SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________
TO___________.
Commission File No. 1-10340
ALLOU HEALTH & BEAUTY CARE, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2953972
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Emjay Boulevard, Brentwood, New York 11717
- ---------------------------------------- -----------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (516) 273-4000
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 practicable date.
Class August 12, 1996
- ------ ---------------
Class A Common Stock, $.001 par value 4,552,225
Class B Common Stock, $.001 par value 1,200,000
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1996 (unaudited)
and March 31, 1996....................................... 3
Consolidated Statement of Income and Retained Earnings
(unaudited) for the three-month periods ended
June 30, 1996 and 1995.................................. 4
Consolidated Statement of Cash Flows (unaudited) for the
three-month periods ended June 30, 1996 and 1995......... 5
Notes to Consolidated Financial Statements (unaudited)....... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............. 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 16
SIGNATURES................................................................... 18
EXHIBIT INDEX................................................................ 19
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets
Cash $ 46,843 $ 144,118
Accounts Receivable (less allowance for doubtful
accounts of $493,744 at June 30, 1996
and $373,890 at March 31, 1996 (Notes 1 & 5) 41,703,238 33,963,830
Inventories (Notes 1 & 5) 74,940,315 71,690,321
Other Current Assets (Note 2) 13,141,394 13,215,004
------------ ------------
Total Current Assets $129,831,790 $119,013,273
Fixed Assets, Less Accumulated Depreciation (Notes 1 & 3) 3,539,201 3,625,147
Other Assets (Note 4) 3,590,856 3,546,285
------------ ------------
TOTAL ASSETS $136,961,847 $126,184,705
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Amounts Due Bank (Note 5) $ 77,493,529 $ 70,809,101
Current Portion of Long-Term Debt (Note 6) 464,021 222,393
Accounts Payable and Accrued Expenses (Note 7) 11,627,916 10,425,003
Income Taxes Payable (Note 10) 214,480 - 0 -
------------ ------------
Total Current Liabilities $ 89,799,946 $ 81,456,497
------------ ------------
Long Term Liabilities
Long-Term Debt, Less Current Portion (Note 6) 2,160,416 529,390
Deferred Income Taxes (Note 1) 30,422 30,422
------------ ------------
Total Long Term Liabilities 2,190,838 559,812
------------ ------------
TOTAL LIABILITIES $ 91,990,784 $ 82,016,309
------------ ------------
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 4,552,225 issued and outstanding
at June 30, 1996 and March 31, 1996 $ 4,552 $ 4,552
Class B Common Stock, $.001 par value; 1,700,000
authorized, 1,200,000 issued and outstanding at
June 30, 1996 and March 31, 1996 1,200 1,200
Additional Paid-In Capital 23,476,508 23,476,508
Retained Earnings 21,488,803 20,686,136
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 44,971,063 44,168,396
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $136,961,847 $126,184,705
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For The Three Months Ended
June 30,
1996 1995
---- ----
Revenues $68,958,061 $64,432,369
Costs of Revenues 60,827,615 57,206,456
----------- -----------
Gross Profit 8,130,446 7,225,913
----------- -----------
Operating Expenses
Warehouse & Delivery 1,994,873 1,599,486
Selling, General & Administrative 3,356,081 2,494,334
----------- -----------
Total Expenses 5,350,954 4,093,820
----------- -----------
Income From Operations 2,779,492 3,132,093
----------- -----------
Other Charges (Credits)
Interest 1,489,809 1,260,261
Other (10,984) (6,997)
----------- -----------
Total 1,478,825 1,253,264
----------- -----------
Income Before Income Taxes 1,300,667 1,878,829
Provision for Income Taxes (Note 10) 498,000 722,000
----------- -----------
NET INCOME 802,667 1,156,829
RETAINED EARNINGS - BEGINNING 20,686,136 16,929,450
----------- -----------
RETAINED EARNINGS - ENDING $21,488,803 $18,086,279
=========== ===========
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $ .14 $ .20
=========== ===========
The accompanying notes are an integral part of this financial statement.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Months Ended
June 30,
1996 1995
---- ----
Cash Flows From Operating Activities
Net Income $ 802,667 $ 1,156,829
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 162,505 102,991
Decrease (Increase) In Assets:
Accounts Receivable (7,739,408) (9,551,656)
Inventory (3,249,994) (7,249,908)
Prepaid Purchases and Other Assets 21,539 7,731,808
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 1,202,913 2,243,572
Income Taxes Payable 214,480 33,738
----------- -----------
Net Cash Used In Operating Activities (8,585,298) (5,532,626)
----------- -----------
Cash Flows Used in Investing Activities
Acquisition of Fixed Assets (69,059) (778,761)
----------- -----------
Cash Flows From Financing Activities
Net Increase in Amounts Due Bank 6,684,428 6,425,807
Borrowings 2,010,376 -0-
Repayment of Debt (137,722) (138,744)
----------- -----------
Net Cash Provided by Financing Activities 8,557,082 6,287,063
----------- -----------
DECREASE IN CASH (97,275) (24,324)
CASH AT BEGINNING OF PERIOD 144,118 126,237
----------- -----------
CASH AT END OF PERIOD $ 46,843 $ 101,913
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 1,496,925 $ 1,228,415
Income Taxes -0- $ 688,262
During the three months ended June 30, 1996 the Company issued notes
for $2,010,376.
The accompanying notes are an integral part of this financial statement.
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<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 for the stock was
$1,472,382.
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 included 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
health and beauty aids, cosmetics, fragrances, grocery products and
pharmaceuticals. The Company also distributes generic brand health and beauty
aids and hair care products. The Company sells these products to retailers
throughout the United States.
C. Revenue Recognition:
The Company recognizes revenue on its entire product line at the time
the products are shipped to the customer.
D. Concentration of Credit Risk:
The Company extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. Inventories:
Inventories, which consist of finished goods, are stated at the lower
of average cost or market.
F. 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.
G. 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.
H. 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 for the three months ended June 30,
1996 and 1995.
I. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reported period. Actual results could differ from those estimates.
2. OTHER CURRENT ASSETS:
Included in other current assets at June 30, 1996 are $10,846,485 of
prepayments on merchandise and $700,000 of interest bearing officers' loans.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. PROPERTY AND EQUIPMENT:
June 30, March 31, Estimated
1996 1996 Useful Lives
---- ---- ------------
Machinery & Equipment $1,597,195 $1,639,480 5 years
Furniture, Fixtures & Office
Equipment 2,098,124 2,015,415 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
Leasehold Improvements 2,387,434 2,358,799 10-33 years
---------- -----------
6,179,503 6,110,444
Less: Accumulated Depreciation 2,640,302 2,485,297
---------- -----------
$3,539,201 $ 3,625,147
========== ===========
Depreciation expense for the three months ended June 30, 1996 and
1995 amounted to $155,005 and $102,991, respectively.
4. OTHER ASSETS:
Included in other assets is $1,669,041 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 1-A), and $1,531,323 of interest bearing officers' loans.
The goodwill is being amortized over forty years and ten years respectively.
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
$105,000,000, including a $6,500,000 sublimit for overadvances. Interest on the
loan balance is payable monthly at 3/8% above the prime rate or 2% 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 June 30, 1996 was 7.44%, which was based on a combination of 2% above
the Eurodollar rate and 3/8% above the prime rate.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT:
Long-term debt consists of:
(a) notes collateralized by certain of the Company's equipment and
leasehold improvements, payable in aggregate monthly installments of
approximately $52,000, which include interest at rates varying from 3/8% above
the prime rate to 3.36% above the treasury bill rate.
(b) a loan payable to the previous stockholder of M. Sobol, Inc. (see
note 1-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,
---------
1997 (nine months) $335,514
1998 514,029
1999 531,398
2000 550,834
2001 - 2002 692,662
----------
$2,624,437
==========
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
June 30, March 31,
1996 1996
---- ----
Cost of Revenue $10,231,408 $ 8,471,396
Selling, General & Administrative 724,657 1,245,841
Interest - Bank 390,246 374,229
Payroll 281,605 333,537
----------- -----------
$11,627,916 $10,425,003
=========== ===========
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<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 for space located in California. As of June 30, 1996, total
minimum annual rentals, excluding additional payments for real estate taxes and
certain expenses, are as follows:
Year Ended
March 31,
---------
1997 (nine months) $ 648,598
1998 846,797
1999 852,797
2000 858,797
2001 768,749
2002 - 2006 2,608,078
Rent expense for the three months ended June 30, 1996 and 1995
amounted to $143,386 and $154,168, 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 employees and directors. An aggregate of
1,300,000 shares of common stock are
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 110% of the fair market value at the date of grant. As of
June 30, 1996, the Company had 1,184,500 of outstanding options at prices
ranging from $5.75 to $10.00. As of June 30, 1995, the Company had 1,176,950 of
outstanding options at prices ranging from $2.50 to $10.00.
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 three months ended June 30, 1995, three of
the officers waived their rights to their bonus and the fourth officer received
a bonus of $75,000.
Effective August 1, 1995, the Company entered into three year
employment agreements with three of its officers. These agreements provide for
each to receive annual salaries of $300,000 and a bonus of 3% of the first
$2,000,000, 2% on the next $1,000,000 and 1% on the remaining increase over the
Company's prior year earnings before interest and taxes. For the three months
ended June 30, 1996, these three officers received no bonus.
Effective June 30, 1996, the Company entered into a three year
employment agreement with a fourth officer, providing for an annual salary of
$225,000 and a $75,000 bonus.
F. Letter of Credit:
The Company has irrevocable standby letters of credits in the sum of
$3,546,530 expiring thru June 8, 1997.
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.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the year ended March 31, 1990, the Company's public offering
became effective, whereby 460,000 units, 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.
During the years ended March 31, 1992, 1993 and 1994, 1,367,726 Class
A warrants and 1,355,516 Class B warrants were exercised, and 12,274 Class A
warrants and 12,200 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:
June 30,
1996 1995
---- ----
Income Before Income Taxes $1,300,667 $1,878,829
========== ==========
Federal Income Tax $ 413,000 $ 595,000
State Income Taxes 85,000 127,000
---------- ----------
Total Provision for Income Taxes $ 498,000 $ 722,000
========== ==========
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:
June 30,
1996 1995
---- ----
Federal Statutory Income Tax Rate 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax Benefits 4.3% 4.4%
Total Effective Tax Rates 38.3% 38.4%
====== ======
At June 30, 1996, net operating loss carryforwards of approximately
$289,000 are available to offset future earnings. These losses were generated by
the Company's subsidiary M. Sobol Inc., prior to its acquisition by the Company,
and as such are limited to $85,000 per year as per Internal Revenue Service
regulations.
11. RELATED PARTY TRANSACTIONS:
The Company purchases from, and on occasion, sells to, various
entities that are controlled by some of the Company's officers.
For the three months ended June 30, 1996, and 1995, there were no
sales to related parties during, or outstanding receivables at the end of the
period. For the three months ended June 30, 1996 purchases from related parties
amounted to $73,156 and prepaid purchases were $346,406.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations for the Three Months Ended June 30, 1996 and 1995.
- ------------------------------------------------------------------------
Revenues for the three months ended June 30, 1996 were $68,958,061
representing a 7% increase over revenues of $64,432,369 for the three months
ended June 30, 1995.
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 have 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 2% when compared to the same period
in the previous year due to an increase in same store sales.
Prestige designer fragrances grew 8% 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 6%
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
subsidiary, M. Sobol, Inc. increased 4.1% when compared to the same
period in the prior year due to an expanded customer base.
Cost of revenues at June 30, 1996 increased by $3.6 million when
compared to cost of revenues at June 30, 1995. This increase represents
increased unpaid purchases of inventory due to greater sales for the period.
Gross profit as a percentage of revenues increased to 11.8% for the
three months ended June 30, 1996 when compared to 11.2% for the same period in
the previous year. This increase is due to the stabilization of profit margins
in various segments of the company's business.
Warehouse, delivery, selling, general and administrative expenses
increased as a percentage of sales to 7.8% for the three months ended June 30,
1996 from 6.4% for the same period in the prior year. This increase is due to
added expenses associated with the acquisition of Allou Personal Care
Corporation and legal fees associated with this acquisition.
Interest expense for the three months ended June 30, 1996 increased
to 2.1% from 1.9% when compared to the three months ended June 30, 1995. This
increase is due to higher borrowing costs.
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<PAGE>
Net income for the three months ended June 30, 1996 was $802,667
representing a 31% decrease over net income of $1,156,829 for the comparable
period in 1995. This decrease in net income is due primarily to the reasons
discussed above.
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 June 30, 1996, the Company had $77,493,529
outstanding under its $105,000,000 bank line of credit. The loan in
collateralized by the Company's inventory and accounts receivable. Interest on
the loan balance is payable monthly at 3/8% above the prime rate of 2% 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 $38,024,676 at
June 30, 1995 to $41,703,238 at June 30, 1996 representing an increase of 9.7%.
This increase in accounts receivable is due to increased sales for the period
and to customers which previously had paid the Company in an average of 53 days
at June 30, 1995 recently have been paying the Company in an average of 54 days
at June 30, 1996.
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, 1998.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of June 30, 1996
between Allou Health & Beauty Care, Inc. and
Ramon Montes
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the
quarterly period ended June 30, 1996.
-16-
<PAGE>
EXHIBIT XI
ALLOU HEALTH & BEAUTY CARE, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON
SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
Reconciliation of net income per
consolidated statement of operations to amount
used in earnings per share calculation:
Net Income $ 802,667 $1,156,829
========== ==========
Reconciliation of weighted average
number of shares outstanding to amount used
in earnings per share calculation:
Weighted average number of
shares outstanding 5,752,225 5,661,725
Add: Shares issuable from assumed
exercise of options and warrants 58,014 248,704
---------- ----------
Total Common Stock And Equivalents 5,810,239 5,910,429
========== ==========
Earnings per common share $ .14 $ .20
========== ==========
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<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.
ALLOU HEALTH & BEAUTY CARE, INC.
/s/ DAVID SHAMILZADEH
Dated: August 14, 1996 By: ---------------------------------
David Shamilzadeh,
Senior Vice President of Finance
and Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page Number
- ------ ----------- -----------
10.1 Employment Agreement dated as of June 30, 1996
between Allou Health & Beauty Care, Inc. and Ramon
Montes
27.1 Financial Data Schedule
EMPLOYMENT AGREEMENT
AGREEMENT made as of June 30, 1996 between ALLOU HEALTH & BEAUTY
CARE, INC., a Delaware corporation with offices at 50 Emjay Boulevard,
Brentwood, New York 11717 ("Company"), and RAMON MONTES, residing at 8
Whitecliff Lane, Nesconsett, New York 11767 ("Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by the Company and has
rendered substantial services to the Company; and
WHEREAS, the Company believes that the contributions that have
been made and can continue to be made by Employee toward the success of the
business of the Company are valuable and wishes to retain the services of
Employee for its benefit; and
WHEREAS, the Company desires to continue to retain the services
of Employee as its Executive Vice President; and
WHEREAS, Employee is willing to continue as such upon the terms
and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Employee agree as
follows:
1. Term. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions herein contained
for a term commencing June 30, 1996 (the "Commencement Date") and terminating on
June 30, 1999 ("Original Term") unless sooner terminated as herein provided (the
"Term").
-1-
<PAGE>
2. Employment Duties.
(a) During the Term, Employee shall serve as the Executive Vice
President of the Company and Employee shall have such responsibilities, powers
and duties as are substantially consistent with his present responsibilities,
powers and duties. Employee shall be subject to the reasonable direction of the
Board of Directors of the Company. Employee agrees that during the Term he will
devote his full time and attention during regular business hours to the business
and affairs of the Company except during vacation periods and periods of illness
or incapacity. Notwithstanding the foregoing and so long as his activities do
not interfere with the performance of his duties hereunder, Employee will be
permitted to acquire, own or deal in securities or other investments except
that, without the prior written consent of the Company's Board of Directors,
Employee may not invest in any business which has business relations or competes
with the Company or any of its subsidiaries or affiliates unless the securities
of such business are listed on a national securities exchange or traded in the
over-the-counter market and the interest of Employee does not exceed one (1%)
percent of the outstanding securities of any class of that business. In
addition, nothing contained herein shall prevent Employee from serving as a
director or trustee of any corporation or other organization, and in any other
capacity with any non-commercial enterprise, provided that such service does not
materially interfere with the performance of his duties hereunder and such
business or organization does not compete with the Company or any of its
subsidiaries or affiliates.
(b) It is understood that, except for limited business travel
which shall be only such as is reasonably required for him to perform his duties
hereunder, Employee's duties under this paragraph 2 are performed at the
Company's principal executive office in Brentwood, New York.
-2-
<PAGE>
3. Compensation and Benefits.
(a) For the full, prompt and faithful performance of all of the
duties and services to be performed by Employee hereunder, the Company agrees to
pay Employee a salary ("Base Salary") at the rate of $225,000 per year, payable
in equal semi-monthly installments or in such other manner as shall be mutually
agreeable to Employee and the Company. The Company's Board of Directors may, in
its discretion, at any time and from time to time, increase such Base Salary for
Employee and grant Employee other compensation, including bonuses, in addition
to that provided for hereunder. Employee's compensation shall be reviewed at
least once each year. Any increase in Base Salary or other compensation shall in
no way limit or reduce any other obligation of the Company under this Agreement.
Employee's Base Salary, shall be increased annually on each
anniversary of the Commencement Date, by the percentage by which the Consumer
Price Index for the New York Metropolitan area, maintained by the United States
Department of Labor, Bureau of Labor Statistics ("CPI") rises from the CPI in
effect on the last day of the immediately preceding calendar year. No fall in
the Index will result in a decrease in salary under this paragraph.
(b) In addition to the compensation provided for herein, Employee
shall be entitled to participate in any bonus, incentive compensation,
retirement, profit-sharing, medical payment, disability, health or life
insurance and other benefit arrangements which may be or become available to
executives of the Company.
(c) The Company agrees to grant to Employee on the Commencement
Date, an option to purchase, for a period of five (5) years from the date of
grant, an aggregate of 75,000 shares of the Company's authorized Class A Common
Stock pursuant to the terms of the Company's 1996 Stock Option Plan (the
"Plan"), a copy of which shall be delivered to
-3-
<PAGE>
Employee contemporaneously with the execution of this Agreement, and any related
stock option agreements required to be executed by optionees in connection
therewith. Employee shall also be entitled to any additional stock options or
stock related rights or similar benefits which may be granted to Employee by the
Company.
(d) Throughout the Original Term, the Company shall continue to
provide Employee with life insurance with the beneficiary thereof to be
designated by Employee in an amount not less than that in effect for Employee at
the date hereof and shall pay all premiums due thereunder.
(e) Employee shall be entitled to reimbursement, not less
frequently than monthly, for expenses reasonably incurred by him in furtherance
of the business of the Company and in the performance of his duties hereunder,
on an accountable basis with such substantiation as the Company may at the time
require from its senior executive officers.
(f) During the Term, Employee shall be entitled to continue to
receive the fringe benefits and perquisites presently provided for him by the
Company.
(g) Employee shall be entitled to four weeks of vacation in each
12 month period during the Term, to be taken at such times as may be mutually
and reasonably agreed upon by the Company and Employee.
4. Termination upon Death. The Term shall terminate on the date
of Employee's death, except that Employee's Base Salary shall be paid to his
estate for a period of one year after the date of his death. If Employee was
entitled to receive any bonus, incentive or similar form of compensation under
any arrangement with the Company which was to be based upon a period extending
beyond the date of Employee's death, payment of a portion thereof, equal to the
amount which would have been payable for the full period in which death occurs,
multiplied
-4-
<PAGE>
by a fraction, the numerator of which is the number of days in such period
through the date of death and the denominator of which is the total number of
days in the full period, shall be made at the time it would have been made in
accordance with such arrangement.
5. Disability. If, during the Term, Employee shall, because of
physical or mental illness or incapacity, become totally unable to perform, or
in the judgment of the Company evidenced by a resolution adopted in good faith
by a majority of its Board of Directors unable adequately to perform, the duties
and services required of him pursuant to paragraph 2(a) for a period of 180
consecutive days, the Company may, upon at least 90 days prior written notice
given at any time after the expiration of such 180-day period to Employee of its
intention to do so, accelerate the end of the Term to such date as may be set
forth in such notice; provided, however, that the end of the Term shall not be
accelerated and the Term shall remain in full force and effect if Employee shall
have resumed the full-time performance of his duties hereunder prior to the
effective date of such proposed termination of the Term. In case of such
acceleration of the end of the Term, Employee shall be entitled to receive, and
the Company agrees to pay, his Base Salary for a period of one year after the
date of his termination due to disability and a pro rata portion of the amount
of any bonus, incentive or similar form of compensation which he would have
otherwise been entitled to for the period in which the acceleration of the end
of the Term occurs.
6. Confidential Information. All confidential information which
Employee may now know or which hereby may become known to Employee relating to
the business of the Company or any customer or supplier of the Company shall not
be disclosed by Employee to any other person or entity either during the Term or
thereafter. Such confidential information shall be returned to the Company upon
termination of Employee's employment.
-5-
<PAGE>
7. Non-Competition.
(a) Employee agrees that during the Term and for a period of one
(1) year after the termination of his employment with the Company, he will not
(x) engage in or have any interest in any person, firm or corporation which
engages, directly or indirectly, in competition with the Company or its
subsidiaries or affiliates in the United States, in the sale of products or
services of the type in which Employee has been directly involved during the
Term in or have any interest in any person, firm or company which engages,
directly or indirectly, in competition with the Company or its subsidiaries or
affiliates in the United States for the business of any entity which was a
customer of the Company or its subsidiaries or affiliates at any time during the
Term, or (z) solicit any employees of the Company or any of its parents,
subsidiaries or affiliates to leave their employ.
(b) For the purposes of this paragraph 7, Employee will be deemed
directly or indirectly engaged in a business if he participates in such business
as a proprietor, partner, joint venturer, shareholder, director, officer,
lender, manager, employee, consultant, adviser or agent or if he in any way
controls such business. Employee shall not for purposes of this paragraph 7 be
deemed a shareholder or lender if he holds less than one (1%) of the outstanding
securities of any class of any publicly- or privately-owned corporation engaged
in the same or similar business to that of the Company or its subsidiaries or
affiliates, provided that Employee shall not be in a control position
(individually or as part of a group) with regard to such corporation.
(c) In the event of a breach or threatened breach by Employee of
any of the provisions of this paragraph 7, the Company shall be entitled, upon
establishing the existence of such breach or threatened breach, to an injunction
to be issued by any tribunal of competent
-6-
<PAGE>
jurisdiction to restrain Employee from committing or continuing any such
violation. In any proceeding for an injunction and upon any motion for temporary
or permanent injunction, Employee agrees that his ability to answer in damages
shall not be a bar or be interposed as a defense to the granting of such
temporary or permanent injunction against him. Employee acknowledges that the
Company will not have an adequate remedy at law in the event of any breach by
him as aforesaid and that the Company may suffer irreparable damage and injury
in the event of such a breach by him. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedy or remedies
available to the Company, including, without limitation, the recovery of damages
from Employee.
8. Representation by Employee. Employee represents and warrants
that he has not entered into any other agreement or understanding which is
inconsistent with the execution of this Agreement or which in any way will
prevent full compliance by him with the terms of this Agreement.
9. Assignability. This Agreement may not be assigned by Employee
and all of its terms and conditions shall be binding upon and inure to the
benefit of Employee and his heirs and legal representatives and the Company and
its successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger,
consolidation, purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
10. Notices. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally, sent by facsimile transmission
(with receipt confirmed) or two days after being sent
-7-
<PAGE>
by registered or certified mail, return receipt requested, to the party entitled
thereto at the address first above written or to such changed address as the
addressee may have given by a similar notice.
11. Modification. This Agreement may be modified or amended only
by an instrument in writing signed by Employee and the Company and any provision
hereof may be waived only by an instrument in writing signed by the party hereto
against whom any such waiver is sought to be enforced.
12. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision contained herein.
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. Captions. The captioned headings here convenience of
reference only and are not intended to be construed to have any substantive
effect.
IN WITNESS WHEREOF, the parties hereto have this Agreement as of
the date first above written.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ DAVID SHAMILZADEH
--------------------------
David Shamilzadeh,
Senior Vice President of Finance and
Chief Financial Officer
/s/ RAMON MONTES
--------------------------
RAMON MONTES
-8-
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<NAME> ALLOU HEALTH & BEAUTY CARE, INC.
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
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<ALLOWANCES> 493,744
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