<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30,1996 Commission File Number 2-96510-N.Y.
DRUG GUILD DISTRIBUTORS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
New Jersey 11-2269958
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Meadowland Parkway , Secaucus, N.J. 07096
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(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 April 30, 1996 there were outstanding 10,095,547 shares of the
Registrant's Common Stock, par value $1, and 23,975.41 shares of the
Registrant's Preferred Stock $100 par value.
Page 1 Of 11 Pages
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
DRUG GUILD DISTRIBUTORS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 8,880 $ 2,022,564
Trade Receivables-Stockholders 27,043,693 26,535,603
Nonstockholders 44,316,008 36,713,630
Allowance for doubtful accounts (1,485,776) (1,123,467)
Merchandise Inventory 27,664,246 38,896,026
Deferred income tax benefit 788,000 788,000
Prepaid expenses and other current assets 1,312,247 791,033
------------- -------------
Total Current Assets 99,647,298 104,623,389
------------- -------------
PROPERTY AND EQUIPMENT:
Property and equipment 14,133,906 13,407,078
Less: Accumulated depreciation and amortization 10,737,145 10,065,778
------------- -------------
Depreciated Cost 3,396,761 3,341,300
------------- -------------
OTHER ASSETS:
Trade Receivables-noncurrent portion-Stockholders 1,803,054 2,160,614
Nonstockholders 2,941,825 2,914,479
Allowance for doubtful accounts (460,000) (460,000)
Deferred income tax benefit 246,035 246,035
Various other assets 440,712 440,223
------------- -------------
Total Other Assets 4,971,626 5,301,351
------------- -------------
TOTAL ASSETS $ 108,015,685 $ 113,266,040
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, bank $ 52,722,891 $ 53,175,440
Notes payable 501,250 772,059
Accounts payable 36,234,207 37,462,754
Accrued expenses and taxes 1,601,178 1,832,283
------------- -------------
Total Current Liabilities 91,059,526 93,242,536
------------- -------------
LONG TERM LIABILITIES
Notes payable 412,201 501,151
Deferred compensation payable 583,892 623,249
------------- -------------
Total Long-Term Liabilities 996,093 1,124,400
------------- -------------
TOTAL LIABILITIES 92,055,619 94,366,936
------------- -------------
REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized-250,000 shares
Issued and outstanding-23,975.41 and 39,326.46 shares 2,397,541 3,932,646
------------- -------------
STOCKHOLDERS' EQUITY
Common stock- $1 par value
Authorized 25,000,000 shares
Issued and outstanding-10,095,547 and 9,999,834 shares 10,095,547 9,999,834
Subscribed and unissued 390,826 424,766
Additional paid-in capital 3,713,523 3,791,151
Retained earnings 47,829 1,650,307
------------- -------------
Total,before subscriptions receivable 14,247,725 15,866,058
Less: Subscriptions receivable 685,200 899,600
------------- -------------
Total Stockholders' Equity 13,562,525 14,966,458
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 108,015,685 $ 113,266,040
============= =============
</TABLE>
See accompanying Notes to the Financial Statement
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<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
NET SALES
Stockholders $ 48,635,037 $ 51,514,613 $ 158,159,800 $ 161,402,379
Nonstockholders 71,281,829 67,190,793 220,468,810 207,047,950
------------- ------------- ------------- -------------
TOTAL NET SALES 119,916,866 118,705,406 378,628,610 368,450,329
------------- ------------- ------------- -------------
COST OF SALES:
Inventory, beginning of period 23,875,490 45,507,142 38,896,026 34,862,779
Purchases 113,782,969 105,267,827 342,135,822 349,204,245
------------- ------------- ------------- -------------
137,658,459 150,774,969 381,031,848 384,067,024
Less: Inventory, end of period 27,664,246 40,141,620 27,664,246 40,141,620
------------- ------------- ------------- -------------
COST OF SALES 109,994,213 110,633,349 353,367,602 343,925,404
------------- ------------- ------------- -------------
GROSS PROFIT 9,922,653 8,072,057 25,261,008 24,524,925
------------- ------------- ------------- -------------
OPERATING EXPENSES 5,091,115 5,548,005 16,738,780 17,496,575
INVENTORY THEFT 2,457,000 1,464,000 6,819,000 4,298,000
INTEREST EXPENSE 1,611,041 1,446,548 4,131,206 3,829,223
------------- ------------- ------------- -------------
TOTAL EXPENSES 9,159,156 8,458,553 27,688,986 25,623,798
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE CORPORATE TAXES 763,497 (386,496) (2,427,978) (1,098,873)
------------- ------------- ------------- -------------
PROVISION (CREDIT) FOR CORPORATE TAXES:
Current 260,000 (131,500) (825,500) (375,000)
Deferred -- -- -- --
------------- ------------- ------------- -------------
Total Provision (Credit) for Corporate Taxes 260,000 (131,500) (825,500) (375,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) 503,497 (254,996) (1,602,478) (723,873)
Less: Stock Dividend on Preferred Stock (A) 23,410 71,711 143,820 220,576
------------- ------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ 480,087 $ (326,707) $ (1,746,298) $ (944,449)
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE $ 0.05 $ (0.03) $ (0.17) $ (0.10)
============= ============= ============= =============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 10,089,058 9,934,810 10,058,352 9,883,080
------------- ------------- ------------- -------------
</TABLE>
(A) Gives effect to pro-rata portion of 8% Preferred dividend payable
each July 31.
See accompanying Notes to the Financial Statement
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<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 503,497 $ (254,996) $ (1,602,478) $ (723,873)
------------ ------------ ------------ ------------
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 246,000 231,300 671,367 703,900
Deferred compensation payable (13,376) (12,370) (39,357) (36,851)
(Increase) decrease in:
Deferred income taxes 42,000 (36,000) -- (108,000)
Trade receivables, net 3,226,718 2,632,299 (7,417,945) (6,828,189)
Merchandise inventory (2,835,256) 5,365,522 11,231,780 (5,278,841)
Prepaid expenses and other current assets (619,341) 131,019 (521,214) 831,775
Increase (decrease) in:
Accounts payable (3,459,208) (12,756,007) (1,228,547) (2,008,903)
Accrued expenses and taxes 162,299 182,485 (262,350) (132,607)
------------ ------------ ------------ ------------
Total adjustments (3,250,164) (4,261,752) 2,433,734 (12,857,716)
------------ ------------ ------------ ------------
Net Cash Provided by (Used In) Operating Activities (2,746,667) (4,516,748) 831,256 (13,581,589)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (131,974) (326,892) (726,828) (959,775)
Decrease in other assets (4,675) 2,000 (489) 8,435
------------ ------------ ------------ ------------
Net Cash Used In Investing Actitvities (136,649) (324,892) (727,317) (951,340)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (136,308) (62,504) (328,514) (424,703)
Net increase (decrease) in short-term bank debt 3,532,424 4,785,513 (452,549) 13,351,797
Collections on common stock 43,500 122,900 195,200 444,050
Common Stock Redeemed -- (24,785) -- (24,785)
Collections on preferred stock -- -- -- 375
Preferred stock redeemed (557,612) -- (1,531,760) (769,578)
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Financing Activities 2,882,004 4,821,124 (2,117,623) 12,577,156
------------ ------------ ------------ ------------
NET DECREASE IN CASH (1,312) (20,516) (2,013,684) (1,955,773)
CASH:
Beginning of period 10,192 23,804 2,022,564 1,959,061
------------ ------------ ------------ ------------
End of period $ 8,880 $ 3,288 $ 8,880 $ 3,288
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid in the period for:
Interest $ 1,264,522 $ 1,447,548 $ 4,016,846 $ 3,830,223
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
Reduction of accrued expenses due to issuance of notes payable $ 10,052 $ 6,010 $ 31,245 $ 19,594
Accounts receivable reduced for redemptions of common stock $ -- $ -- $ -- $ 177,495
Accounts receivable reduced for redemptions of preferred stock $ -- $ 45,354 $ -- $ 770,202
Accounts receivable reduced for cancellation of common stock $ -- $ -- $ -- $ --
</TABLE>
See accompanying Notes to Financial Statements
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<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, 1995
financial statements which describe all accounting policies.
NOTE 2- METHOD OF DETERMINING INVENTORY AND INVENTORY THEFT:
At the April 30, 1996 interim period, inventory was determined based on a
physical inventory count. At prior interim periods, inventory was determined
using an estimated gross profit method.
At the end of May, 1996, based on information obtained from the interim
physical inventory, the company determined that inventory theft had occurred.
Upon further investigation, it was determined that such thefts had occurred
during each of the periods presented in the accompanying financial statements.
The company has restated its statements of operations and cash flows for
the three and nine months ended April 30, 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 balance sheet as of July 31,
1995, which was based on a physical inventory count, does not require
restatement.
Subsequent to April 30, 1996, the company estimates an additional $600,000
of inventory theft occurred prior to its being detected. The company is
reviewing its records to ascertain the full extent of the theft and when it
began, and will reflect the results of that review in future reports. The
company has also engaged a prominent private detective agency to investigate the
thefts.
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<PAGE>
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.
NOTE 3- EFFECT OF USE OF LAST-IN FIRST-OUT (LIFO) METHOD OF INVENTORY:
As a result of information presently available, at April 30, 1996 and for
the three and nine months then ended, the company has increased inventory and
gross profit by $3,150,000 to give effect to a projected decrease in the LIFO
reserve of $4,200,000 as of July 31, 1996.
NOTE 4 - 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 April 30,1996, the FIFO book value
was $1.75 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 April 30, 1996 includes $293,014 on such uncollected subscriptions.
INFORMATION SUBJECT TO ADJUSTMENT:
While the information shown above is subject to adjustments on audit at the end
of the fiscal year all adjustments which are in the opinion of Management
necessary for a fair statement of the results for the interim period have been
made.
-6-
<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition at April 30, 1996 Compared to Financial Condition at
July 31, 1995. From July 31, 1995 to April 30, 1996 , the Company's current
assets decreased to $99,647,298 from $104,623,389 and its current liabilities
decreased to $91,059,526 from $93,242,536. Such decrease was attributable to the
Company's lower inventory purchases. The Company's bank loan also decreased
during this period. The Company's ratio of current assets to current liabilities
remained substantially the same during the period, decreasing to 1.09:1 from
1.12:1.
The Company has an accounts receivable and inventory financing arrangement
with a bank under which it can borrow up to 70% of its eligible accounts
receivable and up to 50% of its eligible inventory, as defined.
As of April 30, 1996, there were $58,974,000 of such eligible accounts
receivable out of a total of $66,447,000 or 89% and $36,605,000 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 $52,722,891 on April 30,
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 April 30, 1996 Compared to Three Months Ended April 30, 1995.
Net sales for the three months ended April 30, 1996 increased by 1.0% over
those for the 1995 period. This increase was attributable to price increases.
The number of stores remained basically unchanged at approximately 800.
Gross profit for the period increased $1,850,596 from the 1995 period or
22.9%. Gross profit as a percentage of sales increased from 6.8% to 8.3%. The
increase was attributable to a $3,150,000 reduction in LIFO reserve for the
quarter. This was offset by $1,299,404 lower gross profit as a result of
competitive pressures.
Total expenses (excluding inventory theft) for 1996 decreased by 4.2% over
such expenses for 1995. Operating expenses (excluding interest expense) for the
1996 period were down approximately 8.2% as compared to the 1995 period. The
reduction of operating expenses was due to lower salaries as a result of the
retirement of the president and the resignation of the Vice President of Data
Processing.
Interest expense increased 11.4% on higher average borrowings due to higher
receivables, offset by lower inventory.
-8-
<PAGE>
Nine Months Ended April 30, 1996 Compared to Nine Months Ended April 30, 1995
Net sales for the nine months ended April 30, 1996 increased 2.8% over
those of the 1995 period. The increase was due to price increases offset by
slightly fewer stores serviced.
Gross profit for the nine months increased by 3.0%. Gross profit as a
percentage of sales remained the same for both periods. The gross profit
benefited from a $3,150,000 reduction in LIFO reserve for the period offset by
lower gross profit as a result of competitive pressures.
Total expenses (excluding inventory theft) for 1996 decreased by 2.1% over
such expenses for 1995. Operating expenses (excluding interest expense) for the
1996 period were down 4.3% as compared to 1995. Lower general and administrative
expenses resulted in the lower operating expenses.
Interest expenses increased 7.8% due to higher borrowing due to slower
payments on receivables, offset by lower inventory.
The effect of the foregoing factors was that the Company's loss before
corporate taxes for the nine months ended April 30, 1996 increased by 121% from
the same period in 1995.
Method of Inventory and Inventory Theft
At the April 30, 1996 interim period, inventory was determined based on a
physical count. At prior interim periods, inventory was determined using an
estimated gross profit method.
On May 22, 1996, based on information obtained from the interim physical
inventory taken during the quarter ending April 30, 1996, the Company determined
that there was a substantial inventory shortage when the physical inventory was
compared to the Company's books. On May 31, 1996, the Company determined that
inventory theft had occurred during each of the fiscal years ending July 31,
1993, 1994, 1995 and 1996.
-9-
<PAGE>
The Company has therefore restated its statements of operations and cash
flows for the three and nine month periods ended April 30, 1995 to correct the
calculation of inventory based upon the gross profit estimate method 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 balance sheet as of July 31, 1995, 1994 and 1993, which were
based on a physical inventory count, did not require restatement.
Subsequent to April 30, 1996, the Company estimates an additional $600,000
of inventory theft occurred prior to its being detected. The Company is
reviewing its records to ascertain the full extent of the theft and when it
began, and will reflect the results of that review in future reports.
The Company has engaged a private contractor to investigate the thefts and
is cooperating with federal, state and local law enforcement authorities to
determine the source of the theft.
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 in its financial statements for the period ending April 30,
1996, since at this time, such recovery cannot be assured.
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<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 Amended report to be
executed on its behalf by the undersigned, thereunto duly authorized.
Date: August 23, 1996
DRUG GUILD DISTRIBUTORS, INC.
By /s/ Jay Reba
-----------------------------------
Jay Reba, Vice President of Finance
(Duly authorized officer and
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drug Guild
Distributors, Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Jul-31-1996
<PERIOD-START> Aug-01-1995
<PERIOD-END> Apr-30-1996
<CASH> 8,880
<SECURITIES> 0
<RECEIVABLES> 71,359,701
<ALLOWANCES> (1,485,776)
<INVENTORY> 27,664,246
<CURRENT-ASSETS> 99,647,298
<PP&E> 14,133,906
<DEPRECIATION> 10,737,145
<TOTAL-ASSETS> 108,015,685
<CURRENT-LIABILITIES> 91,059,526
<BONDS> 996,093
2,397,541
0
<COMMON> 10,095,547
<OTHER-SE> 3,466,978
<TOTAL-LIABILITY-AND-EQUITY> 108,015,685
<SALES> 378,628,610
<TOTAL-REVENUES> 378,628,610
<CGS> 353,367,602
<TOTAL-COSTS> 353,367,602
<OTHER-EXPENSES> 16,738,780
<LOSS-PROVISION> 1,945,776
<INTEREST-EXPENSE> 4,131,206
<INCOME-PRETAX> (2,427,978)
<INCOME-TAX> (825,500)
<INCOME-CONTINUING> (1,602,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,746,298)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
