<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1995 Commission File Number
2-96510-N.Y.
DRUG GUILD DISTRIBUTORS, INC.
_______________________________________________________________
(Exact name of Registrant as specified in its Charter)
New Jersey 11-2269958
_______________________________________________________________
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Meadowland Parkway, Secaucus, N.J. 07096
_______________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-348-3700
_______________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15 (d) of the Securities Exchange Act of
1934 during the preceding 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______
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the most recent practicable date:
As of October 31, 1995 there were outstanding 10,037,802 shares of the
Registrant's Common Stock, par value $1, and 30,102.58 shares of the
Registrant's Preferred Stock $100 par value.
Page 1 of 13 Pages
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
DRUG GUILD DISTRIBUTORS INC.
BALANCE SHEET
<TABLE>
<CAPTION>
October 31, July 31
1995 1995
ASSETS ---- ----
------ (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,009 $ 2,022,564
Trade Receivables-Stockholders 29,231,482 26,535,603
Nonstockholders 40,367,284 36,713,630
Allowance for doubtful accounts (1,199,761) (1,123,467)
Merchandise Inventory 31,861,047 38,896,026
Deferred income tax benefit 809,000 788,000
Prepaid expenses and other current assets 766,883 791,033
-------------- -------------
Total Current Assets 101,842,944 104,623,389
-------------- -------------
PROPERTY AND EQUIPMENT:
Property and equipment 13,643,158 13,407,078
Less: Accumulated depreciation and amortization 10,311,778 10,065,778
-------------- -------------
Depreciated Cost 3,331,380 3,341,300
-------------- -------------
OTHER ASSETS:
Trade Receivables-noncurrent portion-Stockholders 2,310,069 2,160,614
Nonstockholders 3,190,096 2,914,479
Allowance for doubtful accounts (460,000) (460,000)
Deferred income tax benefit 246,035 246,035
Various other assets 444,898 440,223
-------------- -------------
Total Other Assets 5,731,098 5,301,351
-------------- -------------
TOTAL ASSETS $ 110,905,422 $ 113,266,040
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Loans payable, bank $ 51,511,080 $ 53,175,440
Notes payable 697,574 772,059
Accounts payable 37,851,567 37,462,754
Accrued expenses and taxes 1,876,042 1,832,283
-------------- -------------
Total Current Liabilities 91,936,263 93,242,536
-------------- -------------
LONG TERM LIABILITIES
Notes payable 450,000 501,151
Deferred compensation payable 610,386 623,249
-------------- -------------
Total Long-Term Liabilities 1,060,386 1,124,400
-------------- -------------
TOTAL LIABILITIES 92,996,649 94,366,936
-------------- -------------
REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized-250,000 shares
Issued and outstanding-30,102.58 and 39,326.46 3,010,258 3,932,646
-------------- -------------
STOCKHOLDERS' EQUITY-NOTE 2
Common stock- $1 par value
Authorized 25,000,000 shares
Issued and outstanding-10,037,802 and 9,999,834 shares 10,037,802 9,999,834
Subscribed and unissued 388,565 424,766
Additional paid-in capital 3,786,383 3,791,151
Retained earnings 1,498,415 1,650,307
-------------- -------------
Total,before subscriptions receivable 15,711,165 15,866,058
Less: Subscriptions receivable 812,650 899,600
-------------- -------------
Total Stockholders' Equity 14,898,515 14,966,458
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 110,905,422 $ 113,266,040
============== =============
</TABLE>
See accompanying Notes to the Financial Statement
-2-
<PAGE>
DRUG GUILD DISTRIBUTORS , INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31
----------
1995 1994
---- ----
<S> <C> <C>
NET SALES
Stockholders $ 54,093,029 $ 55,140,289
Nonstockholders 73,807,365 66,180,479
--------------- --------------
TOTAL NET SALES 127,900,394 121,320,768
--------------- --------------
COST OF SALES:
Inventory, beginning of period 38,896,026 34,862,779
Purchases 113,847,063 114,934,513
--------------- --------------
152,743,089 149,797,292
Less: Inventory, end of period 31,861,047 35,296,734
--------------- --------------
COST OF SALES 120,882,042 114,500,558
--------------- --------------
GROSS PROFIT 7,018,352 6,820,210
--------------- --------------
OPERATING EXPENSES 5,817,903 5,724,090
INTEREST EXPENSE 1,453,341 1,081,841
--------------- --------------
TOTAL EXPENSES 7,271,244 6,805,931
--------------- --------------
PROFIT(LOSS) BEFORE CORPORATE TAXES (252,892) 14,279
--------------- --------------
PROVISION (CREDIT) FOR CORPORATE TAXES:
Current (80,000) 41,700
Deferred (21,000) (36,000)
--------------- --------------
Total Provision (Credit) for Corporate Taxes (101,000) 5,700
--------------- --------------
NET (PROFIT) LOSS (151,892) 8,579
Less: Stock Dividend on Preferred Stock (A) 60,205 78,410
--------------- --------------
NET (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (212,097) $ (69,831)
=============== ==============
LOSS PER COMMON SHARE ($0.02) ($0.01)
=============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 10,026,464 9,818,335
--------------- --------------
</TABLE>
(A) Gives effect to pro-rata portion of 8% Preferred dividend payable each
July 31.
See accompanying Notes to the Financial Statement
-3-
<PAGE>
DRUG GUILD DISTRIBUTORS , INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31
----------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (151,892) $ 8,579
------------- -------------
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 246,000 241,300
Deferred compensation payable (12,863) (12,350)
(Increase) decrease in:
Deferred income taxes (21,000) (36,000)
Trade receivables, net (6,701,311) (9,680,738)
Merchandise inventory 7,034,979 (433,955)
Prepaid expenses and other current assets 24,150 796,499
Increase (decrease) in:
Accounts payable 388,813 211,698
Accrued expenses and taxes 53,818 (450,577)
------------- -------------
Total adjustments 1,012,586 (9,364,123)
------------- -------------
Net Cash Provided by (Used In) Operating Activities 860,694 (9,355,544)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (236,080) (274,755)
Decrease (increase) in other assets (4,675) 3,000
------------- -------------
Net Cash Used In Investing Actitvities (240,755) (271,755)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (135,696) (189,005)
Net increase (decrease) in short-term bank debt (1,664,360) 8,264,801
Collections on common stock 86,950 165,500
Collections on preferred stock -- 375
Preferred stock redeemed (922,388) (571,042)
------------- -------------
Net Cash Provided By (Used In) Financing Activities (2,635,494) 7,670,629
------------- -------------
NET DECREASE IN CASH (2,015,555) (1,956,670)
CASH:
Beginning of period 2,022,564 1,959,061
------------- -------------
End of period $ 7,009 $ 2,391
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid in the period for:
Interest $ 1,453,341 $ 1,081,841
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
Reduction of accrued expenses due to issuance of notes payable $ 10,059 $ 5,720
Accounts receivable reduced for redemptions of common stock -- $ 177,495
Accounts receivable reduced for redemptions of preferred stock -- $ 731,666
Accounts receivable reduced for cancellation of common stock $ 3,000 --
</TABLE>
See accompanying Notes to Financial Statements
-4-
<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1- FINANCIAL STATEMENTS:
These Financial Statements should read in conjunction with the July 31, 1995
financial statements which describe all accounting policies.
NOTE 2 - REGISTERED PUBLIC OFFERING:
On June 10, 1991, the Company's Registration Statement on Form S-2 filed with
the United States Securities and Exchange Commission (the "Registration
Statement") became effective. Pursuant to the Registration Statement, the
Company will offer up to 4,500,000 shares of its common stock, $1 par value. A
Post-Effective Amendment was filed on August 31, 1994. The offering price of the
common stock being sold will be its FIFO book value (book value adjusted for
inventory and tax liabilities, stated as if the inventory was valued at the
lower first-in, first-out cost or market) as of the close of the fiscal quarter
immediately preceding the sale. As of October 31,1995, the FIFO book value was
$2.09 per share. The outstanding subscribed shares are included in the
accompanying financial statements based on the purchase price at that date. The
difference between the par value and the purchase price of subscribed common
shares has been credited to additional paid-in capital. Additional paid-in
capital at October 31, 1995 includes $423,975 on such uncollected subscriptions.
INFORMATION SUBJECT TO ADJUSTMENT;
While the information shown above is subject to adjustments on audit at the end
of the fiscal year, all adjustments which are in the opinion of Management
necessary for a fair statement of the results for the interim period have been
made.
-5-
<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition at October 31, 1995 Compared to Financial Condition at
July 31, 1995. From July 31, 1995 to October 31, 1995, the Company's current
assets decreased to $101,857,944 from $104,623,389 and its current liabilities
decreased to $91,914,263 from $93,242,536. Such decrease was attributable to the
Company's lower inventory purchases. The Company's bank loan also decreased
during this period. The Company's ratio of current assets to current liabilities
remained substantially the same during the period, decreasing to 1.11:1 from
1.12:1.
The Company has an accounts receivable and inventory financing arrangement
with a bank under which it can borrow up to 70% of its eligible accounts
receivable and up to 50% of its eligible inventory, as defined.
As of October 31, 1995, there were $59,348,000 of such eligible accounts
receivable out of a total of $64,395,000 or 92% and $38,357,000 of eligible FIFO
inventory, an amount in excess of 99% of total inventory. The maximum amount of
borrowing with respect to its inventory pursuant to such Agreements is
$30,000,000. The combined borrowing limit for accounts receivable and inventory
is $80,000,000. Such limit is determined by the bank and may be raised or
lowered by the bank at its discretion.
Total borrowings upon the line of credit equaled $51,511,080 on October 31,
1995. On such date the interest rate with respect to such financing was the
prime rate plus 1-1/4% (10 %).
Inflation. The Company attempts to pass along price increases from its
suppliers as soon as it is notified of those increases so as to preserve its
gross profit margin and, subject to competitive pressures on particular
products, is generally successful in doing so. Accordingly, the historical
effect of inflation has been to increase the Company's revenues and profits.
-6-
<PAGE>
Three Months Ended October 31, 1995 Compared to Three Months Ended October 31,
1994.
Net sales for the three months ended October 31, 1995 increased by 5.42%
over those for the 1994 period. This increase was attributable to price
increases. The number of stores remained unchanged at approximately 800.
Gross profit for the period increased by 2.9% from gross profit for
the 1994 period. Gross profit as a percentage of sales remained relatively
unchanged at 5.5%.
Total expenses for 1995 increased by 6.8% over such expenses for 1994.
Operating expenses (excluding interest expense) for the 1995 period were up
approximately 1.6% as compared to the 1994 period. Increased warehouse expenses
were offset by reduced general and administrative expenses.
Interest expense increased 34.3% on higher average borrowings for higher
sales volume requiring higher receivables.
The effect of the foregoing factors was that the Company's income before
corporate taxes for the three months ended October 31, 1995 experienced a 150.7%
decrease from the same period in 1994. Income taxes were 150.7% lower than the
same period in 1994 resulting from the loss.
-7-
<PAGE>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Roman Englander ("Englander") has retired as the President and Chief
Executive Officer of Drug Guild Distributors, Inc. (the "Company") effective
December 31, 1995 pursuant to a written agreement between the Company and
Englander dated December 5, 1995 (the "Agreement"). Englander will remain a
member of the Company's Board of Directors until his term shall expire or his
successor is elected, whichever shall first occur. The following are additional
provisions of the Agreement, which will terminate on September 30, 1996: (i)
Englander will remain available to the Corporation for consulting; (ii) the
Company will continue Englander's health insurance at no cost to Englander;
(iii) the Company will continue to provide Englander with his current automobile
at no cost to Englander; and (iv) the Company will provide Englander with an
office at its corporate headquarters. In addition, the Company ratified and
confirmed Englander's deferred compensation and non-competition covenants as set
forth in paragraphs 5 and 8, respectively, of the Employment Agreement between
Englander and the Company dated October 1, 1993 .
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Description Page
------- ----------- ----
10(m) Resignation Agreement by and between the Company 253
and Roman Englander dated December 5, 1995
b. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ending
October 31, 1995.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be executed
on its behalf by the undersigned, thereunto duly authorized.
Date: December 14, 1995
DRUG GUILD DISTRIBUTORS, INC.
By /s/ Jay Reba
----------------------------------
Jay Reba,Vice President of Finance
(Duly authorized officer and
principal financial officer)
-9-
<PAGE>
AGREEMENT made this 5th day of December, 1995 between DRUG GUILD
DISTRIBUTORS, INC., a New Jersey corporation (hereinafter referred to as the
"Corporation"), and ROMAN ENGLANDER (hereinafter referred to as "Englander").
W I T N E S S E T H :
WHEREAS, the Corporation and Englander are parties to an employment
agreement made as of October 1, 1993 (the "Agreement") wherein the Corporation
employs Englander as its Chief Executive and President; and
WHEREAS, Englander is desirous of retiring and terminating his employment
as of December 31, 1995.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained the parties hereto agree as follows:
1. RETIREMENT.
Englander shall retire as President and Chief Executive of the Corporation
as of December 31, 1995 and shall be paid at his current rate of compensation
through and including December 31, 1995.
2. HEALTH INSURANCE.
The Corporation shall continue Englander's health insurance through and
including September 30, 1996 at no cost to Englander. After such date, Englander
shall be entitled to continue his healthcare insurance pursuant to the
provisions of the plan then in existence as long as Englander pays whatever
costs are involved in the continuation of his coverage.
3. AUTOMOBILE.
The Corporation shall continue to provide Englander with his 1993 Lincoln
automobile through and including September 30, 1996 at no cost to Englander. The
Corporation shall transfer title and ownership to the automobile to Englander
after September 30, 1996 at no cost to Englander.
4. CONSULTING.
Englander will remain available until September 30, 1996 to the Corporation
for consulting from time to time on such terms and conditions as the parties
shall agree upon. Englander shall have the title of President Emeritus. Any
expenses that Englander incurs on behalf of the
<PAGE>
Corporation must be authorized by the Chief Operating or Chief Executive
Officer or by the Executive Committee.
5. BOARD OF DIRECTORS.
Englander shall remain a member of the Board of Directors of the
Corporation until his term shall expire or his successor is elected, whichever
shall first occur.
6. OFFICE.
The Corporation shall provide Englander with an office at the corporate
headquarters through and including September 30, 1996.
7. DEFERRED COMPENSATION.
Englander is presently receiving his deferred compensation payments under
paragraph 5 of the Agreement and such payments shall continue to be made in
accordance with its terms. Paragraph 5 of the Agreement is hereby ratified and
reconfirmed.
8. NON-COMPETITION.
The non-competition provisions of paragraph 8 of the Agreement are hereby
ratified and reconfirmed and Englander agrees to abide by the provisions of said
paragraph.
9. PENSION AND PROFIT-SHARING PLANS.
Englander shall be entitled to receive the proceeds payable to him under
the Pension Plan and Profit-Sharing Plan in accordance with their terms. Upon
request by the Executive Committee, Englander shall tender his resignation as
Trustee of either or both plans.
10. ENTIRE AGREEMENT.
This agreement constitutes the complete understanding between the parties
with respect to the employment of Englander and supersedes all prior agreements
of the parties relating thereto hereunder; and no statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein. This agreement shall not be altered, modified,
amended or terminated orally but may be altered, modified, amended or terminated
by written instrument signed by each of the parties hereto.
11. SUCCESSORS AND ASSIGNS.
(a) This agreement shall not be assignable by Englander.
2
<PAGE>
(b) All of the terms and provisions of this agreement shall be binding upon
and shall inure to the benefit of and be enforceable by the respective
successors and permitted assigns of the Corporation hereto.
(c) If the Corporation shall at any time be merged or consolidated into or
with any other corporations or if substantially all the assets of the
Corporation are transferred to another corporation, the provisions of this
agreement shall be binding upon and inure to the benefit of the corporation
resulting from such merger or consolidation or to which such assets shall be
transferred, and this provision shall apply in the event of any subsequent
merger, consolidation or transfer.
12. GOVERNING LAW.
This agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
13. SEPARABILITY.
In case of any one or more of the provisions of this agreement shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected thereby.
14. HEADINGS.
The headings contained in this agreement are for convenience only and are
not to be deemed a part hereof.
15. WAIVER.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof, shall not be deemed a waiver of such terms, covenants or
conditions, nor shall any waiver of such terms, covenants or conditions, nor
shall any waiver or relinquishment of any right or power hereunder at any time
or times be deemed a waiver or relinquishment of such rights or power at any
other time or times.
16. CANCELLATION OF THE AGREEMENT.
Except as otherwise provided for in this agreement, the provisions of the
Agreement are terminated and cancelled as of December 31, 1995.
17. NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to the other party hereto at his or its address
set forth below:
3
<PAGE>
If to Englander: Roman Englander
71 Ellsworth Terrace
Glen Rock, NJ 07452
If to the Corporation: Drug Guild Distributors, Inc.
350 Meadowland Parkway
Secaucus, NJ 07096-1527
Either party may change the address to which notices, requests, demands or
other communications hereunder shall be sent by sending written notice of such
change of address to the other party.
IN WITNESS WHEREOF, the parties have executed this agreement as of the 5th
day of December, 1995.
DRUG GUILD DISTRIBUTORS, INC.
By: /s/ Alfred W. Hertel
-----------------------------------
Alfred W. Hertel
Chairman of the Board of Directors
/s/ Roman Englander
-----------------------------------
ROMAN ENGLANDER
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from [identify
specific financial statement[s]] and is qualified in its entirety by
reference to such financial statement[s].<F1>
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 7,009
<SECURITIES> 0
<RECEIVABLES> 69,598,766
<ALLOWANCES> (1,199,761)
<INVENTORY> 31,861,047
<CURRENT-ASSETS> 101,842,944
<PP&E> 13,643,158
<DEPRECIATION> 10,311,778
<TOTAL-ASSETS> 110,905,422
<CURRENT-LIABILITIES> 91,936,263
<BONDS> 697,574
<COMMON> 10,037,802
3,010,258
0
<OTHER-SE> 5,673,363
<TOTAL-LIABILITY-AND-EQUITY> 110,905,422
<SALES> 127,900,394
<TOTAL-REVENUES> 127,900,394
<CGS> 120,882,042
<TOTAL-COSTS> 120,882,042
<OTHER-EXPENSES> 5,817,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,453,341
<INCOME-PRETAX> (252,892)
<INCOME-TAX> (101,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 60,205
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
