<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 January 31, 1997
Commission File Number 2-96510-N.Y.
DRUG GUILD DISTRIBUTORS, INC.
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(Exact name of Registrant as specified in its Charter)
New Jersey 11-2269958
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(State of 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 January 31, 1997 there were outstanding 10,038,334 shares of the
Registrant's Common Stock, par value $1, and 21,054.31 shares of the
Registrant's Preferred Stock, $100 par value.
Page 1 Of 10 Pages
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Part 1- Financial Information
Item 1.Financial Statements (1)
DRUG GUILD DISTRIBUTORS INC.
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BALANCE SHEETS
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( in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
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January-31 July 31
1997 1996
---- ----
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash $ 203 $ 200
Trade Receivables-Stockholders 26,506 27,913
Nonstockholders 39,760 39,361
Allowance for doubtful accounts (1,584) (1,203)
Merchandise Inventory (2) 33,399 29,440
Tax refund receivable - 1,036
Prepaid expenses and other current assets 495 805
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Total Current Assets 98,779 97,552
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Property and equipment, net 3,294 3,331
OTHER ASSETS:
Trade Receivables-noncurrent portion-Stockholders 1,752 1,593
Nonstockholders 2,629 2,288
Allowance for doubtful accounts (438) (438)
Deferred income tax benefit 1,324 1,426
Various other assets 69 222
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Total Other Assets 5,336 5,091
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TOTAL ASSETS $ 107,409 $ 105,974
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Loans payable, bank $ 48,238 $ 53,104
Notes payable 451 527
Accounts payable 41,560 34,590
Accrued expenses and taxes 1,257 1,475
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Total Current Liabilities 91,506 89,696
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LONG TERM LIABILITIES
Notes payable 250 237
Deferred rent payable 311 263
Deferred compensation payable 542 570
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Total Long-Term Liabilities 1,103 1,070
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TOTAL LIABILITIES 92,609 90,766
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REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized-250,000 shares
Issued and outstanding 21,054.31 and 25,893.44 shares 2,105 2,589
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STOCKHOLDERS' EQUITY
Common stock- $1 par value
Authorized 25,000,000 shares
Issued and outstanding-10,038,334 and 10,022,667 shares 10,038 10,023
Subscribed and unissued (3) - 412
Additional paid-in capital 3,409 3,628
Retained earnings (752) (805)
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Total, before subscriptions receivable 12,695 13,258
Less: Subscriptions receivable - 639
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Total Stockholders' Equity 12,695 12,619
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,409 $ 105,974
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</TABLE>
See accompanying Notes to the Financial Statements
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STATEMENTS OF OPERATIONS
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(UNAUDITED)
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(in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
---------------------------------- ------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(reclassified) (reclassified)
<S> <C> <C> <C> <C>
NET SALES
Stockholders $ 45,881 $ 55,432 $ 99,365 $ 109,525
Nonstockholders 80,620 75,379 149,026 149,187
------------ ---------------- ------------ ----------------
TOTAL NET SALES 126,501 130,811 248,391 258,712
------------ ---------------- ------------ ----------------
COST OF SALES:
Inventory, beginning of period 32,241 31,861 29,440 38,896
Purchases 120,157 116,340 237,483 228,353
------------ ---------------- ------------ ----------------
152,398 148,201 266,923 267,249
Less: Inventory, end of period 33,399 26,738 33,399 26,738
------------ ---------------- ------------ ----------------
COST OF SALES 118,999 121,463 233,524 240,511
ESTIMATED LOSS ON DEFALCATION (2) -- 2,528 -- 4,362
------------ ---------------- ------------ ----------------
GROSS PROFIT 7,502 6,820 14,867 13,839
------------ ---------------- ------------ ----------------
OPERATING EXPENSES 6,147 5,704 12,207 11,648
INTEREST EXPENSE 1,303 1,192 2,572 2,520
------------ ---------------- ------------ ----------------
TOTAL EXPENSES 7,450 6,896 14,779 14,168
------------ ---------------- ------------ ----------------
INCOME BEFORE CORPORATE TAXES 52 (76) 88 (329)
------------ ---------------- ------------ ----------------
PROVISION (CREDIT) FOR CORPORATE TAXES:
Current - (139) - (219)
Deferred 20 21 35 -
------------ ---------------- ------------ ----------------
- -
Total Provision (Credit) for Corporate Taxes 20 (118) 35 (219)
------------ ---------------- ------------ ----------------
NET INCOME 32 42 53 (110)
Less: Stock Dividend on Preferred Stock (A) 38 60 84 120
------------ ---------------- ------------ ----------------
NET INCOME (LOSS) ATTRIBUTABLE TO $ (6) $ (18) $ (31) $ (230)
============ ================ ============ ================
COMMON SHAREHOLDERS
LOSS PER COMMON SHARE $0.00 $0.00 $0.00 ($0.02)
============ ================ ============ ================
AVERAGE NUMBER OF SHARES OF 10,038 10,059 10,038 10,043
------------ ---------------- ------------ ----------------
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
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STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
January 31
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1997 1996
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(reclassified)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 53 $ (110)
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Adjustment to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 464 425
Deferred compensation payable (28) (26)
(Increase) decrease in:
Tax refund receivable 1,036 -
Deferred income taxes 102 -
Trade receivables, net 889 (10,645)
Merchandise inventory (3,959) 12,159
Prepaid expenses and other current assets 310 (121)
Increase (decrease) in:
Accounts payable 6,970 2,231
Deferred rent payable 48 --
Accrued expenses and taxes (213) (272)
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Total adjustments 5,619 3,751
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Net Cash Provided by (Used In) Operating Activities 5,672 3,641
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (428) (595)
(Increase) decrease in other assets 153 4
------------ ---------------
Net Cash Used In Investing Activities (275) (591)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (68) (255)
Net increase (decrease) in short-term bank debt (4,866) (3,985)
Collections on common stock 24 152
Preferred stock redeemed (484) (974)
------------ ---------------
Net Cash Used In Financing Activities (5,394) (5,062)
------------ ---------------
NET INCREASE (DECREASE)IN CASH 3 (2,012)
CASH:
Beginning of period 200 2,022
------------ ---------------
End of period $ 203 $ 10
============ ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid in the period for:
Interest $ 2,572 $ 2,520
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
Reduction of accrued expenses due to issuance of notes payable $ 5 $ 21
Accounts receivable reduced for redemptions of preferred stock $ -- $ -
Accounts receivable reduced for cancellation of common stock (3) $ -- $ -
Common stock subscriptions cancelled (3) $ 601 $ -
</TABLE>
See accompanying Notes to Financial Statements
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DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for the interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended January 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended July 31, 1997. For further information, refer to the
financial statements and footnotes thereto incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996.
NOTE 2- INVENTORY DEFALCATION:
At the end of May 1996, based on information obtained from the April 30,
1996 inventory, the company determined that an 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 reclassified its statements of operations and cash flows
for the six months ended January 31, 1996 to correct the calculation of the
gross profit estimate previously used and separately state the amount of the
inventory 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 since, at this time, such recovery cannot be assured.
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<PAGE>
NOTE 3 - COMMON STOCK SUBSCRIPTIONS
On November 1, 1996, the Company called for the payment of all
outstanding common stock subscriptions by December 31, 1996 or they
would be cancelled. As a result, $601,000 of common stock subscriptions
were cancelled during the period.
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.
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<PAGE>
DRUG GUILD DISTRIBUTORS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition at January 31,1997 Compared to Financial Condition
at July 31, 1996. From July 31, 1996 to January 31, 1997 , the Company's current
assets increased to $98,779,000 from $97,552,000 and its current liabilities
increased to $91,506,000 from $89,696.000. Such increase was attributable to the
Company's higher inventory offset by lower accounts receivable due to lower
sales. The Company's ratio of current assets to current liabilities remained
substantially the same during the period at 1:1 to 1.
On November 1, 1996 the Company called for the payment of all
outstanding common stock subscriptions by December 31, 1996 or they would be
canceled. As a result $601,000 of common stock subscriptions were canceled
during the period.
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 January 31, 1997, there were $55,858,000 of such eligible
accounts receivable out of a total of $62,562,000, or 89%, and $37,041,000 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 $48,238,000 on January
31,1997. 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.
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<PAGE>
Three Months Ended January 31,1997 Compared to Three Months Ended
January 31,1996
Net sales for the three months ended January 31, 1997 decreased 3.3%
from the 1996 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 for the three months, before the defalcation in the 1996
period, decreased by 19.8% in the 1997 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 5.9% in 1997 from 7.2% in the
1996 period.
Gross profit for the three months, after the defalcation in the 1996
period, increased by 10.0% in the 1997 period. Gross profit, after the
defalcation, as a percentage of sales increased to 5.9% in 1997 from 5.2% in the
1996 period.
Operating expenses increased 7.7% over the same period in 1996. This
increase was attributable to higher professional fees in connection with the
merger and to security and investigative costs incurred as a result of the
inventory defalcation.
Interest expenses increased 9.3% due to higher average borrowings for
higher inventory levels.
The effect of the foregoing factors was that the Company had income
before corporate taxes for the three months ended January 31,1997 versus a loss
for the same period in 1996. Income taxes were higher than the same period in
1996 resulting from the increased profit.
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<PAGE>
Six Months Ended January 31,1997 Compared to Six Months Ended January 31,1996
Net sales for the six months ended January 31, 1997 decreased 4.0% from
the 1996 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 for the six months ended January 31,1997 decreased by
18.3% as compared to the same period, before the defalcation, in 1996.This was 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
1997 from 7.2% in the 1996 period.
Gross profit for the six months, after the defalcation in the 1996
period, increased by 7.4% in the 1997 period. Gross profit, after the
defalcation, as a percentage of sales increased to 6.0% in 1997 from 5.4% in the
1996 period.
Operating expenses increased 4.8% over the same period in 1996. This
increase was attributable to higher professional fees in connection with the
merger and to security and investigative costs incurred as a result of the
inventory defalcation.
Interest expenses increased 2.1% due to higher average borrowings for
higher inventory levels.
The effect of the foregoing factors was that the Company had income
before corporate taxes for the three months ended January 31,1997 versus a loss
for the same period in 1996. Income taxes were higher than the same period in
1996 resulting from the increased profit.
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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 report to be executed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 1997
DRUG GUILD DISTRIBUTORS, INC.
By /s/ Jay Reba
---------------------------
Jay Reba, Vice President of Finance
(Duly authorized officer and
principal financial officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
[REPLACE THIS TEXT WITH THE LEGEND]
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-31-1996
<PERIOD-END> JAN-31-1997
<CASH> 203
<SECURITIES> 0
<RECEIVABLES> 66,266
<ALLOWANCES> (1584)
<INVENTORY> 33,399
<CURRENT-ASSETS> 98,799
<PP&E> 3,294
<DEPRECIATION> 0
<TOTAL-ASSETS> 107,409
<CURRENT-LIABILITIES> 91,506
<BONDS> 0
2,105
0
<COMMON> 10,038
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 107,409
<SALES> 248,391
<TOTAL-REVENUES> 248,391
<CGS> 233,524
<TOTAL-COSTS> 233,524
<OTHER-EXPENSES> 12,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,572
<INCOME-PRETAX> 88
<INCOME-TAX> 35
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
