SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended December 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934
For the transition period from __________ to _____________
Commission file number 1-10340
Allou Health & Beauty Care, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2953972
- ----------------------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
50 Emlay Boulevard, Brentwood, NY 11717
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 273-4000
----------------------------
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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 documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve 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 practicable date.
Class February 9, 1996
- ------------------------------------- -----------------
Class A Common Stock, $.001 par value 4,461,725
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
INDEX
PAGE
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income & Retained Earnings
For the Nine Months Ended December 31, 1995 and 1994 4
Consolidated Statement of Income & Retained Earnings
For the Three Months Ended December 31, 1995 and 1994 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-12
Item 2. Managements' discussion and analysis of
financial condition and results of operations 13-16
Part II. Other Information 17-18
Signatures 19
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1995 1995
CURRENT ASSETS ---- ----
<S> <C> <C>
Cash $202,057 $126,237
Accounts Receivable (less allowance for
doubtful accounts of $493,540 at December 31,
1995 and $286,165 at March 31, 1995 (Note 5) 43,252,247 28,473,020
Inventories (Notes 1 & 5) 71,183,990 57,270,710
Other Current Assets (Note 2) 12,052,775 15,546,524
------------ ------------
Total Current Assets $126,691,069 $101,416,491
Fixed Assets, Less Accumulated Depreciation
(Notes 1 & 3) 3,561,001 2,186,968
Other Assets (Note 4) 3,704,966 2,610,504
------------ ------------
TOTAL ASSETS $133,957,036 $106,213,963
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Amounts Due Bank (Note 5) $ 74,001,474 $ 54,128,480
Current Portion of Long-Term Debt (Note 6) 230,740 245,116
Accounts Payable and Accrued Expenses (Note 7) 15,896,362 10,326,065
Income Taxes Payable (Note 10) - 0 - 524,187
------------ ------------
Total Current Liabilities $90,128,576 $ 65,223,848
------------ ------------
LONG TERM LIABILITIES
Long-Term Debt, Less Current Portion (Note 6) 558,460 751,783
Deferred Income Taxes (Note 1) 62,122 62,122
------------ ------------
Total Long Term Liabilities 620,582 813,905
------------ ------------
TOTAL LIABILITIES $ 90,749,158 $ 66,037,753
------------ ------------
Commitments & Contingencies (Note 8)
STOCKHOLDERS' EQUITY (Notes 1 & 9)
Preferred Stock, $.001 par value, 1,000,000
shares authorized, none issued and outstanding.
Class A Common Stock, $.001
par value; 10,000,000 shares authorized and
4,461,725 issued and outstanding at
December 31, 1995 and March 31, 1995, $4,462 $4,462
Class B Common Stock, $.001 par value; 1,700,000
authorized, 1,200,000 issued and outstanding at
December 31, 1995 and March 31, 1995 1,200 1,200
Additional Paid-In Capital 23,241,098 23,241,098
Retained Earnings 19,961,118 16,929,450
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 43,207,878 40,176,210
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $133,957,036 $106,213,963
============ ============
</TABLE>
-3-
The accompanying notes are an integral part of this financial statement.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For The Nine Months Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Revenues $208,061,224 $181,799,278
Costs of Revenues 184,457,670 159,784,376
------------ ------------
Gross Profit 23,603,554 22,014,902
------------ ------------
Operating Expenses
Warehouse & Delivery 5,673,721 5,041,235
Selling, General & Administrative 8,886,200 8,589,606
------------ ------------
Total Expenses 14,559,921 13,630,841
------------ ------------
Income From Operations 9,043,633 8,384,061
------------ ------------
Other Charges (Credits)
Interest 4,128,530 2,836,482
Other (27,523) 737
----------- ------------
Total 4,101,007 2,837,219
------------ ------------
Income Before Income Taxes 4,942,626 5,546,842
Provision for Income Taxes (Note 10) 1,910,958 2,159,103
------------ ------------
NET INCOME 3,031,668 3,387,739
------------ ------------
RETAINED EARNINGS - BEGINNING OF PERIOD 16,929,450 12,248,149
------------ ------------
RETAINED EARNINGS - END OF PERIOD $19,961,118 $ 15,635 888
============ ============
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $.53 $.58
=== ===
</TABLE>
The accompanying notes are an integral part of this financial statement.
-4-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Revenues $76,715,466 $68,984,920
Costs of Revenues 67,557,704 60,600,068
----------- -----------
Gross Profit 9,157,762 8,384,852
----------- -----------
Operating Expenses
Warehouse & Delivery 2,249,999 1,933,602
Selling, General & Administrative 3,526,325 2,938,297
----------- -----------
Total Expenses 5,776,324 4,871,899
----------- -----------
Income From Operations 3,381,438 3,512,953
----------- -----------
Other Charges (Credits)
Interest 1,487,949 1,127,899
Other (5,736) 2,037
---------- -----------
Total 1,482,213 1,129,936
----------- -----------
Income Before Income Taxes 1,899,225 2,383,017
Provision for Income Taxes 700,958 951,103
----------- -----------
NET INCOME 1,198,267 1,431,914
RETAINED EARNINGS - BEGINNING OF PERIOD 18,762,851 14,203,974
----------- -----------
RETAINED EARNINGS - END OF PERIOD $19,961,118 $15,635,888
=========== ===========
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $.21 $.24
=== ===
</TABLE>
The accompanying notes are an integral part of this financial statement.
-5-
<PAGE>
ALLOU HEALTH & BEAUTY CARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Nine Months Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 3,031,668 $ 3,387,739
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 328,341 256,532
Decrease (Increase) In Assets:
Accounts Receivable (14,779,227) (11,793,519)
Inventory (13,913,280) (5,929,610)
Prepaid Purchases and Other Assets 2,399,288 (2,320,429)
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 5,570,297 3,935,687
Income Taxes Payable (524,187) 190,559
---------- ----------
Net Cash Used In Operating Activities (17,887,100) (12,273,041)
---------- ----------
Cash Flows Used in Investing Activities
Acquisition of Fixed Assets (1,702,375) (890,251)
---------- ----------
Cash Flows From Financing Activities
Net Increase in Amounts Due Bank 19,872,994 11,292,422
Borrowings - 0 - 211,284
Repayment of Debt (207,699) (72,511)
Net Proceeds From Exercise of Warrants - 0 - 1,467,998
---------- ----------
Net Cash Provided By Financing Activities 19,665,295 12,899,193
---------- ----------
INCREASE (DECREASE) IN CASH 75,820 (264,099)
CASH AT BEGINNING OF PERIOD 126,237 351,047
---------- ----------
CASH AT END OF PERIOD $ 202,057 $ 86,948
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $4,022,606 $2,679,632
Income Taxes $2,598,698 $1,968,544
The Company issued equipment notes for $211,284 during the nine months ended
December 31, 1994.
</TABLE>
The accompanying notes are an integral part of this financial statement.
-6-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Organization:
Allou Health & Beauty Care, Inc. (the "Company") was incorporated on
January 20, 1989 under the laws of the state of Delaware, on which date it
acquired all of the outstanding shares of Allou Distributors, Inc. in exchange
for 2,400,000 shares of (1,200,000 post-split) its Class B common stock, thus
making it a wholly-owned subsidiary.
Effective April 1, 1993, the Company acquired all of the outstanding shares
of M. Sobol, Inc., a wholesaler of pharmaceutical products in a transaction
accounted for under the purchase method. The price f or the stock was
$1,472,382. The fair market value of the assets acquired and liabilities assumed
were as follows:
Cash $63,768
Accounts Receivable (net of
allowance for doubtful
accounts of $108,620) 1,483,925
Inventory 2,078,324
Other Current Assets 28,695
Accounts Payable (1,613,035)
Due to Bank (subsequently paid off) (2,100,000)
On October 2, 1995, the Company purchased certain assets of Russ Kalvin
Inc., a manufacturer of hair care products located in southern California for
$2,254,150. These assets include accounts receivable, inventory, equipment and
intangibles. The Company has incorporated wholly-owned subsidiaries which
manufacture and distribute these products.
These financial statements include the consolidated operations of the
Company and its subsidiaries. All intercompany transactions have been
eliminated.
B. Description of Operations:
The Company is engaged in the business of distributing brand name and Allou
Brands health and beauty aids, cosmetics, fragrances, grocery products and
pharmaceuticals to independent retailers primarily in the New York metropolitan
area, as well as in the Pennsylvania and Florida areas.
C. Revenue Recognition:
The Company recognizes revenue on its entire product line at the time the
products are shipped to the customer.
D. Inventories:
Inventories, which consist of cosmetics, fragrances, health and beauty aids
and pharmaceuticals, are stated at the lower of average cost or market.
E. Fixed Assets:
Property and equipment are stated at cost. Depreciation is provided for
over the estimated useful lives of the assets by use of straight-line and
accelerated methods.
-7-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. Deferred Taxes:
Deferred taxes represent the amount due on the cumulative effect of change
of inventory valuation from LIFO to Average Cost Method. As permitted by
applicable tax regulations, this amount can be included in income for tax
purposes ratably over six years.
G. Earnings Per Share:
Primary and fully diluted earnings per share are computed on weighted
average number of shares actually outstanding, plus the shares---that would be
outstanding assuming the exercise of the Company's outstanding stock warrants
and stock options, which are considered to be common stock equivalents, in
accordance with the treasury stock method.
H. Accounts receivable and inventory at December 31, 1995 include
$5,944,655 and $7,565,996, respectively, attributable to M. Sobol Inc., the
Company's wholly-owned subsidiary.
2. OTHER CURRENT ASSETS:
Included in other current assets at December 31, 1995 are $10,092,641
of prepayments on merchandise and $163,553 of estimated tax payments in excess
of current provision.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31, March 31, Estimated
1995 1995 Useful Lives
---- ---- ------------
<S> <C> <C> <C>
Machinery & Equipment $1,742,390 $ 954,380 5 years
Furniture, Fixtures &
Office Equipment 1,979,353 1,782,192 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
Leasehold Improvements 2,087,299 1,370,095 10 years
--------- ---------
5,905,792 4,203,417
Less: Accumulated Depreciation
& Amortization 2,344,791 2,016,449
--------- ---------
$3,561,001 $2,186 968
========= =========
</TABLE>
Depreciation and amortization expense for the nine months ended December
31, 1995 and 1994 amounted to $343,345 and $256,532, respectively. Depreciation
and amortization expense for the three months ended December 31, 1995 and 1994
amounted to $137,592 and $84,705, respectively.
4. OTHER ASSETS:
Included in other assets is $1,695,473 of goodwill, net of
amortization, created upon the purchase of the shares of M. Sobol Inc., the
Company's wholly-owned subsidiary and the purchase of selected assets of Russ
Kalvin Inc. (see note I-A), and $1,678,449 of officers' loans bearing interest
at the effective rate being charged to the Company by its bank. The goodwill is
being amortized over forty years.
-8-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. AMOUNTS DUE BANK:
The Company has a secured line of credit with a consortium of banks. The
financing agreement provides for advances of up to 85% of eligible receivables
and 60% of eligible inventory with aggregate maximum advances of up to
$85,000,000, including a $4,500,000 sublimit for overadvances. Interest on the
loan balance is payable monthly at 3/8% above the prime rate or 2 1/8% above the
Eurodollar rate, at the option of the Company. The loan is collateralized by the
Company's accounts receivable and inventory and the overadvances are guaranteed
by the Company's- principal stockholders. In addition, the Company is required
to abide by certain financial covenants. The effective interest rate charged to
the Company at December 31, 1995 was 8.14%, which was based on a combination of
2 1/8% above the Eurodollar rate and 3/8% above the prime rate.
6. LONG-TERM DEBT:
Long-term debt consists of:
(a) notes collateralized by certain of the Company's equipment, payable in
aggregate monthly installments of approximately $11,000, which include interest
at rates varying from 12 above the prime rate to 11.5%, for the nine months
ended December 31, 1995.
(b) a loan payable to the previous stockholder of M. Sobol, Inc. (see note
I-A). Interest payable on the declining principal balance has been calculated at
5.45% per annum, through April 1, 2000.
The aggregate long-term debt is payable as follows:
Year Ended
March 31,
1996 (3 months) $ 37,417
1997 222,393
1998 154,230
1999 140,332
2000-2001 234,828
-------
$789,200
=======
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
<TABLE>
December 31, March 31,
1995 1995
---- ----
<S> <C> <C>
Cost of Revenues $14,492,391 $ 9,016,485
Selling, General & Administrative 836,946 621,734
Interest - Bank 419,449 313,525
Payroll 147,576 374,321
------- -------
$15,896,362 $10,326,065
</TABLE>
-9-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
A. Operating Leases:
Effective April 1995, the Company's lease was renegotiated to include
additional space and the lease term was extended to May 2005. Commencing on
October 2, 1995, in connection with the operations of its wholly owned hair care
products subsidiaries, the Company entered into a five year real property
operating lease. As of December 31, 1995, total minimum annual rentals,
excluding additional payments for real estate taxes and certain expenses, are as
follows:
Year Ended
March 31,
1996 (3 months) $ 211,700
1997 846,797
1998 846,797
1999 846,797
2000-2005 3,892,443
Rent expense for the nine months ended December 31, 1995 and 1994 amounted
to $513,846 and $349,368, respectively.
Rent expense for the three months ended December 31, 1995 and 1994 amounted
to $170,718 and $121,089, respectively.
B. The Company uses an entity for its deliveries using the Company's leased
trucks and is charged on a per load basis. The Company assigned the truck lease
to this non-affiliated entity, however, the Company has guaranteed payment and
performance on all terms of the lease through its expiration in 1997.
The Company owns a trailer truck which has been assigned to an entity in
exchange for such entity assuming the loan payments for such truck, which remain
an obligation of the Company.
C. Union:
The Company has an agreement with the National Organization of Industrial
Trade Unions which terminates on December 14, 1997. The agreement covers all
warehouse and receiving employees, excluding supervisory personnel.
D. Stock Option Plans:
The Company has adopted Stock Option Plans which provide for the granting
of stock options to certain key employees and directors. An aggregate of
1,300,000 shares of common stock are reserved for issuance under the Plans.
Incentive stock options are granted at no less than fair market value of the
shares on the date of grant. Options granted to individuals owning more than 10%
of the voting power of the Company's capital stock are granted at no less than
110% of the fair market value at the date of grant. As of December 31, 1995, the
Company had 1,411,950 outstanding options at prices ranging from $2.50 to
$10.00.
-10-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. The Company's three year employment agreements with four of its
officers, which expired on August 1, 1995, provided for annual salaries of
$150,000 each for three of the officers and $225,000 for the fourth. In
addition, three of the officers received bonuses based on the Company's earnings
before interest and taxes. For the nine months ended December 31, 1994,
officers' bonus expense amounted to $845,775.
The Company is currently negotiating new employment agreements which will
be effective for a three year period which commenced August 1, 1995. These
agreements will provide for three of the officers each to receive annual
salaries of $300,000 and a bonus based on the increase over the prior year
earnings before interest and taxes. The fourth officer will receive an annual
salary of $225,000 with a bonus based on performance and other terms. For the
nine months ended December 31, 1995, the fourth officer received a bonus of
$75,000.
F. Letter of Credit:
The Company has an irrevocable standby letter of credit in the sum of
$100,000 expiring on June 8, 1996.
9. STOCKHOLDERS' EQUITY:
During the year ended March 31, 1994, the stockholders of the Company voted
to reduce the number of shares of authorized Class A common stock from
15,000,000 to 10,000,000 shares and increase the number of authorized Class B
common stock from 1,200,000 to 1,700,000 shares, both $.001 par value per share.
The Company is also authorized to issue 1,000,000 shares of preferred stock.
Holders of Class A and Class B common stock share pro rata in all dividends
declared by the Board of Directors. The holders of Class A and Class B common
stock are entitled to one and five votes per share, respectively, for every
matter on which the stockholders of the Company are entitled to vote. Each share
of Class B common stock is convertible at the option of the holder into one
share of Class A common stock. Additionally, each share of Class B common stock
shall be automatically converted into one share of Class A common stock upon its
sale or transfer (including its transfer upon the death of the holder thereof),
except if such sale or transfer is to one or more other holders of Class B
common stock, certain family members of the holders of Class B common stock or
certain trusts for their benefit.
During the year ended March 31, 1990, the Company's public offering became
effective, whereby 460,000 units, which included 60,000 units allotted to the
underwriters, each consisting of three shares of the Company's Class A common
stock and three redeemable Class A warrants were sold. Additionally, the
underwriters were granted 40,000 units of purchase warrants, each consisting of
three shares Class A common stock and three redeemable Class A and Class B
warrants. Each Class A warrant entitled the holder to purchase one share of
Class A common stock and one Class B warrant at an exercise price of $5.00. Each
Class B warrant entitles the holder to purchase for $7.50 one share of common
stock. The Class A and Class B warrants expired five years from the date of
issuance.
-11-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the years ended March 31, 1992 and 1993, 1,367,726 Class A warrants
and 3,800 Class B warrants were exercised and 12,274 Class A warrants were
redeemed and cancelled.
During the year ended March 31, 1994, 1,351,716 Class B warrants were
exercised and the remaining 12,200 of unexercised Class B warrants were redeemed
and cancelled. The Company also issued 36,000 warrants which were exercised for
36,000 shares of Class A common stock. In connection with the purchase of its
wholly-owned subsidiary M. Sobol, Inc., the Company issued 15,000 shares of
Class A common stock.
During the year ended March 31, 1995, the underwriters exercised their
40,000 unit purchase warrants which consisted of 120,000 shares of Class A
common stock, 120,000 Class A warrants and 42,483 Class B warrants. The
remaining 77,517 of unexercised Class B warrants expired and were cancelled on
July 11, 1994.
10. PROVISION FOR INCOME TAXES:
December 31,
1995 1994
---- ----
Income Before Income Taxes $4,946,626 $5,546,842
========= =========
Federal Income Tax $1,584,880 $1,774,900
State Income Taxes 326,078 384,203
---------- ----------
Total Provision for Income Taxes $1,910,958 $2,159,103
========== ==========
The following is a reconciliation of the statutory income tax rate to the
total effective tax rates:
December 31,
1995 1994
---- ----
Federal Statutory Income Tax Rate 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax
Benefits 5.9% 5.6%
Net Operating Loss Carryforward from subsidiary - 0 - (1.7%)
(Over) Under Accrual of Prior Year Tax Provision (1.3%) 1.0%
---- ---
Total Effective Tax Rates 38.6% 38.9%
==== ====
11. RELATED PARTY TRANSACTIONS
For the nine months ended December 31, 1995 and 1994, the purchases from
related parties amounted to $1,673,636 and $574,826 respectively, with no
outstanding amounts payable at the end of each period.
-12-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995
AND 1994.
Revenues for the nine months ended December 31, 1995 were
$208,061,224, representing a 14% increase over revenues of
$181,799,278 for the nine months ended December 31, 1994.
This increase in revenues is attributable to an increase in sales
volume for each segment of the Company's business, an expanded
customer base and an increase in same store sales, which together
has caused an increase in the volume of products sold.
Contributions to this increase in revenues by product segment is
as follows:
Health and beauty aids increased 5% when compared to the
same period in the previous year. This increase in revenue
is due to an increase in same store sales.
Prestige designer fragrances grew 12% when compared to the
same period in the prior year due to an expanded customer
base and increases in same store sales.
Nationally advertised non-perishable branded food products
grew 4% when compared to the same period in the prior year
due to an increase in the volume of products sold.
Sales of prescription pharmaceuticals, generated by the
Company's wholly-owned subsidiary, M. Sobol, Inc., increased
61% when compared to the same period in the prior year due
to an expanded customer base.
For the period ended December 31, 1995, cost of revenues
increased by $1.9 million as compared to the period ended
December 31, 1994. This increase represents increased unpaid
purchases of inventory resulting from greater sales for the
period.
Gross profit as a percentage of revenues decreased to 11.3% for
the nine months ended December 31, 1995 when compared to 12.1%
for the same period in the previous year. This decrease was
primarily due to lower profit margins associated with the
increased sales of the Company's fragrance products at lower unit
prices due to increased competition for these products. The
Company expects this trend to continue.
-13-
<PAGE>
Warehouse, delivery, selling, general and administrative expenses
decreased as a percentage of sales to 7% for the nine months
ended December 31, 1995 from 7.5% for the same period in the
prior year. This decrease is due in part to three officers of the
Company receiving a higher base salary but did not receive a
bonus because the Company's earnings before interest and taxes is
not higher than the previous year. Selling, general and
administrative expenses during the nine months ended December 31,
1994 included $845,775 for bonuses accrued to such officers. The
Company also benefited from increased revenues during this period
without a proportional increase in operating expenses. The
Company experienced increases in certain operating expenses as a
result of its acquisition of certain assets of Russ Kalvin's Inc.
in October 1995. However, certain cost cuts and improved
operating efficiencies have enabled the Company's food business
to impact favorably on income from operations, despite the lower
gross profit margins contributed by this segment of the business.
Because the Company pre-sells food products and then combines the
food products with orders for the Company's other products, which
are delivered as one shipment, the Company incurs minimum
overhead expenses and realizes operating profit margins
comparable to other segments of its business. Operating
efficiencies are further aided by a computerized data base
management system which enables the Company to better manage its
inventories and more closely align inventory purchases to sales
of its products.
Interest expense for the nine months ended December 31, 1995
increased to 2.0% from 1.6% when compared to the nine months
ended December 31, 1994. This increase is due to higher borrowing
levels at an increased rate.
Net income for the nine months ended December 31, 1995 was
$3,031,668 representing a 10.5% decrease over net income of
$3,387,739 for the comparable period in 1994. The decrease in net
income is due to the above factors.
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994.
Revenues for the three months ended December 31, 1995 were
$76,715,466, representing a 11.2% increase over revenues of
$68,984,920 for the three months ended December 31, 1994.
This increase in revenues is attributable to an increase in sales
volume for each segment of the Company's business, an expanded
customer base and increases in same store sales which has
resulted in an increase in the volume of products sold.
Contributions to this increase in revenues by product segment is
as follows:
-14-
<PAGE>
Health and beauty aids increased 9% when compared to the
same period in the previous year. This increase in revenue
is due to the increase in same store sales volume.
Prestige designer fragrances grew 14% when compared to the
same period in the prior year due to an expanded customer
base and increases in same store sales.
Nationally advertised non-perishable branded food products
grew 2.0% when compared to the same period in the prior year
due to an increase in the volume of products sold.
Sales of prescription pharmaceuticals grew 23% when compared
to the same period in the prior year. The growth is due to
an expanded customer base and the addition of generic
pharmaceuticals resulting in an increase in the volume of
products sold.
Gross profit as a percentage of sales decreased to 11.9% for the
three months ended December 31, 1995 from 12.2% as compared to
the three months ended December 31, 1994. This decrease is
principally attributable to lower profit margins associated with
the Company's fragrance products.
Warehouse, delivery, selling, general and administrative expenses
as a percentage of sales for the three months ended December 31,
1995 increased to 7.5% from 7.1% for the same period in the prior
year. On October 2, 1995, the Company acquired selected assets of
Russ Kalvin's Inc., a manufacturer and distributor of salon
quality hair care and skin care products based in Saugus,
California. The increase in warehouse, delivery, selling, general
and administrative expenses for the three months ended December
31, 1995 reflects the operating expenses of the Company's new
wholly-owned subsidiary Allou Personal Care Corporation, the
parent company of Russ Kalvin Personal Care Corp.
Interest expense for the three months ended December 31, 1995
increased to 1.9% from 1.6% when compared to the comparable
period in the prior year, representing higher borrowings at an
increased rate.
Net income for the three months ended December 31, 1995 was
$1,198,267 representing a 16.3% decrease over net income of
$1,431,914 for the comparable period in 1993. The decrease in net
income is due to the above factors.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its working capital requirements from
internally generated funds and from a financing agreement with a
consortium of banks led by the First National bank of Boston for
financing the Company's accounts receivable and inventory. As of
December 31, 1995, the Company had $74,001,474 outstanding under
its $85,000,000 bank line of credit. The loan is collateralized
by the Company's inventory and accounts receivable. Interest on
the loan balance is payable monthly at 3/8% above the prime rate
or 2 1/8% above the Eurodollar rate at the option of the Company.
The effective interest rate charged to the Company at December
31, 1995 was 8.14% which was based on a combination of 2 1/8%
above the Eurodollar rate and 3/8% above the prime rate. The
Company utilizes cash generated from operations to reduce
short-term borrowings, which in turn acts to increase loan
availability consistent with the Company's financing agreement.
The Company's accounts receivable has increased from $35,741,133
at December 31, 1994 to $43,252,247 at December 31, 1995. This
increase in accounts receivable is due to increased sales for the
period and from customers which had previously paid the Company
in an average of 47 days at December 31, 1994 have been paying
the Company in an average of 52 days at December 31, 1995. The
Company believes the slowness in collection of accounts
receivable is primarily due to general economic conditions which
have caused the Company's customers to seek extended payment
terms. The Company is pursuing an aggressive collection policy to
reduce such periods.
The Company has minimal capital investment requirements and any
significant capital expenditures are financed through long term
lease agreements that would not adversely impact cash flow. The
Company believes that its internally generated funds and bank
line of credit will be sufficient to meet its currently
anticipated cash and capital needs through the fiscal year ending
March 31, 1996.
-16-
<PAGE>
Part II Other Information
Item 6(a) Exhibits
--------
None
-17-
<PAGE>
EXHIBIT XI
ALLOU HEALTH & BEAUTY CARE, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended December 31, Ended December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Reconciliation of net income
per consolidated statement of
operations to amount used in
earnings per share calculation:
Net Income $3,031,568 $3,387,739 $1,198,167 $1,431,914
========= ========= ========= =========
Reconciliation of weighted
average number of shares
outstanding to amount used
in earnings per share calculation:
Weighted average number of
shares outstanding 5,661,725 5,556,808 5,661,725 5,661,725
Add: Shares issuable from assumed
exercise of options and warrants 94,732 276,516 39,943 180,508
----------- ---------- ---------- ---------
Total Common Stock And
Equivalents 5,756,457 5,833,324 5,701,668 5,842,233
========= ========= ========= =========
Earnings per common share $.53 $.58 $.21 $.24
=== === === ===
</TABLE>
-18-
<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.
/s/ Herman Jacobs
----------------------------------
Herman Jacobs
(President and Chief Operating Officer)
/s/ David Shamilzadeh
----------------------------------
David Shamilzadeh
(Chief Financial Officer)
Dated: February 9, 1996
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> ALLOU HEALTH & BEAUTY CARE,INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 202,057
<SECURITIES> 0
<RECEIVABLES> 43,745,787
<ALLOWANCES> 493,540
<INVENTORY> 71,183,990
<CURRENT-ASSETS> 126,691,069
<PP&E> 5,905,792
<DEPRECIATION> 2,344,791
<TOTAL-ASSETS> 133,957,036
<CURRENT-LIABILITIES> 90,128,576
<BONDS> 0
0
0
<COMMON> 4,462
<OTHER-SE> 43,203,416
<TOTAL-LIABILITY-AND-EQUITY> 133,957,036
<SALES> 208,061,224
<TOTAL-REVENUES> 208,061,224
<CGS> 184,457,670
<TOTAL-COSTS> 184,457,670
<OTHER-EXPENSES> 14,532,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,128,530
<INCOME-PRETAX> 4,942,626
<INCOME-TAX> 1,910,958
<INCOME-CONTINUING> 3,031,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,031,668
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
