UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1995
Commission File Number 2-96510-NY
DRUG GUILD DISTRIBUTORS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 11- 2269958
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
350 Meadowland Parkway, Secaucus, New Jersey 07094
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 348-3700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
There is no trading market for either class of the Registrant's voting
securities.
As of July 31, 1995 there were outstanding 9,999,834 shares of the
Registrant's Common Stock and 39,326.46 shares of the Registrant's
Preferred Stock.
Documents incorporated by reference: None
Page 1 of 46 pages
The Exhibit Index is located at Page 19
PART I
Item 1. Business.
Drug Guild Distributors, Inc., referred to herein as the
"Company" or the "Registrant," is engaged in the business of distributing
at wholesale a wide variety of products almost exclusively to drugstores
and health and beauty aid stores primarily in the State of New Jersey and
the Greater New York City metropolitan area. Approximately 1% of sales are
to nursing homes and less than 1/4 of 1% of sales are to employees of the
Company. The products distributed can be separated into four groups: (1)
legend drugs, which are dispensed to the public only on a doctor's
prescription and take the form of pills, tablets and capsules, the
ingredients of which are sometimes sold in bulk by the Company; (2) patent
or non-legend drugs, which do not require a prescription and include such
items as cough medicines and aspirin; (3) sundries, which include such
items as clocks, soaps, deodorants, hairdryers and most other non-
pharmaceutical products commonly sold in drugstores; and (4) certain items
sold under the Company's private labels, including vitamins, shampoos and
cough syrups. The percentage of sales of the four product groups are
approximately as follows: legend drugs: 77%; non-legend drugs: 17%;
sundries: 4%; and private labels: 2%.
The preponderance of the Company's inventory purchases are
made directly from the manufacturers and no single supplier accounts for more
than 5% of the Company's dollar amount of purchases. In the opinion of
management, there are alternative sources of supply for virtually all the
products sold by the Company and the loss of any particular supplier would not
have a materially adverse effect on the Company. The Company has written
agreements with several of its largest suppliers, but these agreements do not
require any prescribed level of purchases by the Company nor do they require the
supplier to sell any given amount to the Company or guarantee any prices.
The Company sells to approximately 800 customers, most of
which are drugstores located in New Jersey and the Greater New York City
metropolitan area. The Company has no control over the pricing policies of its
customers and it believes that its customers sell over a wide range of prices.
There is no requirement that a customer purchase any given portion of its
inventory from the Company, but the Company believes that it supplies from 25%
to 50% of an average customer's inventory. No customer accounts for more than
5% of the Company's total sales.
A substantial percentage of the Company's customers are
shareholders of the Company. Approximately 40% of the issued and
outstanding Common Stock of the Company is owned by its customers. (An
additional 50% of the issued and outstanding Common Stock of the Company is
owned by affiliates of the customers and other persons related to the
affiliates.) Such "Shareholder-customers" account for more of the Company's
sales per store, on the whole, than non Shareholder-customers. All
Shareholder-customers of such stock have pledged their shares to the
Company to secure payment of amounts owed the Company for purchases. It is
the policy of the Company, with respect to a customer which has pledged a
predetermined number of shares of the Company's Common Stock or other
collateral acceptable to the Company to secure its accounts, to grant to
such customer, provided that such customer maintains its account in
accordance with certain
2
standards, credit terms which are superior to credit terms given to customers
who do not pledge shares as security. The Company responds to defaults in
payments upon goods purchased by customers on an ad hoc basis. Upon such a
default by a Shareholder-customer, it is the policy of the Company to continue
shipping goods and to forego instituting legal actions for a longer period of
time than with respect to defaults by customers who do not pledge shares.
Except for superior credit terms, Shareholder-customers receive the same terms
with respect to sales of goods as non Shareholder-customers. The foregoing
policy is subject to modification or discontinuance at any time at the election
of the Company.
If a Shareholder-customer defaults in the payment of amounts
owed the Company for merchandise, the Company may elect to terminate the
customer's interest in the shares and credit the customer's account with an
amount equal to the lesser of (a) the FIFO Book Value, or (b) the greater of
cost or par value of the shares. In the case of a shareholder owning shares
which were both purchased by the shareholder and shares received by such
shareholder as a dividend, such categories of stock will be considered
separately in determining "the greater of cost or par value."
The Company employs sales representatives, but the majority
of customers' orders are taken by telephone or through computer terminals at
the Company's New Jersey office. Sales promotions of particular items are
initiated on a regular basis. In connection with such promotions, the Company
supplies its customers with window signs and appropriate flyers for consumers.
In addition, certain advertising is done in New York City and New Jersey
newspapers on a regular basis. Many of the Company's customers, and
particularly Shareholder-customers, identify themselves as "Drug Guild" stores.
Employees. The Company employs approximately 328 persons on
a full time basis. Approximately 222 are warehouse personnel, 74 are clerical
and 32 are executives, salespersons and administration. The warehouse and
clerical personnel are covered by a collective bargaining agreement with Local
815, International Brotherhood of Teamsters, which expires on February 15,
1998. There has never been a strike or labor stoppage and the Company believes
that its relationship with its employees is excellent.
Competition. Competition in the wholesale drug and drugstore
supply business is intense and the Company competes in its marketing region
with a large number of suppliers.
Financial Consultant. On July 6, 1993, the Company entered
into an agreement with Joseph B. Churchman, whose address is P.O. Box 648,
Rehoboth Beach, Delaware 19971. The Company has engaged Mr. Churchman's
services as a pharmaceutical industry and financial consultant to the Company.
The agreement may be terminated by either party upon proper notice. Mr.
Churchman is paid $1,500.00 per day for services rendered to the Company. His
per diem fee is to be deducted from a success fee or finders fee payable to Mr.
Churchman in the amount of one-half of one percent (.5%) of the total
consideration of a Company "transaction" which results from his efforts. The
word transaction as used herein means, in the broadest sense, the acquisition,
consolidation, merger, sale, purchase or other union of the Company with
another entity. During
3
the fiscal year ended July 31, 1995, Mr. Churchman explored various
opportunities for the Company related to this engagement.
Amendment to By-Laws. On October 12, 1993, the Company
amended its By-laws to provide that the Executive Committee shall have and
exercise all the authority of the Board of Directors in lieu of the Board of
Directors to the extent permitted by New Jersey Statute Annotated 14A:6-9, See
Exhibit 3(d).
Item 2. Properties.
The Company occupies a modern cinderblock and steel office
and warehouse facility in Secaucus, New Jersey. The facility, which was built
to the Company's specifications, contains approximately 155,000 square feet and
houses all the Company's office and much of its warehouse functions. The
Company leases the building from an unaffiliated entity under a lease which
expires on May 31, 2005. For the fiscal years 1996-2005, the annual base
rental will be an average of $785,758.
The Company leases another warehouse facility in Secaucus,
New Jersey. The building, which was modified to accommodate the Company,
contains 33,280 square feet and houses additional warehouse space. The Company
leases the building from an unaffiliated entity under a lease which expires on
May 31, 2005. For the fiscal years 1996-2000, the annual base rental will be
$158,080 and for the fiscal years 2000-2005, the annual base rental will be
$183,040.
The leases are net leases requiring the Company to pay, in
addition to the base rental, substantially all real estate taxes, repairs and
other charges incident to the ownership of the properties. The real estate
taxes paid by the Company on account of the fiscal year ended July 31, 1995,
were approximately $186,000.
In addition to the foregoing, the Company subleases an
additional warehouse facility in Secaucus, New Jersey from an unrelated
third-party. The facility contains approximately 36,977 square feet. The term
of the lease, which expired on June 30, 1995, has been extended to March 31,
1997. The annual rent for the premises is $175,640.76 or $4.75 per square
foot, "gross". Rent includes taxes, utilities, alarm system and other related
charges.
The Company owns the preponderance of its office and
warehouse equipment, all of which is in excellent condition. The Company also
owns 51 delivery trucks, most of which are operated under a contractual
arrangement by a corporation unaffiliated with the Company or management.
Item 3. Legal Proceedings.
None
4
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no existing public market for any of the Company's
securities.
As of July 31, 1995, there were approximately 396 holders of
record of the Company's Common Stock and approximately 57 holders of record
of its Preferred Stock. Since 18 Shareholders owned both Common and
Preferred Stock, the Company had 435 Shareholders as of that date.
The Company has never paid a cash dividend and management does
not expect to pay cash dividends in the future.
5
Item 6. Selected Financial Data Income Statement Data:
<TABLE>
<CAPTION>
Years Ended July 31,
1995 1994 1993 1992 1991
(000's omitted except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales $493,827 $407,969 $387,252 $346,448 $293,895
Net Income (Loss) (505) 308 1,707 1,601 1,372
Net Income (Loss)
Attributable to Common
Stockholders (796) (172) 1,316 1,184 586
Earnings (Loss) Per
Common Share (A) (0.08) (0.01) 0.14 0.13(B) 0.09(B)
Balance Sheet Data
Working Capital 11,381 13,920 13,566 11,630 10,906
Total Assets 113,266 103,669 97,209 93,220 80,460
Long-Term Liabilities 1,124 1,558 2,063 2,358 1,269
Special Common Stock
(Redeemable) - - - - -
Preferred Stock 3,933 5,223 4,802 4,678 5,336
Stockholders' Equity 14,966 15,423 14,720 12,511 10,689
Stockholders' Equity
Per Common Share 1.49 1.56 1.56 1.37(B) 1.21(B)
FIFO Book Value
Per Share (C) 2.10 2.27 2.27 2.03(B) 1.75(B)
Ratio of Earnings
to Fixed Charges 0.89 1.16 1.91 1.87 1.73
</TABLE>
________________
(A) See Note 13 of Notes to Financial Statements.
(B) Restated to give retroactive effect to stock dividends on Common Stock
paid January 1992 and 1993 and recapitalization in January 1991.
(C) Calculated with inventory and tax liabilities based on the first-in,
first-out (FIFO) inventory method in connection with the Company's
right of first refusal and right of the holders of Preferred Stock to
have their stocks redeemed.
The table above contains selected data from the financial statements of the
Company set forth elsewhere herein and should be considered in connection
with a review of such financial statements, including the notes thereto, as
a whole.
6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition at July 31, 1995 Compared to Financial
Condition at July 31, 1994. For the year ended July 31, 1995, the
Company's Current Assets increased to $104,623,389 from $95,384,268 and its
Current Liabilities increased to 93,242,536 from $81,464,727. The
increases were attributable to higher receivables and inventory resulting
from higher sales. The Company's ratio of Current Assets to Current
Liabilities decreased to 1.1:1 from 1.2:1. The decrease in total
Stockholders' Equity to $14,966,458 from $15,423,099 was primarily
attributable to net loss for the year.
The Company has an accounts receivable and inventory financing
arrangement with a bank (the "Agreement") under which it can borrow up to
70% of its eligible accounts receivable and up to 50% of its eligible
inventory, as defined in the Agreement.
As of July 31, 1995, there were $55,100,000 of such eligible
accounts receivable out of a total of $61,000,000, or 90%, and $48,000,000 of
eligible inventory (calculated on FIFO Basis), an amount in excess of 99% of
total inventory. Under the Agreement, the maximum amount the Company can
borrow on its inventory is $30,000,000; and the maximum combined borrowing
limit for accounts receivable and inventory is $80,000,000. These limits are
determined by the bank and may be raised or lowered by the bank at its
discretion.
Total borrowing upon the line of credit equaled $53,175,000
on July 31, 1995. On such date the interest rate with respect to such
financing was the prime interest rate plus 1% (a total of 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.
Fiscal Year ended July 31, 1995, compared to fiscal year ended
July 31, 1994. Net sales for the year ended July 31, 1995 increased by 21%
over fiscal 1994. The increase was attributable to both an increase in
sales volume (approximately 75% of the 21% increase) and an increase in
pharmaceutical prices (approximately 25% of the 21% increase).
Gross profit for the year increased by 9.4% over the gross
profit for fiscal 1994 as a result of the increased sales; however, gross
profit as a percentage of net sales decreased 0.6% from 6.4% to 5.8%, as a
result of competitive pressures and a lower profit on forwarded buying of
pharmaceuticals.
Total expenses for fiscal 1995 increased by 13.7% over such
expenses for fiscal 1994. Operating expenses for fiscal 1995 , excluding
interest expense, increased by 4.1% over those for fiscal 1994. The
increased operating expenses were caused by higher warehouse labor costs. This
7
was due to higher volume and increased wages as a result of premium
pay for changing to a night shift. Interest costs were higher because of
higher inventory and receivables necessary to support higher volume as well
as higher interest rates.
The effect of the foregoing factors was that the Company had a
loss before taxes for the year ended July 31, 1995 as compared to net
income for 1994.
Fiscal Year ended July 31, 1994, compared to fiscal year ended
July 31, 1993. Net sales for the year ended July 31, 1994 increased by
5.3% over fiscal 1993. The increase was attributable to both an increase
in sales volume (approximately 25% of the 5.3% increase) and an increase in
pharmaceutical prices (approximately 75% of the 5.3% increase). The
Company believes that part of the reason why the sales volume increase was
so small was due to the poor winter weather.
Gross profit for fiscal 1994 decreased by 10.7% from the gross
profit for fiscal 1993. Gross profit as a percentage of net sales
decreased from 7.5% to 6.4% as a result of competitive pressures and a
lower profit on forwarded buying of pharmaceuticals due to smaller price
increases.
Total expenses for fiscal 1994 decreased by 2.8% from such
expenses for fiscal 1993. Operating expenses, excluding interest expense,
for fiscal 1994 decreased by 2.2% from those for fiscal 1993. The reduced
operating expenses were due to lower maintenance, depreciation and bad debt
expense. This reduction in operating expenses was partially offset by
higher professional fees incurred in connection with the failed
negotiations for the acquisition of the Company's capital stock by Commons
Bros. Inc., and Commons Bros. Northeast, Inc. Interest expense was lower because
of reduced borrowing, although this savings was mostly offset by higher rates.
The effect of the foregoing factors was that the Company's
income before corporate taxes for the year ended July 31, 1994, experienced a
83.5% decrease from fiscal year 1993. Income taxes for fiscal 1994 were 85.9%
lower than in fiscal year 1993 as a result of the lower income.
Fiscal Year ended July 31, 1993, compared to fiscal year
ended July 31, 1992. Net sales for the year ended July 31, 1993 increased by
11.8% over fiscal 1992. The increase was attributable to both an increase in
sales volume (approximately 60% of 11.8% increase) and an increase in
pharmaceutical prices (approximately 40% of 11.8% increase).
Gross profit for the year increased by 6.5% over gross profit
for fiscal 1992 as a result of the increased sales; however, gross profit as a
percentage of net sales was reduced 0.4% from 7.9% to 7.5%, as a result of
competitive pressures and a lower profit on forwarded buying of
pharmaceuticals.
Total expenses for fiscal 1993 increased by 6.4% over such
expenses for 1992. Operating expenses, excluding interest expense, for
fiscal 1993 increased by 6.9% over those for fiscal 1992. This increase
was due to the costs of increased volume as well as the costs of an
additional
8
warehouse. Interest expense was higher because of increased borrowing,
although this expense was mainly offset by lower rates.
The effect of the foregoing factors was that the Company's
income before corporate taxes for the year ended July 31, 1993, experienced a
7.8% increase over fiscal year 1992. Income taxes were 9.7% higher than for
fiscal year 1992 resulting from such higher income.
Liquidity and Capital Resources. Because of the growth in
the Company's sales it has been necessary for the Company to continually
increase its inventory. For the same reason, accounts receivable have risen
comparably. The Company believes that based upon its current bank agreement it
has sufficient liquidity and capital to support future growth.
Item 8. Financial Statements and Supplementary Data.
See the index constituting a part of Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The officers of the Company are:
Name Age Position
Alfred Hertel 66 Chairman of the Board
Roman Englander 66 President and Chief Executive
Officer
Alan Glenn 65 Senior Vice President and Chief
Operating Officer
Gary Merten 45 Vice President - Data
Processing
Mark Englander 39 Vice President
Norman Genzer 53 Vice President
Jay Reba 54 Vice President - Finance
Martin Shapiro 64 Secretary - Treasurer
The Company's officers hold office until the next annual meeting of the
Company's Board of Directors and until their respective successors are
elected.
9
For more than the previous five years, Mr. Hertel has been
an officer and a principal shareholder of Oakland Drug Inc., located in
Oakland, New Jersey.
Mr. Roman Englander has been employed by the Company since
1949. He has functioned as the chief executive of the Company since 1970 and
has been President since 1973. Mr. Englander is the father of Mark Englander.
Mr. Englander's term as director expires in 1998.
Mr. Glenn has been Senior Vice President of the Company since
1980. He became a Vice President in 1973 and Chief Operating Officer in 1995.
Prior thereto and for more than 25 years, he was a principal of Ritz
Drugstores, which operates in New Jersey.
Mr. Merten has been employed by the Company since 1978 in the
data processing area and has been a Vice President since October, 1981.
Mr. Mark Englander has been employed by the Company since
1979. He has been a Vice President since 1986. He is the son of Roman
Englander.
Mr. Genzer has been employed by the Company since 1982. He
has been a Vice President since 1986.
Mr. Reba has been employed by the Company since 1987. From
August of 1987 to December of 1991 he was employed as Controller. He has
been Vice President since December, 1991.
Mr. Shapiro was a principal of Franhill Drugs in Hollis, New
York for more than five years preceding 1983 and a consultant to the Company
from 1983 to 1986. His term as a director expired in 1987.
All of the officers, except Mr. Hertel, are full time
employees of the Company. Mr. Hertel is not an employee of the Company, he
does not devote a significant portion of his time to his duty as Chairman of
the Board, and he receives no cash remuneration for serving as Chairman of the
Board.
At the annual meeting of shareholders of the Company,
approximately one-third of the members of the Board of Directors are
elected for three year terms.
The following tables sets forth the names of the directors of
the Company and, as to each director, the year in which each began as director
and the number and percentage of outstanding shares of Common Stock and
Preferred Stock of the Company owned by him. The table also contains
information as to the ownership of such Common Stock and Preferred Stock by the
officers of the Company who own such securities and by all officers and
directors as a group.
10
Common Stock Preferred Stock
of the Company of the Company
Owned Beneficially Owned Beneficially
at July 31, 1995(2) at July 31, 1995
------------------- ------------------
Director Number Percent Number Percent
Name Since of Shares of Class of Shares of Class
- ---- ----- --------- -------- --------- --------
Harold Blumenkrantz (1) 1981 36,685 .37 903.6 2.30
Marco Cutinello 1992 -- -- -- --
Louis Del Rosso 1986 30,791 .31 -- --
Herbert Dudak 1986 96,578 .97 267.7 0.68
Harold Eckstein 1983 217,563 2.18 -- --
Paul Emanuel 1985 24,480 .24 -- --
Roman Englander 1976 339,851 3.40 -- --
Hal Epstein 1987 45,427 .45 -- --
Peter Esposito 1991 13,242 .13 -- --
Sidney Falow 1979 24,740 .25 -- --
Sanford Fishman 1976 93,705 .94 -- --
Herbert Gordon 1995 123,403 1.23 -- --
Gerald Ginsberg 1978 222,346 2.22 -- --
George Grumet 1988 47,930 .48 1,790.9 4.55
Alfred Hertel (1) 1976 113,358 1.13 -- --
Steven J. Kabakoff 1989 50,999 .51 -- --
Michael Katz 1976 101,196 1.01 -- --
Jay Kessler 1986 112,231 1.12 -- --
Gerald Koblin 1995 43,997 .44 -- --
Jerry Koizim 1988 23,398 .23 -- --
Anthony Kranjac 1992 54,632 .54 -- --
Ely Krellenstein 1976 206,323 2.06 2,276.2 5.79
John Lynch (1) 1976 289,135 2.89 -- --
George Manolakis 1983 108,456 1.08 -- --
Boris Mantell 1991 45,026 .45 -- --
Richard Rostholder 1988 334,186 3.34 -- --
Bipinchandra Shah 1987 134,692 1.35 620.0 1.58
Murray Shapiro 1976 27,504 .28 1,635.6 4.16
Howard Sternheim (1) 1976 656,333 6.56 -- --
11
(Table continued)
Common Stock Preferred Stock
of the Company of the Company
Owned Beneficially Owned Beneficially
at July 31, 1995(2) at July 31, 1995
------------------- ------------------
Director Number Percent Number Percent
Name Since of Shares of Class of Shares of Class
- ---- ----- --------- -------- --------- --------
Alan Traster 1989 90,191 .90 -- --
Ernest Wyre(1) 1976 248,240 2.48 1,844.1 4.68
Joseph Zarchy 1976 85,600 .86 -- --
Total of All
Officers and Directors
as a group (42 persons) 4,141,463 41.41 9,696.3 24.65
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Preferred Stock Common Stock Common Stock
Subscribed for Subscribed for to be Issued
but Unissued but Unissued Within 60-day
as of as of period following
Name July 31, 1995 July 31, 1995(2) July 31, 1995
- ---- ------------- ---------------- ---------------
<S> <C> <C> <C>
Harold Blumenkrantz (1) - - -
Marco Cutinello - - -
Louis Del Rosso - - -
Herbert Dudak - - -
Harold Eckstein - - -
Paul Emanuel - - -
Roman Englander - - -
Hal Epstein - 7,641 -
Peter Esposito - - -
Sidney Falow - - -
Sanford Fishman - - -
Gerald Ginsberg - - -
George Grumet - - 471
Alfred Hertel (1) - - -
</TABLE>
12
(Table continued)
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Preferred Stock Common Stock Common Stock
Subscribed for Subscribed for to be Issued
but Unissued but Unissued Within 60-day
as of as of period following
Name July 31, 1995 July 31, 1995(2) July 31, 1995
- ---- ------------- ---------------- --------------
<S> <C> <C> <C>
Steven J. Kabakoff - - -
Michael Katz - - -
Jay Kessler - - -
Jerry Koizim - - -
Anthony Kranjac - 6,792 849
Ely Krellenstein - - -
John Lynch (1) - - 1,401
George Manolakis - - -
Boris Mantell - - -
Richard Rostholder - 6,226 566
Bipinchandra Shah - 18,113 -
Murray Shapiro - 5,235 -
Howard Sternheim (1) - 73,867 -
Alan Traster - 72,594 5,094
Ernest Wyre (1) - - -
Joseph Zarchy - - -
Total of All
Officers and
Directors
as a group
(42 persons) - 190,468 8,381
</TABLE>
____________
(1) Member of the Executive Committee of the Board of Directors.
(2) Includes shares of Common Stock to be issued within the 60 day period
following July 31, 1995. Upon the payment of amounts due on the
monthly subscriptions, "Shares of Common Stock Subscribed for but
Unissued" column will be reduced by the shares issued.
13
Terms Expiring in 1999
Mr. Blumenkrantz, age 57, has been a principal of West End
Family Pharmacy, Inc., Long Branch, New Jersey since 1962. Mr. Falow, age 64,
has for more than the past five years been owner of Weber's Pharmacy in
Brooklyn, New York. Mr. Kabakoff, age 48, has for more than the past five
years been a director, Vice President and Secretary of Kasbil Corporation,
Bronx, New York, which does business as Sol's Health & Beauty. Mr. Kabakoff
has also been a director of Bronx Frontier, Inc., Bronx, New York, since 1988
and was a director and secretary of Best Alarm Company, Bronx, New York, from
1989 to 1991. Mr. Katz, age 56, has been the President of Katz Drug, Brooklyn,
New York for more than five years. Mr. Kranjac, age 57, has been a principal
of Medical Pharmacy, Queens, New York, for more than the past five years.
Mr. Lynch, age 53, has been a principal of Bach's Drug Store, Hackettstown, New
Jersey since 1962. Mr. Manolakis, age 60, has for more than the past five
years been the owner of Oakhurst Pharmacy of Oakhurst, New Jersey, and since
1992, the Westpark Pharmacy. Mr. Rostholder, age 41 has for more than five
years been a principal of Franhill Drugs, Inc., Hollis, New York. Mr. Shapiro,
age 56, was a principal of Core Software Solutions, Inc. from April, 1991 to
March, 1992, was a principal of S & A Pharmacy, Bronx, New York, from prior to
five years ago until September 1990, and has been employed as general manager
of Zitomer Pharmacy, Inc. from March, 1992 to the present. Mr. Traster, age
46, has for more than the five years been President, Chief Operating
Officer and a director of 17 Wanaque Corp. Saxon West, Inc. and Pompton Nursing
Home Suppliers, Inc., all with a principal address at Pompton Lakes, New
Jersey.
Terms Expiring in 1998
Mr. Cutinello, age 62, has been a principal of Rita Pharmacy,
Roselle, New Jersey for more than five years. Mr. Del Rosso, age 50, has
been a principal of Investra Pharmacy, Summit, New Jersey, for more than
five years. Mr. Dudak, age 63, has been a principal of Codumel Pharmacy,
Brooklyn, New York, for more than five years. Mr. Fishman, age 60, has
been a principal of Fishman's Bond Drugs, Inc. of Jersey City, New Jersey,
for more than five years. Mr. Grumet, age 53, has been for more than five
years the owner of Thrifty Drug, Piscataway, New Jersey, and a principal of
Keansburg Drugs, Keansburg, New Jersey. Mr. Hertel, age 66, has, since
prior to 1967, been a principal of Brittany Chemists, Inc. in New York City
and Oakland Drugs, Oakland, New Jersey. Mr. Mantell, age 50, for more than
five years, has been President of Globe Drug Corp. d/b/a Claremont
Chemists, New York, New York, served as Secretary of Magle Drug Corp.,
d/b/a Perry Drugs, Brooklyn, New York from 1987 to 1992, has, since 1988,
been Vice President of Brothers Drug Corp., d/b/a Variety Drugs, Jamaica,
New York and has, since 1990, been President of First Elm Drug Corp., d/b/a
Elm Drugs, New York, New York. Mr. Sternheim, age 63, has, for more than
the past five years been President and principal shareholder of Vanderveer
Pharmacy, Inc. in Brooklyn, New York and twenty-one (21) other drug stores
and one (1) variety store in the New York City area. Mr. Wyre, age 71, who
was a principal of Lenox Terrace Drug Store, Inc. in Brooklyn, New York,
for more than five years preceding 1987, is now a private investor.
Terms Expiring in 1997
Mr. Eckstein, age 64, has been the owner of Leff Drugs, Bronx,
New York for more than the past five years. Mr. Emanuel, age 69, has been
the owner of Town and Country Pharmacy, Inc., Ridgewood, New
14
Jersey, for more than five years. Mr. Epstein, age 45, has for more than five
years been a principal in Thriftway Staten Island Drug Corp., Staten Island,
New York, Thriftway Cross County Drug Corp., Yonkers, New York, Thriftway
Lawrence Drug Corp., Lawrence, New York and since November, 1991, in four
additional Thriftway stores including the Thriftway Concourse Drug Corp.,
Bronx, New York. Mr. Esposito, age 49, has for more than the past five
years been the President and owner of E&W Drug Corp., Edison, New Jersey, E&W
of Union, Inc., Union, New Jersey and has been President and an owner of E&M
Pharmacies, Inc., New Brunswick, New Jersey. All three corporations are doing
business as Metro Drugs. Mr. Ginsberg, age 67, has for more than five years
been President of C. O. Bigelow Chemists, Inc., and C.O. Bigelow of Roosevelt,
Inc. in New York City. Mr. Gordon, age 61, has been a principal of Webster
Drug and Cosmetic Corp., Bronx, New York for more than five years. Mr.
Kessler, age 57, has been a principal of Ark Drugs, Brooklyn, New York for more
than five years. Mr. Koblin, age 58, has been a principal of Koblin
Pharmaceuticals, Inc., Nyack, New York for more than five years. Mr. Koizim,
age 68, has been a principal of Drug Fair, Kearny, New Jersey, for more than
five years. Mr. Krellenstein, age 67, was a principal of Oval Drug Co., Bronx,
New York, between 1989 and 1991; he has since retired. Mr. Shah, age 51, has
been President of V and B Drug Corp., Bronx, New York for more than five years.
Mr. Zarchy, age 73, has, since prior to 1977, been a principal of Zarchy
Pharmacy, Inc., Woodside, New York.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth, for the fiscal years ended
July 31, 1995, 1994 and 1993, the cash compensation paid by the Company, as
well as certain other compensation paid with respect to those years, to the
chief executive officer and each of the four other most highly compensated
executive officers of the Company in all capacities in which they served.
15
Annual Compensation
Other
Name Annual All Other
and Principal Compen- Compen-
Position Year Salary Bonus sation sation1
- --------------------------------------------------------------------------------
Roman Englander 1995 $526,400.00 - - $10,320.00
President and 1994 $448,716.00 - - $9,007.00
CEO 1993 $417,500.00 - - $9,400.00
Alan Glenn 1995 $202,800.00 - - $2,870.00
Senior Vice 1994 $202,000.00 - - $6,309.00
President and COO 1993 $202,700.00 - - $5,827.00
Gary Merten 1995 $125,800.00 - - -
Vice President 1994 $126,100.00 - - -
Date Processing 1993 $125,300.00 - - -
Jay Reba 1995 $107,600.00 - - -
Vice President 1994 $106,900.00 - - -
Finance 1993 $111,150.00 - - -
Mark Englander 1995 $105,500.00 - - -
Vice President 1994 $105,300.00 - - -
1993 $108,500.00 - - -
Norman Genzer 1995 $108,000.00 - - -
Vice President 1994 $105,300.00 - - -
1993 $108,500.00 - - -
All Executive Officers
as a Group (7 persons) $1,263,850.00 - - $13,190.00
Mr. Englander has an employment agreement with the Company
which guarantees him employment until the earliest to occur of the following
events: September 30, 1996; his death or disability; or termination for gross
misconduct. Pursuant to Mr. Englander's employment agreement, commencing as
of October 1, 1993 and continuing until September 30, 1994, Mr. Englander's
base salary is $425,000 per year. Effective each succeeding October 1, Mr.
Englander's salary will be increased by an amount equal to the greater of (i)
5% of the salary then payable to him or (ii) change in the CPI as determined in
accordance with the manner set forth under the employment agreement. Under a
modified, deferred compensation agreement
- --------
1 Value of insurance premiums paid by the Company during the covered fiscal
year with respect to term life insurance for the benefit of the named
executive officer.
16
between Mr. Englander and the Company, the Company is obligated to pay him or
his designee $100,000 each year ("deferred compensation") for ten years upon
the earlier of Englander attaining age 65 or termination of his employment
pursuant to the agreement. On March 1, 1994, Mr. Englander turned 65 years of
age, thereby becoming eligible to receive a monthly deferred compensation of
$8,333.33 per month. The agreement also provides that should the Company
undergo a change of control (as defined), Mr. Englander shall receive the
lump-sum amount of $425,000 and the then present value of his unpaid deferred
compensation. Additionally, upon a change of control of the Company, the
Company shall assign to Englander the life insurance policies upon Englander's
life in the amount of $1,600,000. The Company also pays the premium for an
insurance policy on Mr. Englander's life in the face amount of $200,000,
pursuant to which he is entitled to designate the beneficiary. See also Note 6
of "Notes to the Financial Statements."
None of the directors or members of the Executive Committee,
except Mr. Englander, receives any direct remuneration from the Company,
but the Company pays the premium for term life insurance policies covering
most of them with the benefits of $100,000 each payable to their designees.
The aggregate annual premium for these policies is approximately $45,000.
Although most of the directors are affiliated with certain
customers of the Company, all transactions between such customers and the
Company are in its normal course of business and these customers by virtue
of being affiliated with directors receive no preferences as to price or
other terms and conditions at which they buy products from the Company.
The Company has a non-contributory, defined benefit pension
plan for non-union employees, including its officer-employees, to which it
contributed, with respect to such officer-employees, an aggregate of
approximately $140,200 for the fiscal year ended July 31, 1995. See Note 7 of
"Notes to the Financial Statements." Under the plan, participating employees
upon reaching age 65 after 5 years of plan membership are entitled to annual
retirement benefits in accordance with the following formula: (a) 30% (reduced
by 3/4% for each year or part thereof less than 40 years employed by the
Company) of average yearly compensation during the five consecutive years of
the last ten years during which the employee received the highest compensation
("Yearly Base Compensation") plus (b) 18.72% of the excess of Yearly Base
Compensation over 1992 Social Security covered compensation, such 18.72%
reduced by .65% for each year under 32 years employed by the Company. The plan
provides for related benefits in the event of death, disability or early
retirement. An employee's interest in the plan becomes fully vested in
increments over his first five years of membership in the plan.
Defined Benefit or Actuarial Plan Disclosure
Years of Service
Remuneration 15 20 25 30 35
- --------------------------------------------------------------------------------
$100,000 $18,000 $24,000 $30,000 $36,000 $42,000
$125,000 $23,000 $30,000 $38,000 $45,000 $53,000
$150,000 + $28,000 $37,000 $46,000 $54,000 $60,000
17
The estimated credit years of service for each of the
executive officers named in the "Summary Compensation Table" as of January 1,
1995, are as follows:
Name Estimated Credited Years
Roman Englander 45
Alan Glenn 20
Gary Merten 16
Jay Reba 7
Mark Englander 14
Norman Genzer 10
The form of the pension plan is a life annuity with 10 years
guaranteed. There is no deduction for Social Security or other offset
amounts.
The Company also has a profit-sharing plan for non-union
employees, including its officer-employees, which requires no fixed or
minimum contribution. There was no contribution to the profit-sharing plan
for the fiscal years ended July 31, 1995 and 1994. Under the plan,
contributions by the Company are allocated among the accounts of
participating employees in proportion to their respective compensations, as
defined. Upon retirement, death or disability, participating employees are
entitled to the value of their accounts as provided in the plan. An
employee's interest in the plan becomes vested in increments over the first
five years of his membership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, no person owns beneficially
or of record more than 5% of any class of the Company's voting securities
except for:
(1) (2) (3) (4)
Title of Name and Address Amount and Nature Percent
Class of beneficial owner of Beneficial Ownership of Class
Preferred Ely Krellenstein 2,276.2 5.79%
Stock 13179 Camero Way
Palm Beach, FL 33418
Common Howard Sternheim 656,333 6.56%
Stock 1020 Park Avenue
New York, NY 10028
Item 13. Certain Relationships and Related Transactions.
None
18
Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K
(a)(1) Financial Statements.
The following are filed with this report:
i) Independent Auditor's Report.
ii) Balance Sheets at July 31, 1995 and 1994.
iii) Statements of Operations for the years ended
July 31, 1995, 1994, and 1993.
iv) Statements of Stockholders' Equity for the years
ended July 31, 1995, 1994 and 1993.
v) Statements of Cash Flow for the years ended July 31,
1995, 1994 and 1993.
vi) Notes to the Financial Statements.
(a)(2) Financial Statement Schedules:
i) Schedules II - Valuation and Qualifying
Accounts
(a)(3) Exhibits.
The following exhibits are filed as part
of this report:
Page No. In
Sequential
Exhibit Numbering
Number System
3(a) Certificate of Incorporation of the Registrant,
filed July 22, 1976 and Amendments to Certificate
of Incorporation [3(a)](6)
(b) Registrant's By-laws and Amendments
thereto [3(b)](6)
(c) Certificate of Correction of Certificate of
Amendment of Certificate of Incorporation [3(c)](7)
(d) Amendment to By-Laws
4 (a) Common Stock Subscription Agreement (9)
19
Page No. In
Sequential
Exhibit Numbering
Number System
4(b) Preferred Stock Subscription Agreement (9)
(c) Old Common Stock Subscription Agreement
[4(a)] (4)
(d) Special Common Stock Subscription Agreement
[4(b)] (4)
(e) Special Common Stock Subscription Agreement
Modified as of January 15, 1988 [4(c)] (5)
(f) Variable Rate Promissory Note Subscription
Agreement [4(c)] (4)
(g) Form of Variable Rate Promissory Note [4(d)] (1)
(h) Form of Old Common Stock Certificate [4(e)] (3)
(i) Form of Special Common Stock Certificate
[4(f)] (3)
(j) Special Common Stock Subscription
Agreement modified as of June, 1989 [4(h)](6)
(k) Form of Common Stock Certificate [4(k)](8)
(l) Form of Preferred Stock Certificate [4(l)](8)
(m) Revised Common Stock Subscription Agreement (10)
(The Registrant will furnish the Securities and
Exchange Commission upon request a copy of each
instrument defining the rights of the holders
of the Registrant's long term debt)
20
Page No. In
Sequential
Exhibit Numbering
Number System
10(a) Lease, dated September 13, 1973, between the
Registrant and Hartz Mountain Industries, Inc.,
as amended November 19, 1980 and
December 28, 1981 [5(b)](2)
(b) Employment Agreement, dated as of
December 19, 1985, between the Registrant
and Roman Englander [5(b)](5)
(c) Pension Plan Restated as of January 1, 1978
[10(c)] (3)
(d) Profit Sharing Plan [10(d)] (3)
(e) Amendment, dated as of February 23, 1989,
to Accounts Financing Agreement dated
March 24, 1980, as amended, between the
Registrant and Bankers Trust Company [10(e)](7)
(f) Lease, dated December 15, 1989, between
the Registrant and Hartz Mountain Industries, Inc.
[10(f)](7)
(g) Documents Further Amending Accounts
Financing Agreement, dated March 24, 1980,
as amended, between Registrant and
Bankers Trust Company (10)
(h) Sublease, dated June 10, 1992 between
Hoogovens Aluminum Corporation, Sublessor,
and Drug Guild Distributors, Inc., Sublessee,
and related documents (11)
(i) Employment Agreement dated as of October 1, 1993
between the Registrant and Roman Englander (12)
21
Page No. In
Sequential
Exhibit Numbering
Number System
10(j) Agreement dated July 6, 1993 between
the Registrant and Joseph B. Churchman (12)
(k) Amended and Restated Drug Guild Distributors, Inc.
Profit Sharing Plan and Trust effective August 1, 1989
and the Amendment thereto dated 9/1/94
(l) Amended and Restated Drug Guild Distributors, Inc.
Pension Plan effective January 1, 1989 and the
Amendment thereto dated 9/1/94
12(a) Statement or Computation of ratios (13) 252
_______________
(1) Incorporated by reference to the specified exhibit constituting a
part of the Company's Notification on Form 1-A (File No. 24 NY-
8317)
(2) Incorporated by reference to the specified exhibit constituting a
part of the Company's Notification on Form 1-A (File No. 24 NY-
8303)
(3) Incorporated by reference to the specified exhibit constituting a
part of the Company's Registration Statement on Form S-18 (File No.
2-85967-NY)
(4) Incorporated by reference to the specified exhibit constituting a
part of the Company's Registration Statement on Form S-18 (File No.
2-96510-NY)
(5) Incorporated by reference to the specified exhibit constituting a
part the Company's Notification on Form 1-A (File No. 24-NY-8736)
(6) Filed as the specified exhibit to the Company's Registration
Statement on Form S-4 (File No. 33-35396)
(7) Filed as the specified exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (File No. 33-35396).
(8) Filed as the specified exhibit to the Company's
Registration Statement on Form S-2 (File No. 33-40277).
22
(9) Filed as to specified exhibit constituting a part of the
Registrant's Form 10-K, Annual Report, pursuant to Section 13 or
15(D) of the Securities Exchange Act of 1934, for the fiscal year
ended July 31, 1991.
(10) Filed as the Specified Exhibit to Post-Effective Amendment No.1 to
the Company's Registration Statement on Form S-2 (File No. 33-
40277).
(11) Filed as to specified exhibit constituting a part of the
Registrant's Form 10-K, Annual Report, pursuant to Section 13 or
15(D) of the Securities Exchange Act of 1934, for the fiscal year
ended July 31, 1992.
(12) Filed as to specified exhibit constituting a part of the
Registrant's Form 10-K, Annual Report, pursuant to Section 13 or
15(D) of the Securities Exchange Act of 1934, for the fiscal year
ended July 31, 1993.
(13) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
23
DRUG GUILD DISTRIBUTORS, INC.
FORM 10-K
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS:
Balance Sheets -
July 31, 1995 and 1994
Statements of Operations
for the Years Ended July 31, 1995, 1994 and 1993
Statements of Stockholders' Equity
for the Years Ended July 31, 1995, 1994 and 1993
Statements of Cash Flows
for the Years Ended July 31, 1995, 1994 and 1993
Notes to the Financial Statements
SCHEDULES:
II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or the required information is included in the
financial statements or the notes thereto.
24
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDER AND DIRECTORS OF
DRUG GUILD DISTRIBUTORS, INC.:
We have audited the accompanying balance sheets of Drug
Guild Distributors, Inc. as of July 31, 1995 and 1994 and the
related statements of operations, stockholders' equity and cash
flows for each of the three years ended July 31, 1995. These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Drug Guild Distributors, Inc. at July 31, 1995 and
1994, and the results of its operations and its cash flows for
each of the three years ended July 31, 1995, in conformity with
generally accepted accounting principles.
25
-2-
In connection with the aforementioned audits, we have
also audited the schedule listed in the accompanying index for
each of the three years ended July 31, 1995. In our opinion,
this schedule presents fairly the financial data required to be
set forth therein.
/s/ Anchin, Block & Anchin LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
October 10, 1995
26
DRUG GUILD DISTRIBUTORS, INC.
BALANCE SHEETS
July 31,
1995 1994
A S S E T S
CURRENT ASSETS:
Cash $ 2,022,564 $ 1,959,061
Trade receivables - Notes 2, 3 and 12:
Stockholders 26,535,603 26,055,791
Nonstockholders 36,713,630 31,845,966
Allowance for doubtful accounts (1,123,467) (1,256,391)
Merchandise inventory - Notes 1, 3 and 14: 38,896,026 34,862,779
Deferred income tax benefit - Note 15 788,000 680,000
Prepaid expenses and other current assets 791,033 1,237,062
------------ ------------
Total Current Assets 104,623,389 95,384,268
------------ ------------
PROPERTY AND EQUIPMENT - NOTES 1, 4 AND 5:
Property and equipment 13,407,078 12,001,701
Less: Accumulated depreciation and
amortization 10,065,778 9,034,811
------------ ------------
Depreciated Cost 3,341,300 2,966,890
------------ ------------
OTHER ASSETS:
Trade receivables - noncurrent portion -
Notes 2, 3 and 13:
Stockholders 2,160,614 2,178,947
Nonstockholders 2,914,479 2,663,158
Allowance for doubtful accounts (460,000) (110,000)
Deferred income tax benefit - Note 15 246,035 362,035
Cash surrender value and other assets 440,223 223,600
------------ ------------
Total Other Assets 5,301,351 5,317,740
------------ ------------
TOTAL ASSETS $113,266,040 $103,668,898
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, bank - Note 3 $53,175,440 $37,317,093
Notes and loans payable - Note 4 772,059 990,541
Accounts payable 37,462,754 41,977,608
Accrued expenses and taxes 1,832,283 1,179,485
------------ ------------
Total Current Liabilities 93,242,536 81,464,727
------------ ------------
LONG-TERM LIABILITIES:
Notes payable - Note 4 501,151 885,875
Deferred compensation payable - Note 6 623,249 672,323
------------ ------------
Total Long-Term Liabilities 1,124,400 1,558,198
------------ ------------
REDEEMABLE PREFERRED STOCK - NOTES 10 AND 11:
Authorized - 250,000 shares - $100 par value:
Issued and outstanding 3,932,646 5,222,874
Subscribed and unissued -- 10,500
------------ ------------
Total, before subscriptions receivable 3,932,646 5,233,374
Less: Subscriptions receivable -- 10,500
------------ ------------
Total Redeemable Preferred Stock 3,932,646 5,222,874
------------ ------------
STOCKHOLDERS' EQUITY - NOTES 10, 11 AND 12:
Common stock, authorized - 25,000,000 shares:
$1 par value:
Issued and outstanding - 9,999,834 and
9,883,114 shares 9,999,834 9,883,114
Subscribed and unissued - 424,766
and 671,107 424,766 671,107
Additional paid-in capital 3,791,151 3,927,030
Retained earnings 1,650,307 2,446,248
------------ ------------
Total, before subscriptions receivable 15,866,058 16,927,499
Less: Subscriptions receivable 899,600 1,504,400
------------ ------------
Total Stockholders' Equity 14,966,458 15,423,099
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $113,266,040 $103,668,898
============ ============
See the accompanying Notes to the Financial Statements.
27
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
Years Ended July 31,
1995 1994 1993
SALES:
Stockholders $ 223,697,293 $ 206,638,994 $ 233,051,100
Nonstockholders 284,705,645 215,073,239 168,761,141
------------- ------------- -------------
Total Sales 508,402,938 421,712,233 401,812,241
LESS: Sales Discounts, Returns
and Allowances 14,576,276 13,743,405 14,560,627
------------- ------------- -------------
NET SALES 493,826,662 407,968,828 387,251,614
COST OF SALES 465,349,967 381,939,151 358,096,923
------------- ------------- -------------
GROSS PROFIT 28,476,695 26,029,677 29,154,691
------------- ------------- -------------
OPERATING EXPENSES:
Warehouse 8,821,683 8,035,643 8,223,693
Shipping and delivery 5,782,642 5,708,619 5,501,509
Selling, general and
administrative - Note 16 9,682,369 9,592,479 10,118,604
Interest expense 5,327,083 2,914,957 3,132,992
Interest income (546,402) (691,213) (677,156)
------------- ------------- -------------
Total Operating Expenses 29,067,375 25,560,485 26,299,642
------------- ------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES (590,680) 469,192 2,855,049
------------- ------------- -------------
PROVISION (CREDIT) FOR
INCOME TAXES - NOTE 15:
Current (94,000) 305,000 1,245,000
Deferred 8,000 (144,000) (97,000)
------------- ------------- -------------
Total (86,000) 161,000 1,148,000
------------- ------------- -------------
NET INCOME (LOSS) (504,680) 308,192 1,707,049
LESS: Stock Dividend on
Special Common Stock
- Note 13 - 67,500 33,325
Stock Dividend on
Preferred Stock 291,261 412,557 357,782
------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (795,941) $ (171,865) $ 1,315,942
============= ============= =============
EARNINGS (LOSS) PER COMMON
SHARE - NOTE 13 $ (0.08) $ (0.01) $ 0.14
============= ============= =============
See the accompanying Notes to the Financial Statements.
28
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock $1 Par Value Additional Total Before Less: Total
Issued and Outstanding Subscribed and Unissued Paid-In Retained Subscriptions Subscriptions Stockhold-
Shares Amount Shares Amount Capital Earnings Receivable Receivable ers' Equity
--------- ----------- --------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JULY 31, 1992 8,455,436 $8,455,436 1,633,290 $1,633,290 $3,553,733 $1,988,210 $15,630,669 $3,119,441 $12,511,228
TRANSACTIONS FOR THE YEAR
ENDED JULY 31, 1993:
Net income - - - - - 1,707,049 1,707,049 - 1,707,049
Common stock redeemed
or cancellations (211,720) (211,720) (26,193) (26,193) (26,184) - (264,097) (34,192) (229,905)
Common stock offsets to
accounts receivable (292,263) (292,263) - - (117,441) - (409,704) - (409,704)
Collections on
subscriptions 787,593 787,593 (787,593) (787,593) - - - (1,481,070) 1,481,070
Stock dividend on
special common stock
paid in common stock
- Note 13 22,995 22,995 - - 10,330 (33,325) - - -
Stock dividend on
common stock 686,039 686,039 - - - (686,039) - - -
Stock dividend on
preferred stock - - - - - (357,782) (357,782) - (357,782)
Common stock
subscriptions - - 303,888 303,888 448,008 - 751,896 751,896 -
Preferred stock
cancellations - - - - 17,626 - 17,626 - 17,626
--------- ----------- --------- ---------- ---------- ---------- ----------- ---------- -----------
BALANCE - JULY 31, 1993 9,448,080 9,448,080 1,123,392 1,123,392 3,886,072 2,618,113 17,075,657 2,356,075 14,719,582
TRANSACTIONS FOR THE YEAR
ENDED JULY 31, 1994:
Net income - - - - - 308,192 308,192 - 308,192
Common stock redeemed
or cancellations (13,898) (13,898) (37,821) (37,821) (34,678) - (86,397) (69,030) (17,367)
Common stock offsets to
accounts receivable (79,369) (79,369) - - (42,051) - (121,420) - (121,420)
Collections on
subscriptions 481,726 481,726 (481,726) (481,726) - - - (944,645) 944,645
Stock dividend on
special common stock
paid in common stock
- Note 13 46,575 46,575 - - 20,925 (67,500) - - -
Stock dividend on
preferred stock - - - - - (412,557) (412,557) - (412,557)
Common stock
subscriptions - - 67,262 67,262 94,738 - 162,000 162,000 -
Preferred stock
cancellations - - - - 2,024 - 2,024 - 2,024
--------- ----------- --------- ---------- ---------- ---------- ----------- ---------- -----------
BALANCE - JULY 31, 1994 9,883,114 9,883,114 671,107 671,107 3,927,030 2,446,248 16,927,499 1,504,400 15,423,099
TRANSACTIONS FOR THE
YEAR ENDED JULY 31,
1995:
Net loss - - - - - (504,680) (504,680) - (504,680)
Common stock redeemed
or cancellations (19,741) (19,741) (63,600) (63,600) (4,664) - (88,005) (64,000) (24,005)
Common stock offsets
to accounts
receivable (110,922) (110,922) - - (66,573) - (177,495) - (177,495)
Collections on
subscriptions 247,383 247,383 (247,383) (247,383) - - - (540,800) 540,800
Stock dividend on
preferred stock - - - - - (291,261) (291,261) - (291,261)
Common stock
subscription
adjustments - - 64,642 64,642 (64,642) - - - -
--------- ----------- --------- ---------- ---------- ---------- ----------- ---------- -----------
BALANCE - JULY 31, 1995 9,999,834 $ 9,999,834 424,766 $ 424,766 $3,791,151 $1,650,307 $15,866,058 $ 899,600 $14,966,458
========= =========== ========= ========== ========== ========== =========== ========== ===========
</TABLE>
See the accompanying Notes to the Financial Statements.
29
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31,
---------------------------------
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(504,680) $308,192 $1,707,049
------------ ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,030,967 1,320,771 1,629,638
Loss on disposal of fixed assets -- 58,737 --
Deferred compensation payable (49,074) 87,666 183,036
Deferred income taxes 8,000 (144,000) (97,000)
(Increase) decrease in:
Trade receivables, net (6,317,903) (10,880,989) (7,857,602)
Merchandise inventory (4,033,247) 5,074,061 2,908,655
Prepaid expenses and
current assets 446,029 (643,567) 940
Increase (decrease) in:
Accounts payable (4,514,854) 10,008,392 (309,156)
Accrued expenses and taxes 676,551 (166,951) (302,170)
------------ ----------- -----------
Total adjustments (12,753,531) 4,714,120 (3,843,659)
------------ ----------- -----------
Net Cash Provided by (Used
in) Operating Activities (13,258,211) 5,022,312 (2,136,610)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment (1,405,377) (568,220) (1,034,983)
Increase in other assets (216,623) (11,811) (10,791)
------------ ----------- -----------
Net Cash Used in Investing
Activities (1,622,000) (580,031) (1,045,774)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and loans payable (626,959) (2,479,868) (2,933,964)
Net increase in short-term bank debt 15,858,347 (2,058,325) 4,824,754
Collection on subscriptions for
common stock 540,800 944,645 1,481,070
Common Stock redeemed (24,005) (17,367) (229,905)
Collection on subscriptions for
preferred stock - 76,500 117,432
Preferred stock redeemed (804,469) (66,085) (184,367)
------------ ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 14,943,714 (3,600,500) 3,075,020
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH 63,503 841,781 (107,364)
CASH:
Beginning of year 1,959,061 1,117,280 1,224,644
------------ ----------- -----------
End of year $ 2,022,564 $1,959,061 $1,117,280
============ =========== ===========
See the accompanying Notes to the Financial Statements.
30
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31,
---------------------------------
1995 1994 1993
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $5,327,063 $2,914,957 $3,132,992
Income taxes - paid 500 862,000 1,408,931
- refunded 477,238 -- --
Summary of noncash transactions:
Reduction of accrued expenses in
exchange for:
Issuance of notes payable 23,753 22,478 23,685
Equipment transferred to employees -- 55,550 --
Notes payable issued for acquisition
of equipment -- -- 194,729
Trade receivable reduced for redemptions
of: Common stock 177,495 121,420 409,704
Preferred stock 777,020 -- 149,429
Stock dividends on preferred stock 291,261 412,557 357,782
Stock dividends on common stock -- -- 686,039
Stock dividends on special common stock
paid in common stock -- 67,500 33,325
New stock subscriptions, net of
cancellations: Common stock (64,000) 92,970 717,704
Preferred stock -- -- 82,875
Preferred stock cancellation increasing
additional paid-in capital -- 2,024 17,626
See the accompanying Notes to the Financial Statements.
31
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
Drug Guild Distributors, Inc. (the "Company") is engaged
in the business of distributing at wholesale, a wide variety
of products to drug stores and health and beauty aid stores
located primarily in the State of New Jersey, the greater New
York City metropolitan area and Connecticut.
Merchandise Inventory:
The inventory, which consists entirely of finished goods,
is stated at the lower of last-in, first-out (LIFO) cost or
market. (See Note 14).
Property and Equipment:
Property and equipment are stated at cost. Depreciation
is computed on straight-line and accelerated methods over the
estimated useful lives as follows:
Leasehold improvements - 10 - 18 years
Warehouse equipment - 5 years
Data processing equipment - 5 -7 years
Trucks and delivery equipment - 5 years
Income Taxes:
During fiscal 1994 year, the company adopted FAS No. 109,
"Accounting for Income Taxes." The statement requires the
use of the asset and liability approach in the recognition of
deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the
company's financial statements or tax returns. If it is more
likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is
recognized. Financial statements for prior years have not
been restated and the cumulative effect of the accounting
change is not material.
NOTE 2 - TRADE RECEIVABLES:
Trade receivables include notes due from customers, as
follows:
July 31,
1995 1994
Maturing within one year $4,820,065 $3,684,221
Due after one year 5,075,093 4,842,105
---------- ----------
$9,895,158 $8,526,326
========== ==========
32
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 - TRADE RECEIVABLES (CONTINUED):
It is the policy of the company to obtain either personal
guarantees or a lien on the customer's assets as collateral
for most notes and certain other trade receivables. See
Note 12 for other collateral received.
NOTE 3 - LOANS PAYABLE, BANK:
Under an accounts receivable and inventory financing
agreement, which allows for borrowings of up to $80 million,
a bank makes secured demand loans based on a percentage of
eligible trade receivables and inventory, which are pledged
as collateral. Interest is at 1 1/4% above the prime rate.
The agreement contains restrictions, for which the company is
in compliance or has received waivers, which limit cash
dividends and redemptions of stock.
NOTE 4 - NOTES AND LOANS PAYABLE:
<TABLE>
<CAPTION>
July 31,
1995 1994
<S> <C> <C>
Notes and loans due to stockholders, officers,
employees and members of their families, payable
on demand and 13 months after demand. Interest is
at rates ranging from prime to 1 1/4% over prime,
except that $622,921 and $664,169 of such notes at
July 31, 1995 and July 31, 1994, respectively,
require minimum interest of 10% $756,421 $843,969
Notes due in installments of principal and interest
at 9% - 11 1/2% to October 1997 are collateralized
by specific equipment 516,789 1,032,447
--------- ---------
1,273,210 1,876,416
Due on demand or within one year 772,059 990,541
--------- ---------
Long-term portion $ 501,151 $ 885,875
========= =========
</TABLE>
As of July 31, 1995, future annual maturities are as follows:
Years Ending July 31,
1996 (or on demand) $ 772,059
1997 (or 13 months after demand) 477,073
1998 24,078
----------
$1,273,210
==========
33
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
July 31,
1995 1994
<S> <C> <C>
Leasehold improvements $ 2,275,435 $ 2,243,462
Warehouse equipment 2,529,940 2,507,685
Data processing equipment 6,711,731 5,658,356
Trucks and delivery equipment 1,600,980 1,304,376
Furniture and fixtures 288,992 287,822
----------- -----------
Total $13,407,078 $12,001,701
=========== ===========
</TABLE>
NOTE 6 - DEFERRED COMPENSATION:
The company has a deferred compensation agreement with its
president (as modified October 12, 1993), providing for
payments of $8,333 through February 2004. The company had
previously provided for the present value of these payments.
There was no deferred compensation expense for the year ended
July 31, 1995. The expense was $106,771 and $183,036 for the
years ended July 31, 1994 and 1993, respectively.
NOTE 7 - RETIREMENT PLANS:
The company has a noncontributory defined benefit pension
plan for its eligible nonunion employees. The benefits are
based on years of service and the employee's compensation for
the highest five consecutive years during the last ten years
of employment. The company's policy is to fund the pension
costs on a current basis. Contributions are intended to
provide not only for benefits attributed to service to date
but also for those expected to be earned in the future.
34
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 - RETIREMENT PLANS (CONTINUED):
The following table sets forth the plan's funded status and
amounts recognized in the company's balance sheets as of
July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $2,070,914 and $1,942,541, respectively $(2,073,554) $(1,945,707)
----------- -----------
Projected benefit obligation for service rendered to date $(2,654,417) $(2,656,358)
Plan assets at fair value, primarily consisting of U.S.
Government guaranteed securities and bank certificates
of deposit 2,276,534 2,055,468
----------- -----------
Projected benefit obligation in excess of plan assets (377,883) (600,890)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 526,583 633,217
Unrecognized net obligations as of August 1, 1987, net
of amortization 18,024 19,662
Adjustment to prior service cost not yet recognized in net
periodic pension cost (9,448) (10,235)
----------- -----------
Deferred pension cost $ 157,276 $ 41,754
=========== ===========
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits
earned during the
period $ 106,259 $180,444 $196,172
Interest cost on
projected benefit
obligation 166,650 195,166 166,888
Actual return on plan
assets (122,167) (56,585) (114,838)
Net amortization and
deferral 16,860 (52,687) (27,358)
--------- -------- --------
Net periodic cost $ 167,602 $266,338 $220,864
========= ======== ========
</TABLE>
The weighted average discount rate and rate of increase in
future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 6.5%
and 4.0%, respectively, for 1995 and 6.5% and 5.0%,
respectively, for 1994 and 6.75%, 6.0%, respectively, for
1993. The expected long-term rate of return on assets was
6.5% for 1995 and 1994 and 6.75% for 1993.
35
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 - RETIREMENT PLANS (CONTINUED):
The company makes contributions along with other employers to
a union multi-employer plan. The expense for such plan was
$348,744, $336,168 and $340,152 for the years ended July 31,
1995, 1994 and 1993, respectively. The Employee Retirement
Income Securities Act of 1974, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, imposes
certain liabilities upon employers who are contributors to
multi-employer plans in the event of such employers'
withdrawal from such a plan or upon a termination of such a
plan. The share of the plan's unfunded vested liabilities
allocable to the company, if any, and for which it may be
contingently liable, is not ascertainable at this time.
The company also has a profit-sharing plan and a 401(k)
savings plan for eligible nonunion employees. The 401(k)
plan is solely funded by employee contributions. The
profit-sharing plan requires no fixed or minimum
contribution. There was no profit-sharing expense for the
years ended July 31, 1995, 1994 and 1993.
NOTE 8 - OFFICER'S LIFE INSURANCE:
The company is the owner and beneficiary of insurance
policies of $1,600,000, on the life of its president.
NOTE 9 - LEASES:
In March 1995, the company renewed two lease agreements
extending the terms to expire in May 2005, for real estate in
Secaucus, New Jersey. Both leases contain termination
clauses whereby the company may terminate the lease between
December 1, 1997 and November 30, 1998 by paying a fee equal
to six months rents.
In addition, the company is obligated under another lease for
warehouse space expiring March 1997.
Future minimum annual lease payments are as follows:
Years Ending July 31,
1996 $ 909,150
1997 977,679
1998 912,090
1999 912,090
2000 936,093
Thereafter 5,104,507
----------
$9,751,609
==========
36
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 - LEASES (CONTINUED):
Total rent expense, including real estate taxes, were
$1,015,831, $1,000,584 and $978,846 for the years ended
July 31, 1995, 1994 and 1993, respectively.
NOTE 10 - REGISTERED PUBLIC OFFERING:
Pursuant to a Registration Statement on Form S-2 filed with
the United States Securities and Exchange Commission on June
10, 1991 and most recently updated August 31, 1994, the
company is offering up to 4,500,000 shares of its Common
Stock, $1 par value, and up to 55,000 shares of its Preferred
Stock, $100 par value. Of the Common Stock, 3,000,000 shares
are offered for sale and 1,500,000 shares are reserved for
the issuance of dividends. Of the Preferred Stock, 37,500
shares are offered for sale and 17,500 shares are reserved
for the issuance of dividends (see Note 11). Shares of
Common Stock will be sold either outright or pursuant to a
subscription. Subscriptions will be in the amount of
$18,000, payable over 60 months at $300 per month. Payments
will be applied toward the purchase of shares at the FIFO
Book Value (book value adjusted for inventory and tax
liabilities, stated as if the inventory was valued at the
lower of first-in, first-out cost or market) at the close of
the fiscal quarter immediately preceding the date of payment.
As of July 31, 1995, the FIFO book value was $2.10 per share.
NOTE 11 - REDEEMABLE PREFERRED STOCK:
Holders of Preferred Stock are entitled to an 8% cumulative
dividend based on par value, payable in Preferred Stock.
Upon liquidation of the company, holders of the Preferred
Stock are entitled to a payment of $100 per share before any
amounts are paid to holders of Common Stock. The Preferred
Stock is not entitled to vote and does not have any
preemptive or conversion rights.
37
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11 - REDEEMABLE PREFERRED STOCK (CONTINUED):
Preferred Stockholders including those who obtained their
shares in exchange for Special Common Shares tendered (or a
subscriber to Special Common Stock who obtained subscription
rights to Preferred Shares) in the 1991 recapitalization
retained the right previously enjoyed as a holder or
subscriber of Special Common Stock to require the company to
repurchase their Preferred Shares at $100 (par value). Thus,
commencing five years after purchasers of a unit of shares of
Preferred Stock have completed their payment for such unit,
they are entitled at their election to require the company to
repurchase all of their shares of Preferred Stock at the
repurchase price (as defined). The holding period of Special
Common Stock will be added on to the holding period of
Preferred Stock obtained in exchange therefore.
The company may call Preferred Stock at any time. The call
price is 105% of par value if shares are called within the
first year of issue, 110% of par value within the second
year, 115% within the third year, 120% within the fourth year
and 125% after four years.
A holder of shares of Preferred Stock desiring to sell his
shares to a third party must first offer them to the company
at the repurchase price. If the company elects to accept such
offer, it is obligated to pay for such shares in three equal
annual installments, without interest, the first such
installment to be made 60 days after such offer.
Shares are sold under a five year subscription plan.
Subscribers are required to pay a minimum of $4,500 per year
towards a $22,500 subscription unit. Shares are issued as of
July 31 of each year at the rate of one share per $100,
provided that at least the minimum has been paid. Upon
timely completion of total payments for the unit, the company
is required to issue 25 additional shares as a dividend for a
total of 250 shares per unit.
The amounts due within the next five years if fully paid
units of Preferred Stock held five or more years (including
the holding period of Special Common Stock exchanged) are
offered for redemption are as follows:
Years Ending July 31,
1996 $3,059,865
1997 314,483
1998 77,224
1999 481,121
----------
$3,932,693
==========
Subsequent to July 31, 1995 approximately $923,000 was
redeemed.
38
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY:
The stockholders represent a major portion of the company's
customers. Each stockholder has assigned his shares to the
company as collateral for his liability to the company on open
account. The transfer of shares is restricted by agreement,
and any stockholder who wishes to sell his shares must first
offer them to the company at cost (as defined, see Note 10) or
par value with respect to shares issued as a stock dividend.
The common shares to be issued on subscriptions received are
not determinable until collected. However, at each year end
such outstanding subscribed shares are included in the accom-
panying financial statements based on the purchase price at
those dates (Note 10). 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 includes $474,574 on such uncollected subscriptions at
July 31, 1995 and $828,577 at July 31, 1994.
NOTE 13 - EARNINGS (LOSS) PER SHARE:
Earnings per share are computed as follows:
<TABLE>
<CAPTION>
Years Ended
July 31,
1995 1994 1993
<S> <C> <C> <C>
Weighted average number of
common shares outstanding (A) 9,929,990 9,688,802 9,227,365
========== ========= ==========
Net income (loss) $ (504,680) $ 308,192 $1,707,049
Less: Stock dividend on
Special Common Stock (B) - 67,500 33,325
Stock dividend on Preferred
Stock 291,261 412,557 357,782
---------- --------- ----------
Net income (loss)
attributable to common
stockholders $ (795,941) $(171,865) $1,315,942
========== ========= ==========
Per Share:
Net income (loss) $ (0.05) $ 0.03 $ 0.18
Less: Stock dividend on
Preferred Stock 0.03 0.04 0.04
---------- --------- ----------
Net income (loss) attributable
to common stockholders $ (0.08) $ (0.01) $ 0.14
========== ========= ==========
</TABLE>
(A) In the computation of earnings per share, subscriptions
receivable have no effect on weighted average number of
common shares outstanding.
(B) Dividend paid in Common Stock to stockholders of Special
Common Stock, who elected to exchange their shares for
Common Stock in the 1991 recapitalization.
39
DRUG GUILD DISTRIBUTORS
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 - LIFO INVENTORY LIQUIDATION:
A liquidation of LIFO inventory layers, which were carried at
lower costs as compared to current costs, had the effect of
increasing net income by approximately $375,000 for the year
ended July 31, 1994.
NOTE 15 - INCOME TAXES:
The provision (credit) for income taxes differs from the
amounts computed by applying the maximum Federal income tax
rate to the pre-tax income, as follows:
<TABLE>
<CAPTION>
Years Ended July 31,
1995 % 1994 % 1993 %
<S> <C> <C> <C> <C> <C> <C>
Computed tax at maximum
rate $(201,000) (34.0) $159,525 34.0 $ 970,716 34.0
State taxes on income,
net of Federal income
tax benefit 36,000 6.1 29,090 6.2 177,284 6.2
Other adjustments 79,000 13.4 (27,615) (5.9) - -
--------- ----- -------- ---- ---------- ----
Provision (credit) for
income taxes $ (86,000) (14.5) $161,000 34.3 $1,148,000 40.2
========= ===== ======== ==== ========== ====
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
Years Ended
July 31,
1995 1994
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 634,000 $ 547,000
Inventory overhead 131,000 133,000
Other 23,000 -
----------- -----------
Total Current Deferred Tax
Asset 788,000 680,000
----------- -----------
Noncurrent deferred tax assets:
Deferred compensation 250,000 292,000
Excess of book over tax
depreciation 82,000 70,000
Deferred pension cost (86,000) -
----------- -----------
Total Noncurrent Deferred Tax
Asset 246,000 362,000
----------- -----------
TOTAL DEFERRED TAX ASSET $1,034,000 $1,042,000
=========== ===========
</TABLE>
40
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 - OTHER EXPENSES:
Included in general and administrative expenses for the year
ended July 31, 1995 and 1994 are professional fees incurred
by the company of approximately $125,000 and $200,000,
respectively, for an unsuccessful proposed sale of the
outstanding shares of the company by stockholders.
41
DRUG GUILD DISTRIBUTORS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged Deductions Balance
Beginning Cost and to Other from At End
Description of Period Expenses Accounts Reserves of Period
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1995:
Allowance for doubful
accounts $ 1,366,391 $ 720,584 $ 126,815 (A) $ 630,323 (B) $ 1,583,467
=========== ========= ========= =========== ===========
Year Ended July 31, 1994:
Allowance for doubful
accounts $ 1,134,268 $ 480,000 $ 419,378 (A) $ 667,255 (B) $ 1,366,391
=========== ========= ========= =========== ===========
Year Ended July 31, 1993:
Allowance for doubful
accounts $ 1,115,653 $ 800,000 $ 295,231 (A) $ 1,076,616 (B) $ 1,134,268
=========== ========= ========= =========== ===========
</TABLE>
(A) Recovery of amounts previously written-off.
(B) Balances written-off.
42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this Section 13 or 15(d) report to be executed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Secaucus, State of New Jersey, on October 27, 1995.
DRUG GUILD DISTRIBUTORS, INC.
By: /s/ Roman Englander
--------------------------
Roman Englander, President
Pursuant to the requirements of 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>
Signature Title Date
<S> <C> <C>
/s/Roman Englander President, Principal October 27, 1995
- ----------------------- Executive Officer
Roman Englander and Director
/s/Jay Reba Vice President,
- ----------------------- Principal October 27, 1995
Jay Reba Financial and
Accounting Officer
/s/Harold Blumenkrantz Director October 27, 1995
- -----------------------
Harold Blumenkrantz
/s/Marco N. Cutinello Director October 27, 1995
- -----------------------
Marco N. Cutinello
</TABLE>
43
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
- ----------------------- Director
Louis Del Rosso
- ----------------------- Director
Herbert Dudak
/s/Harold Eckstein Director October 27, 1995
- -----------------------
Harold Eckstein
/s/Paul Emanuel Director October 27, 1995
- -----------------------
Paul Emanuel
- ----------------------- Director
Hal Epstein
/s/Peter Esposito Director October 27, 1995
- -----------------------
Peter Esposito
/s/Sidney Falow Director October 27, 1995
- -----------------------
Sidney Falow
/s/Sanford Fishman Director October 27, 1995
- -----------------------
Sanford Fishman
/s/Gerald Ginsberg Director October 27, 1995
- -----------------------
Gerald Ginsberg
/s/Herbert Gordon Director October 27, 1995
- -----------------------
Herbert Gordon
</TABLE>
44
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
- ----------------------- Director
George Grumet
/s/Alfred Hertel Director October 27, 1995
- -----------------------
Alfred Hertel
/s/Steven J. Kabakoff Director October 27, 1995
- -----------------------
Steven J. Kabakoff
/s/Michael Katz Director October 27, 1995
- -----------------------
Michael Katz
- ----------------------- Director
Jay Kessler
- ----------------------- Director
Jerry Koblin
- ----------------------- Director
Jerry Koizim
- ----------------------- Director
Anthony Kranjac
/s/Ely Krellenstein Director October 27, 1995
- -----------------------
Ely Krellenstein
</TABLE>
45
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/John Lynch Director October 27, 1995
- -----------------------
John Lynch
- ----------------------- Director
George Manolakis
/s/Boris Mantell
- ----------------------- Director October 27, 1995
Boris Mantell
/s/ Richard Rostholder Director October 27, 1995
- -----------------------
Richard Rostholder
/s/Bipinchandra Shah Director October 27, 1995
- -----------------------
Bipinchandra Shah
/s/Murray Shapiro Director October 27, 1995
- -----------------------
Murray Shapiro
/s/Howard Sternheim Director October 27, 1995
- -----------------------
Howard Sternheim
Director
- -----------------------
Alan D. Traster
/s/Ernest Wyre Director October 27, 1995
- -----------------------
Ernest Wyre
/s/Joseph Zarchy Director October 27, 1995
- -----------------------
Joseph Zarchy
</TABLE>
46
DRUG GUILD DISTRIBUTORS INC.
EARNINGS TO FIXED CHARGES (S-K Item 503(d))
Year Ended July 31
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax Income (590,680) $469,192 $2,855,049
Interest Expense $5,327,083 $2,914,957 $3,132,992
Total $4,736,403 $3,384,149 $5,988,041
Interest Expense $5,327,083 $2,914,957 $3,132,992
Ratio-Earnings to
Fixed Charges 0.89 1.16 1.91
</TABLE>
Pro Forma Calculations under Regulation S-K Item 503(d)9 are not required
because the contemplated preferred stock dividends are payable in stock
instead of cash.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from balance
sheet and statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jul-31-1995
<PERIOD-START> Aug-1-1994
<PERIOD-END> Jul-31-1995
<CASH> 2,022,564
<SECURITIES> 0
<RECEIVABLES> 68,324,326
<ALLOWANCES> (1,583,467)
<INVENTORY> 38,896,026
<CURRENT-ASSETS> 104,623,389
<PP&E> 13,407,078
<DEPRECIATION> 10,065,778
<TOTAL-ASSETS> 113,266,040
<CURRENT-LIABILITIES> 93,242,536
<BONDS> 0
<COMMON> 9,999,834
3,932,646
0
<OTHER-SE> 14,966,458
<TOTAL-LIABILITY-AND-EQUITY> 113,266,040
<SALES> 493,826,662
<TOTAL-REVENUES> 493,826,662
<CGS> 465,349,967
<TOTAL-COSTS> 465,349,967
<OTHER-EXPENSES> 23,740,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,327,083
<INCOME-PRETAX> (590,680)
<INCOME-TAX> (86,000)
<INCOME-CONTINUING> 0
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</TABLE>
