<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15414
For the transition period from to
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ALOETTE COSMETICS, INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2056003
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Wright's Lane East, West Chester, PA 19380
- ------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
(610) - 692-0600
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(Registrant's telephone number, including area code)
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Former name, former address and former fiscal year,
if changed since last report.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, no par value - 2,157,253 shares as of May 10, 1996
<PAGE>
INDEX
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 1
(unaudited) and December 31, 1995
Consolidated Statements of Operations - Three 2
months ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - 3
Three months ended March 31, 1996 and 1995
(unaudited)
Notes to Consolidated Financial Statements - 4
March 31, 1996 (unaudited)
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of 8
Security Holders
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
<PAGE>
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,328,375 $ 1,024,114
Accounts receivable, less allowance
of $119,000 and $110,000, respectively 1,219,903 1,089,368
Current portion of notes receivable,
less allowance of $116,000 and $270,000, 309,809 316,657
respectively
Inventories 3,849,869 3,672,249
Prepaid expenses and other current assets 596,071 588,665
Deferred income taxes 298,500 291,000
------------ -----------
Total current assets 7,602,527 6,982,053
Cost in excess of net assets acquired, net 487,888 500,398
Note receivable, less current portion 474,086 564,836
Property, plant and equipment, net 3,131,736 3,261,940
Other assets 623,347 514,280
Deferred income taxes 370,000 370,000
------------ -----------
Total assets $12,689,584 $12,193,507
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 836,602 $ 902,361
Accounts payable 615,399 539,008
Accrued expenses 1,215,550 881,834
Accrued compensation and benefits 37,222 53,853
Current portion, deferred franchise fee revenue 119,302 116,798
------------ -----------
Total current liabilities 2,824,075 2,493,854
Deferred income taxes 174,500 189,000
Long-term debt, less current maturities 1,968,371 1,968,371
Deferred franchise fee revenue, less
current portion 58,705 66,844
------------ -----------
Total liabilities 5,025,651 4,718,069
SHAREHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized, 2,963,134 shares issued and
outstanding as of March 31, 1996 and December 31, 1995 25,000 25,000
Additional paid-in capital 7,489,735 7,489,735
Unearned ESOP shares (142,500) (142,500)
Cumulative currency translation adjustments (1,037,367) (1,066,118)
Retained earnings 10,090,191 9,930,447
Less: Common stock in treasury, at cost,
805,881 shares (8,761,126) (8,761,126)
------------ ------------
Total shareholders' equity 7,663,933 7,475,438
------------ ------------
Total liabilities and shareholders' equity $12,689,584 $12,193,507
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Net product sales $2,392,127 $3,112,884
Revenue from franchise operations 424,076 437,640
Sales of franchises 5,265 14,954
---------- ----------
2,821,468 3,565,478
Cost and expenses:
Cost of product sales 1,435,121 2,250,775
Selling, general and administrative 1,142,497 1,811,256
Loss on sale of assets of
manufacturing operations -- 3,750,000
Sales of franchises 39,167 --
---------- ----------
2,616,785 7,812,031
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Operating income (loss) 204,683 (4,246,553)
Other (expense), net (59,939) (113,367)
---------- ----------
Income (loss) before income taxes 144,744 (4,359,920)
Benefit for income taxes 15,000 --
---------- ----------
Net income (loss) $ 159,744 $(4,359,920)
========== ===========
- -----------------------------------------------------------------------------------------
Per share data:
Net income (loss) $ .07 $ ( 2.02)
========== ===========
Dividends -- --
========== ===========
Weighted average shares
outstanding 2,157,253 2,157,253
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 159,744 $(4,359,920)
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
Depreciation & amortization 137,792 203,585
Provision for doubtful accounts and notes receivable 21,133 34,701
Loss on sale of property, plant and equipment 41,573 10,997
Franchise fee revenue (5,265) (14,954)
Loss on sale of manufacturing operations -- 3,750,000
Changes in operating assets and liabilities, net of effect
from sale of assets:
(Increase) decrease in receivables (177,456) 283,863
(Increase) decrease in inventories (181,939) 139,240
Decrease in prepaid and other current assets 16,783 57,302
Increase (decrease) in accounts payable and accrued
expenses 278,962 (271,065)
---------- ----------
Net cash provided by (used in) operating activities 291,327 (166,251)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment -- 13,432
Proceeds of notes receivable, net 30,369 47,594
Purchase of property, plant and equipment (613) (2,444)
Decrease in other assets 29,636 --
---------- ----------
Net cash provided by investing activities 59,392 58,582
---------- ----------
Cash flows from financing activities:
Repayment of note payable, net -- (1,233,000)
Payment of long-term debt (65,758) (2,287,853)
---------- ----------
Net cash (used in) financing activities (65,758) (3,520,853)
---------- ----------
Effect of exchange rate changes on cash 19,300 (5,023)
---------- ----------
Net increase (decrease) in cash and cash equivalents 304,261 (3,633,545)
Cash and cash equivalents at beginning of year 1,024,114 3,962,195
---------- ----------
Cash and cash equivalents at end of period $1,328,375 $ 328,650
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
MARCH 31, 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB 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 normal recurring accruals) considered necessary for a fair presentation have
been included.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in the consolidation.
2. Inventories
At March 31, 1996 and December 31, 1995, inventories consisted of the following:
1996 1995
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Finished goods $2,611,751 $2,114,743
Work in process 7,865 6,972
Raw materials 1,230,253 1,550,534
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$3,849,869 $3,672,249
========== ==========
3. Supplemental Cash Flow Information
Non cash investing and financing activities:
In March, 1996, the Company reacquired a franchise as satisfaction of a net
notes receivable of approximately $160,000. There were no franchises sold,
refinanced or repurchased in the first quarter of 1995.
During the first quarter of 1996, the Company utilized $53,000 of barter credits
for inventory purchases compared to zero in 1995.
<PAGE>
4. Sale of Assets of the Manufacturing Operations
On June 15, 1995 the Company finalized the sale of certain assets of
its manufacturing operations in Texas for cash of approximately $2.1 million. As
a result of the sale of these assets, the Company recorded a charge of $3.75
million in the first quarter of 1995.
Sales from the manufacturing operation were $738,000 for the three
months ended March 31, 1995. The net loss from operations for the corresponding
period, excluding the aforementioned $3.75 million charge, was $176,000.
5. Other Income (Expense)
In the first quarter of 1996 an agreement of sale was signed for the
sale of the 3,700 square foot office condominium located in Pennsylvania. The
Company recorded a charge of approximately $42,000 to write down these assets to
their fair market value.
6. Franchise Repurchase
In March, 1996, the Company repurchased one of its Canadian franchises,
which consists of three potential franchise territories as satisfaction of a net
notes receivable of approximately $160,000. The franchise is being operated by
the Company. For the period from its acquisition through March 31, 1996, the
franchise's net product sales and net earnings did not significantly affect
consolidated results from operations. In addition, the Company currently has a
letter of intent to sell one of the franchise territories for approximately
$110,000.
7. Subsequent Event
In April, 1996, the Company reached an agreement with a director,
shareholder and former officer to restructure the payment terms of a
Subordinated Note held by such person. The new terms provide for interest to
accrue on the unpaid principal balance at the rate of 7.0%, with an initial
payment of $200,000 and monthly principal payments of $50,000 beginning May 15,
1996. Interest payments will be deferred until all principal has been paid in
full. Upon repayment of principal, monthly payments of $50,000 will continue
until all accrued interest is paid in full.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
ASSETS:
Cash and cash equivalents increased approximately $300,000 to $1.3
million at March 31, 1996 from approximately $1.0 million at December 31, 1995,
primarily due to the Company's improved cash flows from operations. Inventories
continue to be one of the Companies largest segment of total assets comprising
30%, or $3.8 million of total assets at March 31, 1996. Property, plant and
equipment were $3.1 million, or 25%, of total assets. Notes receivable decreased
and other assets increased primarily as a result of the franchise repurchase.
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long term debt decreased over $60,000 in the
first quarter of 1996. Debt still represents the largest portion of liabilities
totaling $2.8 million, or 56% of total liabilities. As of March 31, 1996,
accrued interest on the Subordinated Note was approximately $349,000, or 7% of
total liabilities. In April, 1996, a new agreement was reached between the
Company and the holder of the Subordinated Note, see "Notes to Financial
Statements, Note 7." Pursuant to the new terms, an initial payment of $200,000
and monthly principal payments of $50,000 will begin May 15, 1996. Interest will
accrue at a rate of 7.0% on the outstanding principal balance.
RESULTS OF OPERATIONS:
Net Income
The Company reported net income of approximately $160,000, or $.07 per
share, for the first quarter of 1996 compared to a net loss of $4.4 million, or
$2.02 per share for the first quarter of 1995. Operating income for the first
quarter of 1996 was $205,000, compared to an operating loss of $4.2 million for
the first quarter of 1995. The quarterly increase in operating income of
$700,000, exclusive of the $3.75 million charge associated with the sale of the
assets of the manufacturing operations is primarily a result of operating losses
incurred by the manufacturing operations, in the first quarter of 1995 and lower
expenses at the Company's remaining subsidiaries.
Revenues
For the current quarter, total revenues decreased approximately
$750,000, or 21% to $2.8 million from $3.6 million in the first quarter of 1995,
primarily as a result of the loss of sales attributable to the manufacturing
operations. While net product sales at the Company's domestic subsidiary
remained relatively flat, net product sales attributable to the Company's
Canadian subsidiary increased $57,000, or 6%. Sales to the Company's
international distributors declined $30,000, or 50%. Similarly, the lower retail
sales by the international distributors contributed substantially to a 5%
decline in worldwide retail sales -- sales by franchises to their customers --
to total retail sales of $9.1 million in the first quarter of 1996. Although
there can be no assurances that sales will increase, the Company expects that
retail sales in North America will increase slightly in the latter part of the
year as a result of additional sales of franchises, new incentive programs to
Beauty Consultants, and a continued focus on guidance to franchisees.
<PAGE>
Cost of Product Sales
Cost of product sales as a percentage of net product sales decreased to
60% for the first quarter of 1996 from 72% for the first quarter of 1995. The
decrease was primarily a result of the elimination of the negative impact by
overhead costs at the Company's manufacturing operations as a result of its sale
and improved margins as a result of negotiated discounts with certain suppliers
and increased controls in purchasing. Although no assurances can be given,
management expects this percentage to remain relatively constant throughout
1996.
Expenses
Total selling, general and administrative expenses decreased
approximately $670,000 to $1.1 million for the quarter ended March 31, 1996
compared to the quarter ended March 31, 1995 resulting from the continued
success of the cost reduction initiatives implemented in prior periods, the
elimination of expenses at the manufacturing operations, and the
non-reoccurrence of several one time charges incurred against earnings in 1995.
The cost reduction initiatives included more efficient staff levels,
consolidation of facilities, and limited use of consultants. Management will
continue to evaluate additional areas for expense reductions.
Other Income (Expense)
The decrease in other expenses is due primarily to the reduction in
interest expense in the first quarter of 1996 as a result of the Company's
reduced outstanding debt balance. In the first quarter of 1996, the Company
entered into an agreement of sale for its office condominiums in Pennsylvania.
The Company recorded a charge of approximately $42,000 to write down these
assets to their fair market value.
Income Taxes
The Company recorded a $15,000 benefit for income taxes for the three
months ended March 31, 1996. For the same period in 1995 the Company did not
realize any potential tax benefit.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1996, the Company held over $1.3 million in cash and cash
equivalents and had no outstanding borrowings under its $1.0 million line of
credit. Under its current financing arrangements, the Company is subject to
certain restrictions and covenants including maintaining certain balances in
cash and cash equivalents and certain restrictions on the payment of dividends
and subordinated debt. Working capital increased approximately $400,000 to $4.9
million as of March 31, 1996.
Management believes that its working capital, current financing
alternatives, and available line of credit will be sufficient to cover normal
and expected cash flow needs, including planned capital spending, for at least
the next two years.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Schedule of Computation of Per Share Earnings
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALOETTE COSMETICS, INC.
(Registrant)
Date: May 14, 1996 /s/ Patricia J. Defibaugh
-----------------------------
Patricia J. Defibaugh,
Chairman of the Board
Chief Operating Officer
Date: May 14, 1996 /s/ Jean M. Lewis
-----------------------------
Jean M. Lewis,
Vice President of Finance
(Principal Financial Officer)
<PAGE>
ALOETTE COSMETICS, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
for the three months ending March 31, 1996 and 1995
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Net income (loss) $159,744 $(4,359,920)
Weighted average number of common shares outstanding
during the year 2,157,253 2,157,253
Net income (loss) per common share $.07 $(2.02)
PRIMARY (1)
Net income (loss) $159,744 $(4,359,920)
Weighted average number of common shares outstanding during
the year 2,157,253 2,157,253
Net income (loss) per common share $.07 $(2.02)
FULLY DILUTED (1)
Net income (loss) $159,744 $(4,359,920)
Weighted average number of common shares outstanding during
the year 2,157,253 2,157,253
Net income (loss) per common share $.07 $(2.02)
</TABLE>
(1) This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No.
15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000792160
<NAME> ALOETTE COSMETICS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,328,375
<SECURITIES> 0
<RECEIVABLES> 1,338,903
<ALLOWANCES> (119,000)
<INVENTORY> 3,849,869
<CURRENT-ASSETS> 7,602,527
<PP&E> 5,057,719
<DEPRECIATION> (1,925,983)
<TOTAL-ASSETS> 12,689,584
<CURRENT-LIABILITIES> 2,824,075
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 7,638,933
<TOTAL-LIABILITY-AND-EQUITY> 12,689,584
<SALES> 2,392,127
<TOTAL-REVENUES> 2,821,468
<CGS> 1,435,121
<TOTAL-COSTS> 2,616,785
<OTHER-EXPENSES> (59,939)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 144,744
<INCOME-TAX> (15,000)
<INCOME-CONTINUING> 159,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,744
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
