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Previous: DMC TAX FREE INCOME TRUST PA, 497, 1996-12-17 |
Next: INVESCO INCOME FUNDS INC, DEFS14A, 1996-12-17 |
<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 31,1996
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, 1996 there were outstanding 10,047,818 shares of the
Registrant's Common Stock, par value $1, and 23,241.17 shares of the
Registrant's Preferred Stock, $100 par value.
Page 1 Of 9 Pages
<PAGE>
<TABLE>
<CAPTION>
Part 1- Financial Information
Item 1.Financial Statements
DRUG GUILD DISTRIBUTORS INC.
BALANCE SHEETS
(in thousands, except share data)
ASSETS
October 31 July 31
1996 1996
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash $ 3 $ 200
Trade Receivables-Stockholders 28,712 27,913
Nonstockholders 38,010 39,361
Allowance for doubtful accounts (1,431) (1,203)
Merchandise Inventory 32,241 29,440
Tax refund receivable 1,036 1,036
Prepaid expenses and other current assets 907 805
-------------- -------------
Total Current Assets 99,478 97,552
-------------- -------------
Property and equipment , net 3,352 3,331
OTHER ASSETS:
Trade Receivables-noncurrent portion-Stockholders 1,979 1,593
Nonstockholders 2,848 2,288
Allowance for doubtful accounts (438) (438)
Deferred income tax benefit 1,412 1,426
Various other assets 216 222
-------------- -------------
Total Other Assets 6,017 5,091
-------------- -------------
TOTAL ASSETS $ 108,847 $105,974
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, bank $ 51,164 $ 53,104
Notes payable 394 527
Accounts payable 39,722 34,590
Accrued expenses and taxes 1,496 1,475
-------------- -------------
Total Current Liabilities 92,776 89,696
-------------- -------------
LONG TERM LIABILITIES
Notes payable 198 237
Deferred rent payable 316 263
Deferred compensation payable 556 570
-------------- -------------
Total Long-Term Liabilities 1,070 1,070
-------------- -------------
TOTAL LIABILITIES 93,846 90,766
-------------- -------------
REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized-250,000 shares
Issued and outstanding 23,241.17 and 25,893.44 shares 2,324 2,589
-------------- -------------
STOCKHOLDERS' EQUITY
Common stock-$1 par value
Authorized 25,000,000 shares
Issued and outstanding-10,047,818 and 10,022,667 shares 10,048 10,023
Subscribed and unissued 388 412
Additional paid-in capital 3,627 3,628
Retained earnings (785) (805)
-------------- -------------
Total,before subscriptions receivable 13,278 13,258
Less: Subscriptions receivable 601 639
-------------- -------------
Total Stockholders' Equity 12,677 12,619
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 108,847 $105,974
============== =============
</TABLE>
See accompanying Notes to the Financial Statements
-2-
<PAGE>
<TABLE>
<CAPTION>
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share information)
Three Months Ended
October 31
1996 1995
---- ----
<S> <C> <C>
NET SALES (restated)
Stockholders $ 53,470 $ 54,093
Nonstockholders 68,420 73,807
------------ ------------
TOTAL NET SALES 121,890 127,900
------------ ------------
COST OF SALES:
Inventory, beginning of period 29,440 38,896
Purchases 117,326 112,692
------------ ------------
146,766 151,588
Less: Inventory, end of period 32,241 32,261
------------ ------------
COST OF SALES 114,525 119,327
ESTIMATED LOSS ON DEFALCATION -- 1,155
------------ ------------
GROSS PROFIT 7,365 7,418
------------ ------------
OPERATING EXPENSES 6,060 5,818
INTEREST EXPENSE 1,269 1,453
------------ ------------
TOTAL EXPENSES 7,329 7,271
------------ ------------
INCOME BEFORE CORPORATE TAXES 36 147
------------ ------------
PROVISION (CREDIT) FOR CORPORATE TAXES:
Current - 81
Deferred 15 (21)
------------ ------------
Total Provision (Credit) for Corporate Taxes 15 60
------------ ------------
NET INCOME 21 87
Less: Stock Dividend on Preferred Stock (A) 46 60
------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO $ (25) $ 27
============ ============
COMMON SHAREHOLDERS
LOSS PER COMMON SHARE $ 0.00 $ 0.00
============ ============
AVERAGE NUMBER OF SHARES OF 10,040 10,026
COMMON STOCK OUTSTANDING
------------ ------------
</TABLE>
(A) Gives effect to pro-rata portion of 8% Preferred dividend payable
each July 31.
See accompanying Notes to the Financial Statements
-3-
<PAGE>
<TABLE>
<CAPTION>
DRUG GUILD DISTRIBUTORS , INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
October 31
----------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (restated)
Net Income $ 21 $ 87
---------- ------------
Adjustment to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 246 246
Deferred compensation payable (14) (13)
(Increase) decrease in:
Deferred income taxes 14 (21)
Trade receivables, net (166) (6,701)
Merchandise inventory (2,801) 6,635
Prepaid expenses and other current assets (102) 24
Increase (decrease) in:
Accounts payable 5,131 389
Deferred rent payable 53 --
Accrued expenses and taxes 24 215
---------- ------------
Total adjustments 2,385 774
---------- ------------
Net Cash Provided by (Used In) Operating Activities 2,406 861
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (267) (236)
(Increase) decrease in other assets 6 (5)
---------- ------------
Net Cash Used In Investing Actitvities (261) (241)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (175) (136)
Net increase (decrease) in short-term bank debt (1,940) (1,664)
Collections on common stock 38 87
Preferred stock redeemed (265) (922)
---------- ------------
Net Cash Used In Financing Activities (2,342) (2,635)
---------- ------------
NET DECREASE IN CASH (197) (2,015)
CASH:
Beginning of period 200 2,022
---------- ------------
End of period $ 3 $ 7
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid in the period for:
Interest $1,269 $ 1,453
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
Reduction of accrued expenses due to issuance of notes payable $ 3 $ 10
Accounts receivable reduced for redemptions of preferred stock $ -- $ 45
Accounts receivable reduced for cancellation of common stock $ -- $ 3
</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 be read in conjunction with the July 31, 1996
financial statements, which describe all accounting policies.
NOTE 2- INVENTORY DEFALCATION:
At the end of May, 1996, based on information obtained from the April 30,
1996 inventory, the company determined that inventory defalcation had occurred.
Upon further investigation, it was determined that such defalcations had
occurred during the periods prior to May,1996 presented in the accompanying
financial statements.
The company has restated its statements of operations and cash flows for
the three months ended October 31, 1995 to correct the calculation of the gross
profit estimate previously used and separately state, as an expense, the amount
of the inventory theft. The provision (credit) for corporate taxes for these
periods have been restated accordingly.
The company believes it may have insurance coverage totaling $2,000,000
as a possible recovery against the inventory theft. The company has not
provided for any recovery since, at this time, such recovery cannot be assured.
-5-
<PAGE>
NOTE 3 - 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 of first-in, first-out cost or market) as of the close of the fiscal
quarter immediately preceding the sale. As of October 31,1996, the FIFO book
value was $1.55 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, 1996 includes $213,329 of 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.
-6-
<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition at October 31,1996 Compared to Financial
Condition at July 31, 1996. From July 31, 1996 to October 31, 1996, the
Company's current assets increased to $99,478,000 from $97,552,000 and its
current liabilities increased to $92,776,000 from $89,696.000. Such increase
was attributable to the Company's increase in inventory. The Company's ratio of
current assets to current liabilities remained substantially the same during
the period, decreasing to 1.07:1 from 1.09:1.
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, 1996, there were $55,930,000 of such eligible
accounts receivable out of a total of $62,071,000, or 90%, and $36,651,000 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 $51,164,000 on
October 31, 1996. On such date the interest rate with respect to such financing
was the prime rate plus 1-1/4% (9 1/2%).
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.
-7-
<PAGE>
Three Months Ended October 31, 1996 Compared to Three Months Ended
October 31, 1995
Net sales for the three months ended October 31, 1996 decreased 4.7%
from the 1995 period. This decrease is attributable to many factors, primarily
the sale of a number of our independent pharmacy customers to chain store
non-customers and a limitation on acquiring new customers until the merger with
Neuman Health Services is completed.
Gross profit before the defalcation for the three months decreased by
14.1% from the gross profit for the 1995 period as a result of lower sales and
lower margins due to competitive pressures. Gross profit before the defalcation
as a percentage of sales decreased to 6.0% in 1996 from 6.7% in the 1995
period.
Operating expenses increased 4.1% over the same period in 1995. This
increase was attributable to higher professional fees in connection with the
merger and to security costs associated with the inventory defalcation.
Interest expenses decreased 12.7% due to lower average borrowings for
lower inventory levels and lower interest rates.
The effect of the foregoing factors was that the Company's income
before corporate taxes for the three months ended October 31, 1996 experienced
a 76% decrease from the same period in 1995. Income taxes were 76% lower than
the same period in 1995 resulting from the decreased profit.
-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 15,1996
DRUG GUILD DISTRIBUTORS, INC.
By
------------------------------
Jay Reba, Vice President of Finance
(Duly authorized officer and
principal financial officer)
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 66,722
<ALLOWANCES> 1,431
<INVENTORY> 32,241
<CURRENT-ASSETS> 99,478
<PP&E> 3,352
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,847
<CURRENT-LIABILITIES> 92,776
<BONDS> 1,070
2,324
0
<COMMON> 10,048
<OTHER-SE> 2,629
<TOTAL-LIABILITY-AND-EQUITY> 108,847
<SALES> 121,890
<TOTAL-REVENUES> 121,890
<CGS> 114,525
<TOTAL-COSTS> 114,525
<OTHER-EXPENSES> 6,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,269
<INCOME-PRETAX> 36
<INCOME-TAX> 15
<INCOME-CONTINUING> 21
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
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