Item 8.  Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

         None


                                   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 27, 1999, 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 27, 1999, 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 27, 1999, 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 27, 1999, 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


                                     -15-
<PAGE>

         See the section captioned "Certain Transactions" included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to
be held May 27, 1999, which section is incorporated herein by reference.


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).



                                     -16-
<PAGE>

         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).

         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     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).

         10.2     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).

         10.3     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).

         10.4     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).

         10.5     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).



                                     -17-
<PAGE>

         10.6     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).

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

         10.8     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).

         10.9     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).

         10.10    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).

         10.11    Trademark License Agreement dated January 28, 1997 between
                  Bell Abbott Haussmann Inc. and the Company (incorporated by
                  reference to Exhibit 10.25 to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended December 31, 1996).

         10.12    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).

         10.13    Merchandising License Agreement dated as of October 16, 1996
                  between Viacom Consumer Products, Inc. and the Company
                  (incorporated by reference to Exhibit 10.27 to the Company's
                  Annual Report on Form 10-KSB for the fiscal year ended
                  December 31, 1996).

         10.14    Lease dated as of February 5, 1997 between Bascom Corp. and
                  the Company (incorporated by reference to Exhibit 10.28 to
                  the Company's Annual Report on Form 10-KSB for the fiscal 
                  year ended December 31, 1996).

         10.15    Shareholders Agreement dated June 26, 1996 among Sel-Leb
                  Marketing, Inc., B.B. Associates, LLC, Seth Markowitz and
                  Beau Brummel Sel-Leb Marketing, Inc. (incorporated by
                  reference to Exhibit 10.1 to the Company's Quarterly Report
                  on Form 10-QSB for the quarterly period ended March 31, 1997).

         10.16    Agreement dated as of January 2, 1997 between QVC, Inc. and
                  Beau Brummel Sel-Leb Marketing, Inc. (incorporated by
                  reference to Exhibit 10.2 to the Company's Quarterly Report
                  on Form 10-QSB for the quarterly period ended March 31, 1997).



                                     -18-
<PAGE>

         10.17    Product Promotion Agreement dated as of April 1997 between
                  Philbin Enterprises and Beau Brummel Sel-Leb Marketing, Inc.
                  (incorporated by reference to Exhibit 10.3 to the Company's
                  Quarterly Report on Form 10-QSB for the quarterly period ended
                  March 31, 1997).

         10.18    Loan and Security Agreement dated October 22, 1997 between
                  Summit Bank, the Company and Ales (incorporated by reference
                  to Exhibit 10.2 to the Company's Quarterly Report on Form
                  10-QSB for the quarterly period ended September 30, 1997).

         10.19    Environmental Indemnity Agreement dated October 22, 1997
                  between the Company, Ales and Summit Bank (incorporated by
                  reference to Exhibit 10.3 to the Company's Quarterly Report
                  on Form 10-QSB for the quarterly period ended September 30,
                  1997).

         10.20    Security Agreement dated September 26, 1997 between the
                  Company and Paterson Restoration Corporation (incorporated
                  by reference to Exhibit 10.4 to the Company's Quarterly
                  Report on Form 10-QSB for the quarterly period ended September
                  30, 1997).

         10.21    Stockholder's Agreement between RBCJJ Associates LLC and the
                  Company (incorporated by reference to Exhibit 10.5 to the
                  Company's Quarterly Report on Form 10-QSB for the quarterly
                  period ended September 30, 1997).

         10.22    Asset Purchase Agreement dated as of September 15, 1997
                  between SBC Corporation, Inc. and Ales (incorporated by
                  reference to Exhibit 10.6 to the Company's Quarterly Report
                  on Form 10-QSB for the quarterly period ended September 30,
                  1997).

         10.23    Collective Bargaining Agreement dated September 1, 1997
                  between Local 300-S Production Service & Sales District
                  Council I.U.C. AFL-CIO and the Company (incorporated by
                  reference to Exhibit 10.23 to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended December 31, 1997).

         10.24    Working Capital Management Account (WCMA) and Term Loan 
                  Agreement dated as of November 24, 1998 between Sel-Leb 
                  Marketing, Inc. and Merrill Lynch Business Financial Services
                  Inc.

         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).

         23.1     Consent of J.H. Cohn LLP.

         27.1     Financial Data Schedule.

         (b)  Reports on Form 8-K

                  None


                                     -19-

<PAGE>

         21       Subsidiary of the Company
                  Ales Signature
                  (an 80% owned subsidiary)
  
<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:  March 31, 1999


         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.


<TABLE>
<CAPTION>
                     Name                                         Title                                Date
                     ----                                         -----                                ----
<S>                                               <C>                                               <C>
 /s/ Harold Markowitz                             Chairman of the Board and Director                March 31, 1999
---------------------------------------------
  Harold Markowitz


 /s/ Paul Sharp                                   President, Chief Executive Officer and            March 31, 1999
---------------------------------------------     Director (principal executive officer)
  Paul Sharp                                      


 /s/ Jan S. Mirsky                                Executive Vice President - Finance and            March 31, 1999
---------------------------------------------     Director (principal financial and 
  Jan S. Mirsky                                   accounting officer)

 /s/ Jack Koegel                                  Vice Chairman of the Board, Chief Operating       March 31, 1999
---------------------------------------------     Officer and Director
  Jack Koegel


 /s/ Jorge Lazaro                                 Executive Vice President, Secretary and           March 31, 1999
---------------------------------------------     Director
  Jorge Lazaro                                    

</TABLE>

                                     -20-
<PAGE>

<TABLE>
<S>                                               <C>                                               <C>

 /s/ Stanley R. Goodman                           Director                                          March 31, 1999
---------------------------------------------
  Stanley R. Goodman


 /s/ Edward C. Ross                               Director                                          March 31, 1999
---------------------------------------------
  Edward C. Ross


 /s/ L. Douglas Bailey                            Director                                          March 31, 1999
---------------------------------------------
  L. Douglas Bailey

</TABLE>


                                     -21-
<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE
                                                                            ----

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                     F-2

CONSOLIDATED BALANCE SHEET
     DECEMBER 31, 1998                                                       F-3

CONSOLIDATED STATEMENTS OF INCOME
     YEARS ENDED DECEMBER 31, 1998 AND 1997                                  F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
     YEARS ENDED DECEMBER 31, 1998 AND 1997                                  F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS
     YEARS ENDED DECEMBER 31, 1998 AND 1997                                  F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F-7/19


                                    * * *

                                     F-1

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Sel-Leb Marketing, Inc.


We have audited the accompanying consolidated balance sheet of SEL-LEB
MARKETING, INC. AND SUBSIDIARY as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1998 and 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sel-Leb Marketing,
Inc. and Subsidiary as of December 31, 1998, and their results of operations and
cash flows for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.



                                                  J.H. COHN LLP


Roseland, New Jersey
March 25, 1999


                                       F-2

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998


                                     ASSETS

Current assets:
   Cash and cash equivalents                                       $    504,060
   Accounts receivable, less allowance for doubtful accounts
       of $171,456                                                    3,530,312
   Inventories                                                        6,496,298
   Deferred tax assets                                                  254,095
   Prepaid expenses and other current assets                            696,855
                                                                   ------------
            Total current assets                                     11,481,620
Property and equipment, at cost, net of accumulated depreciation
   and amortization of $590,368                                         607,650
Goodwill, net of accumulated amortization of $95,236                    250,532
Other assets                                                            101,483
                                                                   ------------

              Total                                                $ 12,441,285
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Note payable to bank                                            $  2,328,241
   Current portion of long-term debt                                    150,509
   Accounts payable                                                   1,341,602
   Accrued expenses and other liabilities                               588,765
                                                                   ------------
            Total current liabilities                                 4,409,117
Long-term debt, net of current portion                                  859,396
                                                                   ------------
            Total liabilities                                         5,268,513
                                                                   ------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, $.01 par value; 10,000,000 shares
       authorized; none issued                                                -
   Common stock, $.01 par value; 40,000,000 shares
       authorized; 1,089,083 shares issued and outstanding               10,891
   Additional paid-in capital                                         6,440,095
   Retained earnings                                                    766,786
   Less receivable in connection with equity transactions               (45,000)
                                                                   ------------
            Total stockholders' equity                                7,172,772
                                                                   ------------

            Total                                                  $ 12,441,285
                                                                   ============


See Notes to Consolidated Financial Statements.


                                       F-3

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                     YEARS ENDED DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                       1998            1997
                                                                   ------------    ------------

<S>                                                                <C>             <C>         
Net sales                                                          $ 17,275,423    $ 17,374,041
                                                                   ------------    ------------

Operating expenses:
   Cost of sales                                                     13,337,039      13,119,941
   Selling, general and administrative expenses                       3,545,248       4,052,410
                                                                   ------------    ------------
            Totals                                                   16,882,287      17,172,351
                                                                   ------------    ------------

Operating income                                                        393,136         201,690
                                                                   ------------    ------------

Other income (expense):
   Interest expense, net of interest income of $4,346 and $2,136       (264,104)       (149,278)
   Unusual item - gain on sale of portion of minority interest
       in subsidiary                                                     75,729
   Other                                                                 20,847          (1,145)
                                                                   ------------    ------------
            Totals                                                     (167,528)       (150,423)
                                                                   ------------    ------------

Income before provision for income taxes                                225,608          51,267

Provision for income taxes                                               74,724          23,623
                                                                   ------------    ------------

Net income                                                         $    150,884    $     27,644
                                                                   ============    ============


Basic net earnings per share                                       $        .14    $        .03
                                                                   ============    ============

Basic weighted average shares outstanding                             1,089,083       1,083,498
                                                                   ============    ============
</TABLE>


See Notes to Consolidated Financial Statements.


                                        F-4

<PAGE>


                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                                Receivable in
                                                       Common Stock           Additional                          Connection     
                                                 ----------------------        Paid-in          Retained         with Equity    
                                                   Shares        Amount        Capital          Earnings         Transactions    
                                                 ---------      -------       ----------        --------           --------    

<S>                                              <C>            <C>           <C>               <C>                <C>         
Balance, January 1, 1997                         8,268,477      $82,685       $5,632,512        $588,258           $(60,000)   

Net proceeds from exercise
   of warrants                                     293,250        2,932          435,546                                        

Net proceeds from exercise
   of stock options                                151,000        1,510          295,801                                        

Payment of receivables in
   connection with sale of
   warrant                                                                                                           15,000     

Net income                                                                                        27,644                       
                                                 ---------      -------       ----------        --------           --------    

Balance, December 31, 1997                       8,712,727       87,127        6,363,859         615,902            (45,000)   

Effect of 1-for-8 reverse
   split                                        (7,623,644)     (76,236)          76,236

Net income                                                                                       150,884                       
                                                 ---------      -------       ----------        --------           --------    

Balance, December 31, 1998                       1,089,083      $10,891       $6,440,095        $766,786           $(45,000)   
                                                 =========      =======       ==========        ========           ========    



<CAPTION>

                                            Total     
                                        Stockholders' 
                                           Equity     
                                         ----------   
<S>                                     <C>
Balance, January 1, 1997                 $6,243,455   
                                                      
Net proceeds from exercise                            
   of warrants                              438,478   
                                                      
Net proceeds from exercise                            
   of stock options                         297,311   
                                                      
Payment of receivables in                             
   connection with sale of                            
   warrant                                   15,000   
                                                      
Net income                                   27,644   
                                         ----------   
                                                      
Balance, December 31, 1997                7,021,888   
                                                      
Effect of 1-for-8 reverse                             
   split                                              
                                                      
Net income                                  150,884   
                                         ----------   
                                                      
Balance, December 31, 1998               $7,172,772   
                                         ==========   
</TABLE>

See Notes to Consolidated Financial Statements.


                                       F-5

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      YEAR ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                     1998           1997
                                                                 -----------    -----------

<S>                                                              <C>            <C>
Operating activities:
   Net income                                                    $   150,884    $    27,644
   Adjustments to reconcile net income to net cash used in
      operating activities:
      Depreciation and amortization                                  281,452        230,023
      Allowance for doubtful accounts                                240,000        229,000
      Net gain on sale of interest in subsidiary                     (75,729)
      Deferred income taxes                                          (80,440)       (78,655)
      Changes in operating assets and liabilities:
         Accounts receivable                                        (810,316)        58,816
         Inventories                                                (681,625)    (1,498,549)
         Prepaid expenses and other current assets                   139,001       (532,921)
         Other assets                                                 (4,407)         8,470
         Accounts payable, accrued expenses and other
             liabilities                                             535,884       (282,454)
                                                                 -----------    -----------
                  Net cash used in operating activities             (305,296)    (1,838,626)
                                                                 -----------    -----------

Investing activities:
   Purchases of property and equipment                              (375,892)      (317,630)
   Proceeds from sale of interest in subsidiary                       81,137
   Proceeds from adjustments to purchase price for
      acquired business                                               37,500
                                                                 -----------    -----------
                  Net cash used in investing activities             (257,255)      (317,630)
                                                                 -----------    -----------

Financing activities:
   Net proceeds from notes payable to bank                           928,241        430,000
   Net proceeds from long-term debt                                  928,752      1,100,000
   Repayments of long-term debt                                   (1,014,464)        (4,383)
   Loan financing costs                                              (25,606)
   Net proceeds from exercise of warrants and stock options                         735,789
   Collection of receivable in connection with sale of warrant                       15,000
                                                                 -----------    -----------
                  Net cash provided by financing activities          816,923      2,276,406
                                                                 -----------    -----------

Net increase in cash and cash equivalents                            254,372        120,150

Cash and cash equivalents, beginning of year                         249,688        129,538
                                                                 -----------    -----------

Cash and cash equivalents, end of year                           $   504,060    $   249,688
                                                                 ===========    ===========

Supplemental disclosure of cash flow information:
   Interest paid                                                 $   268,450    $   130,544
                                                                 ===========    ===========

   Income taxes paid                                             $    18,500    $   400,714
                                                                 ===========    ===========
</TABLE>


See Notes to Consolidated Financial Statements.


                                       F-6

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and summary of significant accounting policies:

                Organization and principles of consolidation:

                    The accompanying consolidated financial statements include
                    the accounts of Sel-Leb Marketing, Inc. (a New York
                    Corporation) and Ales Signature, Ltd. ("Ales"), its
                    80%-owned subsidiary (see Note 2). Sel-Leb Marketing, Inc.
                    and Ales are referred to collectively herein as the
                    "Company." The Company is primarily engaged in
                    manufacturing, distributing and marketing cosmetics and
                    consumer products through mass merchandisers, discount chain
                    stores and food, drug and electronic retailers. Ales was
                    formed in September 1997 and commenced operations on October
                    23, 1997. All significant intercompany accounts and
                    transactions have been eliminated in consolidation.

                Use of estimates:

                    The preparation of financial statements in conformity with
                    generally accepted accounting principles requires management
                    to make estimates and assumptions that affect certain
                    reported amounts and disclosures. Accordingly, actual
                    results could differ from those estimates.

                Revenue recognition:

                    Sales are recognized upon the shipment of the related
                    product.

                Cash equivalents:

                    The Company considers all highly liquid debt instruments
                    with a maturity of three months or less when purchased to be
                    cash equivalents.

                Inventories:

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

                Property and equipment:

                    Property and equipment are stated at cost less accumulated
                    depreciation and amortization. Depreciation is computed
                    using 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.

                Goodwill:

                    Goodwill is comprised of costs in excess of net assets of
                    acquired businesses that are being amortized on a
                    straight-line basis over periods not exceeding ten years.
                    The Company periodically evaluates the recoverability of its
                    goodwill and measures the amount of impairment, if any, by
                    assessing, among other things, the market and economic
                    conditions related to, and the current and estimated future
                    levels of income and cash flows to be generated by, the
                    acquired businesses.


                                       F-7

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and summary of significant accounting policies 
         (continued):

                Product development costs:

                    The Company expenses product development costs as incurred.
                    Product development costs charged to operations amounted to
                    approximately $66,000 and $69,000 in 1998 and 1997,
                    respectively.

                Advertising:

                    The Company expenses the cost of advertising and promotions
                    as incurred. Advertising costs charged to operations
                    amounted to $151,000 and $228,000 in 1998 and 1997,
                    respectively.

                Reverse split:

                    The numbers of common shares and the per share amounts in
                    these notes and the accompanying consolidated financial
                    statements have been retroactively adjusted, where
                    appropriate, for a 1-for-8 reverse split effected on June
                    19, 1998.

                Stock options:

                    In accordance with the provisions of Accounting Principles
                    Board Opinion No. 25, Accounting for Stock Issued to
                    Employees ("APB 25"), the Company will only recognize
                    compensation costs as a result of the issuance of stock
                    options to employees based on the excess, if any, of the
                    fair value of the underlying stock at the date of grant or
                    award (or at an appropriate subsequent measurement date)
                    over the amount the employee must pay to acquire the stock.
                    Therefore, the Company will not be required to recognize
                    compensation expense as a result of any grants to employees
                    at an exercise price that is equal to or greater than fair
                    value. The Company will also make pro forma disclosures, in
                    accordance with the provisions of Financial Accounting
                    Standards Board ("FASB") Statement of Financial Accounting
                    Standards No. 123, Accounting for Stock-Based Compensation
                    ("SFAS 123"), of net income or loss as if a fair value based
                    method of accounting for stock options had been applied
                    instead if such amounts differ materially from the
                    historical amounts.

                Income taxes:

                    The Company accounts for income taxes pursuant to the asset
                    and liability method which requires deferred income tax
                    assets and liabilities to be computed annually for temporary
                    differences between the financial statement and tax bases of
                    assets and liabilities that will result in taxable or
                    deductible amounts in the future based on enacted tax laws
                    and rates applicable to the periods in which the differences
                    are expected to affect taxable income. Valuation allowances
                    are established when necessary to reduce deferred tax assets
                    to the amount expected to be realized. The income tax
                    provision or credit is the tax payable or refundable for the
                    period plus or minus the change during the period in
                    deferred tax assets and liabilities.


                                       F-8

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and summary of significant accounting policies
(concluded):

                Earnings per share:

                    The Company has presented "basic" earnings per share in the
                    accompanying consolidated statements of income in accordance
                    with the provisions of Statement of Financial Accounting
                    Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128
                    also requires the presentation of "diluted" earnings per
                    share if the amount differs from basic earnings per share.
                    Basic earnings per share is calculated by dividing net
                    income by the weighted average number of common shares
                    outstanding during each period. The calculation of diluted
                    earnings per share is similar to that of basic earnings per
                    share, except that the denominator is increased to include
                    the number of additional common shares that would have been
                    outstanding if all potentially dilutive common shares, such
                    as those issuable upon the exercise of stock options and
                    warrants, were issued during the period.

                    Diluted earnings per share has not been presented because
                    the exercise prices of all of the outstanding stock options
                    and warrants exceeded the average fair market value during
                    1998 and 1997 and there were no additional shares derived
                    from the assumed exercise of stock options and warrants and
                    the application of the treasury stock method.

                Recent accounting pronouncements:

                    The FASB and the Accounting Standards Executive Committee of
                    the American Institute of Certified Public Accountants
                    ("ACSEC") had issued certain accounting pronouncements as of
                    December 31, 1998 that will become effective in subsequent
                    periods; however, management of the Company does not believe
                    that any of those pronouncements would have significantly
                    affected the Company's financial accounting measurements or
                    disclosures had they been in effect as of December 31, 1998.

                Reclassifications:

                    Certain accounts in the 1997 consolidated financial
                    statements have been reclassified to conform to the 1998
                    presentations.


Note 2 - Acquisition:

                During September 1997, the Company and an unrelated third party
                (the "minority stockholder") formed Ales for the purpose of
                acquiring the line of cosmetics and other beauty products from
                SBC Corporation, Inc. ("SBC") that manufactures mid-priced
                cosmetic and skin care and treatment products. The Company
                received a 90% equity interest in Ales and the minority
                stockholder received the remaining 10% equity interest. Ales
                acquired the beauty products line on October 23, 1997 for an
                initial cash payment of $670,000. The cash payment was funded by
                a portion of the proceeds of a term loan through a transfer
                directly from the lender to the seller; (accordingly, the
                payment is not reflected in the accompanying 1997 consolidated
                statement of cash flows).


                                       F-9

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Acquisition (concluded):

                The acquisition was accounted for as a purchase and,
                accordingly, the results of operations of the acquired business
                have been included in the accompanying 1997 consolidated
                statement of income from the date of acquisition. Costs of
                acquisition of approximately $570,000 and $100,000 were
                allocated to inventories and goodwill, respectively. In December
                1998, the Company received $37,500 based on adjustments to the
                initial purchase price agreed to by SBC and, as a result,
                goodwill was reduced by that amount.

                On March 31, 1998, the Company, which at that date owned a 90%
                interest in Ales, entered into an agreement whereby it reduced
                its interest to 80% by selling an additional 10% interest to the
                minority stockholder for total consideration of $81,137 which
                was paid in installments prior to December 31, 1998. As a result
                of the sale, the Company recognized a gain of $75,729, before
                giving effect to any related income tax effects, which has been
                reflected separately as an unusual item in the accompanying 1998
                consolidated statement of income.

                Unaudited pro forma information giving effect to the acquisition
                and the subsequent sale of the 10% interest in Ales, as if the
                acquisition had been consummated on, and the Company had owned
                an 80% interest in Ales from, January 1, 1997, follows:


                                                      1998             1997
                                                  -----------      -----------

                    Revenue                       $17,262,000      $17,937,000
                    Net income                        161,000          127,000
                    Basic net earnings
                       per share                          .15              .12

                The minority interest in the net equity of Ales as of December
                31, 1998 and the minority interest in the results of its
                operations in 1998 and 1997 were immaterial.


Note 3 - Property and equipment:

                Property and equipment at December 31, 1998 consisted of the
                following:

                                                     Estimated
                                                       Useful
                                                       Lives           Amount
                                                    ------------    -----------

                Machinery and equipment             5 to 7 years    $   779,843
                Display fixtures                    2 to 3 years        253,510
                Computer equipment                  3 to 5 years        113,524
                Leasehold improvements                  10 years         51,141
                                                                    -----------
                                                                      1,198,018
                Less accumulated depreciation
                   and amortization                                     590,368
                                                                    -----------
                    Total                                           $   607,650
                                                                    ===========


                Depreciation expense aggregated $242,494 and $199,629 in 1998
                and 1997, respectively.


                                       F-10

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Note payable to bank:

                During December 1998, the Company obtained a new credit facility
                (the "Facility") from Merrill Lynch Business Financial Services,
                Inc. ("Merrill Lynch"). The Facility consists of a revolving
                line of credit and a $900,000 term loan (see Note 5). The
                revolving line of credit provides for maximum borrowings of
                $3,300,000 against the Company's eligible accounts receivable
                and inventories through October 31, 2000. Borrowings bear
                interest, which is payable monthly, at 2.65% above the 30-day
                commercial paper rate (an effective rate of 7.75% as of December
                31, 1998). Outstanding borrowings under the Facility are
                secured by substantially all of the Company's assets.

                The loan agreement with Merrill Lynch contains certain
                restrictive covenants which, among other things, require the
                maintenance of certain financial ratios and limit additional
                indebtedness.


Note 5 - Long-term debt:

                At December 31, 1998, long-term debt consisted of the following:

                    Term loan payable to Merrill Lynch (A)         $  900,000
                    Loan payable to Paterson Restoration
                       Corporation (B)                                 86,186
                    Other                                              23,719
                                                                   ----------
                                                                    1,009,905
                    Less current portion                              150,509
                                                                   ----------

                    Long-term debt                                 $  859,396
                                                                   ==========

                    (A)  Payable in monthly installments of $10,714 plus
                         interest at 2.8% above the 30-day commercial paper rate
                         through January 2006, at which time the unpaid balance
                         is due. The loan is secured by substantially all of the
                         assets of the Company (see Note 4).

                    (B)  The loan is payable in monthly installments of $1,461
                         for principal and interest at 6% through October 1,
                         2004, at which time the unpaid balance is due. The loan
                         is secured by a second lien on the Company's machinery
                         and equipment.

                Principal amounts due under the Company's long-term obligations
                in each of the five years subsequent to December 31, 1998 are as
                follows:

                    Year Ending
                    December 31,                    Amount
                    ------------                    ------

                         1999                      $150,509
                         2000                       152,108
                         2001                       147,339
                         2002                       143,778
                         2003                       144,716


                                       F-11

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Preferred stock and stock options:

                Preferred stock:

                    On May 27, 1998, the Company's stockholders approved an
                    amendment to the Company's Certificate of Incorporation
                    which authorizes the issuance by the Company of up to
                    10,000,000 shares of preferred stock with a par value of
                    $.01 per share. No shares of preferred stock had been issued
                    by the Company as of December 31, 1998.

                Stock options:

                    The Company has a Stock Option Plan (the "Option Plan")
                    which provides for the issuance of incentive stock options
                    and nonincentive stock options to employees of the Company
                    for the purchase of shares of common stock at a price not
                    less than the fair market value of the shares on the date of
                    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 is not less
                    than 110% of the fair market value of the shares on the date
                    of 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 three years after the date of
                    grant and the options are exercisable up to 10 years after
                    the date of the grant.

                    In addition, the Company has a Nonemployee Directors' Stock
                    Option Plan (the "Directors' Plan") which provides for the
                    issuance of options to nonemployee directors of the Company
                    for the purchase of shares of common stock at a price that
                    is not less than the fair market value of the shares on the
                    date of grant. The term of each option and the manner of
                    exercise is determined by the Board of Directors, but the
                    options cannot be exercisable more than 10 years after the
                    date of grant. Upon election to the Board of Directors, and
                    after each reelection, each nonemployee director is granted
                    an option to purchase 625 common shares exercisable from
                    the date of grant.


                                       F-12

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Preferred stock and stock options (continued):

                Stock options (continued):

                    A summary of the status of the Company's shares subject to
                    options as of December 31, 1998 and 1997 and changes during
                    the years then ended is presented below:


<TABLE>
<CAPTION>
                                                                               1998                         1997
                                                                     -----------------------        -------------------
                                                                                    Weighted                   Weighted
                                                                      Shares         Average         Shares     Average
                                                                        or          Exercise           or      Exercise
                                                                      Price          Price            Price      Price
                                                                     --------       --------        -------    --------

                         <S>                                         <C>            <C>             <C>        <C>
                         Outstanding, at beginning of
                            year                                      150,156        $17.14         152,312     $20.16
                         Granted (A)                                  196,188          3.89          34,313      13.12
                         Canceled (A)                                (138,938)        16.64         (17,594)     36.80
                         Exercised                                                                  (18,875)     15.76
                                                                     --------                       -------
                                                                                   
                         Outstanding, at end of year                  207,406       $  4.94         150,156     $17.14
                                                                     ========       =======         =======     ======
                                                                                   
                         Options exercisable, at                                   
                            end of year                               138,672                       94,375
                                                                     ========                       ======
                                                                                   
                         Weighted average fair value                               
                            of options granted during                              
                            the year                                    $3.77                       $10.32
                                                                        =====                       ======
</TABLE>


                         (A)   Options granted and canceled include shares
                               subject to options for which the exercise price
                               was reduced in 1998 and 1997 as set forth below:



                                                          Original      Adjusted
                                                          Exercise      Exercise
                                              Shares       Price          Price
                                              ------      --------      --------

                               1998:
                                                 313       $47.00        $  .87
                                              37,750        22.00          6.50
                                               3,125        22.00          4.00
                                              59,625        13.33          6.50
                                                 125        13.00          4.00
                                               1,250        10.54          8.00
                                                  63        10.54          4.00
                                              12,624         4.00           .87
                                            --------

                                 Total       114,875
                                            ========

                               1997:
                                              10,563        45.04          4.00
                                            ========


                                       F-13

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6 - Preferred stock and stock options (continued):

                Stock options (continued):

                    The following table summarizes information about fixed stock
                    options outstanding at December 31, 1998:



<TABLE>
<CAPTION>
                                    Options Outstanding                           Options Exercisable
                    ---------------------------------------------     ----------------------------------------
                                                       Weighted
                                                        Average
                                                        Years of      Weighted                        Weighted
                                                       Remaining       Average                         Average
                        Exercise           Number     Contractual     Exercise          Number        Exercise
                         Prices         Outstanding      Life           Price         Exercisable       Price
                    ------------        -----------   -----------     --------        -----------     --------

                    <S>                 <C>           <C>             <C>             <C>             <C>    
                         $.875             77,936        9.52         $  .875            25,438       $  .875
                       1.16-2.50           13,125        9.40            1.89             3,281          1.89
                       4.00-4.25            6,501        8.02            4.05             4,016          4.02
                         6.50              97,375        6.58            6.50            97,375          6.50
                      8.00-16.00            9,531        7.73           13.19             6,406         13.23
                     42.00-54.00            2,938        7.47           52.06             2,156         52.27
                                          -------                                     ---------

                    $.875-$54.00          207,406        7.97            4.94           138,672       $  6.29
                    ============          =======        ====          ======           =======       =======
</TABLE>

                    At December 31, 1998, the Company had warrants outstanding
                    for the purchase of 725,496 shares of common stock which are
                    exercisable through March 21, 2000 at exercise prices
                    ranging from the equivalent of $5.12 to $16.00 per share.
                    The Company received proceeds of $438,478 in 1997 upon the
                    exercise of warrants to purchase 36,656 shares of common
                    stock at exercise prices ranging from the equivalent of
                    $5.12 to $16.00 per share. There were no other changes in
                    the number of warrants outstanding during 1998 and 1997.

                    At December 31, 1998, shares of common stock were reserved
                    for the following:

                      Exercise of outstanding stock options             207,406
                                                                      ---------

                      Exercise of stock options available
                         for grant:
                          Option Plan                                   220,719
                          Directors' Plan                                28,125
                                                                      ---------
                             Total                                      248,844
                                                                      ---------

                      Exercise of warrants                              725,496
                                                                      ---------

                            Total                                     1,181,746
                                                                      =========


                                       F-14

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6 - Preferred stock and stock options (continued):

                Stock options (continued):

                    Since the Company has elected to continue to use the
                    provisions of APB 25 in accounting for stock options and
                    warrants granted to employees and the exercise price of all
                    of the options granted to employees has been equal to or
                    greater than the fair market value at the date of grant, no
                    earned or unearned compensation cost was recognized in the
                    accompanying 1998 and 1997 consolidated financial statements
                    for stock options and warrants granted to employees. The pro
                    forma amounts computed as if the Company had elected to
                    recognize compensation cost for stock options and warrants
                    granted to employees based on the fair value of the options
                    and warrants at the date of grant as prescribed by SFAS 123
                    and the related historical amounts reported in the
                    accompanying consolidated statements of income are set forth
                    below:


<TABLE>
<CAPTION>
                                                                     1998             1997
                                                                  ---------        ----------

                         <S>                                      <C>              <C>       
                         Net income - as reported                 $ 150,884        $   27,644
                                                                  =========        ==========
                         Net loss - pro forma                     $(306,556)        $(326,181)
                                                                  =========         =========
                         Basic earnings per share
                            - as reported                             $ .14             $ .03
                                                                      =====             =====
                         Basic loss per share - pro forma             $(.28)            $(.32)
                                                                      =====             =====
</TABLE>

                    The fair value of each option granted was estimated as of
                    the date of grant using the Black-Scholes option-pricing
                    model with the following weighted-average assumptions used
                    for 1998 and 1997:


                                                              1998        1997
                                                            --------    --------

                         Expected volatility                  160%          40%
                         Risk-free interest rate              5.2%         6.3%
                         Expected years of option life        5.0          5.0
                         Expected dividends                     0%           0%

                    Substantially all of the pro forma charge for compensation
                    of $457,440 (net of tax benefits) in 1998 derived from the
                    fair value option pricing model was attributable to the
                    effects of the options that were repriced during the year.


Note 7 - Income taxes:

                Deferred tax assets at December 31, 1998 were attributable to
                temporary differences related to the following:

                    Inventories                      $128,730
                    Allowance for bad debts            69,830
                    Other                              55,535
                                                     --------
                         Net deferred tax assets     $254,095
                                                     ========


                                       F-15

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7 - Income taxes (concluded):

                The net provision for income taxes in 1998 and 1997 consisted of
                the following provisions (credits):


                                                     1998            1997
                                                  ----------      ---------

                    Federal:
                       Current                      $130,206        $85,569
                       Deferred                      (69,370)       (55,155)
                                                  ----------       --------
                              Totals                  60,836         30,414
                                                  ----------       --------

                    State:
                       Current                        24,958         16,709
                       Deferred                      (11,070)       (23,500)
                                                  ----------       --------
                              Totals                  13,888         (6,791)
                                                  ----------      ---------

                              Totals               $  74,724        $23,623
                                                   =========        =======

                The provision for income taxes in 1998 and 1997 differs from the
                amount computed using the Federal statutory rate of 34% as a
                result of the following:


                                                                 1998       1997
                                                                 ----       ----

                 Tax at Federal statutory rate                    34%       34%
                 Increase (decrease) from effects of:
                    State income taxes, net of Federal
                       income tax benefit                          4        (8)
                    Nondeductible expenses and other
                       permanent differences                       8        37
                    Prior year overaccruals                      (10)
                    Other (primarily surtax exemption)            (3)      (18)
                                                                ----       ---

                           Totals                                 33%       45%
                                                                ====       ===


Note 8 - Commitments and contingencies:

                Leases:

                    The Company has a noncancelable operating lease for office
                    and warehouse facilities which commenced on April 7, 1997
                    and expires on March 31, 2002. In addition to base rentals,
                    the lease requires payments for real estate taxes and other
                    operating costs.


                                       F-16

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 8 - Commitments and contingencies (continued):

                Leases (concluded):

                    The future minimum rental payments under the leases as of
                    December 31, 1998 were as follows:

                         Year Ending
                         December 31,                      Amount
                         ------------                     --------

                           1999                           $187,870
                           2000                            203,537
                           2001                            203,537
                           2002                             50,884
                                                          --------

                                 Total                    $645,828
                                                          ========

                    Rent expense amounted to approximately $253,000 and $212,000
                    in 1998 and 1997, respectively.

                Employment agreements:

                    The Company has entered into employment agreements with five
                    officers which expire at various times through July 2000.

                    The future minimum payments under the employment agreements
                    as of December 31, 1998 aggregated $562,500, of which
                    $375,000 is payable in 1999 and $187,500 is payable in 2000.

                Promotional and licensing agreements:

                    The Company has various promotional and licensing agreements
                    whereby it pays royalty fees to celebrities and/or licensors
                    based upon a percentage of net sales attributable to the
                    celebrities' appearances or sales of the licensor's
                    products. Royalty fees charged to operations amounted to
                    approximately $434,000 and $308,000 in 1998 and 1997,
                    respectively.

                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 consolidated financial position or
                    results of operations of the Company.

                Concentrations of credit risk:

                    Financial instruments which potentially subject the Company
                    to concentrations of credit risk consist primarily of cash
                    and cash equivalents and accounts receivable. The Company
                    maintains its cash and cash equivalents primarily in money
                    market accounts with major financial institutions that have
                    high credit ratings. At times, such amounts may exceed
                    Federally insured limits.


                                       F-17

<PAGE>

                     SEL-LEB MARKETING, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 8 - Commitments and contingencies (concluded):

                Concentrations of credit risk (concluded):

                    The Company generally extends credit to its customers, a
                    significant portion of which are in the retail industry.
                    Approximately 46% and 42% of the Company's net sales were
                    derived from its two major customers during 1998 and 1997,
                    respectively. The two customers also accounted for
                    approximately $1,971,000 of the Company's accounts
                    receivable balance at December 31, 1998. The Company closely
                    monitors the extension of credit to its customers while
                    maintaining appropriate allowances for potential credit
                    losses. Accordingly, management does not believe that the
                    Company was exposed to significant credit risk at December
                    31, 1998.


Note 9 - Fair value of financial instruments:

                The Company's material financial instruments at December 31,
                1998 for which disclosure of estimated fair value is required by
                certain accounting standards consisted of cash and cash
                equivalents, accounts receivable, accounts payable, notes
                payable and long-term debt. In the opinion of management, (i)
                cash and cash equivalents, accounts receivable and accounts
                payable were carried at values that approximated their fair
                values because of their liquidity and/or their short-term
                maturities and (ii) notes payable and long-term debt were
                carried at values that approximated their fair values because
                they had interest rates equivalent to those currently prevailing
                for financial instruments with similar characteristics.


Note 10- Segment information:

                During 1998, the Company adopted the provisions of Statement of
                Financial Accounting Standards No. 131, Disclosures about
                Segments of an Enterprise and Related Information ("SFAS 131").
                Pursuant to the provisions of SFAS 131, the Company is reporting
                segment sales and gross margins in the same format reviewed by
                the Company's management (the "management approach"). The
                Company has two reportable segments: "Opportunity" and
                "Cosmetics". The Opportunity segment is comprised of the
                operations connected with the acquisition, sale and distribution
                of name-brand and off-brand products which are purchased from
                close-out, overstocked and/or change-of-packaging brand name
                items. The Cosmetics segment is comprised of the acquisition,
                sale and distribution of all other products, including
                "celebrity endorsed" and "tie-in" cosmetic and health and beauty
                aid products and designer and all other fragrances.


                                       F-18

<PAGE>

                    SEL-LEB MARKETING, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 10- Segment information (concluded):

         Net sales, cost of sales and other related segment information
follows:

<TABLE>
<CAPTION>
                                                                    1998               1997
                                                                    ----               ----
<S>                                                            <C>                 <C>
         Net sales:
             Opportunity                                       $  7,615,130        $  7,204,000
             Cosmetics                                            9,660,293          10,170,041
                                                               ------------        ------------
                    Total net sales                              17,275,423          17,374,041
                                                               ------------        ------------

         Cost of sales:
             Opportunity                                          6,782,946           6,340,100
             Cosmetics                                            6,554,093           6,779,841
                                                               ------------        ------------
                    Total cost of sales                          13,337,039          13,119,941

         Selling, general and administrative expenses             3,545,248           4,052,410
                                                               ------------        ------------
                    Total operating expenses                     16,882,287          17,172,351
                                                               ------------        ------------

         Operating income                                           393,136             201,690
                                                               ------------        ------------

         Other income (expense):
             Interest expense, net                                 (264,104)           (149,278)
             Unusual item - gain on sale of portion
                of minority interest                                 75,729
             Other                                                   20,847              (1,145)
                                                               ------------        ------------
                    Totals                                         (167,528)           (150,423)
                                                               ------------        ------------

         Income before provision for income taxes              $    225,608        $     51,267
                                                               ============        ============

         Segment assets:
              Inventories:
                Opportunity                                    $    781,178        $    544,370
                Cosmetics                                         5,715,120           5,270,303
                                                               ------------        ------------
                    Totals                                        6,496,298           5,814,673
              Other assets                                        5,944,987           5,091,907
                                                               ------------        ------------
                    Total assets                               $ 12,441,285        $ 10,906,580
                                                               ============        ============
</TABLE>


                                     * * *
                                     F-19